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FHBs at ‘pointy end’ of affordability problems: Westpac

Core buyer sentiment remains weak across Australia despite three months of improvement, while first home buyers are at the “pointy end” of affordability problems, says Westpac.

In its August Housing Pulse document, the major bank noted that sentiment and lead indicators point to a “material slowdown” with turnover also showing renewed decline. At the same time, first home buyers [FHBs] remain worst hit by housing affordability problems. 

“FHBs have been persistently more downbeat about ‘time to buy’ over the last five years, although the gap has closed up in recent months, likely reflecting the . . . state government policy announcements,” the bank said.

Westpac observed that since 2014, FHBs had exhibited a more positive outlook on prices than Australians overall. However, due to increased FHB sensitivity to the negative implications for affordability than the potential for capital gain, this was “not likely to be a positive for the perspective of FHB demand”.


Further, FHB finance approvals had been at “very low” levels in the years since 2012.

The bank said: “Whereas growth across this demographic group averaged just 0.6 per cent a year over the 15 years to 2006, it has been running at closer to 1.7 per cent a year over the last decade. Indeed, scaled by the FHB population ‘cohort’, FHB finance approvals have been running 25–50 per cent below average levels.”

However, Westpac commented that FHB assistance (such as government incentives and tax breaks) have historically fuelled “significant increases” in FHB approvals.

It said: “This usually appears as an initial surge when assistance is first increased and a smaller lift just before the increased assistance is set to wind down.

“History suggests these [FHB measures in New South Wales and Victoria] will generate a significant lift in FHB activity in coming months. The response will be a test of exactly how much restraint affordability pressures are exerting on demand.”

State by state

According to Westpac, the New South Wales housing market “continues to show signs of softening” and the wider Sydney market is cooling. Buyer sentiment has improved slightly but still points to a further decline in turnover towards the end of the year. Additionally, there are signs of cooling price growth.

In Victoria, the housing market is “showing surprising strength”. The bank said: “Melbourne is now the top-performing capital city for price growth, despite having a higher exposure to macro-prudential measures, weakening foreign buyer activity and surging apartment supply.”

Heading north, the Queensland Consumer Housing Sentiment Index has “deteriorated” over the last four months, with Westpac noting that this deterioration had reversed “much of the promising improvement seen in late 2016/early 2017”.

“The decline in market turnover accelerated despite the earlier improvement in sentiment; weakness initially concentrated in the units segment but spreading to houses in more recent months. Current index reads point to further declines, albeit at a more moderate pace.”

Westpac commented that Western Australia’s housing market has been “stuck in a price correction for three years now”, while sentiment in South Australia had turned negative and was likely to weigh down on housing market activity in the near term.

Tasmanian price growth has shown a “notable acceleration” in the past year, Westpac observed, adding: “That has coincided with a significant lift in turnover and been sustained despite weakening sentiment. More recent data suggests the burst may be starting to moderate, but for now at least, Hobart stands out as a surprisingly strong performer.”

[Related: Who will the super saver incentive actually help?]

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