More first home buyers sit on the sidelines making room for investors

With continuing uncertainty surrounding the next impending interest rate rise and ongoing talk of affordability issues, more potential first home buyers have been pushed out of the property market and relegated to the rental roundabout.

According to a recent report from RP Data, the number of first home buyer mortgage commitments during 2010 dropped to their lowest level in six years, with only 96,201 making the move from tenants to home owners.

This is in stark contrast to 2009, when 190,000 new home owners took the plunge into the property market. This was obviously due to low interest rates, strong market and consumer sentiment as we survived the GFC and the government’s first home owner’s grant boost. These combined to create  a potent mix to encourage many young families to enter the market earlier than they might otherwise have done.

Then in 2010 the combination of rising interest rates and lowering the first home owner’s grant made home ownership a less attractive prospect for newbies.

We already know that market sentiment plays a significant role in the buying decisions of property purchasers and it is no different for would-be first home owners. RP Data says that over the last ten years, when there have been significant increases in capital city housing values, the number of first home buyers prepared to commit to a mortgage also rises.

The report cites an example from 2001, when property values soared by 18.7% for the year and 145,000 newcomers applied for finance to enter the market. This trend was again evident in 2009 when values went up by 12.1% across our capital cities and 190,000 first home buyers took the plunge into property.

Obviously increased buying activity from this sector has a flow on effect and pushes property prices up, but it also seems that when confidence is low due to various factors such as interest rates and a lack of activity in the marketplace, first home buyers get the jitters and decide to hold off from making the commitment to a mortgage.

While the first half of this year is likely to see first home buyers sitting on the sidelines, this could turn around by the end of the year. As our economy grows and with unemployment employment levels at record lows, wages are likely to rise creating a renewed perception of wealth among potential home buyers.

This should give many first home buyers the confidence to hop into the property market.

In the meantime, the lull in first home buyer activity is good news for property investors looking to take advantage of the current buyers market.

If you think about it, first home buyers generally buy sub-$500,000 properties, which is the same price range many investors choose.

With less competition, it is likely that those seeking to add to their property portfolio this year will find less competition to buy good properties.

The key is to move against the tide and get in before the turnaround in market sentiment begins.

Savvy investors who take advantage of the current buyer’s market and purchase the right type of property will be able to set themselves up to maximise their investment’s long term growth as the property cycle moves on.


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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit

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