First home buyers are back

November, 2017

The August 2017 housing finance figures released this month by the Australian Bureau of Statistics (ABS) show first home buyers are returning to the market.

The number of first home buyer commitments as a percentage of total owner occupied housing finance commitments rose to 17.2% in August 2017 from 16.6% in July 2017. The ABS suggests the increase is being driven mainly by changes to first home buyer incentives made in July by the New South Wales and Victorian governments.

This is music to my ears after a few challenging years for new homebuyers in the eastern states, and it’s also time to consider my five key steps for buying a first property.

  1. Figure out your borrowing capacity by obtaining a loan pre-approval before you start visiting open homes. A mortgage broker such as Our Broker can help you crunch the numbers by reviewing your employment history, wages and salary information, assets, and liabilities such as credit card debts.
  2. Be prepared to take a flexible approach to buying a first home – this can mean looking for more affordable properties in suburbs or towns that may not have originally been on your shortlist.
  3. Also, seek out properties that are close to shopping, schools, hospitals and restaurants and theatres, and if these facilities are in walking distance, even better. It’s always good be able to get to work as quickly as possible, so access to motorways and railway stations are valuable features to seek out.
  4. Do your research before taking the plunge, by immersing yourself in the business, economic and demographic data about a regional city or suburb that has taken your fancy. The ABS website is usually a good starting point, followed by state and local government websites, not to mention property and personal finance magazines such as Money.
  5. First-hand experience is vital, so don’t hesitate to attend and observe some auctions, as this will provide a good measure of the state of the market in your patch of choice.

For first time buyers, it was pleasing to see a senior member of the investment fraternity write recently that the chances of a real estate crash are far-fetched. “Calls for a property crash have been pumped out repeatedly since early last decade,” said Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital. We should always be mindful that bad news sells and that those overseas commentators, who regularly call property market crashes, should stick to their own areas of expertise.

Moreover, RBA research shows that while getting a start in the housing market is challenging, however, ‘those who make it are doing ok’ and bad debts and arrears are low, noted Shane. Moreover, debt interest payments relative to income are running around 30% below 2008 peak levels thanks to low interest rates. “Sure, rates will eventually start to rise again but they will need to rise by around 2% to take the debt interest to income ratio back to the 2008 high.” The facts are that the fundamentals supporting Australian real estate remain in place – robust population growth, a consistent shortage of new properties and an economy that is into its 26th year of growth.

For first home buyers the message is simple – do your research and look for a quality, well-located property, and let time and capital growth do the work of creating some decent wealth for you.