Over the 2011 calendar year, the number of housing finance commitments to first home buyers increased by 0.6% compared to 2010 volumes.
In 2011 there were 94,437 housing finance commitments by first time buyers. Although the volume of commitments was up compared with 2010, over the calendar year the number of commitments was quite low on an historical basis.
Over the calendar years between 2001 to 2011 there has been an average of 120,226 first home buyer finance commitments each year. This result shows that first home buyer activity in 2011 was -21% below average. In comparison to the record numbers of first home buyers in 2009, activity in 2011 was -50% lower in 2011. In comparison, non-first time owner occupier buyers were up 2.5% in volume over 2011 compared with 2010 and the value of investor commitments were down -7.0%.
The above average level of mortgage rates throughout most of 2011 is one of the major factors behind the low level of activity by first home buyers. The other influences can probably be tied back to the generally low levels of consumer confidence and the overall soft housing market conditions where there is little urgency to rush into a purchase decision.
Over the 2011 calendar year home values across the combined capital cities fell by -3.6%. This fall in home values was the largest annual fall recorded over any year over the last decade. The fall in values was also accompanied by a decline in the volume of transactions estimated to be -6% lower than they were in 2010. Despite the decline in values and transaction numbers, first home buyer volumes largely remained unchanged over the year with a slight improvement.
There are two main reasons why we haven’t seen a further decline in first home buyer activity. Firstly, certain state governments have offered their own incentives for first home buyers. For example, changes to stamp duty rules in New South Wales provided an incentive for first time buyers to enter the market. Secondly, with volumes depressed and values falling at a time when rents are rising, some first home buyers would have been attracted to entering the market, albeit at fairly low levels on an historical basis.
First home buyer activity across individual states has varied greatly. As already mentioned, across the country the number of first home buyer finance commitments has increased by 0.6% over 2011. The number of finance commitments by first home buyers rose in Northern Territory (18.5%), New South Wales (12.5%), Western Australia (10.7%) and Queensland (4.9%). On the other hand, first home buyers were less active than in 2010 in Victoria
(-14.3%), South Australia (-11.3%), Tasmania (-6.0%) and the Australian Capital Territory (-5.9%).
Interestingly, first home buyer activity increased in New South Wales, Queensland and Western Australia and these are the three states with the greatest deficiency of housing supply according to the latest Housing Supply Council report for 2011.
On a monthly basis, housing finance commitments in December 2011 accounted for 20.9% of all owner-occupier finance commitments. This proportion was the highest since January 2010 (22.8%). In December 2011, the proportion of first home buyer finance commitments was slightly higher than the five year average.
The increase in first home buyer finance commitments is largely the result of a surge in activity across New South Wales, however, volumes also increased over the month in Victoria, Queensland and the Northern Territory, just not to the same extent. The large jump in New South Wales is most likely due to the stamp duty exemptions for first home buyers which became available at the end of 2011 (these concessions expired on Jan 1, 2012). Given this, we expect first home buyer sales in NSW to slip in the new year; to what extent will be interesting to monitor.
Given the circumstances of the increase in volumes we would expect some easing of first home buyer activity in 2012. However, this will be offset somewhat by the fact that interest rates have fallen and are more likely to ease further than they are to increase.
Overall, we expect a fall in first home buyer volumes after December 2011. However, over 2012 we expect a greater volume of first home buyer activity than that which was recorded in 2011.
Tim Lawless is research director at RP Data