First home buyers feeling burned out as market surges

author-avatar By on May 13, 2021
First home buyers feeling burned out as market surges

Runaway house prices and a lack of homes on the market has first home buyers feeling increasingly pessimistic about owning a slice of the Great Australian Dream.

That was one of the key findings from ME Bank's latest Quarterly Property Sentiment Report, which tracks how Australians are feeling about the housing market.

Based on a survey of 1,000 investors, owner occupiers and first home buyers, ME found the overall sentiment of buyers and sellers in the residential property market dropped by 7 percentage points to 42% over the last three months.

And it's first home buyers who are feeling the most burned out, with 34% feeling negative about the property market.

That's the highest level since 2019, and follows record high sentiment just a few months ago when property prices began to boom.


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.


ME’s Head of Home Loans and Personal Banking Claudio Mazzarella said the results are a stark turnaround from last year.

"When property prices and interest rates lowered last year during the pandemic, a unique buying opportunity opened up for confident first home buyers with cash savings and secure employment, while many investors became nervous," Mr Mazzarella said.

“Now prices have rebounded strongly and affordability is going down, first home buyers aren’t feeling as positive.”

Affordability concerns remain top of mind

Concerns around rising housing unaffordability aren't going anywhere.

An overwhelming 82% of home buyers surveyed said they ‘feel worried about paying too much for property in the current market’, while 93% of first home buyers agreed that housing affordability is a big issue in Australia.

These concerns are being compounded by low levels of stock on the market and expectations of further house price growth

More than two-thirds (67%) of those surveyed expect prices to increase in their area during the next 12 months - a 13% rise since January this year.

Meanwhile, 60% of people surveyed believe there 'isn't enough choice in the current residential property market’, up 17% since January.

A lack of properties on the market was found to be especially prevalent in regional areas, where buyers have been flocking to post-COVID.

“With more city dwellers moving to sea or tree change areas, supply is dwindling and adding pressure to prices,” said Mr Mazzarella.

Investors jumping back in

The report found investor confidence in the housing market is roaring back, coinciding with Australian Bureau of Statistics (ABS) data showing investor lending growth outpaced first home buyers for the first time in months. 

Over half (52%) of investors said they feel positive about the market, while 40% said they plan on buying in the next 12 months.

Investors appear to be looking to cash in on high prices, with 23% indicating they want to sell their property in the next 12 months, compared with only 11% of owner occupiers.

Mr Mazzarella said while first home buyers are losing confidence in the market as house prices surge, the effect on existing owners is the opposite.

"Rising prices are making property owners feel wealthier, when many buyers are stretching their budgets to afford the limited but growing availability of stock on the market at the moment,” he said.

Property owners’ ‘sense of wealth’ and ‘general financial confidence’ increased to the highest levels since ME’s survey began in April 2019 at 41% and 42% respectively. 

“Although overall sentiment is lower among first home buyers, our findings show they are still eager to buy property over the next year," Mr Mazzarella said.

“There’s also a sense of ‘fear of missing out’ in the current market, which can be a key driver for this behaviour."

ME’s findings revealed over half (58%) of those looking to buy ‘feel a sense of FOMO’ (fear of missing out) in buying property in the current market. 

Around 75% of those ‘looking to buy’ said ‘record low interest rates have made buying or investing in property more attractive to them.


Photo by Karolina Grabowska from Pexels

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Emma Duffy joined Savings.com.au as a Finance Journalist in 2019 after spending a year as the editor of The Real Estate Conversation. She's passionate about empowering people to make smart financial decisions and improve the financial literacy of Australians by translating complex finance topics into understandable, relatable content.

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