House prices may be on the increase, but that has not quenched the desire of first home buyers to get into the property market.

According to ME's fourth Quarterly Property Sentiment Report first home buyers’ hopes of breaking into the market have jumped dramatically, with half (51%) of first home buyers planning to buy property in the next 12 months, compared to 38% in Q2 2019. 

The report performed a survey of 1,000 Australians in the property market – conducted in January, Q1 2020. 

At a glance:

• Positive first homebuyer's sentiment jumped to 51%  from 38%
• Property market sentiment increased to net positive 21% up from 7%
• Ninety-two per cent of respondents agree that housing affordability is a big issue in Australia

“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,” said ME’s General Manager Andrew Bartolo. 

“In the case of first home buyers, 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 (Fear of missing out).

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

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

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Source: ME Bank

Over half (55%) of respondents predict prices to rise over the next 12 months – a massive jump from the mere 38% who predicted price rises in Q3 2019 when the market first began to turn. 

Strong house value growth is predicted by Victorians more than any other state; with 67% of Victorian respondents predicting prices to go up - a 10 percentage point jump from last quarter’s prediction, and a 34 percentage point jump from their Q2 2019 prediction. 

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

Positive house price expectations were seen across owner occupiers, first home buyers and investors. 

The report shows sentiment towards the property market has improved for the third quarter in a row, increasing to net positive 21% (up 3 percentage points from Q4 2019, and up 14 percentage points from Q2 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 Mr 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. 

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 3% to net negative 8% 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 Mr Bartolo. 

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% in Q4 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% 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 Q2 2019. 

Tight credit policies are becoming less of a concern with only net 6% agreeing it’s a worry (down from net agree 16% last quarter). 

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

The report also tracked the perception of choice in the property market and found almost half (46%) of total respondents believe there is not enough choice, with this figure jumping to 57% among first home buyers. 

“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 Mr Bartolo. 

“With so many first home buyers 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.”

Read the report here

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