Where have the Victorian first home buyers gone?

One of the most perplexing market trends right now is the substantial drop in first home buyers in Victoria. According to ABS Housing Finance data, only 12.2 per cent of loans were given to first home buyers in November 2013. This compares to a 20 year average of 21.4 per cent and follows October which recorded the lowest proportion of first home buyers in 20 years.

From a raw numbers perspective, the last time there were fewer than 1,691 of first home buyers recorded in November was in 1991.

It is now 16 consecutive months that the proportion has been lower than the long-term average.  The proportion rose in November but only because the number of non-first home buyers fell to a greater extent.

The reason this a perplexing issue is because Melbourne dwelling prices are still not at a nominal peak and interest rates are at historical lows. When prices last peaked in October 2010 around 18 per cent of loans were given to first home buyers. At the peak of cycle before that, in 2007, it was around 21 per cent. Prices alone cannot be the reason.

One factor may be the cessation of the Victorian Government’s $7,000 First Home Buyers Grant as the proportion dropped 4 points from July to August and has not risen since. It would however be surprising if this alone was the reason as financial assistance is still available for new homes and stamp duty cuts of 40 per cent can still be accessed.

The data also supports the argument that first home buyers are being crowed out by investors. Even if this is the case, it is not a healthy outcome for the market as investors are critical to the supply of rental homes.

It will be very interesting to watch what impact the increasing stamp duty cuts have over the next ten months as the current 40 per cent discount rises to 50 per cent, hopefully it will encourage more Victorian first home buyers back into the market.

Robert Larocca is Victorian housing market specialist for RP Data.

Robert Larocca

Robert Larocca

Robert Larocca is Victorian housing market specialist for CoreLogic RP Data.

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