First-home buyers are disappearing from the market as property price falls prove insufficient to offset the rising cost of servicing loans, according to new data.
Data from the Australian Bureau of Statistics has shown demand for home loans contracting quickly. The Reserve Bank is expected to lift its cash rate again on Tuesday, extending the most rapid spate of rate rises since 1994.
In July alone, the value of overall new home lending fell $2.62bn, or 8.5% – the biggest monthly drop on record, according to Ratecity, a data firm.
The number of first-home loans was down 10.7% in July and almost 36% from a year ago, bringing it below the pre-pandemic level of February 2020, the ABS said.
For first-home buyers, their loans shrank $427m in value for July.
While property prices were in retreat – falling in some areas at the quickest pace in about 40 years – analysts said housing affordability was likely weakening because the cost of servicing loans was, for now, rising faster.
Loans for housing took a tumble in July, dropping 8.5% to $28.4bn, quickening from the 4.4% fall in June, ABS said. Owner-occupier loans sank 7% while new investor loan commitments fell 11.2%. First-home buyers fell 9.5%, and are about 1/3 lower than a year ago. pic.twitter.com/C2nhFZuJIv
— Peter Hannam (@p_hannam) September 1, 2022
Eliza Owen, head of research at CoreLogic said that while affordability varies according to a borrower’s income and savings levels, “it seems price falls are not yet large enough to offset higher mortgage costs”.
Based on median home values between April and August, and assuming a 20% deposit in both periods, monthly repayments may have risen above potential purchase price savings, as median dwelling prices shed $10,000 in value, Owen said.
So far, the cost of rising borrowing costs is exceeding the fall in price of property. Housing affordability will take another dent next week if as expected the RBA lifts its cash rate another 50 basis points. (Numbers crunched by @corelogicau.) pic.twitter.com/Q7mZ4NL6lh
— Peter Hannam (@p_hannam) September 1, 2022
The oversized decline in first-home buyer loans reflects in part the winding back of various support programs for the sector before and during Covid.
“Periods where unlimited schemes are on offer tend to have a ‘vacuum’ effect, so that takes away from some future first-home buyer demand, and may partly explain the rapid drop-off in [such] activity,” Owen said.
First home buyer loans may have a lot further to drop if the recent slide in home prices is any guide, @corelogicau says. pic.twitter.com/hrkvQi4EHq
— Peter Hannam (@p_hannam) September 1, 2022
While higher repayment rates were the main driver for weaker mortgage demand, rising rents make it harder for first home and other buyers to save deposits.
Sagging consumer sentiment might also be putting people off big-ticket purchases, she said.
First-home buying is on a fairly uniform slide across the states. (Source: @WestpacMacro ) pic.twitter.com/Z7y9e9YGOz
— Peter Hannam (@p_hannam) September 1, 2022
Head of research at RateCity, Sally Tindall, said the average owner-occupier first-home buyer loan now sits at $484,168. While down $3,972 from the peak in May, it’s still the second highest amount on record.
“First-home buyers might be breathing a sigh of relief at the news of falling property prices but the benchmark to enter the market is still absurdly high,” Tindall said.
How first-home buyer loans have increased over time. (Source: @RateCity ) pic.twitter.com/kc8gmGz93r
— Peter Hannam (@p_hannam) September 1, 2022
If ANZ’s property price forecasts were realised, it would translate into a 14% for Sydney’s houses this year and 6% next year. That would still leave median house prices at $1,141,650.
“That would only take prices back to early 2021 levels,” Tindall said.
“Falling property prices will help first-home buyers get their deposit sooner, but they still need to pass the bank’s serviceability test which is difficult to do now rates are on the rise,” she added. “This hurdle will be harder to clear with every cash rate hike that comes through.”
Falling new home lending is related in part to falling prices. Here's @CommBank's projection of how far prices will drop this year and next, and from their peak. pic.twitter.com/AYeSdJNYPa
— Peter Hannam (@p_hannam) September 1, 2022
Commonwealth Banks Australia’s chief economist, Gareth Aird, agreed that rising debt costs have offset the drop in home prices.
“Many first-home buyers will simply be on the sidelines given prices are falling and rates are rising,” Aird said. “Many will think there is no point buying into a falling market, especially with rates still rising.”
Economists are expecting the RBA will lift its cash rate by another 50 basis points when its board meets next Tuesday. Here's how much more it will cost mortgage owners a month (assumes 25 years to go on repayments and that banks pass on the rise in full). (Source @RateCity ) pic.twitter.com/ZDPyuNkZTL
— Peter Hannam (@p_hannam) September 1, 2022
For would-be first-home buyers, Hannah Ngo and her partner, Adrian, the past seven months have been frustrating as they battled to secure a loan for a home in Melbourne’s inner-west or north.
The couple boast an annual income of $150,000 from Hannah’s work in film and TV, and Adrian’s job as an environmental scientist, and they were keen to stop paying $2,000 in monthly rent. Even so, Bendigo Bank dithered over a loan of about $600,000.
“It was taking the bank months in between to say or do anything,” said Ngo. However, with interest rates rising and property prices sinking, “it may have been a blessing in disguise”, she said.
She said the couple were now unsure about their future.
“We’re trying to work out what the best thing we can do is,” Ngo said.
“We’ve booked a holiday. We might work with a mortgage broker – we’ve had a few friends who have had success with that process.”
