With investor activity easing and attractive incentives becoming available in NSW and Vic, there has been a rebound in borrowing by first home buyers over the past year.

The Australian Bureau of Statistics’ (ABS) housing finance data includes data on first home buyer housing finance commitments, specifically for owner occupiers.  Over recent years, first home buyer activity has generally been tracking below average, however, each state and territory offers some level of incentive to first home buyers including grants and tax concessions.  Over recent years, some states and territories have increasingly offered stamp duty reductions for buyers with these going live last year in NSW and Vic.  As a result of these incentives and a slowdown in investor demand, activity from the first home buyer segment has climbed over the past year.

The data is not seasonally adjusted so it does show seasonal effects, particularly early in the year.  Nationally, there were 8,782 housing finance commitments in February 2018.  Although the volume of loans was down on levels in late 2017, it was 33.1% higher than the previous February.  As a share of all owner occupier commitments, first home buyers accounted for 17.9% in February 2018 compared to 13.3% the previous year.

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Across the individual states and territories different trends are emerging.  This is probably somewhat due to activity across other buyer types in the market and how recently certain incentives have become available.

NSW  

In February 2018 there were 2,246 first home buyer housing finance commitments compared to 1,105 the previous year which is an increase of 103.3%.  Since the end of June 2017, stamp duty concessions have become available and over the 8 months there have been 18,400 commitments compared to 10,857 over the previous 8 months.  First home buyers now account for 15.1% of owner occupier finance commitments up from 7.5% a year earlier.  The 15.1% is the greatest share since October 2012.

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Vic  

There were 2,619 finance commitments to first home buyers in February 2018.  The number of commitments was 38.6% higher than a year earlier.  Vic also saw stamp duty exemptions go live on July 1 last year.  From the end of June there have been 23,996 first home buyer commitments compared to 17,522 over the previous 8 months.  First home buyers accounted for 18.3% of commitments compared to 13.9% a year earlier.

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Qld  

Over the month there were 1,839 first home buyer housing finance commitments.  The number of commitments was only marginally higher from a year ago (+3.8%).  First home buyers have been much more active over recent years than in NSW and Vic although, it should be noted investors have been much less active in the Qld market.  First home buyers accounted for 19.3% of the market in February 2018 compared to 17.6% a year earlier. 

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SA  

In February 2018 there were 443 first home buyer housing finance commitments.  Although the number was lower than those recorded late last year, it was 17.8% higher than the previous February.  Despite house values being the lowest of any mainland capital city, SA has the lowest share of first home buyer activity of any state or territory with 13.0% of owner occupier commitments going to first home buyers, a year ago they accounted for a 10.5% share so they have risen a little.

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WA  

There were 1,185 first home buyer finance commitments in February 2018 which was -0.1% fewer than the volume in February 2017.  WA is the only state or territory in which there were fewer commitments to first home buyers than a year ago.  Despite the fall in volumes, first home buyers account for 25.0% of all owner occupier housing finance commitments compared to 22.2% a year ago.

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Tas  

Over the month of February 2017 there were 137 first home buyer housing finance commitments which was 2.2% higher than the previous February.  As a share of all owner occupier housing finance commitments, first home buyers account for 13.9%, up marginally from 13.8% a year ago.  A common commentary is that a lot of younger people are moving to Tas to buy a home because they can’t afford one on the mainland.  Although the number of first home buyers rose over the year, they remain very low which suggests, at least at this stage, first home buyers in Tas are not particularly active.

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NT  

While 52 first home buyer commitments in February 2018 is quite a low number, it is 26.8% higher than the previous year despite a sharp monthly fall.  As a share of all owner occupier commitments, first home buyers account for 19.4% compared to 14.7% a year earlier however, the share is currently trending lower. 

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ACT  

The 261 first home buyer housing finance commitments in February 2018 was a 177.7% increase in the number from the previous year.  As a share of all owner occupier commitments, first home buyers accounted for 25.6% in February 2018 which was the highest share since October 2009.

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The trends in first home buyer activity highlights the sensitivities of this important market segment to both affordability constraints as well as market incentives such as first home buyer grants and stamp duty concessions.

Despite broadly slowing conditions in Sydney and Melbourne, it’s clear from CoreLogic indices that the more affordable end of the housing markets in these cities are still seeing values rise, at least in annual terms – a likely demonstration of stronger demand from first home buyers.  In other cities where affordability constraints are less severe, in the absence of any changes to first home buyer incentives, first time buyers generally remain more active relative to Sydney and Melbourne.    

With demand from the investment segment expected to continue to be weaker than it has over recent years this may afford more opportunities for first home buyers to enter the market.  While this may be some long overdue good news for potential first home buyers, they should continue to exercise caution, particularly in Sydney and Melbourne where housing values peaked last year and affordability constraints are more severe relative to other cities.

After many years of strong value gains in Sydney and Melbourne values are declining at a time in which first home buyer activity is rising.  First home buyers that buy into a falling market may be entering into a negative equity position. 

Outside of the two largest cities, first home buyer volumes may lift over the coming months due to ongoing low mortgage rates and relative affordability compared to Sydney and Melbourne.  In fact, the outflow of people from NSW to other states and territories is continuing to rise which may result in increases in first home buyers elsewhere.