Tag: First Time Buyers

First Time Buyer Investors On The March

The ABS published their Housing Finance to January 2015. Total lending for housing (both investment and owner occupied lending) lifted the stock 0.6% to $1.37 trillion. Investment rose 0.8% and owner occupied loans rose 0.5% in the month. Investment loans are close to 34.5% of all loans, a record.

ADILendingStockJan2015Looking at the changes in volumes by type, we see that the purchase of existing dwellings is rising, but refinancing, construction of new dwellings and purchase of new dwellings are down.

TrendChangeByTypeJan2015Looking across the states, momentum is rising in just two states, NSW and TAS. All other states are slowing.

StateTrendMovementsJan2015Turning to first time buyers, using the revised ABS data (method changed last month) and DFA survey data, we see that whilst first time buyers for owner occupation fell slightly (14.3% to 14.2% of all owner occupied loans), an additional 4,000 loans were written by first time buyers going direct to the investment sector. Much of this is centered on Sydney. As a result the cumulative first time buyer count is rising, with more than 21% of all loans effectively to first time buyers. You can read more analysis on this important trend here.

DFAFTBLoansJan2015This is another reason why no further assistance should be offered to “help” first time buyers into the market. It would be a waste of money.

 

 

First Time Investor Buyers Focused In NSW

After the ABS data came out yesterday, DFA updated its industry models, and included the status of First Time Buyer Investors, at a state level. We had already shown that there were many First Time Buyers who were not able to buy an owner occupied property, and were switching the an investment alternative, as a way to enter the market, and hedge on future value growth. Here is the updated picture, incorporating the latest DFA data and ABS revisions.

FTBINVandOODFADec2014The number of Investor First Time Buyers continues to grow. Combined, the total number of First Time Buyers is rising, reflecting the momentum in the market. First Time Buyers are more active than thought, even if the ABS misses the Investor data. However, if we look at the state splits, we see that it is all NSW. There are a small number of FTB in the other states buying investment property, but it is mainly a NSW phenomenon at the moment, though we think it likely other states will follow suite.

FTBDFAINVDec2014In fact, if you look at the comparative data, we see that there are significantly more Investor First Time Buyers than Owner Occupied First Time Buyers in NSW. Around 2,000 owner occupied First Time Buyers, but 3,500 Investor First Time Buyers. We also found that close to 80% of these investors went for an interest only loan (for tax and serviceability reasons).

NSWINVFTBDec2014Compare this with VIC, where the trend is just starting to take off. Again, in this small sample, interest only loans featured significantly. VICFTBINVDec2014Finally, if we look at the latest First Time Buyer barriers to purchase data by selected state from our surveys, we see that in NSW, they are more concerned about high prices, and finding a place to buy compared with other states. On the other hand, fear of unemployment was lower than in all other states, whilst in figures more strongly in QLD, SA and WA. (WA attitudes are changing fast as the mining boom subsides).

FTBDriversStatesDec2014So, one of the reasons for the growing of investment property lending, is the NSW led switch by First Time Buyers into the Investment Sector. From our surveys, we found that:

1. Most first time buyers were unable to afford to purchase a property to live in, in an area that made sense to them and were being priced out of the market.

2. However, many were anxious they were missing out on recent property gains, so decided to buy a less expensive property (often a unit) as an investment, thanks to negative gearing, they could afford it. They often continue to live at home meantime, hoping that the growth in capital could later be converted into a deposit for their own home – in other words, the investment property is an interim hedge into property, not a long term play. Some are also teaming up with friends to jointly purchase an investment, so spreading the costs.

3. About one third who purchased were assisted by the Bank of Mum and Dad, see our earlier post. More would consider an investment property by accessing their superannuation for property investment purposes, a bad idea in our view.

Given the heady state of property prices at the moment, this growth in investment property by prospective first time buyers is on one hand logical, on the other quite concerning.  We would also warn against increasing first time buyer incentives, as we discussed before.

Our analysis also highlights a deficiency in the ABS reporting, who are currently investigating the first time buyer statistics (because in some banks, first time buyers are identified by their application for a first owner grant alone). They should be tracking all first time buyer activity, not just those in the owner occupation category.

You can watch my earlier video blog on this subject here.

First Time Loans Now 25% Higher – ABS

The ABS published revised First Time Buyer data to try and iron out some data issues. As a result in November 2014 an extra 1,566 loans (25.8%) were found. This means First Time Buyer Loans were 14.6% of new loans in November, as opposed to 11.6% reported previously. Still a low number, compared with the peak of 30.6% in April 2009.

