With first home buyer activity at a record high and upgraders spurred on by record low mortgage deals, these two dominating groups have taken over the housing market. Our Real Estate expert John McGrath reveals how and why their influence is driving demand.
The market has enjoyed a strong start to the new year, with demand driven by owner occupiers either upgrading residences or buying their first homes.
CoreLogic data for January has showed an increase in home values in every capital city and major regional area as well as a fresh record high for the national median price, which is now 1% above its pre-pandemic level.
The combined regional home values surged by 1.6%, more than twice the pace of the capital cities at 0.7% on the back of more remote workers relocating to the coast or country.
So, let’s take a look at the two dominating buyer groups in our market today.
First Home Buyers
As discussed in our McGrath Report 2021, first home buyer activity remained at a record high throughout 2020, encouraged by record low interest rates, the Federal Government’s First Home Loan Deposit Scheme, stamp duty concessions and First Home Owner Grants. In fact, ABS data shows a 56.5% jump in first home buyer loan commitments over the year.
The Bank of Mum and Dad continued to play a key role in helping young people into the market, despite the pandemic-induced recession forcing a tightening of the parental purse strings. The Bank of Mum and Dad is the nation’s fifth biggest home lender, according to Mozo research. Australian parents have been lending an average of $73,522 to help their kids get a foothold on the property ladder. That totals a huge $92 billion and growth of 41% since 2017.
It appears the Bank of Mum and Dad remains committed to helping put a roof over their kids’ heads, either by helping them buy or allowing them to move back home, however they are less inclined to help with other expenses like weddings, a car purchase, tertiary education fees and holidays, a recent Finder survey found.
In October 2020, the same percentage of parents – 15%, helped their kids buy a home compared to December 2019 before the pandemic. There was also a 2% increase in the number of parents going guarantor on their child’s first home loan or helping them pay the mortgage.
This increase might indicate that some savvy parents are recognising the opportunity to get in now, especially the inner ring apartment markets of Sydney and Melbourne where prices have softened.
With no competition from overseas buyers or investors, first home apartment buyers are in a great position to buy and immediately benefit from the economy’s anticipated boom recovery this year. By the way, last week the Federal Government announced it was re-issuing about 1,800 unused First Home Loan Deposit Scheme guarantees from FY20 for established properties. These were reserved by buyers who failed to complete their purchases.
The other big buying group in the market today is upgraders, spurred on by record low mortgage deals and the option to redirect funds usually reserved for holidays and travel into better homes.
People who can now work from home are very keen to upgrade and are leaving inner city areas for wide open spaces in the middle and outer rings where they can afford larger houses. They don’t mind the commute because they’re only returning to the CBD occasionally these days.
Others are making a complete treechange or seachange and heading to regional areas.
Last year’s events triggered much change in people’s lives, which had a flow-on effect to the property market through heightened buyer activity. This combined with record low interest rates pushed real estate lending to a new record high in December.
According to the ABS data, three-quarters of the $26 billion borrowed in December went to owner occupiers. Total borrowings were up 30% year-on-year, which is pretty extraordinary.
Borrowing money is also about to get easier once reforms to the Credit Act pass Parliament and commence on March 1. This should add further positive momentum to the market in 2021.
To read more about marketplace trends, download the McGrath Report 2021 here.
The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.
The article originally appeared on mcgrath.com.au – for more information including articles, checklists, guides and more visit McGrath’s Insights Centre.