Are first home buyers being priced out of the market?

Rising property values combined with stricter borrowing measures means first-time buyers are finding it harder to break into the property market, particularly in the capital cities. However, recent Reserve Bank research showed that those who take the leap into homeownership today are more stable and less likely to get into financial difficulty compared to earlier generations. 

The RBA study found that currently about 4.5 per cent of the rental population buys their first house each year, down from a level of about 7 per cent in the early 2000s. Furthermore, since the GFC in 2008, the number of mortgage holders between 25 and 34 has fallen from 12 per cent to 9 per cent.

The research investigated if this decline in first home buyers is influenced by an unwillingness to take on debt since the GFC, or whether people are establishing households at a later age due to changing demographics. It concluded there had been no change in either. 

The study concluded that the primary factor explaining the decline in first-home buyers’ share of the market was in fact the rise in house prices and the subsequent increase in the amount of deposit required. The escalation in house price values means that today, first home buyers are spending an average of 330 per cent of their income to buy a property, compared with 230 per cent in the early 2000s.

But there is a silver lining. Although first-time buyers are taking on more debt, those who do it, are paying it down slightly faster than those who entered the market prior to the GFC and are less likely to report experiencing financial stress.

What we can take away from this research is that that higher deposit requirements are actually acting to filter out less financially secure households from home ownership. And, whilst saving a deposit is a stretch, it’s also a sign of financial discipline that results in fewer subsequent difficulties down the track.