FTB-Nov-2014-RevisedThis does not count First Time Buyers going direct to the investment sector, which we have highlighted before. The ABS explanation follows.

The First Home Owner Grant (FHOG), introduced on 1 July 2000, is a national scheme funded and administered by the states and territories http://www.firsthome.gov.au. Under the scheme, a one-off grant is payable to eligible first home owners. Until October 2012, all first home buyers were eligible for the grant regardless of whether they bought a new or an established home.

Gradually, States and Territories restricted grants to new homes only so that first home buyers who were buying established homes were no longer eligible for the grant. APRA reporting instructions state that a First Home Buyer is a borrower entering the home ownership market for the first time as an owner-occupier. The instructions do not make any distinction between first home buyers who are eligible for a First Home Owner Grant and those who are not. Nonetheless, some lenders’ reporting systems only record first home buyers if they are eligible for a grant which may cause under-reporting of first home buyers.

This under-reporting has progressively impacted on first home buyer statistics from October 2012 as individual States and Territories have changed the eligibility of their First Home Owner Grants, generally to cover only the purchase of newly constructed homes.

States and Territories restricted grants to new homes from different dates – New South Wales and Queensland from October 2012; Victoria from July 2013; the Australian Capital Territory from September 2013; South Australia and Tasmania from July 2014. Loans to first home buyers were therefore underestimated in these States from the dates specified due to some lenders under-reporting. Other lenders have reported correctly throughout. Originally, the drop in loans to first home buyers from October 2012 had been attributed to the change in grant eligibility reducing the affordability for first home buyers and economic conditions, such as rising house prices and the increase in investment loans for housing. However, subsequent analysis and follow-up with lenders has confirmed that the drop was due, at least in part, to under-reporting by some lenders.

CHANGES TO THE ESTIMATION METHOD

The ABS estimates that the number of loans to first home buyers which are currently being reported are approximately 80% of the total number of loans to first home buyers. Total reported monthly home loan commitments are not affected by this under-reporting.

For lenders who are under-reporting loans to first home buyers, the ABS has developed a model to adjust the proportion of first home buyers to total loans for each period of incorrect reporting. The model uses the following components:

      a) proportion of first home buyers to total loans for those lenders reporting correctly this period;
      b) the proportion of first home buyers to total loans for those lenders reporting incorrectly in the previous period;
      c) the proportion of first home buyers to total loans for those lenders reporting correctly in the previous period; and
    d) coefficients which determine the relative contribution of the above components to the incorrectly reported proportion.

The coefficients (d) of this model were estimated using data from January 2002 to the month prior to the First Home Owner Grant policy being changed (for example, in NSW the data were from January 2002 to September 2012). All the affected states were analysed separately. When more lenders are able to report correctly, the coefficients and estimates will be updated accordingly.

Application of the adjusted proportion:

The following table is an excerpt from the Housing Finance form (ARF392.0) and will be used to demonstrate the application of the adjusted proportion.

Chart: New commitments for home loans

There are no known issues in reporting the total number and value of Fixed rate home loans (9t and 9vt), Secured revolving credit home loans (10t and 10vt) and Other home loans (11t and 11vt). The estimated proportion of first home buyers is applied to the totals for Question 9, Question 10 and Question 11 (9t, 9vt; 10t, 10vt; and 11t, 11vt) respectively to determine the number of first home buyers of the particular loan type. The values for non-first home buyers (i.e. All other loans) are then derived by subtracting the values for first home buyers from the respective totals.

Each lender reports the data by State and Territory, and the proportion for each period is applied to the relevant lenders at the state level. The adjustment is made at the lowest level collected, and is applied to the affected lenders and affected States only. The data are then aggregated to the published States and the national level.

Revisions have been made to the previously published data for the Number, Percentage (%) of all dwellings financed, and Average loan size of First Home Buyers and Non-first home buyers at the national level (columns B to G of Table 560909a). Relevant States’ previously published data have also been revised (Table 560909b) back to when the First Home Owner Grant was first restricted in that State or Territory.

ABS To Change Method Of Estimating First Home Buyer Loans

The ABS has announced some changes to address under reporting of First Time Buyers in their lending data. Whilst they will publish a more detailed report tomorrow, the current data understates the true position because some lenders report first time buyers based on whether they had a first time buyer grant. Many do not these days. However, they are quiet so far on the question of whether first time buyers going direct to investment properties, should be counted as we explained  recently. Remember all the ABS data is based on lending counts, not property transfer information.

