Hopes high despite first buyer drop-off

WHILE 2013 started with predictions of big things from first home buyers, latest statistics show things couldn’t get much worse for this sector of the market.

First home buyers deserted the market in late 2012. Getty Images

WHILE 2013 started with predictions of big things from first home buyers, the latest statistics show things couldn't get much worse for this sector of the real estate market.

First home buyers exited the market in droves in the closing weeks of 2012.

The latest figures from the Australian Bureau of Statistics (ABS) show the number of first home buyers taking out loans in December 2012 fell to 14.9%, or 6557 commitments.

The drop was the fourth consecutive month of decline.

The 14.9% result was the lowest proportion of first home buyers making finance commitments since June 2004, while the number of commitments was the lowest since February 2011.

"The decline in first home buyers is a concern, given the various incentives to entice them into the market," Master Builders Australia chief economist Peter Jones said.

"The RBA should give urgent consideration to a rate cut at its March board meeting."

RP Data research analyst Cameron Kusher agrees the results are a blow.

"Considering that the number of commitments were up by 4.9% compared to 2011 volumes, and standard variable mortgage rates were 85 basis points lower in December 2012 than they were in December 2011, this is a fairly disappointing result," Mr Kusher said.

Between 2000 and 2012, there had been an average of 117,686 housing finance commitments to first home buyers each year.

Based on these figures, housing finance activity by first time buyers was 17% below the average during 2012.

There were some stand out results across the year though, with first home buyers very active in October (9215 commitments), May (9110) and August (8921).

The spikes in activity can be largely attributed to interest rate reductions in October and May.

"Clearly the falls in variable mortgage rates over these months resulted in an increase in activity by first home buyers," Mr Kusher said.

"On the other hand, first home buyer activity tapered off significantly over the final two months of the year despite a further cut to mortgage rates in November. Changes to stamp duty rates and first home buyer concessions, particularly if they buy or build a new property, may have also had an impact on the results over the year."

But just because 2012 ended with a whimper, doesn't mean 2013 is doomed too.

Mr Kusher is optimistic that the time is right for a change in fortunes.

"Given that the impact of mortgage rate cuts takes time to filter through to the market, we expect that first home buyer finance commitments will be stronger throughout 2013 than 2012," he said.

"The delayed impact of cuts to mortgage rates is highlighted by a slightly greater number of first home buyer commitments through the second half of the year (49,765) than the first (47,907)."

Confidence is also returning to the market.

The Westpac-Melbourne Institute monthly survey has found that consumer sentiment rose 7.7% in January, which was the largest monthly increase in two and a half years.

The index is also at its highest reading since December 2010 and it is the first time the index has been at or above 100 points for four consecutive months since June 2011.

Real estate listings are rising and auction clearance rates are also heading in the right direction; it's all pointing to rosier times ahead.

"Given a rise in home values over the second half of 2012, and the prospect of further mortgage rate cuts in 2013, these conditions bode well for a further increase in first home buyer activity," Mr Kusher said.

"As to what extent first home buyer activity increases remains to be seen, however, we anticipate that any further increase is likely to be fairly moderate."