Cooling prices haven't helped first home buyers
The housing market is losing momentum, but the slowdown is offering less relief for first home buyers than many expected.
Property price growth has started to soften. In some markets, prices are even going backwards, according to Cotality.
National home prices rose just 0.3% in April, but competition is intensifying in the cheapest parts of the market where first home buyers are most active.
Over the course of April, the national median home value edged up by just 0.3% to $940,048, which is the lowest increase recorded by Cotality since January last year.
Melbourne and Sydney are proving to be the largest drags on growth, with property prices in both markets falling by 0.6% in April.
It was a different story in some of the other capitals though. Home values in Perth (up 2.1%), Brisbane (up 1.2%) and Adelaide (up 1.1%) all rose in April, though at lower rates than in previous months.
Interest from buyers also appears to be waning, with Cotality noting that estimated sales are down on previous years while listings are on the rise.
"The housing market was losing momentum from late last year as affordability and serviceability constraints weighed on demand," says Tim Lawless, research director at Cotality.
"Now we have the additional downside pressure of higher interest rates, sentiment has fallen off a cliff, and rising inflation is set to drive the cost of debt even higher."
More buyers are chasing fewer affordable homes
On the face of it, the news that price growth is softening (and even decreasing in some locations) would seem like a welcome development for first home buyers trying to enter the market.
But this isn't necessarily the case.
The growth in home values that is occurring is, according to Cotality, increasingly concentrated in the lowest price quartile - the segment of the market where first-time buyers are most active.
As prices become more expensive and borrowing capacity thanks to rising interest rates, Cotality notes that more buyers are competing for the most-affordable pool of homes.
"The largest difference between upper and lower quartile value growth is in Sydney, where lower-tier house values are up 2.9% year-to-date compared with a 3.3% fall across the most expensive quarter of the market," Lawless explains.
Is the Home Guarantee Scheme pushing up prices?
Last October, the federal government rolled out an expanded Home Guarantee Scheme (HGS) for first home buyers, which included higher property price caps, no income limits and unlimited places.
Six months on and roughly 60,000 people have made use of the expanded scheme to enter the housing market, according to figures from Housing Australia.
While helping thousands get a foot in the door, the scheme also appears to have contributed to a jump in prices at the lower end of the market.
Research released by Cotality last month found that in the six months since the revamped scheme began operating, homes with values under the scheme's price caps have risen by 6.7% - more than double the growth rate of those with values above the caps.
Of course, the redesigned scheme isn't solely responsible for price increases at the lower end of the housing market.
Cotality suggests that affordability and serviceability constraints were already pushing many buyers towards cheaper homes, including a large number of investors who entered the market at the tail end of last year.
Going forward, the impact of the scheme on competition and price growth is likely to lessen, though as Cotality notes, this will be as a result of more homes rising above the existing prices caps and more first-time buyers being constrained by higher interest rates and inflation.
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