Market view: The outlook for first home buyers, beyond the smashed avocado

Are first-home buyers active in the market these days or are they all just crying into their smashed avocados?

Do we really need to forgo even the smallest luxury in life to own a home in Melbourne? Winning the lottery or a lump sum inheritance from your third cousin twice removed seems as far fetched as the notion of getting a foot on the ladder.

Let’s take investor activity out of the equation (because we know it’s booming) and focus on finance approved for those who are actually going to reside in the purchased home. This will shed some light on first-home buyer activity.

During 2009, almost 48,000 first-time buyers seized the opportunity to become home owners in Victoria, according to ABS finance data. First-home buyers were enjoying smashed avocados in their own home as this sector made up a massive 29.6 per cent of owner-occupied housing loans approved for the year.

The peak in activity was certainly bolstered by the Government’s First Home Owner Boost, an initiative to support buyers through the global financial crisis. Subsidised stamp duty, interest rates at 50-year lows and a struggling housing market helped to lessen the burden.

The fact the proportion of first-home buyers in Victoria are at the lowest level on record illustrates the struggle to home ownership is real. It cannot all be blamed on so-called frivolous spending.

Almost 27,000 first home buyer loans were approved during 2016. Non-first home buyers are at record highs, with just over 153,300 loans approved in Victoria.

The disparity between 2009 and 2016 first-home buyer activity is extreme. To put current activity levels into perspective, the proportion of Victorian first home buyers to non-first home buyers is well below the long-term average of 21.1 per cent.

Only 15 per cent of owner-occupied loans approved last year were first home buyers. Under the current low interest rate environment a higher proportion of tenants transitioning to home owners is anticipated.

Melbourne is the second most expensive place to purchase compared to the other state and territory capitals, making for a tough path to home ownership. The dream of purchasing a detached home would take the average Victorian resident six years and seven months to save a 10 per cent deposit and a staggering 13 years and four months for the ideal mortgage insurance avoidance 20 per cent*.

The notion of your own block is perhaps a thing of the past for a first timer in Melbourne. Putting aside one-fifth of the average after-tax salary would take a more realistic three years and nine months to save a 10 per cent deposit for a unit and seven years, seven months for 20 per cent. Bear in mind this is not factoring in property price growth in this timeframe, making for conservative estimates, particularly if prices forge ahead as they currently are.

The adage of buying where you are able to afford and renting where you want to live is something to consider. Or perhaps we are transitioning into an era where long-term tenancy is the norm – at least until that windfall.

*Calculated using ABS:6302.0 Average Weekly Earnings trend data, ATO tax calculator and Domain House Price Report December 2016, savings based on 20 per cent of average after-tax salary.