An investigation by the ABS has identified that data on first home buyers is under-reported, as some lenders only report loans to first home buyers who have also received a first home owner grant. Some first home buyers not eligible for the grant were incorrectly excluded.

Since a preliminary investigation was completed in October 2014, users of first home buyer statistics were advised to exercise caution in using first home buyer data until further investigations were complete.

The total value of home lending is separately reported and is not affected.

The ABS and APRA are working with lenders to ensure all loans to first home buyers are recorded in the future, regardless of whether they receive a first home owner grant or not.

In the interim, the ABS will adjust first home buyer data for this under-reporting by modelling estimates based on data provided by lenders that have reported correctly. The estimates will be updated over time as more lenders report correctly.

DFA Video Blog On First Time Buyers Switching To Investment Property

DFA analysis shows that more first time buyers are leaping into investment property instead of purchasing a property for owner occupation. This short video explains why.

From our surveys, we found that:

1. Most first time buyers were unable to afford to purchase a property to live in, in an area that made sense to them and were being priced out of the market.

2. However, many were anxious they were missing out on recent property gains, so decided to buy a less expensive property (often a unit) as an investment, thanks to negative gearing, they could afford it. They often continue to live at home meantime, hoping that the growth in capital could later be converted into a deposit for their own home – in other words, the investment property is an interim hedge into property, not a long term play. Some are also teaming up with friends to jointly purchase an investment, so spreading the costs.

3. About one third who purchased were assisted by the Bank of Mum and Dad, see our earlier post. More would consider an investment property by accessing their superannuation for property investment purposes, a bad idea in our view.

Given the heady state of property prices at the moment, this growth in investment property by prospective first time buyers is on one hand logical, on the other quite concerning.  We would also warn against increasing first time buyer incentives, as we discussed before.

Our analysis also highlights a deficiency in the ABS reporting, who are currently investigating the first time buyer statistics (because in some banks, first time buyers are identified by their application for a first owner grant alone). They should be tracking all first time buyer activity, not just those in the owner occupation category.

You can read the detailed analysis of the household survey results here.

 

 

More First Time Buyers Are Jumping Directly Into Investment Property

The traditional wisdom is that First Time Buyers are sitting out of the property markets, because prices are high, loans harder to get, and confidence is falling. Overall 11.6% of owner occupied loans are from FTB. We can look at the trend, showing the number of first time buyer loans each month, and the relative share compared with all owner occupied loans

FTBTrendNov2014The latest ABS data highlights the fact that in some states, especially NSW, FTB activity is very low (7%), whereas in WA its over 20% of owner occupied loans.

FTBSTATEShareTrendNov2014If we look at the relative share of FTB transactions we see that there are more FTB loans being written in WA and VIC than NSW.

FTBStateTrendsPCNov2014But this is not the full story. As we already highlighted our household surveys have detected a significant rise in the number of FTB who are going directly into the investment market. We can estimate the proportion of FTB who are taking this route, using DFA data.

FTBNov2014InvNow, if we make adjustments to the ABS data to take account of the trend we see that FTB are more active than might be thought. In fact the rate of activity has remained at about 9,500 loans each month since mid 2013. Its just that the ABS data does not capture the full statistics.

FTBNov2014Adjusted

First Time Buyer Barriers By State

After I posted the results from the DFA household survey yesterday, I was asked by a number of readers if I could provide a state by state breakdown of the barriers. As the survey runs by post code, it was feasible to do this, and today I post the state results from the latest analysis.

To recap, first time buyers in the DFA survey are those who are actively seeking to acquire a property for the first time. Once they have obtained a property and settled in, they then migrate into one of our other property owning segments. You can read about our segmentation here.

Turning to the results, we see that the price barrier is highest in NSW and WA, and lowest in QLD. It is also more difficult to find a place to buy in NSW and WA, whereas the barriers in SA are lower. We also see fear of unemployment is the most significant barrier in TAS and QLD, and is lowest in WA and NSW. We also found that first time buyers in WA were most concerned about the risk in interest rate rises.

StateFTPDec2014Finally, to reassure readers, at any one time DFA has 26,000 households in the survey, so the sample size is large enough to be statistically relevant.  It is also worth noting the relative distribution of FTB in the ABS data, although they define first time buyers differently, namely those who have transacted for the first time, not those looking to buy, as we do.

FTBsByStateJuly2014

First Time Buyers Hard Pressed

Continuing the findings from the latest DFA household surveys, today we look in more detail at want-to-buys and first time buyers. Both groups are hard pressed. In fact a number of households who were previously looking have stopped (thus moving into the want-to-buy segment); and some want-to-buys have now moved into the property inactive segment, because they are unable to see a path to property ownership. The main barrier for want-to-buys is the high house prices (nearly 50%) and costs of living. In trend terms, as house prices continue to lift, it becomes an ever more critical factor.

