Recent studies have shown that first-home buyers are taking a “now” approach to homeownership, as housing affordability continues its decline.
Genworth Lenders Mortgage Insurance released a report that showed that three-quarters of first-homebuyers plan to look into the options available in the housing market, even if they have less than the 20% deposit required.
Overall, nearly two-thirds (32%) of first-homebuyers believe that now is the right time to purchase. The majority of them admit to feeling an urgency because prices are likely to rise.
Pauline Blight Johnston CEO of Genworth said first-homebuyers are at an “inflection stage” and that FOMO (fear-of-missing out) sentiments are starting to rise.
Ms. Blight Johnson stated, “First-home buyers are doing all they can to avoid homeownership falling through their fingers in an area where interest rates are low but prices are booming.”
The affordability of housing is declining
Recent research by the Real Estate Institute of Australia, (REIA), showed that housing affordability has declined in the past two decades.
Over the past 20-years, the share of income required to repay mortgages has increased from 27.2% up to 35.7%.
In the same time frame, the family income grew by 112.8% and the average home loan payment grew by 179.4%.
Adrian Kelly, president of REIA, stated that housing affordability is evident in many states, but not to the same extent.
“Housing affordability has declined in most states and territories throughout Australia, with Tasmania having the largest decrease in housing affordability of 12.7 percentage points,” Mr Kelly said.
“West Australia, however, had the smallest drop in housing affordability at 2.1 percent.
“In September 2002, there were 25,782 first home buyers. This number increased by 67.7 points to 43. 226 in June 2021.”
Kelly believes that the housing affordability of first-time buyers is decreasing and that policies need to be altered to address this.
“If policy settings fail to change and without a boost to household disposable income through, for example, tax concessions for first-home buyers, affordability is likely to get worse as interest rate rise,” he said.
“Now or never” approach as prices surge
Figures from CoreLogic show dwelling prices have grown by 16.1% annually in July — this was the biggest increase in prices since 2004.
According to Genworth’s study, rising property values have been a major driver of first-home buyer in recent years.
More than four in five first-home buyers said they have decided to buy sooner rather than later to avoid further hikes in property prices.
This sentiment was very similar to that of potential first-home buyers. Seven in 10 expressed FOMO.
According to Genworth’s study, the greatest barrier to homeownership for potential and current first-home buyers is saving the deposit.
This means that only 25% of buyers will enter the market with less than 20% of their mortgage deposit, while over half of buyers think they can afford 10%.
Ms. Blight-Johnston stated that first-time buyers are more likely to choose to buy a smaller deposit because of the challenges posed by the price rise.
“We’re seeing interest in lenders mortgage insurance increasing, which is no surprise given the research reveals that a deposit of 20% or less is now the pathway of choice for the majority of first-home buyers,” she said.
“Given a sharply growing sense of urgency, it’s no surprise to see more than nine in 10 recent homebuyers saying they are relieved to realise their dream of homeownership.”