The state government recently delivered the final instalment of its stamp duty cut for most first home buyers.
Stamp duty is a significant impost on the purchase of a house, coming at a time when buyers, and in particular first home buyers, need every cent they can get.
As stamp duty bills are generally unwelcome it is surprising to see the change in the market.
When the first 20 per cent cut was made in July 2011 first home buyers accounted for 17.2 per cent of all dwellings financed in Victoria. According to the ABS there were 2,036 dwellings financed for first home buyers that month.
Fast forward to the most recent housing finance data, for July this year and the proportion fell to 11.3 per cent, or 1,691 in raw numbers.
Oddly the state has given first homer buyers an effective saving of $10,985 on a $500,000 home, when interest rates are at record lows and they appear to have decided, in unprecedented numbers, to stop buying.
When the initial fall in first home buyer activity occurred, in July last year, it seemed a temporary reaction to the ending of the $7,000 First Home Owners Grant.
Since then the value of the duty cut has grown to exceed the value of the old grant for most first home buyers.
Since 1991 first home buyers have accounted for 21.5 per cent of all loans in Victoria, over the last year it has been 12.2 per cent, nearly half. July was an all time low at 11.3 per cent.
Interestingly Victoria is not alone. In NSW first home buyers accounted for 17.6 per of dwellings financed since 1991 and 7.6 per cent in the last year.
In Queensland the long term average of 20 per cent has also plummeted, to 11.4 per cent in the past year.
Given different incentives apply across the nation and first home buyer activity has been significantly higher in other times of rising prices, with higher interest rates, it suggests that something else is going on.
Affordability issues are a legitimate concern but the question must be asked, is this significant drop in first home buyer activity part of a change in the home buying aspirations of young people in Victoria and what will it mean for the structure of the residential market in 10 years time?
After all the progression of first home buyers through the market, as they sell the first home to upgrade to the second is an important factor in real estate. It helps supply the market with comparatively affordable homes and provides buyers for more expensive ones.
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