Auction market still white hot, but first home owners could be getting nervous

The auction market has shown no sign of slowing down in the first week after Easter with the nation’s strongest markets once again recording solid clearance rates, but new figures suggest first home owner demand may be about to slow.

A new survey from mortgage broker eChoice reveals that 40% of Australians are considering buying a house within the next 12 months, with 38% of those first-home buyers. About 40% of those considering a purchase are doing so because rental prices are too high, with most also saying they have been prompted by low interest rates.

But the survey also found that 49% of first home buyers said they wouldn’t buy if interest rates go up by another 2%, while 20% said they wouldn’t buy if rates went up by just 1%. About 10% said they would step out of the market if rates were increased by another 25 basis points – a prediction that most economists think is a sure bet.

The survey also found first home buyers are concerned about rate rises, with 24% labelling upward movement as their biggest worry when purchasing a property, ahead of 17% who stated a fear of losing their job.

The survey also determined those in the market are low on cash. About 45% of prospective first home-buyers said they have less than $20,000 saved, even though they intend to buy within the next 12 months.

About 66% of first home buyers said they had less than $35,000 saved, and only 20% have more than $50,000 saved for a deposit.

This comes as reports last week indicated banks are moving to tighten up their loan-to-value ratios in order to curb their residential lending practices. Westpac made such a move late last year.

Real Estate Institute of Australia chief executive David Airey says such a move would have a significant effect on the market, and could result in a price stabilisation.

“With these reports that banks will tighten or reduce lending, that will have a significant effect on the market. If they increase credit requirements, such as having a savings history, it’ll have a slowing affect.”

“However, it will affect first home buyers more than it will trade-up buyers, who will be buying a second home and can use the equity they’ve already gained. For those in Melbourne, this could be a significant amount because it’s the strongest mark.”

This is certainly the message given out by ANZ. Over the weekend it announced it will be increasing its LVR to 95% – but only for some existing customers with a “strong credit history”.

It said in a statement it has a strong risk profile in its mortgage portfolio, “having chosen to sit out much of the first-home buyers’ market in 2009”. It stated all applications that are above 90% LVR will require a full valuation.

The move suggests ANZ is more willing to lend to investors, who Airey says are driving the solid auctions market rather than first home owners. This market has once again delivered a strong result on the weekend.

According to figure from the Real Estate Institute of Victoria, Melbourne recorded its strongest opening quarter on record with the weekend’s clearance rate reaching 85% from 488 reported auctions.

REIV chief executive Enzo Raimondo said in a statement that out of the last three years, two saw demand and results improve in the two months after Easter with the exception in 2008 when demand slowed as a result of high interest rates.

“Common perception may be for buyer’s interest to cool off in the face of projected interest rate increases however that perception does not take into account the underlying factors driving the market – a significant gap between the housing needs of our growing population and our ability to provide them the homes they need to live in.”

In Sydney, the auctions market recorded a 73% clearance rate with 181 properties sold out of 236 on the market. The total value of all sales reached $127 million.

Adelaide recorded a clearance rate of 62% from 21 properties sold, with a total value of $9.8 million, while Brisbane saw a rate of just 27% from 10 properties sold at a total of $2.6 million.

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