FOMO is back and driving rebound in homebuyer lending

Interest rate increases are no longer deterring home buyers, who have feeling the fear of missing out as property prices rise.

Buyers who have sat on the sidelines of the property market through the past year of interest rate rises are back out in force ­despite borrowing capacities being cut by a third.

Owner-occupiers and investors drove the rebound in home lending, according to the latest Australian Bureau of Statistics data released on Tuesday, which reveals respective rises of 4.5 per cent and 6.2 per cent through May compared to the previous month.

The shift towards FOMO, or the fear of missing out, as a result of property prices rising for the sixth consecutive month through June is likely one of the deciding factors for many, said Ray White chief economist Nerida Conisbee.

“There were a lot of people sitting on their hands last year watching and waiting and expecting that big massive price drop which didn’t happen,” she said.

“Now we have people scrambling to get in before even more prices increases start to happen.”

However, borrowing is still significantly lower than at the same time last year, as the ­Reserve Bank pulled the trigger on the first of a dozen increases. As a result, the amount people can borrow has dropped significantly.

Geoff Lucas, the chief executive of national real estate network The Agency, said some younger buyers were getting ­financial support from their parents, while some renters were getting fed up with surging rents.

“Increasingly, we’re seeing not just the Bank of Mum and Dad, supporting and acquiring on ­behalf of younger people,” Mr Lucas said. “Migration is also underpinning the property market at the moment … because new immigrants don’t become purchasers immediately. The fact is they’re adding to the rental demand and that tips other people that are in the renting into buying.”

Auction clearance rates have remained unseasonably strong, with PropTrack recording about 70 per cent of homes selling under the hammer in Sydney and Melbourne. Ray White has seen the number of average bidders rise from 2.2 to nearly three since the start of the year, which Ms Conisbee said was a sign of strength.

“It’s just representative of more heat that come back in and people are just scrambling to get something before prices continue to grow,” she said. Apartment building approvals almost doubled in Sydney last month, while increasing 43 per cent in Melbourne. Housing ­Industry Associations chief economist Tim Reardon believes the approvals “anomaly” will not necessarily be reflected in a rise in completed properties down the line. “These approvals aren’t going to flow through to commencements in the short term,” Mr Reardon said.

He suggested the huge rise may be reflective of applications being reapproved with modifications to meet code requirements or adjust prices, or an influx of build-to-rent projects.

The moderate rise in lending for new builds (up 1.9 per cent) in May, failed to offset longer-term reductions in demand, which is down 31.1 per cent over the past three months compared to the same period a year ago.