Perception of Real Estate Market in 2009, According to New Survey

The survey of people planning to purchase their first home before 2010 also found that the proportion who are planning to make financial sacrifices in order to purchase has fallen from 92% in 2008 to 73%, which suggests they are in a better position to buy.
Although 40% of Victorian respondents said the First Home Owner Boost was ‘too good to refuse’, the main motivation to purchase property this year was historically low interest rates (62%). 48% of respondents also said that low property prices influenced their decision, while 34% said rent is too expensive, and 29% said rent is comparable to home loan repayments, making now an opportune time to purchase. 
95% plan to cut back on spending in order to purchase a home before 2010, the most of any state, while just over half the respondents (53%) said the largest concern about buying a home was, by far, the length of time it takes to repay a home loan.
Mortgage Choice Senior Corporate Affairs Manager, Kristy Sheppard said, “With low interest rates and relatively stable housing prices top-of-mind for those interested in the property market, it is intriguing to see the change in attitude and inclinations of today’s pro-active first homebuyer. Victorians who are about to buy their first home appear to be entering the market with more confidence than their predecessors.”
“We are living with rapidly evolving economic conditions, but it appears that many potential first timers are finally coming out of their shell and are determined to snap up a bargain. Recent ABS data shows just over 8,500 VIC first homebuyers have taken advantage of improved affordability by purchasing property from October through to December 2008, with significant increases seen in each consecutive month.
“It’s great to see our survey results showing first homebuyers-to-be are considering all options when it comes to owning their own place – whether it is a short-term savings plan to boost their deposit, making sacrifices to achieve their goals quicker, or buying with a partner to share the responsibility.” 
Other Key VIC Findings:

* 67% will purchase their first property with a partner, in comparison to 59% in 2008, while 26% will commit alone, in comparison to 31% in 2008
* 66% will purchase an established home despite extra Government incentives for new dwellings
* 31% plan to contribute 20% or more deposit, and borrow the remaining
* Victorians are the least likely to purchase land to build on, at 1%
* 14% are planning to turn their first home into an investment property
* 6% have not started saving towards their deposit but will before they buy, while 10% do not intend to save anything, instead relying solely on the First Home Owner Boost
* Generation X# represents the majority of first homebuyers planning to buy by 2010, at 55% – the most of any state
* Most popular first point of contact for mortgage advice is a mortgage broker at 26%

Now could be a great time to buy

As we have seen in the last few months, the appetite for first home purchases has risen to an impressive level. According to the Mortgage Choice survey, 62% of Victorians planning to buy their first home before 2010 were strongly influenced by low interest rates. Nationally, this response ranked highest of the motivational force. Although positive, it highlights the need for potential first homebuyers to always factor in potential rate rises.
“All buyers need to consider that whilst interest rates have hit a low we haven’t experienced in decades, they may rise considerably in future. So, those who don’t fix their loan rate will see their repayments rise eventually. However it is heartening to see the current market conditions have led to improved affordability. Home ownership, for many, is at present a realistic achievement,” said Ms Sheppard.      
Additional influences to purchase property before the end of 2009 included:

* Planned to purchase a property for a long time (51%)
* Low property prices (48%)
* First Home Owner Boost is ‘too good to refuse’ (40%)
* Rent is too expensive (34%)
* Rent is comparable to home loan repayments (29%)
* Slowed housing price growth (15%)
* The opportunity to move out of home and/or away from housemates (15%)
* Fewer rental vacancies (10%)
* Rising rental yields will benefit the first homebuyer once he/she moves out and turns the home into an investment property (8%)
“Renters should always consider moving into property ownership if their financial situation and lifestyle allow it. At present, opportunities are fantastic for potential purchases who are confident of their job security and/or finances. The historically low interest rates, Government incentives such as the First Home Owner Boost, low rental vacancy rates and continuing high levels of population growth are all positive factors for Australians looking to buy a property,” said Ms Sheppard.

Savings trends

10% of first homebuyers intending to purchase property before the end of 2009 are content with not saving and plan to solely rely on the First Home Owner Grant / First Home Owner Boost to compensate. A further 6% have not starting saving for their deposit but plan to before they buy.
As for deposits:
* 13% have saved less than $10K – in comparison to 42% in 2008
* 29% have saved $10K- 30K – up from 25% in 2008
* 23% have saved $30K-$60K – up from 7% in 2008
* 7% have saved $60K-$90K – up from 1% in 2008
* 6% have saved $90K-$150K – up from 2% in 2008
* 7% have saved over $150K – up from 5% in 2008

Property financing:
* 7% will borrow the full purchase amount
* 19% will contribute 5% deposit and borrow the remaining
* 29% will contribute 10% deposit and borrow the remaining
* 12% will contribute 15% deposit and borrow the remaining
* 15% will contribute 20% deposit and borrow the remaining
* 15% will contribute more than 20% deposit and borrow the remaining
“It is great to see first homebuyers in Victorian have been saving hard for their deposits. It seems they are pulling through the financial crisis with remarkable results,” said Ms Sheppard.

