Enterprising buyers are using savvy strategies and government incentives to get their feet on the ladder
Despite a difficult economic environment, first-home buyer (FHB) activity remains relatively strong right now, even exceeding levels seen prior to the COVID-19 outbreak.
True, the numbers are far below the 2021 spike, when the Reserve Bank of Australia (RBA) slashed rates to nearly zero, but according to the new First-Home Buyer Report from PropTrack and Commonwealth Bank, there were more first-home buyers in the past year than was typical during the 2010s.
While the chips are still stacked against them, enterprising FHBs are using low-deposit strategies to target outer-ring suburbs, units and semi-detached dwellings.
Melbourne has emerged as the FHB hotspot, attracting the highest concentration of interest thanks to its relative affordability compared to Brisbane, Adelaide, and Perth.
Dandenong, located in Melbourne’s southeast, stands out as the most sought-after area for FHBs in Australia.
Other highly rated suburbs include Maribyrnong and Wyndham in Melbourne’s west. In the inner city, the Brunswick-Coburg area also attracts a significant number of first-home buyer searches.
In Brisbane, outer suburbs are especially popular with FHBs. The North Lakes region in Moreton Bay, the Springwood-Kingston area in Logan, and the Forest Lake-Oxley region in Ipswich are among the top choices overall.
There is no doubt that things are still tough for FHBs – a super-tight rental market is making it harder to secure a deposit, while three-decade-high serviceability tests present yet another hurdle.
Yet FHBs are responding by having a flexible attitude to homeownership, while government grants, including the soon-to-be-expanded Home Guarantee Scheme (HGS), are giving them a leg up.
PropTrack senior economist Angus Moore (pictured, top) also surmised that “difficult rental market conditions are likely encouraging capable renters to move into homeownership sooner than they might have otherwise”.
Nationally, it now takes 5.9 years for the average household to save a 20% deposit, with South Australia (7.2 years) and NSW (6.9 years) presenting the steepest challenges due to price growth and income disparities.
However, three quarters of FHBs are opting to buy a property with a lower deposit with the help of government-backed schemes.
From 1 October, the HGS will remove income caps and raise price thresholds for – a potential game-changer for many FHBs, despite warnings of potential house price inflation it could cause.
Further interest rate cuts by the Reserve Bank of Australia (RBA) are likely to ease serviceability stress for FHBs, although this could drive house price growth even further.
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Around 6% of FHBs are also investors, according to the report, typically through rentvesting strategies, i.e. buying in affordable areas while renting somewhere more desirable.
More FHB stimulus on the way
CBA is expecting another 25-basis-point rate cut in November, as are the majority of other major lenders, including each of the Big Four.
That being said, resilient gross domestic product (GDP) and consumer price inflation (CPI) have thrown a bit of doubt over the RBA’s rate-cutting cycle, which Bendigo Bank’s chief economist David Robertson commented on this Thursday.
“After the August RBA cash rate cut, we’re not expecting a back-to-back cut in September – especially after a higher read for inflation in the latest monthly indicator for July,” Robertson said.
He added: “The Reserve Bank wouldn’t have been surprised by the rise in CPI in the monthly numbers due to electricity rebates and other one-off factors, but core inflation was a little higher so the RBA will want to see the full third quarter data out on October 29 before cutting again.”
While lower interest rates will help FHB activity going forward, CBA’s head of Australian economics, Belinda Allen (pictured, below), cautioned that they will remain well above pre-pandemic levels, so “challenges of housing affordability (will) persist”.
And no matter how many government incentives get thrown at the problem, the simple fact is more housing supply is needed.
“All levels of government have a focus on housing supply in coming years, particularly focusing on first-home buyers,” Allen said.
