Investors target housing market as first home buyers turn away: Survey

Investors are set to storm back into the housing market in the next 12 months as lower subsidies, high prices and rising interest rates push first home buyers out of the market.

That’s the message from Adir Shiffman, chief executive of comparison website HelpMeChoose.com.au, who studied 5,000 mortgage inquiries made in October. Shiffman says the inquiry database is a good leading indicator of housing market activity as it is generally around two months ahead.

At the height of the first home buyers boom earlier this year, inquires from first home buyers accounted for 66% of all inquires. In October inquiries from first home buyers had slipped to 26%.

“I would not be surprised if it dips below 20% next month – that’s fallen off a cliff,” Shiffman says.

While rising rates and the big jump in house prices will be making some first home buyers think twice, Shiffman says the sharp drop off has more to do with the reduction in the Federal Government’s first home buyers grants, which dropped on 1 October from $14,000 to $10,500 for established homes and $21,000 to $14,000 for new homes. From 1 January, both grants will be scaled back to $7,000.

Shiffman’s data is supported by separate information from mortgage broker AFG, which showed the actual volume of loans sold to first home buyers in October fell 27% to $357 million in October.

Shiffman says developers and property companies that have concentrated on designing and building stock specifically for first home buyers – including houses at the affordable end of the market and larger apartments – could see a big drop in activity entering 2010.

“In terms of stock designed and packaged specifically for first home buyers we’ll see a poor period for that end of the market.”

Despite the exit of the first home buyers, Shiffman isn’t expecting a drop off in prices around the $500,000 mark targeted by young buyers.

That’s because inquiries from investors have soared in recent months from a low of 3% earlier this year to 12%.

Most investors are also looking for properties around the $500,000 mark, which should help support prices in this bracket.

While lenders might not be too pleased with the departure of the first home buyers, Shiffman says they will be pleased with interest rate movements, which are prompting more mortgagees to refinance their loan. Refinancing inquires as a percentage of the total market have increased from 14% to 26% in the last few months.

“If I was a lender today I would be trying to take Glenn Stevens on dates and buy him dinners. The movement of rates is a prime driver of lender activity.”