Extension of the First Home Owner Boost

If the First Home Owner Boost was extended to include all first-time buyers (home and investment property) 18% of VIC respondents said they would buy an investment property instead. 44% were content in purchasing an owner occupied home as their first time buy, while 23% were undecided.
“A figure worth noting is a savvy 14% of first homebuyers-to-be in VIC said they are planning to purchase an investment property as their first home regardless, i.e. with the intention to fulfil the First Home Owner Grant / Boost obligation to live in the property for a period of six months within the first year and then rent it out,” said Ms Sheppard.
Concerns of first homebuyers
The largest concern for Victorians about buying a home was the length of time it takes to pay off a home loan, at 53% of respondents, the most for any state.
“Historically low interest rates are providing first homebuyers with a great opportunity to reduce their loan term and the amount of overall interest paid because it is easier to make higher-than-necessary repayments. Significant reductions can also be achieved when a home owner ignores rate cuts and/or deposits periodic lump sum payments into the loan or offset account,” said Ms Sheppard.

Other concerns were:
* Not being able to afford repayments (47%)
* Being committed to such a large financial obligation for so long (42%)
* The amount of money I will have paid by the end of the loan term (36%)
* Buying the wrong home (28%)

Victorians were the least likely to worry about the amount of money they will have paid off by the end of the loan term while South Australians were the most concerned, at 42%.

Buying later in life

According to the survey, a greater number of people are buying their first home later in life, with Generation X# leading the way at 55%, the most of any state. 38% will be Generation Y# and 7% will be Baby Boomers#.
“Some people might be surprised that such a high percentage of people are waiting until their thirties, forties and fifties to purchase their first home. Depending on the size of the deposit, these people may be making repayments into their retirement years,” Ms Sheppard said.
“Perhaps the reason why more and more people are buying later in life is they have been waiting for affordability to improve, or they have enjoyed a relatively carefree lifestyle while building enough savings to comfortably enter the market. This is supported by the number of potential homebuyers expecting to have 20% deposit or more to contribute.”

Living the dream with fewer sacrifices

73% of VIC respondents intended to sacrifice various aspects of their lifestyle in order to purchase a home, which is down on last year’s 92%. Queenslanders were most likely to make sacrifices (76%) while Western Australians were the least likely to sacrifice (65%).

In terms of what respondents were willing to sacrifice:

* 95% will cut back on spending – the highest percentage of any state
* 64% will miss out on a holiday
* 31% will purchase a less expensive property
* 28% will remain in their current job rather than move on
* 22% will purchase property in a non-ideal location
* 22% will delay having children
* 21% will take on an additional job
* 12% will change jobs for higher income even though they are happy where they are
* 12% will move back in/stay living with their parents or in-laws to save on rent
“It’s a reality that in order to achieve the ‘Great Australian Dream’ of owning your own home, some sacrifices will need to be made. The fact that the number of people planning to sacrifice is considerably down on last year’s figures might indicate first homebuyers-to-be are in a better financial position than those before them, and are taking advantage of the First Home Owner Boost and improved market conditions as a means to get their foot in the door sooner,” said Ms Sheppard.

Sharing the responsibility

Fewer VIC first homebuyers than ever are taking the jump alone, with only 26% of respondents indicating they plan to commit unaccompanied. Last year, this figure was 31%. Another noticeable difference is in those considering purchasing with a partner, rising from 59% last year to 67%. This increase is a reverse of the trend seen over recent years. 
“With housing affordability improving, it is surprising to see a drop in the number of first homebuyers planning to take the jump alone. This suggests that perhaps Victorians are turning to partners for additional security in the current economic climate,” said Ms Sheppard.
The other options included purchasing with a family member as part owner (3%), a family member as loan guarantor (2%), a friend (2%) and with a family member providing a monetary gift (less than 1%).

Knowledge or lack of it

Only 3% of VIC respondents admitted to having no idea about the property purchase process, 26% had some idea, 40% knew the essentials and 31%, the most of any state, considered themselves well informed. 
The favoured first point of contact for mortgage advice was a mortgage broker, at 26%, followed by:
* Parents at 17%
* Lender (bank, building society, credit union etc.) at 17%
* Internet at 15%
* Friends at 10%
* Financial advisor at 7%
* Other family members at 6%
* Media at 2% 
“The lack of knowledge demonstrated by many borrowers highlights the importance of reputable loan consultants being a more useful resource for information, tips and a broader view of the mortgage maze than just one lender, family member, friend or the internet,” Ms Sheppard said.

VIC first homebuyers prefer houses

76% of potential VIC first homebuyers plan to purchase a house, in comparison to 55% of the 2008 survey respondents. 2009 survey results also showed 16% were looking to purchase a unit/apartment, 7% were interested in a townhouse and 1% wanted to purchase land.
Respondents ranked three bedroom houses as the most preferred (42%), then four or more bedroom houses (24%), two bedroom unit/apartments (12%), followed by two bedroom houses (9%). Rounding out the top five preferences were three bedroom townhouses (4%).

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Marc Pallisco

A former property analyst and print journalist, Marc is the publisher of