Housing Market Eases – Good News for First Home Buyers

Over the past several years there has been a substantial amount of noise in the media about escalating home prices and property becoming unaffordable for first home buyers. Fears about young people never being able to enter the property market led to the federal government to take action. Six months on, it appears the tide is turning.

According to data from the Real Estate Institute of Australia (REIA), first home buyers finance approvals reached 17.4% of the total owner-occupied finance commitments in the September Quarter. It has not touched this level since November 2016 and it signals a turning point in the battle to gain entry to the property market for first home buyers.

Federal Government Action

In the May 2017 Federal Budget the government outlined several strategies to help first home buyers become property owners. The government’s strategy centred on lessening competition in the market from investor buyers and overseas property buyers.

Travel Deductions Eliminated from January 2018

From January 1, 2018 investors are no longer able to claim travel as a tax deduction. Though investors now use email, text and video calls to help manage their investment properties, the travel deduction removal gives investors pause for thought as they consider buying an investment property. This adds to extra costs for property investors which also formed part of the government’s property policies.

APRA Rules Tightening Eased Pressure on First Home Buyers

Through the Australian Prudential Regulation Authority (APRA), the federal government sought to cool demand for property from investors. In the early part of 2017 many pundits were speculating that the Australian property market was caught in an asset-price bubble. Industry experts, such as Vision Property & Finance’s Matt Ivers, recognised the market was at its peak and called the top of the market in April 2017.

APRA implemented a second round of regulation for the industry and limits were placed on the growth of financial institution’s property investor loan books. Investors faced higher interest rates as competition for loans pushed their costs higher, making some property deals marginal at best. Towards the end of 2017, the federal government had achieved its goal of helping to ease pressure on first home buyers by making it harder for investor-buyers to compete in the property market. The increase in first home buyer finance approvals is the first tell-tale signs that the government’s policies were working.

Property Market Entering New Phase

Yet, despite government policies aiding the market cooling, industry professionals such as Vision’s Matt Ivers say the market was always going to enter a new phase.

“I was calling the market’s peak early in the year, however, the momentum kept the market growing until April when the cooling started. Auction clearance rates declined a little and rental yields in the big city property markets, like Sydney for example, started to decline to the point where investors look for opportunities elsewhere.”

The major concern, says Ivers, has been Sydney which has witnessed phenomenal growth. The rapid escalation in property prices in Sydney couldn’t last forever, he says, and as prices have become unsustainable in Sydney the property market has entered a phase in the property cycle where prices may be flat for a while to come before the market once again begins a long run up to another peak.

“Investors’ attention is turning away from Sydney and toward better value locations like outer-rim suburbs and regional areas close to the big cities. South-East Queensland – especially Brisbane which is currently witnessing prices approximating 65% of Sydney prices where the long-term average is around 80% – is ready for its next growth phase while Sydney’s market flattens.”

Whether it is the result of government policies, or if it’s because of a natural cooling cycle in the property market, any easing of price pressures in the market and better access to first home buyers housing finance is a welcome relief for those considering entering the property market for the very first time.

Are you interested in buying your first home?

Speak to Vision Property & Finance and get clear about what you need in order to achieve your property goals. Call us on 1800 004 663 or contact us about our First Home Buyer Program.