Do First Home Buyers matter?

[hobo-jo]

A property myth I see spread on this site quite regularly is that First Home Buyers don't matter because they makeup a small percentage of total sales every year, but as I have often argued, they are an enabler for upraders and essential to a strong property market.

My thoughts echoed by several lenders in this report from Genworth:

“You need those FHBs to push that bottom end of the market. There are people who want to buy their second property and don’t want to sell up, so it’s taken away their $7000. It’s very hard to save that money in these times, so I think a lot of the outskirts will benefit from it but the inner suburbs will not.”—Lender, CUBS

“It’s not pushing someone out of their first home so that they buy a second home. It doesn’t create a flow on up the market.”—Lender, CUBS

“For the market to kick along, you need those FHBs inthat bracket. You need 20 competing, which pushes that price bracket and then the second tier price goes up.”—Lender, non-bank

http://www.macrobusiness.com.au/2012/11/genworth-diagnoses-bipolar-disorder-for-mortgage-industry/

 

[Peter_Tersteeg]

FHBs are a reasonable segment of the market. They're certainly one of the major drivers of urban fringe development.

That said, it can be a volitile market segment. LVRs are often quite high, affordability is often not as good as other segments, which can all lead to a higher share of mortgage stress and defaults.

Also following this, FHBs can be hot one year and cold the next. Heavily driven by both government incentives, interest rates and lenders policies. Like the top end of the market, the bottom end can fluctuate in value substantially with economic boom and bust cycles.

Personally I don't agree so much with the product inovation comments that it's required to help people buy their homes. So called, "Inovative Products", tend to come at a cost to the borrower and often involve marketing smoke & mirrors. The US sub-prime crisis was a direct result of Inovative Products.

Government legislation has also made it far more difficult for lenders to be truely inovative and still be profitable eg. Due to regulation lo doc loans no longer exist for all essential purposes; exit fee banning leglislation means lenders can't lock borrowers in to recover establishment costs. I agree with the government measures (mostly), but they haven't made borrowing money easier or cheaper.

 

[Aaron_C]

FHBs are only relevant, as Peter said, in the fringe suburbs where there is new developments (and some apartment purchases in the inner-city). They are completely and utterly irrelevant in the prime inner-suburbs like your Hawthorn, Kew since even if those purchasers are FHB, they are backed up and supported by their baby-boomer parents. So by all means, focus on them for your Point Cooks etc but it doesn't matter for most other people.

 

[Aaron Sice]

i understand the idea behind it, but i dont think FHBs are an "enabler" in real terms.

but i also do not believe for a second that they are irrelevant....i'd like to know where you saw that repeatedly...?

their participation also very market and location dependent.

 

[hobo-jo]

but i also do not believe for a second that they are irrelevant....i'd like to know where you saw that repeatedly...?

I've done a few searches, but coming up blank with an example. I am sure I have seen this sentiment expressed in several of the affordability threads (e.g. it doesn't matter whether FHBs can afford to buy property or not as they are only a small part of the market).

Their direct participation in a market is not the only one they can effect.

Suburb A - Median $300k
Suburb B - Median $500k
Suburb C - Median $800k

If FHBs can afford or aren't interested in buying in Suburb A, then the seller in Suburb A will have trouble buying in Suburb B and the seller in Suburb B will have trouble buying in Suburb C, etc. Obviously not every situation will be as simple as that, but the fact remains that without buyers coming in at ground zero (FHB territory) the whole pyramid is in trouble.

 

[Player]

I am not so sure that the spill-over effect is driven by FHB. I understand your premise Hobo however FHB only drive the outer areas (or brand new "cheap" OTP units).

Back to your question "Do First Home Buyers matter?" , I would say only in the eyes of Devine, Delfin, Stockland, et al. They are marketed brand new rubbish out in the boonies where there is no transport, inadequate roads, schools, etc.

The ripple effect is more pronounced in already established "in-fill" areas in my experience. The problem with these outer satellite areas is there is no shortage of land so the ripple wave does not gain enough momentum to head centrally back towards the metropolitan CBD suburbs.

I would hazard a guess that only a small minority of FHB would buy in established areas preferring a smaller first home/dwelling/unit in suburbs say within the 20 km radial rim to have better amenity than their majority cohort who buy out on the fringes.

For those from Melbourne, the sprawl will only worsen. Take Rockbank which Steve Bracks pronounced would be green wedge.....did a back flip moments before handing over the reigns to Brumby. Now it's going to be wall to wall housing from Caroline Springs to Melton and down towards Hoppers Crossing. To the north Delfin owns/controls land at Kalkalo the size of Shepparton. The zoning will be accommodated by the govt in a jiffy because Delfin have allegedly promised a new train station.

The effect the (new) FHB has is in supporting new building and construction and thereby assisting local economy in that manner. Where the majority of them purchase first up, has very little effect on established "in-fill" suburbs and dwelling prices in those areas IMO.

 

[lizzie]

I'm with Hobo on this one ... I believe FHB's are a very relevent part of the equation.

One only has to look back to the period 2009-2011 when FHB's were jumping into the market due to governement incentives. At least in our area, they were driving up the prices of the lower priced stock all over the place - from CBD units to renovators delights in middle suburbs to new homes on the edge. Not just affecting the fringes.

Granted, their influence comes in spikes and troughs - and when the troughs hit vendors start hoping that investors come back into the buying market. Smart investors stay well away when the FHB's are on a rampage.

The FHB's in our area caused a price increase of around 30% on suitable stock in that 2 year period ... and basically drove themselves out of the market price-wise

 

[Fifth]

One only has to look back to the period 2009-2011 when FHB's were jumping into the market due to governement incentives. At least in our area, they were driving up the prices of the lower priced stock all over the place - from CBD units to renovators delights in middle suburbs to new homes on the edge. Not just affecting the fringes.

