First Home Buyers to Surge in 2014 Despite Rising House Prices
By Peter Sarmas on 31 Oct 2013
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In spite of a fall in the number of first home buyers this year, it is widely predicted that first home ownership will make a big comeback in 2014.
Though it would make more sense that potential first time owners will be put off by the continuing rise in house prices anticipated next year, a closer look at the different elements within the housing market lends support to the growing optimism:
Focus on Affordability Over Price
‘Affordability’ has become the new buzz word amongst potential first home buyers, signifying a shift in focus away from house price concerns.
Affordability refers to how easily a mortgage can be repaid, and is determined by a number of factors, including the price of the property, the prevailing interest rate and income available to service repayments.
Despite stronger prices, there is a lot of positive talk about houses being more affordable for those buying their first home.
Indeed, according to the HIA-CBA affordability index, housing affordability in Melbourne in the June 2013 quarter has improved by an impressive 15.5 per cent compared with levels in 2012.
“Despite stronger prices, there is a lot of positive talk about houses being more affordable for those buying their first home.”
The reason for the improvement is simple – steady declines in the interest rate have led to lower mortgage repayments, making home loans appear easier to service.
With the RBA reluctant to rule out further rate cuts, a low interest rate environment will likely remain in 2014, therefore attracting many potential first home buyers to enter the housing market.
Further supporting this is the dilemma the RBA faces with rates, as any upward rate rise would affect the dollar and subsequently the Australian economy.
Rental Inflation
The old conundrum of rent versus buy plagues many potential first time buyers.
However, if the rental inflation predicted by the Housing Industry Association comes true, renters who are deposit-ready will be more likely to convert into first home owners from 2014, in order to avoid the expected rental hike due to population growth and established housing undersupply.
Population Growth and Skilled Migrants
Skilled immigrants looking to settle in Australia will add to the pool of potential first home buyers in 2014, as many are deposit ready and have a high earning capacity.
The official data from the Australian Bureau of Statistics put population growth at 1.8 per cent nationally for the year ended March 2013. Sixty per cent of this growth is due to overseas migration.
Birth Rate Increases in the 1980s
The 1980s saw a huge jump in birth rates nationally.
Consequently, the pool of first home buyers is expected to rapidly expand in the next few years, as those born during that time start to prefer home ownership ahead of other alternatives.
There are many factors that drive potential first home buyers to enter the housing market. The shift towards affordability, population growth, lifestyle considerations and expected rental inflation are all likely to push first time buyers into action, creating a buoyant housing market in 2014.
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