Finance Property First-home buyer optimism remains despite soaring property prices Updated:

First-home buyer optimism remains despite soaring property prices

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Soaring property prices “are yet to crush the home ownership dreams of first-home buyers,” says ME Bank.

But they aren’t doing much for the broader economy.

Interest rate cuts and looser bank lending have seen national housing prices rise more than 5 per cent since finding their trough in July.

The strength of the rebound has surprised many analysts and prompted economists to sound the alarm over rising household debt.

But ME’s latest Quarterly Property Sentiment Report found the return of the property boom hasn’t dulled the ambitions of aspiring home owners – even though ABS figures show they are gradually being priced out of the market.

More than half of would-be home owners (51 per cent) plan to buy property over the next 12 months, according to ME Bank’s survey, which canvassed 1000 Australians at the start of January.

Source: ME Bank Quarterly Property Sentiment Report

ME Home Loans general manager Andrew Bartolo said this showed rapidly climbing prices were instilling a sense of urgency among first-home buyers and had yet to crush their dreams of home ownership.

“In the case of first-home buyers, the recent property price recovery has likely nudged them to get in while they can – as though it’s now or never,” Mr Bartolo said.

“Low interest rates and commentary in the market for the support of first-home buyers may have also contributed to an increase in home-buying intentions,” he added, referring to the Coalition’s first-home buyer scheme. 

The report shows attitudes towards the property market have improved for the third consecutive quarter, increasing three percentage points since the last survey to a net positive (i.e. positive sentiment minus negative sentiment) of 21 percentage points.

Home owners are less concerned about negative equity, too, and reported improved confidence in their general finances.

But more than nine in 10 Australians (92 per cent) believe that housing affordability is still “a big issue in Australia”.

And rising property prices are discouraging spending more than encouraging it.

Source: ME Bank Quarterly Property Sentiment Report

ME’s findings mirror those of other recent reports.

While devastating bushfires pushed consumer confidence to one of its lowest levels since the GFC, expectations of rising house prices increased 8.1 per cent in the monthly Westpac-Melbourne Institute consumer confidence index.

The sharp jump in house price expectations came after Commonwealth Bank reported that home-buying intentions hit record levels in December, while retail spending intentions flatlined.

“Households remain very happy to spend on housing. But they remain very cautious about spending at the retail level,” CBA chief economist Michael Blythe said at the time.

“And within the overall consumer mix, the preference is to spend on experiences over goods.”

ME’s report found something similar.

Although attitudes towards the property market are continuing to improve, Australians’ “willingness to spend on discretionary items” dropped five percentage points over the quarter to a net negative of eight percentage points.

Mr Bartolo said this showed rising property prices had yet to deliver a positive “wealth effect” to consumers.

Source: ME Bank Quarterly Property Sentiment Report

Meanwhile, EY chief economist Jo Masters told The New Daily the ongoing house price rebound delivers a weaker wealth effect than past house price recoveries for two reasons.

Firstly, Australians are heavily indebted and have shown a preference for paying off debt rather than spending.

And, secondly, the memory of the recent downturn is still fresh in people’s minds, meaning home owners might place less faith in the sustainability of the recent price surge.

Ms Masters said prices are likely to rise at a slower pace this year, too.

More vendors will want to sell their homes after months of price increases, meaning supply will rise to meet demand, and fewer people will be able to afford a home the longer the rebound goes on for.

“And then for first-home buyers, it’s still an incredibly challenging environment,” Ms Masters added.

“In the last housing finance numbers, it looked as if the pace of first-home buyer approvals was coming off, but the average size of the mortgages being given to first-home buyers was rising, which is consistent with prices going up.

“So it does look like prices have risen to a point where … first-home buyers are a little bit more overstretched and taking longer to get their financing in place.”