First-home buyers are increasingly opting for “memories not mortgages” as the high cost of getting into the market makes owning a home less appealing to younger generations in the post-Covid world.
However, there are signs that the tough conditions might be easing according to the latest Herron Todd White (HTW) Month in Review.
HTW Director Shaun Thomas said first-home buyers faced significant difficulties, including the highest interest rates in a generation and the increasing cost of living.
“This has driven many millennials and Gen-Zs to shun home ownership, with a post-Covid rise in the ‘memories not mortgages’ attitude, at least for now,” Mr Thomas said.
He said these days, first-home buyers had it tough.
“The first-home buyer market is heavily impacted by interest rate rises, rental increases and general cost of living pressures.
“Many of these individuals and couples are currently renting and have to absorb higher rents as well as rising general living expenses, further reducing the ability to save for a deposit.
“In addition, their borrowing power has been reduced given the increases in interest rates.”
HTW, National Director, Group Risk and Compliance, Kevin Brogan said market and economic conditions had conspired to make that first home purchase even more challenging.
“Saving for the deposit has been made much harder as more household income is required simply to meet the increase in the cost of living,” Mr Brogan said.
“In particular, the cost of renting has increased significantly.
“Higher interest rates have slowed the increase in residential property values, but in many locations there has still been growth.
“This has led to the bank of Mum and Dad becoming an increasingly important source of funds for first-time purchasers.”
He said that with high interest rates, price growth was likely to ease, which could open the door for more first-home buyers.
“Buying your first home has never been easy, but after an extended period of even tougher conditions, there are some hopeful signs for first time buyers,” he said.
“As we progress through the spring residential property selling season, there has been an increase in the number of properties listed for sale which should act to soften continued price growth.”
Mr Thomas said options for first-home buyers varied across Sydney, and tended to be units and townhouses, with houses in many locations out of their price range unless they had help from their parents or looked to co-purchase a property with a sibling or friend.
He said there were still affordable areas for first-home buyers in outer suburbs and in house and land markets.
“South-west Sydney is appealing to the first-home buyer market,” he said.
“With most of Sydney already out of reach for the majority of first home buyers, southwest Sydney provides affordability, variety and value for money. “
HTW Director Perron King said Inner and East Melbourne apartments in places like Richmond still offered good value for first-home buyers.
“Throughout Melbourne’s east, apartments and units are very popular amongst first-home buyers looking to get their foot in the door of the property market,” Mr King said.
“Given the often large price point difference between strata dwellings and houses, apartments and units are a far more attainable option for new purchasers, particularly those looking to buy in more inner-city locations.”
Mr King said price points varied across Melbourne’s western suburbs for first-home buyers and the proximity to the city influenced the type of property they could afford.
HTW Director, David Notley said as capital cities go, Brisbane was often an excellent option for first-home buyers wanting big-city convenience at a reasonable price.
He said while the city is affordable, it is near impossible for first-home buyers with a budget to acquire a detached home in Brisbane’s inner city suburbs without making some serious compromises.
“Secondary locations and dwelling in poor condition are likely to be part of the mix… and you still probably won’t get anything close to the CBD for under $1 million,” Mr Notley said.
“Units and townhouses will be within reach for many first-home buyers.”
He said in the family-friendly, inner-to-mid-ring demand from first-home buyers remained strong.
“That said, rising interest rates and competing demand from investors and downgraders have resulted in many first-time buyers needing to exercise some caution about how much to spend,” he said.
“Outer southside suburbs are popular with firsttime buyers primarily because of their relative affordability, comprehensive services and reasonable quality housing.”
HTW Valuer Nick Smerdon said despite Adelaide’s reasonable median price, first-home buyers are typically priced out of their family home’s suburb and seek comfort by purchasing in adjacent suburbs which have more affordable price points.
“First-home buyer stock varies throughout metropolitan Adelaide,” Mr Smerdon said.
“Given the increased price point of the inner ring, strata units, small scale dwellings and infill development characterise the stock available for first-home buyers.
“Circa 1960s to 1980s strata units typically range in price from the mid $200,000s to the mid $600,000s whilst small scale dwellings range from the upper $600,000s to $1.5 million.”
He said the middle ring had a more affordable price point with a closer correlation to the broader metropolitan median house price.
“In this market segment, first-home buyers begin to see greater bang for buck as a broader range of detached dwellings become available in the $450,000 to $1 million price bracket,” Mr Smerdon said.
HTW Director Chris Hinchliffe said first-home buyer activity iwa predominately focused on the outer suburbs, with the inner city still relatively expensive.
“Naturally with property prices more expensive the closer you are to the CBD, first home buyers are typically professional couples who have accumulated a healthy deposit to put towards their starting pad, be that a small green titled home or a strata apartment or townhouse, however there are some surprisingly affordable options available as well,” Mr Hinchliffe said.
“In addition to picking up the typically cheaper, older apartments in the $200,000 to $400,000 range which are also eyed off by astute investors, recently we have seen a number of first home buyers purchasing off the plan apartments in complexes offering additional communal benefits and stamp duty rebates if purchased prior to the commencement of construction.”
For first-time buyers with the security of somewhere to stay in the meantime, this can be a very appealing option if you are brave enough to assume that construction start.
Mr Hinchliffe said while a solid number of first home buyers are still securing house and land packages in the $400,000 to $600,000 vicinity in suburbs such as Brabham, there is a hive of activity in the suburbs of Craigie, Pearsall and Hocking with median selling prices ranging in the high $500,000s and median rents averaging between $550 and $650 per week.
HTW Valuer Cameron McDonnel said with the interest rate rises over the past 12 months, demand has fallen, as the ability for first-home buyers to enter the market has decreased, coinciding with the capacity of first-home buyers to service new loans becoming more difficult.
“Prices have started to stabilise and in some locations have shown signs of decline,” Mr McDonnel said.
“Palmerston is relatively affordable with newer three-to-four-bedroom dwellings in developing suburbs such as Zuccoli available for under $600,000 and being attractive to many first home buyers.
“Affordability is always top of the agenda for first home buyers and homes on smaller allotments that are newer and low maintenance are often the preference.”
He said across Darwin a weekly mortgage repayment over a 30-year period will be equal to weekly rent and in some cases the mortgage repayment can be less.
HTW Assistant Valuer Michael Qu said buyers’ mindsets have changed slightly and they’re a bit more cautious now when it comes to their financial positions.
“First home buyers have been the hardest hit,” Mr Qu said.
“They’re looking for houses between $600,000 and $800,000 now, but previously, they were looking at spending about $1 million.
“First home buyers are mainly able to find units, duplexes and townhouses within their budget of between $600,000 and $800,000 in the current Canberra market.”
HTW Valuer Mark Davies said Tasmanian first-home buyers had a pretty sweet deal at the moment with a $30,000 contribution to all eligible applicants.
“The cherry on top is the 50 per cent discount on stamp duty for properties transacted up to $600,000,” Mr Davies said.
“In saying that, properties under $600,000 appear to be selling readily with numerous offers being submitted.
“Eastern Shore suburbs such as Oakdowns, Howrah and Rokeby, and northern suburbs around the Claremont and West Moonah areas are also ones to look out for if on the hunt for your first house.”