Aussie house prices and first time home buyers under threat amid spike in overseas investment

As property values hit there highest level in 17 years, investors are leaping back into the market, which is bad news for one group of buyers.

The dream of owning a home could be even further out of reach for young Aussies as investors flood back into the market and property prices skyrocket to eye-watering levels.

While first homebuyer activity accelerated during the pandemic, with inquiries on realestate.com.au up 62 per cent on the year prior, this is already starting to drop as investors return and the market heats up in 2021, a report from the REA Group found.

Nerida Conisbee, realestate.com.au chief economist, said investors tend to get more active in the property market when prices rise and they will be direct competition to first time home buyers.

“The main reason being first home buyers and investors target similar property prices and areas,” she told news.com.au. “One thing that helps first home buyers in slow markets is they don’t have much competition from investors and we are already starting to see inquiries from first home buyers stabilise on realeastate.com.au — it was surging upwards last year and it’s starting to flatten out.”

New data showed that property values are rising at the highest rate since 2003, according to the latest CoreLogic data.

At the moment, Sydney’s median property value, including both units and houses, is now a staggering $895,933, with Melbourne hot on its heels at $717,767, followed by Canberra at $706,454.

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Auction for a three bedroom, one bathroom house in Maroubra in Sydney, which sold for $3.7 million at auction on the weekend. Picture: NCA NewsWire / Dylan Coker

When property prices start to improve, investors tend to start buying up due to confidence returning to the market, said Ms Conisbee.

“In Melbourne, South Yarra and St Kilda are popular with investors and are good examples of first home buyers and investors looking to get into the same two suburbs and its much more highly competitive,” she said.

“At the moment, somewhere like Surry Hills in Sydney for a unit is popular with first home buyers and investors and these sorts of markets are set to become far more competitive in 2021.”

A drop in property stock could also exacerbate the situation for first time home buyers.

Figures released by SQM Research showed national residential property listings decreased in February 2021 by 2.7 per cent, to stand at almost 258,00 listings. This happened despite just over 76,00 new listings being added into stock, meaning buyers are absorbing listings at a quicker pace than currently being added into the market.

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A busy auction at Abbotsford, Sydney on the weekend. Picture: John Appleyard

But Ms Conisbee said it isn’t all doom and gloom for first home buyers — with new builds still a great opportunity, as well as housing regional Australia despite people fleeing the cities and snapping up sea change properties during the COVID-19 pandemic

“There are definitely properties available at cheaper points around Australia. Fundamentally it does depend where you want to live, but a lot of activity is occurring in regional Australia and places like Wollongong, the Central Coast and those areas still have much more affordable housing and have done well during pandemic as people are working differently and geographically it has opened up Australia a lot wider,” she said.

“Some units you can get a good deal. There is big increase in vacant apartments right now in places like North Parramatta and Ryde in Sydney and Carlton in Melbourne, so it does open up opportunities for first home buyers who want to buy something at a much more affordable price.”

Ms Conisbee’s advice for first home buyers is to take the leap and get into the market to build up equity.

“I don’t know anyone whose first home is their dream home — it’s not quite right and not in the area they want, but over time as they pay off the loan and equity goes up and there is an opportunity to upgrade and buy somewhere they want to live,” she said.

“Don’t worry if it’s not your absolute favourite place in terms of what you bought to start.”