Are first home buyers starting to plant themselves on the sideline?

Over the past year there has been a surge in first home buyer activity, in fact first home buyers have been one of the only sources of growth in housing related activity, but are they now fading from the market?

First home buyers have become more active in the housing market over the past year.

There has been a number of reasons for this, dwelling values have been falling which has improved affordability lessened the deposit hurdle, other segments of the market have been less active (less competition) and attractive incentives have been offered to first home buyers in certain states.   

The latest data on housing finance from the Australian Bureau of Statistics for December 2018 shows that perhaps that trend is reversing.

Note that all the data is seasonally adjusted so the slowdown isn’t likely to be related to seasonality.

In December 2018, there were 8,476 finance commitments by owner-occupier first home buyers which was the fewest monthly commitments since June 2017.

Commitments were also -9.6% lower over the month and down -12.6% year-on-year.

Although the number of commitments was lower, as a share of all owner-occupier finance commitments (excluding refinances) the share of first home buyers shifted only slightly from 26.8% the previous month to 26.4% in December 2018.

The minimal change in share is reflective of the overall weakening demand for mortgages.

NSW – Across the state, there were 2,232 first home buyer commitments to owner-occupiers in December 2018, which was the fewest since July 2017.

The number of commitments was -5.2% lower over the month and -3.0% lower year-on-year.

In terms of the share of total owneroccupier finance commitments, first home buyers were 24.0% of the NSW market (excluding refinance) which was up from 23.6% over the previous month.

However, overall owner-occupier mortgage demand (excluding refinances) has fallen by a larger -6.1% over the month compared to the -5.2% fall across the first home buyer segment.

Vic – The 2,604 first home buyer finance commitments in December 2018 were the fewest since June 2017. 

First home buyer commitments were -7.7% lower over the month and -14.8% lower year-on-year however, overall owner occupier commitments excluding refinances recorded a larger monthly fall (-10.4%).

As a result, the share of owner-occupier housing finance commitments compared to total commitments (excluding refinances) actually rose over the month to 29.0%, its highest share since July 2013.

Given this, the share is rising however; it is rising on falling volumes for both first homebuyers and overall owneroccupiers.

Qld – Both the number of first home buyer finance commitments and the share of first home buyers compared to new lending fell in December.

Over the month, there were 1,586 owner-occupier first home buyer commitments, which was -11.1% lower over the month and -23.2% lower year-on-year.

It was also the fewest first home buyer commitments since October 2015.

Looking at first home buyers as a share of total new owner-occupier lending, first home buyers represented 24.3% of lending, their lowest overall share since February 2017.

SA – The 495 first home buyer finance commitments in December 2018 was down -6.4% on the previous month but was 2.3% higher than a year earlier. 

The number of first home buyer commitments in December 2018 was the lowest it has been since July 2018.

First home buyer demand for new mortgages fell faster than overall demand for new mortgages and as a result, the share of owner-occupier new finance commitments to first home buyers fell from 21.6% the previous month to 20.9% in December 2019.

WA – The 1,164 first home buyer finance commitments in December 2018 was the fewest since June 2018.

First home buyer commitments were -5.4% lower over the month and -12.7% lower year-on-year.

As a share of total new lending to owner-occupiers, first home buyers in WA are active and account for 34.3% of total new lending with the share rising over the month.

The relative strength of the first home buyer market is also reflective of the overall weakness in demand from nonfirst home buyer owner-occupiers across the state

Tas – There were 154 owner-occupier first home buyer commitments in December 2018. 

The 154 commitments was the fewest since May 2018 with the number -8.3% lower over the month but 8.5% higher year-on-year.

The sharp fall in first home buyer commitments saw them fall as a share of overall new lending to owner-occupiers, recorded at 19.7% over the month.

The 19.7% share was down from 21.5% the previous month and the lowest share since April 2018.

NT – Because it is such a small market, first home buyer volumes tend to be quite volatile.

In December 2018, there were 81 first home buyer finance commitments, which was 2.5% higher over the month and 28.6% higher year-on-year.

While first home buyer lending increased, new lending to owner occupiers fell significantly over the month leading to the share of new lending to first home buyers spiking to 42.4% from 36.4% the previous month.

ACT – There were 191 first home buyer finance commitments in December 2018. 

Although commitments were -15.1% lower over the month and – 16.2% lower year-on-year there had been fewer first home buyer commitments in September 2018 (182).

First home buyer demand fell much more substantially over the month than overall demand to owner occupiers, as a result, the share of new owner occupier lending to first home buyers was recorded at 24.0%, down from 26.3% over the previous demand.

To-date, the first home buyer segment has been the one source of growing demand across the housing market.

Although the weakness has only been apparent for a few months, it will be important to watch going forward. 

With an entrenched downturn in lending to investors and owner occupier demand falling sharply, if first home buyer activity drops it could lead to a further leg down in value declines across the market.

The more pragmatic potential first home buyers are probably seeing values decline and despite incentives, they realise that if they remain on the sidelines the properties they are targeting could be becoming even more obtainable over the coming months.