First home buyers are being left out of the property market according to the AMP Banking/REIA Home Loan Affordability Indicator. First home buyers only accounted for 13.3% of dwellings financed in the quarter, compared with 16.7% at the same time last year. A first home buyer’s average loan was $190,300, compared with $157,800 in September 2002.
Chief Economist, AMP Henderson Global Investors Dr. Shane Oliver says first home buyers are struggling to enter the housing market with deterioration in affordability causing a steady decline in first home buyer activity since September 2002.
“First home buyers are being pushed aside by higher than normal activity by investors which has not only caused housing prices to surge, but has taken the ratio of house prices to average earnings to record levels.
“While the usual alarm bells for a housing crash aren’t present, such as sky high interest rates or rising unemployment, falling investment demand and an improving share market may result in an even further weakening of the housing market,” Dr Oliver says.
However, the Affordability indicator shows that Australia’s love affair with property is as strong as ever, despite home loan affordability falling to its lowest recorded level since September 1995. During the three months to the end of September 2003, the national Home Loan Affordability Indicator, which is the most comprehensive and accurate measure of its kind, dropped for the sixth successive quarter.
Only South Australia and the Australian Capital Territory saw a slight improvement in home loan affordability for the September 2003 quarter, with a 0.1% and 0.7% rise respectively, compared with a 2.6% fall nationally.
Decreasing home loan affordability didn’t dampen the Australian appetite for property with a total of 128,428 new home loans issued across the country in the September 2003 quarter, representing a 5.6% increase on the June 2003 quarter and is the highest number since the March 2003 quarter. This can in part be attributed to higher than normal activity by investors.
The total value of home loans issued were at record levels in the September 2003 quarter, surging to $25,019 million, a 9.7% increase on the June 2003 quarter and 29.2% up on the same time last year. The average Australian home loan rose to $194,111 up from $187,542 in the June 2003 quarter.
Managing Director, AMP Banking Michael Guggenheimer says investors are still riding the expectation that asset values will continue to increase but they should proceed with caution.
“Anecdotal evidence from the market shows demand for property is softening, with a marked drop off in auction clearance rates in response to interest rate increases last month and this week,” Guggenheimer says.
“This is a good time for Australians to take stock of their investments. Get some good advice and take care when considering a property purchase,” Mr Guggenheimer said.
President of the Real Estate Institute of Australia, Kareena Ballard says with home loan affordability at its lowest since the end of 1995, this week’s interest rate rise will make the situation tougher than ever for home buyers.
“Property prices are softening and investors are adopting a more cautious and long-term approach to the market, so we are now seeing some of the heat come out of the market.
“It is time for the Commonwealth and State Governments to look closely at the difficulties faced by home buyers, and particularly first home buyers, when confronted by rising interest rates and the enormous cost burden of state taxes such as stamp duty. The Real Estate Institute of Australia has called on government to act now in its submission to the Productivity Commission’s Inquiry into First Home Ownership,” Ballard says.
