With existing homes ineligible for state grants, NSW suffers 57% annual drop in first-home buyers: REIA

First-home buyers have deserted the NSW property market in droves with improved housing affordability and significantly reduced interest rates not having any impact on the willingness of this key market segment to climb onto the property ladder.

The number of home loans to NSW first-home buyer in the March quarter totalled 2,647 - 57% lower than a year ago and a 40.6% fall in the March quarter alone, the latest Real Estate Institute of Australia (REIA) figures reveal.

This was the largest annual decline recorded across the country but in line with a national trend of dwindling first-home buyer demand.

According to the REIA, first-home buyers made up 14.5% of the national owner-occupier market in the March quarter compared to 16.5% in the December quarter 2012 - the lowest level since the June quarter of 2004.

The number of new finance commitments to first home buyers decreased 22.5% to 18,348 in the March quarter.

Compared to the first quarter of 2012, new finance commitments to first home buyers decreased 21.3%.

Some of the blame for the  steep slide in NSW first-home buyer numbers will be attributed to the state government’s decision to axe the $7,000 first-home owner grant on September 31 in favour of a $15,000 grant for new homes only.

In Queensland, a state which has also cancelled its first-home owner grant in favour of a $15,000 handout for new homes in September last year, home loans to first-home buyer decreased by 43.7% over the March quarter  to 2,557 - the largest quarterly decline across the nation.

Victoria, the ACT, South Australia and Tasmania all plan similar changes to first-home buyer grants in the coming months.

Both Property Observer editor Jonathan Chancellor and hotspotting.com.au’s Terry Ryder have highlighted the ill-directed nature of such schemes (Ryder called Queensland’s grant “a new definition of insanity”) which attempt to dangle a financial carrot in front of the noses of first-home buyers to sway them towards new homes over existing ones.

The REIA is also campaigning for a re-commitment by these states to a universal grant available for both new and existing homes.

It should be borne in mind that first-home buyer numbers have declined despite housing affordability as measured by the REIA improving for seven consecutive quarters following the RBA cutting cash rate by 200 basis points since November 2011 and much of this (around 80%) being passed on by lenders to variable rate mortgage holders.

Over the same period, dwelling prices have risen by a moderate 2.4%, according to RP Data figures.

Clearly other forces are also at play including relatively low consumer confidence, concerns about job prospects and the high cost of home ownership in key markets like Sydney and Melbourne, despite recent incremental improvements.

Victoria, which has yet to implement its new homes only $10,000 first-home buyer grant, recorded a more modest 15.4% drop in the number of loans to first home buyers over the quarter to 6,053. However, the figure is unchanged compared with the same quarter of the previous year.

South Australia was the only state or territory to record a rise in the number of loans to first home buyers, up by 1.8%.

For the year, Western Australia recorded the largest increase in loans to first home buyers, up by 19.2%.

The number of first home buyers in Tasmania dropped by 3.9% over the quarter but increased 15.9% compared to the March quarter of the previous year, to 349. During the quarter, first home buyers made up 16.8% of owner-occupier market in Tasmania.

The number of first buyers’ loan commitments in the Northern Territory dropped 23.8% to 231 over the quarter but increased 0.9% compared to the March quarter of 2012. Of all owner-occupier housing finance commitments in the territory, first home buyers made up 21.9% during the first quarter 2013.

The number of first home buyers in the Australian Capital Territory fell 0.5% to 367 during the quarter. This is 9.9% higher than the figure recorded during the March quarter 2012.