Market Update – July 2014

In a recent blog Michael Matuzik discussed the notion of first home buyers retreating from the market. He believes this has been reported incorrectly. Read more below:

Well….more real estate baloney. This time it is about first home buyers – or the lack of them.

The ABS statistics released 10 June 2014 show that first home buyer activity, measured as the proportion of all owner-resident lending, is the lowest in 23 years. You would have heard all about it on the news or will read about in the papers.

But something is wrong here. And like many things these days in the real estate world, it’s the figures that are incorrect. The ‘official’ statistics are measuring only part of the whole, yet very few question the results. In short, there is a hell of a lot of first home buying taking place.

Most first home buyers buy an established property, & in most places across Australia, first home buyer grants do not apply to established property, only new stock. And where it does apply, it amounts to very little, & to many it isn’t worth the paper work. So, for mine, the ABS (along with others) is not correctly corralling first home buying activity.

I think the statistics are wrong. Why wouldn’t first home buyers be buying?

  • Interest rates are extremely low
  • Banks are keen to lend
  • Mum & Dad are practically paying for the deposit to get rid of their ‘boomerang’ adult children (at 30, one wonders if ‘children’ should really apply)
  • Yet according to the same talking heads who claim low first home buyer take-up – housing affordability is the best in over a decade

And to prove that point, there has been little change in the size of the average first home loan in recent years – see my chart below
Late last year the ABS put out a great study called Housing Occupancy & Costs (catalogue number 4130.0). This shows that first home buyer activity is much higher than the housing finance loan data suggests. The HOC study shows that over the past three (3) years (and importantly, covering much of the recent first home buyer slump) just short of 1 million households (988,000) bought a property across Australia.

Of the 988,000 transactions over the last three years, 36% or 355,000 were first home buyers. Eight out of ten first home buyers (289,000 or 81%) bought a second-hand or established home. Just 19% bought a new property or something off-plan.

My conversations with real estate agents, including those selling new stock, indicate that first home buyer activity is much higher than the low levels officially reported. I suspect that first home buying activity is close to the historic average – something around 35% of the total owner-resident market & around 20% of the total housing market, when including investors. This is what I am seeing on the ground; & it explains the strong sales results across much of the country over the last 12 to 18 months.

First home buyers must be taking part; otherwise those upgrading or downsizing would not be able to sell as fast or as often as they currently are. It is first home buyers that make up a significant part of the buying audience for their established homes.

It is good to see that others, too, are starting to question the results.

I note that the RBA, in their current chart pack (June quarter), have left off first home buyers in the graph outlining loan activity across the country. It has been included in previous RBA charts.

Michael Pascoe, too – thinking man that he is – has also questioned the results.

You should too. In fact, we should all question a lot more of the real estate data that is being fed to us. The media – for the most part – aren’t interested in checking the statistics before they regurgitate them. Much of what you read these days about property is sadly bunkum.”

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