Source: Matt Donders from Unsplash.
  • Housing demand for non first home buyers and investors has remained steady
  • For first home buyers, it has declined
  • This is despite FHB's tending to do well during downturns, as the 'deposit hurdle' is overcome

With the property downturn spreading across the markets, activity among both buyers and sellers has softened.

However, demand for housing finances across owner occupiers that are not first home buyers – i.e. upgraders, movers and downsizers – has remained fairly resistant amid the rising rate environment.

Housing finance data released by the Australian Bureau of Statistics (ABS) to July has revealed the change in the value of lending by three different segments – first home buyers – subsequent buyers and investors.

The below chart shows the change in value compared to April 2022, when national house values peaked.

Since the rate tightening cycle commenced in May, first-time homebuyers and investors have seen much faster declines in housing finance than subsequent buyers.

Change in the value of lending by segment – monthly value compared to April 2022

value of lending
Source: ABS, CoreLogic

This data may be because subsequent buyers are less sensitive to interest rate rises as they have equity in their existing home.

Investors are more sensitive, despite the fact they can offset higher interest rate payments as tax deductions. The reason for this is they are more leveraged than owner occupiers.

What has happened in the past?

CoreLogic analysis has looked at how lending volumes have altered amid historic downturns since 2004.

The main difference is that first homebuyer demand for finance has traditionally been more resilient during downswings. There have been subtler declines in demand, and even increases during certain periods.

Both investors and subsequent buyers have typically seen a larger decline in demand for housing finance during the initial downswing phase.

Monthly value of finance secured during national housing market downswings, by buyer type

monthly value fiannce
Source: ABS, CoreLogic

Eliza Owen, Head of Residential Research at CoreLogic Australia, noted the reason first homebuyer borrowing has held firm throughout downswings is two-fold.

“Firstly, government incentives for first homebuyers were introduced through some of these declines,” noted Ms Owen.

“Notably, the ‘First Home Buyer Boost’ from October 2008 to December 2009 provided up to an additional $14,000 for eligible first homebuyers. With unlimited numbers for the scheme, the boost to the first homeowner grant led to the biggest monthly surge in loans secured for first homebuyers on record, at 16,753 loans secured in the month of April 2009.”

Secondly, Ms Owen said the price fall helps homebuyers overcome the ‘deposit hurdle’ easier.

“The deposit hurdle is an issue largely confined to people purchasing real estate for the first time, and as property prices fall, this initial savings hurdle for first homebuyers also falls,” she said.

Outlook for buyers

So, what is going to happen now?

Given this downswing is shaping up a bit differently for first home buyers, it is hard to know what is going to happen.

This current downswing has primarily been the result of higher mortgage rates, which impacts affordability, from the perspective of paying off the mortgage.

As noted in the CoreLogic ANZ Housing Affordability Report, mortgage repayments for first home payments are likely to be higher due to the 2.25% rise in the cash rate since then.

“First homebuyer activity may lift through the downswing if there are any special new grants or incentives that come into play over the course of the decline,” said Ms Owen

“Though there are ongoing schemes available such as the ‘Help to Buy’ program and the ‘First Home Guarantee’, these schemes are unlikely to create the rush in first homebuyer demand that temporary schemes have done in the past. This is because the current first homebuyer programs in place have limitations on the number of places per year, and income caps.”

What about investors?

Demand is expected to pick up longer term among investors, given there is more certainty around the trajectory of mortgage rates.

“This is (also) because rental market conditions remain strong, with more rental demand expected as overseas migration returns,” added Ms Owen.

“Gross rental yields are trending higher as rents rise in most cities while housing values trend lower.”

For subsequent buyers, it appears they will continue to dominate the mortgage and purchasing market, having accounted for 48% of monthly borrowing for home purchases historically.

“Over the short term could make up a greater-than-usual share of transactions as first homebuyer and investor demand is more sensitive to increased mortgage rates,” she said.

“As mentioned previously, subsequent purchasers don’t face the same deposit hurdle as first homebuyers, and the significant amount of equity some owners may have accumulated over the past few years could be the catalyst for some to trade up, downsize or relocate.

“But even this relatively resilient buyer segment is likely to see a gradual decline in activity, as long as interest rates are rising.”

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