FHBs urged to ‘wait on the sidelines’

Principal of research at CoreLogic Cameron Kusher has urged first home buyers (FHBs) to “wait on the sidelines” and “pay attention to the market conditions” before purchasing their first home.

Mr Kusher believes that FHBs are being lured into the housing market at the wrong time by “attractive incentives” on offer.

“First home buyers must be vigilant about purchasing homes and not just be lured into buying at the peak of the market because of attractive incentives,” the principal researcher warned.

Drawing on housing finance data from the Australian Bureau of Statistics (ABS), the analyst claimed that stamp duty concessions had resulted in an 81 per cent rise in housing commitments from FHBs in NSW and a 47 per cent increase from FHBs in Victoria.

“The removal of stamp duty has resulted in a substantial increase in first home buyer housing finance commitments,” Mr Kusher said.

“Over the six months from July to December 2017, there were 14,279 first home buyer finance commitments in New South Wales and 18,675 in Victoria.

“To put this into some sort of perspective, over the six months prior to the new incentives going live, there had been 7,891 first home buyer housing finance commitments in New South Wales and 12,683 commitments in Victoria.”

However, the head researcher added that despite the stamp duty changes, he believed that some FHBs, such as those in NSW, were not taking advantage of the removal of the barrier to borrow more.

He highlighted that since the stamp duty changes were brought in, average loan sizes had increased by 1.3 per cent in New South Wales compared to an increase of 1.1 per cent over the previous six months. 

However, Mr Kusher claimed that in Victoria, in the six months after stamp duty concessions came into effect, the average loan size for FHBs increased by 7 per cent.

“You don’t want to be buying into a market which has only recently entered a downturn”

The CoreLogic analyst also pointed to recent data indicating that investor demand and home values in NSW and Victoria had only recently begun falling from their peak (where values fell by 2.4 per cent and 0.1 per cent, respectively), and he encouraged FHBs to hold out as they “ideally do not want to be buying into a market which has only recently entered a downturn”.

He added: “While those declines may sound quite minor, first home buyers are generally most sensitive to changes in interest rates. Although the cash rate is expected to be on hold until early 2019, the combination of already falling dwelling values and potentially higher mortgage rates in the medium term, these factors should raise some alarm bells for potential buyers.”

Mr Kusher concluded: “The best bet for potential first home buyers may not be to jump at the incentives which are currently available. With values declining and investor demand continuing to trend lower, a better option may be to remain on the sidelines somewhat longer as values potentially continue to slide. 

“By doing this, you potentially avoid going into negative equity immediately, you potentially buy at a lower price and you have time to save an even larger deposit for your mortgage.”

Moreover, Mr Kusher advised FHBs to take advantage of rate discounts offered by lenders seeking to gain a competitive edge in the owner-occupier space.

“[For] well-qualified borrowers with substantial deposits, banks are competing heavily and offering substantial discounts for owner-occupiers taking out principal and interest mortgages, so if you take time and shop around, you may be able to get a really good mortgage rate.”

[Related: FHB activity surges in NSW and Victoria]