Rising prices yet to crush first home buyers ownership dreams in 2020: ME Bank

The Members Equity Bank's findings from its fourth Quarterly Property Sentiment Report reveals that the rising house prices are yet to crush the home ownership dreams of First home buyers.

The survey of 1,000 Australians in the property market took place in at the start of the month - the first quarter of 2020. 

Compared to the second quarter of 2019 where only 38 per cent of FHBs intended on buying property, FHBs' hopes of breaking into the market have jumped dramatically with 51 per cent of FHBs planning to buy property in the next 12 months. 

ME’s general manager Andrew Bartolo said, “Rising property prices carry the risk of squeezing first-home buyers out of the market, however they also signal a healthier market that presents a worthwhile long-term investment.

“In the case of FHBs, the recent property price recovery has likely nudged them to get in while they can – as though it’s ‘now or never’ – and has created a sense of FOMO.

“Low interest rates and commentary in the market for the support of FHBs may have also contributed to an increase in home-buying intentions.”

Over half predict house prices will continue climbing.

Recent property prices across Australia’s key property markets aren’t expected to halt any time soon, according to Australians in the property market.

55 per cent of respondents expect prices to rise over the next 12 months. This is a massive leap from the mere 38 per cent who predicted price rises in the third quarter of 2019 when the market first began to turn.

Strong house value growth is predicted by Victorians more than any other state, with 67 per cent of Victorian respondents predicting prices to go up. This is a 10 percentage point jump from last quarter’s prediction, and a 34 percentage point jump from their prediction for the second quarter of 2019.

All other major cities had a more optimistic outlook on prices than last quarter, including WA where more were predicting price falls than rises in the last quarter.

Positive house price expectations were seen across owner occupiers, FHBs and investors.

Overall property market sentiment improves.

The report shows sentiment towards the property market has improved for the third quarter in a row, increasing to net positive 21 per cent. This is 3 percentage points up from the fourth quarter in 2019, and up 14 percentage points from the second quarter in 2019 when the report first started.

“Considering a combination of market factors including the buzz of home value growth, a solid spring selling season, plus rate cuts and signs from the RBA that rates will stay lower for longer, it’s no surprise overall property sentiment has improved,” said Bartolo.

Investor optimism has dipped slightly and is now on par with that of owner occupiers, as rising prices present a potential barrier to this cohort.

Spending habits take another hit.

ME’s report revealed price positivity and overall market sentiment isn’t flowing through to spending habits.

Recent property price movements have negatively impacted ‘willingness to spend on discretionary items’ for another quarter in a row. It remains the only area of personal finances that has stayed net negatively impacted - sliding deeper from net negative three per cent to net negative eight per cent over the past quarter.

All other areas of personal finances analysed such as sense of wealth, financial confidence, savings behaviour and debt situation, remain net positively impacted by recent price movements.

“Despite market positivity and a stronger sense of wealth, there’s less willingness to spend on discretionary items – a trend that bucks the wealth effect theory. Much broader economic dynamics are obviously at play,” said Bartolo.

Growing optimism eases financial worries, but affordability remains an issue

Growing optimism over the past quarter has eased most financial worries, but housing affordability still tops the list.

Ninety-two per cent of respondents agree that ‘housing affordability is a big issue in Australia’, up from 89 per cent in the forth quarter of 2019.

ME’s report explored level of personal worry towards affordability, as well as acknowledgement of the issue, for the first time and found net 14 per cent agree with the statement ‘I’m worried about property becoming unaffordable’ – making it the top worry.

All other perceived worries in ME’s report have eased to the lowest point since the survey began in the second quarter of 2019.

Tight credit policies are becoming less of a concern with only net six per cent agreeing it’s a worry, which is down from net agree 16 per cent last quarter.

Concern over negative equity has dropped dramatically to net disagree 34 per cent, from net disagree 12 per cent last quarter. Likewise, worry about being forced to switch to interest only payments also slid to net disagree 30 per cent from net disagree 12 per cent last quarter.

Not enough choice in the market

The report also compared the perception of choice in the property market. Forty-six per cent of respondents believe there is not enough choice, with this figure jumping to 57 per cent among FHBs.

“Housing supply has picked up slightly, but with prices rising and demand outweighing supply, there’s no wonder that almost 1 in 2 Aussies don’t think there’s enough choice available,” said Bartolo.

“With so many FHBs planning to buy in 2020, yet most stating choice in the market is a barrier, addressing this issue should be a focus in the year ahead.”