Investors fill the first home buyers’ gap

When June-quarter property prices are released in the next two months, it’s likely we’ll see house price growth down markedly from the rates we saw in March and December.

The figures probably won’t show falling prices but growth will be a lot closer to zero than it has been for more than a year.

That in itself would be an unusual result. The fall in housing finance figures compiled by the ABS has been steep and would normally suggest falling prices, not just a fall in the rate of growth.

Overall, the number of housing loans for owner occupation, excluding those for refinancing, is down more than 30 per cent year on year for NSW.

One reason the downward effect on house prices hasn’t been as pronounced as we’ve seen historically is that it was accompanied by a rise in the proportion of housing purchases not involving mortgages.

Or another way to think about it, the lack of a significant fall is partly due to a fall in the proportion of first home buyers, who recently have had a much greater propensity to use mortgages for their purchases.

The other reason is the increased level of investor activity, reported separately to the owner-occupied numbers that are usually considered to have the biggest link to prices.

Nationally, the value of loans taken out by investors is up nearly 30 per cent year on year, according to the ABS, and brokers and financing groups are reporting strong upswings in investor activity as the competition from first home buyers and upgraders continues to dissipate.

This has helped cushion the effect of the withdrawal of first home buyers and upgraders from the market as interest rate concerns dominate.

Matthew Bell is the economist for the Fairfax-owned Australian Property Monitors.