Quoting city medians for first-home buyers misleading

Quoting city medians for first-home buyers misleading
Quoting city medians for first-home buyers misleading

A wide gap exists between media-generated perceptions about real estate issues and the reality revealed by research.

Examples abound. Media serves a regular diet of “affordability crisis” stories while the major affordability indexes published quarterly tell a quite different story. The annual survey by Property Investment Professionals of Australia, in which most of the major findings contradict common perceptions, provides another case in point.

The latest Adelaide Bank/REIA Housing Affordability Report finds that affordability (the national average situation) has improved to the best levels in seven years. Continuing reductions to interest rates and (small) increases to incomes have improved home-buyers’ capacity to repay their mortgages, while the overall rate of price growth has diminished.

The proportion of the median family income needed to repay an average loan in the June Quarter was 29.4 percent – down 0.6 percentage points from the March Quarter, and the lowest level since June 2009.

Those figures tell a very different story to the general theme of daily media coverage, which portrays a crisis, the death of the Great Australian Dream and a generation doomed to a lifetime of renting.

The proportion of family income needed to meet loan repayments improved in all state and territories in the past 12 months. NSW remains the most expensive place to service a home loan (35.4 percent of family income) while the ACT is the cheapest (19.4 percent of income).

The report makes a pertinent observation about the level of activity by first-time buyers. Most media reports bemoan the apparent low numbers of first-home buyers, based on highly-misleading loan statistics. The Adelaide Bank report points out that while first-home buyers are 14.3 percent of the owner-occupier market, if you exclude re-financing loans they make up 22.5 percent of the owner-occupier market 

And there’s another component to first-time buyer activity not discussed here – the number of first-time buyers who buy an Investment Property as a first purchase. 

The report highlights another point often overlooked by media when discussing the ability of young people to buy homes. The weighted average median house price in the capital cities is $698,000, according to this report, but the average loan size for first-home buyers is $328,000.

This reinforces the view that quoting city medians (especially the very high ones for Sydney) in the context of affordability for first-home buyers is misleading, because first-timers buy at the lower end of the market, as they have always done. First-timers don’t buy mid-range homes, not in Sydney nor anywhere else.

The second annual Property Investor Sentiment Survey by Property Investment Professionals of Australia (PIPA) shows that 71 percent of respondents think now is a good time to invest in property. This figure is up by five percentage points compared with last year.
While 32 percent of investors say recent changes to lenders’ investment policies have affected their ability to secure finance, 58 percent are nonetheless looking to buy a property in next 6-12 months.
According to the survey, 72 percent of investors are unconcerned about the potential removal of negative gearing and only 2 percent think that negative gearing concessions are a key attraction of real estate investment. This would tend to contradict general media perceptions that investors are piling into real estate, allegedly forcing up prices, because of the tax breaks.

Indeed, the survey shows that almost half of property investors are positively-geared and two-thirds of those who are currently negatively-geared expect they will become positively-geared within five years.

Close to nine out of ten prefer to buy existing properties rather than new, which would suggest the ALP plan to restrict negative gearing to new properties to encourage construction activity would be ineffective (especially given the oversupply of new apartments).

Another myth-buster is the finding that only 13 percent of investors see record low interest rates as the key reason to get into property investment. Most media commentary (usually sourced from economists) would have us believe that the key driver of the mythical “national property boom” has been record low interest rates.
PIPA chair Ben Kingsley says the survey results confirm that property investors remain focused on the long-term benefits of property investment and are not distracted by fleeting media issues like negative gearing, alleged bubbles and looming oversupply in some markets.

As an interesting sidelight from the general theme, investor views on which cities now provide the best investment prospects have the capital cities ranked in this order: Brisbane, Melbourne, Sydney, Adelaide, Perth, Hobart, Canberra and Darwin. Half of the survey respondents voted for Brisbane.

Terry Ryder is the founder of hotspotting.com.au. You can email him or follow him on Twitter.

Terry Ryder

Terry Ryder

Terry Ryder is the founder of hotspotting.com.au.

First Time Buyer Median Prices

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