Latest NewsCashed up Investors Price out BuyersSunday, 08 January 2017

 First home buyers are rapidly being priced out of the property market as cashed up investors snap up properties amid a housing shortage.

Martin North, managing consulting director of Fujitsu Consulting, says a buoyant economy and strong jobs prospects have spurred established home owners to invest in property or upgrade their homes as house prices continue to rise.

"There's such pent up demand for property that, even if first home buyers are pretty much excluded from the market because they just can't afford to get in, other sectors of the economy will continue to buy," Mr North told AAP.

Official data released this week show that finance provided for housing fell in February for the fifth straight month.

Demand for home loans continued to wane, even before interest rate increases in March and April, with just 50,287 mortgages granted to owner-occupiers in February, Australian Bureau of Statistics (ABS) figures showed on Monday.

Loans were down by a seasonally-adjusted 1.8 per cent compared to January, which was more than 1.0 per decline that economists had forecast.

It brought the number of owner-occupied home loan approvals to a 16-month low, 22 per cent below their peak in September last year.

Mr North said affordability for first home buyers was likely to keep falling while investor appetite picked up.

"We have such a demand from property investors and people trading up who are now feeling more wealthy and affluent, because the GFC has passed and their jobs (are) safe, that we've got quite a lot of buoyancy in the marketplace," he said.

Average loans now were 40 per cent larger than in 2005, although the number of loans had not increased greatly, Mr North said.

With recent house price increases, some home owners were using additional equity to purchase property, cars or holidays.

Mr North dismissed speculation that a property bubble was emerging.

There was a nationwide shortage of at least 300,000 homes which was putting upward pressure on prices, he said.

First home buyers, on average, now put 40 to 45 per cent of their income aside for mortgage repayments while established owners were paying between 25 and 30 per cent, he said.

The latest ABS figures show that a mild upwards trend in the value of loan approvals to investors was reversed in February, but the value of lending to investors still was well above the crisis levels of a year ago, by 26 per cent.

Three interest rate rises and an end to the federal government's more generous first homebuyer grant at the end of 2009 were blamed for the steady drop-off in mortgage demand.

Some analysts say the current cash rate of 4.25 per cent might have already started to bite.

"It might be happening already," said Mortgage and Finance Association of Australia chief executive Phil Naylor.

"Because home financing has dropped over the last few months, initially the reaction was that this is because of first home buyers and that is probably true," Mr Naylor said.

"The slowdown is continuing, so you're probably entitled to say now that the slowdown is more to do with the fact that interest rates are on the increase."

There were signs that investors were coming back to the market, he said.


"They have partially taken over some of the fall away that's occurred in the first home buyer area," Mr Naylor said.

As interest rates rose, the percentage of first home buyer loans would "dwindle a bit further," Mr Naylor said.

Meanwhile the Real Estate Institute of Australia (REIA) has called for an increase in the first home owner's grant and expressed concerns that major banks could increase the deposit requirements for first home buyers from 10 per cent to up to 20 per cent.

"I am deeply concerned about the impact this will have on first home buyers as they struggle to bridge the deposit gap," REIA president David Airey said