Exactly. Melbourne had an unprecedented boom during the stimulus era. Not only were FHBers driving prices from the bottom up but the increased market activity improved confidence and created a buying frenzy. Confidence wise, we went from staring down the barrel of a second depression to frantically outbidding each other at auctions in a matter of months.

 

[Aaron Sice]

i agree with what you're saying, and i have said i do not think they are irrelevant, but they are also not the only market participant in suburb a, either.

if FHBs make up 20% odd of the market, then surely it would be a majority of that within suburb a.

in which case, 85% ish of suburb a is activity not FHB related.

so, while i do not think they are irrelevant i do not believe they are active enough in volumes across all markets to become an enabler.

to be an enabler, the market would have to remain linear as per subrub a,b,c example; as we all know, this is not the case in real life. many people sell in suburb b to downsize to suburb a. many people sell in suburb c to buy another property in suburb c.

 

[BayView]

I've done a few searches, but coming up blank with an example. I am sure I have seen this sentiment expressed in several of the affordability threads (e.g. it doesn't matter whether FHBs can afford to buy property or not as they are only a small part of the market).

Their direct participation in a market is not the only one they can effect.

Suburb A - Median $300k
Suburb B - Median $500k
Suburb C - Median $800k

If FHBs can afford or aren't interested in buying in Suburb A, then the seller in Suburb A will have trouble buying in Suburb B and the seller in Suburb B will have trouble buying in Suburb C, etc. Obviously not every situation will be as simple as that, but the fact remains that without buyers coming in at ground zero (FHB territory) the whole pyramid is in trouble.

There are always buyers in the lower end - not only FHB's.

Many down and out folk for various reasons thrown at them by life need a cheap house now and then, and some FHB's are not necessarily in a not so good financial situation; they may be later starters.

Therefore, the person you describe who is looking to make a step up to Median B or C will still get their property sold.

The time it takes will depend on when they try to sell, and how much they try to ask for.

We sold out 2 bed unit in Frankston earlier this year to a middle-aged lady who was getting divorced.

My SIL recently sold here 3 bed house to a similar demographic lady; both our properties are in that lower 1/3 of price.

The median C seller is often selling to other Median C sellers, and sometimes Median D sellers, so it's not always an automatic procession up the ladder.

One of our customers recently sold their home here in Dromana for $1.3mill. That is about as high end as you can get here...

The buyer was a guy from Red Hill who sold one of his acreages up there.

 

[hobo-jo]

Interesting article this morning in Business Spectator:

Young buyers tear up the housing plan

In the last two months it has become apparent that the current generation of first home buyers is different from the generations that have dominated post-war Australia.

The lower interest rates are not causing them to rush into new dwellings.

Australia’s largest apartment builder, Meriton’s Harry Triguboff, says that he has never experienced anything like it and admits that he has been caught by surprise, as have many other builders and developers.

In the past, when interest rates were low and housing affordability increased first homebuyers moved into the market. Now Meriton's research is discovering that most will not buy a dwelling until the repayments are less than what they are paying in rent. And that first home buyer view covers most forms of dwellings.

Continues: http://www.businessspectator.com.au...Document&src=sph&src=rot#.ULvC5lX-CXw.twitter

 

[hobo-jo]

It looks like recent changes to the FHOG in NSW & QLD are taking their toll, this from AFG:

Demand for home loans by first home buyers has collapsed in New South Wales and Queensland, according to AFG, Australia’s largest mortgage broker. Last month, AFG arranged just 96 home loans worth $31 million for First Home Buyers in Queensland, compared with 265 mortgages worth $79 million the month before.

This follows a similar trend in New South Wales where in both October and November the company arranged fewer than half the 219 home loans worth $83 million in September. State Governments in both NSW and QLD have withdrawn $7,000 first home buyers grants in the past two months.

The proportion of the company’s home loans arranged for first home buyers has slumped in Queensland from levels around 15% in the months leading up to the end of the first home buyers grant, to just 5.5%. In New South Wales, first home buyers comprised 13% of new home loans up till September, dropping to 5.7% in October and 5.4% in November.

From: http://www.macrobusiness.com.au/2012/12/afg-confirms-inter-generational-property-war/

SA also had some similar changes to the FHOG (but only reduced for existing dwellings for now), so we will probably find FHBs drop off here as well.

I think we will find out over the next 12 months the level of importance that FHBs have in the established property market... maybe it is less than I had imagined. Maybe not.

 

[hobo-jo]

Missed this comment which is exactly what I have been suggesting:

"First home buyers are the lifeblood of the property market – when activity stagnates at the entry level, it affects everyone up the property chain."

 

[lizzie]

missed this comment which is exactly what i have been suggesting:

"first home buyers are the lifeblood of the property market – when activity stagnates at the entry level, it affects everyone up the property chain."

......... >

 

[buzzlightyear]

Interesting article this morning in Business Spectator:


Continues: http://www.businessspectator.com.au...Document&src=sph&src=rot#.ULvC5lX-CXw.twitter

Read the article and i dont believe thats the real reason for young , first home buyers not buying at this stage. This is all about expectations of future price growth.

Young people's desire to gain financially is no different to those who are older. If they saw an opportunity to acquire and make a small little profit in a few years, they would purchase and pay absolutely no relevance to rent v buy equation.

I suspect that Triguboff's commentary was for his political masters and positioning of his own developments in Sydney.

 

[hobo-jo]

......... >

lol I see it more like this:

What happens when you remove the cards at the bottom?

Although your fish image works almost as well... what chain reaction occurs if all the smallest fish die off?