Home buyers lose confidence in the housing market as prices rise, affordability worsens

Rapid property price growth and the lack of homes to choose from has begun to dampen buyers’ spirits in a fast turnaround from the market confidence that jump-started the year, a new survey has found.

ME’s latest Quarterly Property Sentiment Report has found the overall sentiment of buyers and sellers in the residential property market dropped seven percentage points to 42 per cent.

It follows record high sentiment recorded during the first quarter of 2021 when property prices started their meteoric rise.

While ultra low interest rates were a major driver of that price growth, so was the imbalance between the number of buyers competing for a limited number of homes, according to ME’s head of home loans and personal banking Claudio Mazzarella.

This environment, coupled with soaring prices that are stretching out of reach, was wearing buyers down, he said.

Overall, 60 per of survey respondents believed there was not enough choice in the current residential property market – a 17 percentage point increase since January.

It has hit first-home buyers the hardest — this segment of the market recorded the lowest level of positive sentiment this quarter, down three percentage points to 24 per cent.

But housing affordability was by far the biggest concern for buyers with an overwhelming majority (91 per cent) of respondents saying “it was a big issue in Australia”. That figure rose to 93 per cent among first-home buyers.

Affordability concerns appear to remain front and centre with about seven out of 10 buyers expecting prices to increase in their area in the next 12 months.

Melbourne first-home buyer Daniel Dukovcic has been looking for a home for the past six months and he expects to be looking for some time longer before he is able to buy.

“It’s frustrating that there aren’t more affordable places close to Melbourne or within the northern suburbs in my price range,” Mr Dukovcic said, adding that he expected prices only to rise by next year.

He said he wanted to buy in the next year “before the next downturn”.

Despite deteriorating sentiment, more than half (58 per cent) of buyers still felt a sense of FOMO [fear of missing] when looking to buy a property in the current market.

Fifty-two per cent of first-home buyers are looking to purchase a property in the next 12 months, followed by investors at 40 per cent then owner-occupiers at 21 per cent, the survey found.

And, investors are set to jump back into the market in a big way as their positive sentiment jumped to 52 per cent – the highest for any buyer group this quarter.

Investors are hoping to cash in on record property prices, with 23 per cent indicating they want to sell their property in the next 12 months compared to only 11 per cent of owner-occupiers.

Mr Mazzarella said investors had decided to come back to the market now because they could see opportunities.

“They’re trying to capitalise on the predicted property prices. People are determined to get in now before they’re completely priced out.”

Soaring Sydney prices during the pandemic has spurred on investor Tim Karet to jump onto the property ladder.

“I’m worried that house prices in Sydney will keep going up and that it will be even more difficult to enter the market and own a property,” Mr Karet said.

“For me personally, purchasing an investment property outside of Sydney seems like a safer option,” he said. “Due to the increased prices and scarcity of properties, I have been looking more towards the Central Coast and surrounding areas.”

Despite declining buyer sentiment, the wealth effect was still in full swing, with property owners “sense of wealth” and “general financial confidence” increased to the highest levels since ME’s survey began in April 2019 at 41 per cent and 42 per cent, respectively.

ME’s report is based on a national survey of 1000 Australian adults in April in the property market, which includes owner-occupiers, investors and first-home buyers.