FIRST HOME BUYERS PLAY A CRITICAL ROLE IN THE PROPERTY MARKET BECAUSE THEY HELP TO “UNCLOG” THE MIDDLE MARKET.
In a normal market first homebuyers are about 20 to 25 percent of the market but they are still running well above that level in some areas. WA Treasury figures show that first home buyer activity in Western Australia increased strongly in August to its highest level in 34 months as buyers take advantage of low mortgage rates.
The gap between buying and renting is closing rapidly. According to REIWA figures, the rental vacancy rate in the Perth metro area fell from 1.9 per cent in June to 1.8 per cent in August, significantly below the 3.4 per cent vacancy rate in June 2011. The median rent in the three months to August was $450 per week in the Perth metro area, up from $430 in the June quarter.
A 1.25% reduction in the cash rate has brought the average standard variable mortgage rate down by nearly one per cent since October last year. Some say that interest rates will fall by another half a percent by Christmas which will certainly be welcomed by many people.
If that full half a percent is passed on we may see repayments on a $320,000 mortgage coming down below the average rent in the Perth metro area.
The reality is that the tight rental market will continue for a long time as we have been under building, especially over the last three years, and it is estimated by the National Housing Supply Council that we are about 32,000 dwellings short in Western Australia.
The shortage means the rental market will remain constrained forcing rents to rise. With low interest rates and steady prices, Perth is starting to becoming more attractive for investors but they are unlikely to return strongly until there is stronger capital growth but that should start to happen in 2013.
The next step is for the middle market, the “up-graders”, to gain a little more confidence and re-enter the market in larger numbers and that is starting to happen with campouts in some locations. Whilst the market hasn’t fully normalised there is sufficient activity to believe that at long last the worst is truly behind us.