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First home buyers hit by affordability double whammy

Michael Yardney and Dr Andrew Wilson give an update on the Australian property market.

Video transcript

MICHAEL YARDNEY: First-time buyers are being hit by a double whammy of higher property prices plus cost of living hikes. Yet the latest results for the February quarter from Dr. Andrew Wilson's My Housing Market First Home Buyer Affordability index reveals a slight, a slight improvement in national affordability. That's the topic of this week's Property Insider chat for "Yahoo Finance" with Dr. Andrew Wilson, Australia's leading housing economist.

Hi, Andrew. Housing affordability and the potential difficulty of first home buyers to get a foothold in the market doesn't seem to be leaving the news. What are your findings showing?

ANDREW WILSON: We run two indexes, Michael, which is, one, generally for affordability for all buyers. But we also run one for first home buyers as well. And our latest one, no surprise, of course, has seen a collapse in affordability for first home buyers over the past year. And when we matched that against the level of the number of first home buyers, no surprise that we've seen a significant fall in the number of first home buyers.

Affordability constraints, which have come, of course, from higher house prices, will drive first home buyers out of the marketplace, which we're seeing. They can't save at the same rate that house prices have been rising. So that tends to marginalize them.

Of course, a number of the government initiatives that have been directed at first home buyers, particularly the first home buyer deposit scheme, that's run its course. And, certainly, affordability is driving first home buyers out of the market. They don't have the trade-in to bring into the marketplace as owner occupiers have.

So they can't keep up with prices growth with their trading price rising as a consequence. And, of course, we know wages growth is still particularly benign. So, eventually, high prices will affect first home buyers.

But, of course, the other problem is those first home buyers that are aspiring to get into the housing market are now faced with the, I guess, the double whammy of, well, I guess what the positive is that prices growth in Melbourne and Sydney is easing. But, unfortunately, rental growth is very strong. So that limits their savings capacity. So cost of living issues will confront prospective first home buyers getting into the marketplace. We've had a period of very strong first home buyer activity, which came through a period of lower prices and also as a result of a number of stimulus packages directed to that group.

But, look, on the positive side, the government has announced an extension to the first home buyer deposit scheme. But I think, at the margin, that will certainly improve first home buyer activity. But I think the problems are more generalized than that, Michael, particularly given strong investor activity, which tends to crowd out first home buyers the potential for more demand coming into the marketplace not just for buyers but for renters from the resumption of migration and those international student numbers.

It's even though prices have stabilized and affordability is likely to improve as a result, it's still a tough ask going forward for first home buyers. And that the point is, of course, if prices haven't fallen, particularly in Melbourne and Sydney, they're just really steadying now and still remain quite high.

MICHAEL YARDNEY: Now, clearly, first home buyer affordability varies from state. And this chart shows not surprisingly that the two big capital cities

[INTERPOSING VOICES]

--are the least affordable. In other words, your index is higher. The higher the value of your index, the less affordable things are.

ANDREW WILSON: Yeah, well, I'm not surprised. That's what we see generally with affordability, Michael. All we have to do is at the comparisons in median prices between the capital city market. Sydney still tracking above $1.5 million median, which is double that of Brisbane, which means it's a lot easier to get into the market.

If you are in those smaller capitals in terms of prices, the best options really, again, are the unit market for first home buyers in terms of price entry points. Yeah, it's that-- and of, course, we had the most growth in Melbourne and Sydney also over the last two years in house prices, although Brisbane and Adelaide are certainly still rising quite strongly. And that has meant that it's been a tough ask for first home buyers to continue to enter the market with prices growth as strong as it's been in Melbourne and Sydney. And, of course, they will confront those same issues in Adelaide and Brisbane as prices are rising quite strongly there as well.

MICHAEL YARDNEY: When you look at the size of home loans, there's that quiet achiever, Canberra. One doesn't talk a lot about it. But, boy, the average home loan size for first home buyers is bigger in Canberra than in Victoria.

ANDREW WILSON: Yeah, that's right, Michael. And Canberra is clearly an undersupplied housing market. We know that it has a very restrictive supply line for land, for new home and land package. And that means, of course, prices are higher.

But the offset to that, of course, is that because you have to pay more or the average loan is higher, incomes in Canberra are also quite high, particularly in the lower demographic, which is obviously, typically, first home buyers. They have an advantage in terms of their income levels compared to other states. So that helps them, of course, afford a higher loan. But it does show that that's a pretty expensive market for first home buyers at Canberra market.

MICHAEL YARDNEY: Well, lots happening in the property markets, and there's lots more news coming up. So I look forward to catching up next week, Andrew.

ANDREW WILSON: Yes, see you Michael.

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