High rent pushing Gen Y to buy their first home

MANY renters are buying their first home rather than fork out for exorbitant rent, new research shows.

According to RP Data research analyst Cameron Kusher weaker market conditions across most capital cities means there are opportunities to find bargains.

First home buyers are dipping their toe back into the market while prices and interest rates are low.

New research has revealed they are more confident about buying a house now than they were six months ago.

Rising rents is one of the key factors that has first-time buyers considering if it is time to take the plunge.

Latest CBA/Mortgage & Finance Association of Australian research has found that current high rents mean two-thirds of first-time home buyers were re-evaluating the trade-off between renting and buying.

It found about 17.2 per cent of first-home buyers were planning to enter the housing market sometime in the next 12 months.

But almost 70 per cent say they are still holding back due to the fear of servicing higher debt mixed with a fear of future job redundancies.

About two-thirds of first-home buyers believe rentals are too expensive, and about 40 per cent feel they are caught in a rental trap, according to Commonwealth Bank executive general manager of third party banking, Kathy Cummings.

She says in many cases it is cheaper to buy than rent and first-home buyers appear to be working productively towards raising the required deposit to get into property.

Emma Raphael of Place at Camp Hill in Brisbane says that is what many of her recent clients have been telling her.

She has worked in real estate for almost 12 years and says lately she has seen an increase in potential buyers in the Generation Y group.

"But while I think they are being a little bit cautious, I think confidence is definitely being restored," she says.

She believes many have come out looking following interest rate drops and predictions of more.

She says rising rents is also something many are telling her is encouraging them to investigate the market.

"The mind set has shifted - they are prepared to forgo going out to dinner once a week, they reckon it is a pretty good sacrifice to make," Ms Raphael says.

Lachlan Walker of Place Advisory says potential Gen-Y buyers seem to be researching the market. "That is starting to happen now, we've got a lot of people coming out to open homes, a younger demographic attending open homes and offices. Those committing is still fairly minimal," he says.

Mr Walker says rising rents and dropping vacancy rates are leading to more considering entering the property market for the first time.

"That is definitely driving the propensity to buy I suppose, because when you are spending $550 to $600 a week on your rent it becomes more feasible to purchase that property for $450,000," he says.

"Yes, you have to sacrifice because (when renting) we want everything at our fingertips, want to be close to town, infrastructure and amenity. That has got to be sacrificed - you have to go a bit further out."

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NSW First Home Buyers left in the cold

Whilst the NSW Government have ceased their First Home Plus Scheme, providing First Home Buyers with Stamp Duty relief, the Victorian Government have introduced a new scheme to provide their First Home Buyers with stamp duty discounts.

In 2012, First-home buyers benefit from a 20% reduction on their stamp duty bill. That means that on the purchase of a $400,000 home they will save $3,274 and on a $550,000 home they will save $4,994. The stamp duty reduction is not available for homes priced over $600,000.

The good news is that on January 1, 2013 the cut to stamp duty will increase from 20% to 30%. That means that on the purchase of a $400,000 home they will save $4,911 and on a $550,000 home they will save $9,321.

The stamp duty cut will then increase to 40% on January 1, 2014 and then to 50% on September 1, 2014.

www.sro.vic.gov.au

Currently the only stamp Duty relief offered to NSW buyers are for new homes only up to $600,000 known as the First Home - New Home scheme.

First-home buyers thin on the ground

If recent interest rate shifts don't pique greater FHB interest, Australian housing is likely to suffer further price falls..smh.com.au/business/firsthome-buyers-thin-on-the-ground-20120515-1yoj7.html#ixzz1v4kNWKbU

This week’s Housing Finance data release offered some new clues on the immediate future of house prices. The headline numbers were broadly reported, including here at BusinessDay but one dimension that as missed was the contribution of first-home buyers to the result.

Back in February, this columnist made the these comments about the upswing in housing finance commitments in December 2011 on the back of strong first-home buyer (FHB) demand:

No doubt the housing-addicted broader media will argue that the recent upswing in housing finance commitments, as well as the renewed interest from FHBs, signals that the housing market is recovering and that solid price growth will soon return. I, however, urge caution in reading too much into these results.

We all know that the New South Wales state government announced in September 2011 that it would end the generous stamp duty concessions provided on pre-existing dwellings on 31 December 2011. Predictably, this announcement led to a surge of buying from NSW first-home buyers, which has acted to push-up the national figures in the process...

Clearly, the overall upswing in housing finance commitments nationally has been driven, by and large, by increased NSW FHB activity as buyers rushed to beat the 31 December deadline for the removal of stamp duty concessions. Given that this deadline has now passed, we can expect some pull-back from NSW FHBs going forward, which should act to reduce overall finance commitments in the months ahead.

As predicted, housing finance commitments (excluding refinancings) fell by 7.3% in the three months to March 2012 - from 31,667 in December 2011 to 29,369 - and are now hovering near decade-lows some 16% below the five-year moving average (5YMA) level.

The fall in finance commitments has been driven, to a large extent, by declining interest from FHBs. The number of FHB commitments nationally fell by 19% in the first three months of 2012 and was 24% below the 5YMA as at March 2012.

Similarly, the share of total mortgages going to FHBs declined from 21% in December 2011 to 16% in March and remains well below the five-year moving average of 20% (see below charts).

With the exception of the mining states, FHB demand across Australia is weak. Note that the following charts are made up of non seasonally adjusted data, which the BAS does not provide at the state level. To smooth the result, I have  used a three-month moving average (3MMA).

First, consider New South Wales, where the number of FHB finance commitments have almost halved since December 2011 on the back of the expiry of the FHB stamp duty concessions.

The number of FHB commitments (3MMA) in March 2012 was 35% below the 5YMA level, whereas the FHB share has plummeted to only 12% - well below both the level in December 2011 (26%) and the 5YMA level (22%).

Next, Victoria, where the number of FHB commitments have fallen 7% since December 2011 and were 27% below the 5YMA level. Similarly, the share of total mortgages going to FHBs commitments was only 18% in March 2012, well below the 5YMA level of 21%.
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The Gorgon gas project is projected to stimulate another housing boom in WA.

Won't be too many of these scenes until first-home buyers return.

South Australia's FHB finance commitments are also very weak, with the number of FHB commitments some -30% below their 5YMA, with the FHB share of total mortgages (14%) also well below the 5YMA (17%).

But the weakness in the non-mining and national averages does disguise better news for the mining states. In Queensland, FHBs have made a come back. While the number of FHB commitments remained 17% below the 5YMA in March and roughly equal to December 2011, they are well up on the lows reached in early 2011. The share of total mortgages going to FHBs commitments (19%) was also just above the 5YMA level.

It's a better story still in Western Australia, where the number of FHB commitments have been trending up strongly, but remained 5% below their 5YMA level in March 2012. FHB's share of total mortgages (20%) were also only slightly below the 5YMA level (21%).

The FHB market, along with investors, are the key source of new mortgage demand and chief enablers of the upgrader market (since second time buyers typically sell to FHBs or investors). The overall drop-off in FHB demand over the first quarter of 2012 is a worrying sign for the Australian housing market which, according to RP-Data Rismark, is losing steam fast.

smh.com.au