Larry Schlesinger | 12 November 2012

NSW first-home buyer numbers trending up could be a rush or a recovery

The number of home loan commitments to NSW first-home buyer numbers has risen for four consecutive months with the state appearing to lead a first-home buyer recovery, according to ABS housing finance figures.

September housing finance data show that first-home buyers as a proportion of the total market reached 19.3% in September, their highest market share since January and  as pointed out by CBA senior economist Michael Workman above the long-run average of 18.5%.

Andrew Hanlan, senior economist at Westpac, said further gains were to be expected from first-home buyer market.

But will they come from NSW?

A cursory look at the evidence, suggests the state is leading the revival - in raw terms loans to NSW first-home buyers are up a healthy 21% since June.

NSW is also the only state to record a steady monthly increase over this period with almost the exact opposite happening in Victoria, where loans to first-home buyers have fallen around 20% since June.

The number of loans to first-home buyers are largely unchanged in Queensland, South Australian and WA over this period.

The improvement in NSW would suggest a return of the key first-home buyer market in a significant way.

But it could be nothing more than rush by this sector of the market to access the $7,000 first-home owner grant which expired on September 30 replaced by a new $15,000 hand-out but only for those building or buying a new home.

Market observers like Angie Zigomanis at BIS Shrapnel have argued that incentives pull demand forward but create a vacuum when the incentive ends.

Ray White chairman Brian White told Property Observer last week that first-home buyer incentives distorted the market, “and not in a healthy way”.

White calls the increased NSW $15,000 handout for new homes “no longer a first-home buyers  but a builders incentive” and a "deceit".

For the NSW first-home buyer rally to be significant the pick-up in first-home buyer numbers will need to continue into October and beyond.

There will also need to be a pick-up in NSW first-home buyers taking out loans to buy or build new houses.

The ABS data does not break down the data into type of buyer so ascertaining this trend is difficult.

The data that is available shows a 16% overall rise in loans to NSW borrowers for the purchase of new dwellings since June which is encouraging.

However, loans for the construction of new homes in NSW have fallen about 20% over the same period – economists point out that a recovery in construction takes longer to filter through.

In the case of Victoria, the slump in first-home buyer numbers may also have something to do with ending of government incentives with both the $13,000 first-home bonus and the $6,500 regional bonus ending on June 30.

They may also be waiting to take advantage of increased stamp duty savings concessions, which formally begin on January 1, 2013 (but take effect for purchases beginning in November, given 60 day settlements) with the potential to generate potential savings of as much as $3,000.

The $7,000 first-home buyer grant still remains in place in Victoria for both existing and established homes.

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