Further rises to come
Such schemes often help bring forward demand, allowing people who might have bought their first home in future years to purchase sooner. This can, in turn, put upward pressure on prices for future first home buyers.
As prices continue to surge, first home buyer demand may continue to decline. ANZ economists recently updated their forecasts for next year with prices estimated to rise 6 per cent in 2022 before declining about 4 per cent in 2023 as more stock becomes available, more new housing is built and government support programs cease.
Regulators may also consider further macroprudential tightening measures, which would constrain demand for credit, and banks may continue to lift fixed mortgage rates as they’ve done in recent weeks, according to ANZ economists Felicity Emmett and Adelaide Timbrell.
Another factor at play is the rising amount of household savings. ABS national accounts data suggest the household savings rate surged to 22 per cent through the June 2020 quarter, compared with an average of 6.7 per cent over the previous decade.
In the financial year to September 30, the amount of retail and commercial deposits we held for our customers jumped by $18 billion in one year. The amount of money our customers held in offset accounts soared to $39 billion from $27 billion in the 2020 financial year. We also had more than 530,000 customers set up savings goals through the ANZ App.
There are many reasons for this boost in the national savings, not the least of which is changing consumption patterns as lockdowns and public health restrictions across Australia curbed our ability to spend on traditional items like overseas holidays, entertainment and hospitality. People are also predisposed to putting a bit of extra savings away for a rainy day, especially during uncertain times like a pandemic.
In addition to these factors, we’re still in an extended period of low interest rates. Since the onset of the pandemic, the Reserve Bank of Australia has reduced the cash rate to a record low 0.1 per cent and implemented unconventional monetary policy measures to reduce bank and government borrowing costs.
This has allowed mortgage rates to fall to record lows, which has in turn increased demand for housing credit and contributed to property price increases. RBA Governor Philip Lowe said recently that interest rates may rise earlier than the bank’s previous guidance of 2024 if the “global inflation shock” turns out to be more persistent than expected.
One final trend that appears to be helping first home buyers is what’s become known as “the Bank of Mum and Dad”. This is where parents or other family members help first time buyers with funding for their deposits or act as guarantor on their purchase.
While exact figures can be difficult to quantify, anecdotally it does seem to be a significant factor assisting many young people getting into the market for the first time.
It remains to be seen how first home buyers fare in the property market of 2022 and beyond but we certainly know thousands of them have managed to get their feet on the first rung of the ladder – even during a once-in-a-generation pandemic.
Mark Hand is Group Executive for Australian Retail and Commercial Banking at ANZ