The facts about first home buyers

First home buyers were an extremely important element in the property market recovery during 2009, but their gradual slowdown in demand may affect the market in 2010.

During 2009, 191,000 first home buyers took the opportunity to become home owners across Australia. It’s no real surprise that first home buyers were so active during 2009 given that the Government was offering the First Home Owners Grant Boost, interest rates were at almost 50 year lows, some State Government’s were offering additional incentives such as low or no stamp duty on more affordable property purchases and properties had become more affordable during 2008 thanks to a fall in values.

The volume of first home buyers during 2009 represented the highest annual volume of buyers on record and saw a 55% increase on first home buyer activity compared to the previous year.

Between 1992 and 2009 there was an average of just over 116,000 first home buyers annually. Not only was the level of activity during 2009 the highest on record, it was 64% greater than the long-term average level of activity.

Many people claimed that the active first home buyer market was artificially inflating prices however, it is important to look at just how much of the market first home buyers accounted for.

During 2009, owner occupiers took out finance for approximately 739,000 dwellings, of which 26% was taken out by first home buyers and the remaining 74% came from non-first home buyers. Obviously first home buyers accounted for a much greater portion of the market during 2009 than they have in the past however, their portion still paled in comparison to non-first home buyers.

Importantly, this data doesn’t include investors. The ABS doesn’t publish volumes of investor finance but it does publish the total value which shows that the amount spent on residential property by investors was worth more than 25% of the value of all housing finance during 2009.

This result ,combined with the proportions for owner occupiers split between first home buyers and non-first home buyers, show that even though first time buyers were extremely active during 2009 compared to previous years, they still only accounted for a relatively small portion of the overall market, likely to be around 15% of the whole market.

On a month by month basis during 2009, first home buyer activity peaked at 28.5% of all owner occupier finance during May 2009. As the graph shows, following the peak and once the First Home Owners Grant Boost in full was removed, the proportion of first home buyers in the market fell sharply.

During December 2009 first home buyers made up 21% of the owner occupier market. Historically, first home buyers have accounted for around 20% of the owner occupier finance market and we would expect that during 2010 they will sit at a similar if not lower level than the historical average.

On a state by state basis first home buyers during 2009 were generally most active within Western Australia where on a month by month basis they averaged 28.4% of housing finance commitments during 2009. The second greatest proportion of home loans for first home buyers was found in Victoria (26.9%), followed by New South Wales (26.8%). The markets which saw the lowest proportion of first home buyers during 2009 were: South Australia (20.6%), Northern Territory (21.1%) and the ACT (22.0%).

When looking at the results of the most recent month you can see the impact of the slowdown in first home buyer activity with each state seeing fewer first home buyers during December 2009 than witnessed during December 2008.

Although first home buyers still only accounted for a relatively minor portion of all housing finance commitments during 2009, the impact of the greatest ever level of first home buyer activity was certainly felt across the rental market.

Such a significant influx of first home buyers to home ownership eased rental pressure and has been a factor contributing to falling rental rates in many regions during the second half of 2009. With an expectation that first home buyers will at least fall back to historic average levels during 2010 we anticipate a turnaround in rental markets with higher rents likely to become evident this year.

We also anticipate that investors will become more active in the marketplace due to less competition, particularly from first and second home buyers, brought on by the higher interest rate environment.

Tim Lawless is the Director of Property Research at RP Data.