first-home-buyers are likely to struggle even more to get a foothold on the property ladder this year as higher interest rates, rents, and the cost of living conspire to reduce their capacity to save and to borrow.
The national residential property rental vacancy rate fell to just 1 per cent in March, the lowest rate since 2006, figures from SQM Research show.
Andrew Wilson, chief economist at My Housing Market, says the key problems for first-home buyers, particularly in Sydney and Melbourne, are skyrocketing rents and a rapidly rising cost of living that is restricting their capacity to save and borrow.
“I think the economic environment is working very much against first-home buyers,” Wilson says.
After a two-year property boom, the recent slight easing of house prices in Sydney and Melbourne has done little to help those looking to get into the market for the first time.
Mortgages for first-timers in January were at their most unaffordable since 2011 for Victoria, and 2013 for NSW, My Housing Market figures show.
Affordability improved slightly in February – the latest available data – as property prices in both cities fell slightly.
Sydney dwelling prices were 0.2 per cent lower in March, following a decline of 0.1 per cent in February, figures from CoreLogic show. Melbourne prices were 0.1 per cent lower, following no growth in February.
The average first-home buyer mortgage in the three months to February 28 was highest in NSW at $592,107, followed by the ACT at $531,956 and Victoria at $502,478, My Housing Market figures show.
The consensus among economists is the Reserve Bank of Australia is likely to start increasing official interest rates in June – soon after the May 21 federal election. The cash rate is forecast to reach at least 2 per cent, or even higher – up from a record-low 0.1 per cent now – over the next 18 months to two years.
The interest rate increases are likely to be passed on in full by lenders, adding thousands of dollars a year to repayments and further reducing the borrowing capacity of first-home buyers.
Angie Zigomanis, director of Charter Keck Cramer’s research and strategy team, says weak wages growth is not helping to offset the higher cost of living.
More property investors have also entered the market, which can sometimes “crowd out” first-timers, as they often buy the same types of properties as first-home buyers, Zigomanis says.
Wilson says that affordability for first-home buyers is likely to worsen this year, with higher interest rates and more migrants and international students coming to Australia after being locked out during the COVID-19 pandemic, adding pressure to an already tight rental market.
Zigomanis says one way to help ease the first-home buyer affordability crunch is to increase the supply of more affordable housing.
Cash handouts and incentives for first- home buyers typically end up flowing through to higher house prices, he says.
In last month’s federal budget, the government expanded the number of places available in its low-deposit scheme. This is a program under which first-home buyers, and others, can buy new or existing dwellings with a deposit of only 5 per cent. It includes assistance for regional property buyers.
Labor, if elected at the federal election, is promising to create a program to help 10,000 first-home buyers a year in regional Australia to buy a home.
Wilson says the low-deposit schemes help, as often the biggest hurdle to getting a start is the deposit, but buyers still have to be able to afford their mortgage repayments.
Sally Tindall, research director at RateCity, has warned that if forecasts of falling house prices turn out to be correct, first-home buyers who put down only a small deposit could find themselves in “negative equity”, where the mortgage is larger than the market value of their home.
Article Source: www.brisbanetimes.com.au