WanttoBuysDec2014Turning to first timers, there is a similar trend, with house prices being the main factor in play. Whilst costs of living impact less this time, we see that finding a place to buy remains a problem for some (and directly linked to the house price issue).

FirstTimeBuyersDec2014Looking at where they are looking to purchase, the national picture shows that suburban houses are still the first choice, but units are becoming more of a focus, and in the Melbourne and Sydney markets, units are the property of choice (thanks to price differentials). The most striking element is the rise in the “not sure” where to buy category. Clearly it is becoming harder for first time buyers to figure an effective strategy. This explains recent trend data.

FirstTimeBuyerDecisions2014Finally, we know that some first timers are leaping directly into investment properties. Units in the city, or city fringe are the preferred investment property options.

FirstTimeBuyersInvDec2o14

First Time Buyers Get The Investment Bug – Big Time

The most recent ABS data continues to underscore the fact that Owner Occupied First Time Buyers are sitting out of the market. In original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments fell to 11.8% in August 2014 from 12.2% in July 2014.

However, this is not telling us the full story. We have been tracking the rise and rise of first time buyers who are going direct to investment property.  The chart below shows the state of play, and the significant rise in the number of first time buyers going to the investment sector, especially in Sydney and Melbourne.

First-Time-Buyer-Oct-2014Another way to look at the data is the percentage of FTB who went for investment housing. In the latest data we estimate that around 30% of potential first time buyers went for the investment option. These are not identified in the official figures. I would also add that the small sample sizes prior to 2012 may impact the trend data, but the DFA samples, into 2013 and beyond are large enough to be meaningful and significant.

First-Time-Buyer-PC-Oct-2014From our surveys, we found that:

1. Most first time buyers were unable to afford to purchase a property to live in, in an area that made sense to them and were being priced out of the market.

2. However, many were anxious they were missing out on recent property gains, so decided to buy a less expensive property (often a unit) as an investment, thanks to negative gearing, they could afford it. They often continue to live at home meantime, hoping that the growth in capital could later be converted into a deposit for their own home – in other words, the investment property is an interim hedge into property, not a long term play. Some are also teaming up with friends to jointly purchase an investment, so spreading the costs.

3. About one third who purchased were assisted by the Bank of Mum and Dad, see our earlier post. More would consider an investment property by accessing their superannuation for property investment purposes, a bad idea in our view.

Given the heady state of property prices at the moment, this growth in investment property by prospective first time buyers is on one hand logical, on the other quite concerning.  We would also warn against increasing first time buyer incentives, as we discussed before.

Our analysis also highlights a deficiency in the ABS reporting, who are currently investigating the first time buyer statistics (because in some banks, first time buyers are identified by their application for a first owner grant alone). They should be tracking all first time buyer activity, not just those in the owner occupation category.

 

 

The Rise And Rise Of The Bank Of Mum and Dad

As part of the DFA household surveys, we segment the housing market, to identify those who want to buy and first time buyers, as well as those down trading, the affluent, suburban and seniors. We described the full segmentation recently.  Today we look at those who are trying to buy. This group has been under pressure as prices rise, incomes stall, and property supply is limited.

One striking fact is the number of households in this group who are now banking with the “Bank of Mum and Dad”. The proportion of households who are borrowing from parents, or who are planning to, has been increasing steadily. The chart below shows the proportion who are relying on Mum and Dad Bank, and we also plot relative house price growth over the same period. This is an Australian average, there are state variations.

Mum-and-Bank-1We then looked at the average amount being supplied by parents. In 2010 is was around $22,000. Today it is over $60,000. We also tracked the percentage increase year on year for transactions assisted by parent loans. Since May 2013, there has been significant growth.

Mum-and-Bank-2We then looked at which household segments the funds were coming from. Down traders are the largest group, (there are over one million down traders in Australia at the moment) and growing as a percentage of all households, whereas suburban households (who themselves have larger loans now) figure less.

Mum-and-Bank-3We also discovered that about half of these loans were made interest free, the other half, charged at a rate of interest at or below the market.

So, it is clear the Bank of Mum and Dad is a significant factor in the housing market, and the second order impact of down traders, is significant. It also means that if property prices were to slip, some down traders may find their generous family loans get eaten up in negative equity.

The low first time buyer rates would be even more adverse, without this extra assistance!