By Rich Harvey, CEO & Founder, propertybuyer.com.au
In my opinion, the younger generation don’t get enough credit for their achievements. While some commentators all too easily categorise millennials as entitled and uninspired, I’ve found quite the opposite. Most of the ones I deal with have an entrepreneurial spirit. They’re adaptable and imaginative and will be the leaders who establish new ways to tackle future challenges and find solutions.
This applies to the property space as well. First time buyers have been delivered extraordinary challenges in terms of affordability and cost-of-living. Despite this, I see them time and again find imaginative ways to put together deposits and acquire real estate.
And a good thing it is too, because their activity influences markets – and I’m not just talking the low-price real estate sector.
First homebuyer activity
A data series from the Australian Bureau of Statistics (ABS) titled Housing Occupancy and Costs surveyed households across the 2020 financial year. It revealed 38 per cent of buyers who’d purchased a home within three years of the survey were first homebuyers, and of those;
- 69% were families of various configurations.
- 17% bought new property.
This information shows young buyers are not dominated by single households, but rather two people who have, or are often planning, a family.
And while new homes are appealing, the vast majority are buying established property that will suit their needs now and in the future.
From that we can conclude young buyer activity is alive and well in property markets throughout our cities, and they’re keenly seeking entry-level housing options with family potential.
How they drive markets
There are several drivers that compel property market direction, and a big one is the push from the bottom.
First-time buyers will be eager to secure a home in their chosen location. Most are thinking about their current lifestyle, but they’re also making plans for the future. The types of property that’ll appeal to most of them will be something they can grow into over a period.
First homebuyers can also cope with real estate that requires renovations and upgrades. Most won’t be scared of minor repairs or dwellings that need a new coat of paint and carpets, unlike second and third homebuyers who tend to seek finished homes that don’t require upgrades or maintenance.
As first buyers purchase entry-level homes in these locations, they allow sellers, i.e. second and third homebuyers, to release equity from their property and upgrade. Without first homebuyer demand in a suburb, those sellers will be relying on the investor cohort to purchase their property. Given the current state of the economy, that could prove to be a struggle.
So, this first-time buyer activity has a domino effect, helping facilitate purchasing activity further and further up the price chain.
First homebuyer outlook
Despite some difficult times at present, my outlook for first time buyers remains optimistic.
Activity at the affordable end of most locations has ramped up in recent months. For example, there have been notable increases in buyers seeking attached housing in lifestyle areas.
For those first-time buyers looking for a detached home with a bit of yard space, many are also willing to compromise and seek a property further from CBD and in satellite centres. This can deliver gentrification to some “tired” locations, as young buyers help fuel demand for lifestyle hubs with cafes, restaurants and other conveniences and entertainment.
Finally, there is a political appetite for assisting first homebuyers at present. Many state governments offer first homeowner grants and stamp duty concessions designed to help these buyers and stimulate construction. But other assistance measures, such as the federal government’s Help To Buy scheme are on hand as well. The NSW Government is also proposing to emulate the Federal Government scheme of shared equity ownership to help first time buyers get into the market with low deposits (but they forfeit between 30% to 40% of capital growth).
While general markets activity has eased somewhat during the first half of 2022, I believe first-time borrowers will adapt to the new interest rate settings. High demand for labour will see wages strengthen, and that delivers employees (particularly first-time buyers) more borrowing power.
The location dilemma
Of the most difficult dilemmas for first home buyers is choosing a suburb location that matches their budget. With interest rates on the rise, first homebuyers borrowing capacity will be further reduced, however with the market rapidly correcting this will provide an opportunity for first time buyers to re-enter the market in larger numbers.
If first homebuyers are looking to stay within the confines of the inner and middle ring suburbs of the major cities, then their only option is typically apartments. This poses a challenge with a longer commute to the office and potentially further away from family and established social connections. But with work from home and remote working, the commuting issue is not such a major drawback.
First homebuyers are a cohort that can change a market’s direction. The key to staying ahead of how they move is relying on advice from experienced professionals. Buyers’ agent can identify where first-time buyers are most active and will help clients invest early to take advantage of the increased demand they generate.
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