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First time buyers down

First time buyers down

Author: Andreas Wassenaar
Date: 2016-10-21
What is happening to our population of first time buyers in the property market Are they evaporating in front of our eyes The "disappearing" first time buyer has potentially more than a proportional impact on the mortgage market as first time buyers typically make up a significant percentage of mortgage applications, as they are usually highly geared and reliant on mortgage finance to enter the market.

The FNB Estate Agent Survey estimates that 1st time buyer levels have decreased from their peak of 28% of total buyers reached in the 2nd quarter of 2014 to a sobering 18% by the 3rd quarter of 2016. The average year-to-date 1st time buyer percentage for 2016 is 20%, down from 2014's 26.5% average.

Three main reasons have been proposed to explain this dramatic shift away from 1st time buyers. The first and possibly dominant reasons is affordability and the steady deterioration thereof over the past two years. This is due to house prices exceeding per capita income growth and also due to interest rate hiking we have experienced since early 2014.

Considering the two main measures of affordability, the first being the average house price to per capita disposable income ratio index which has risen by +4,8% from the 2nd quarter of 2013 to the 2nd quarter of 2016 as the house price growth has streaked ahead of disposable income growth. The second measurement of affordability is the installment value on a 100% bond of the average priced home to per capita disposable income ratio index. This measure indicates the impact of rising interest rates and has risen by +20,6% over the same period.

The second main factor believed to be putting the brakes on 1st time buyer levels is deteriorating employment creation. GDP growth of 0,6% year-on-year for 2016 is "job-shedding" rather than "job-creating". After a few years of economic stagnation it appears that the lagged negative impact on employment was beginning to emerge. First time buyers need secure employment opportunities to enter the property market, without which we can expect this pool of buyers to shrink.

The lesson to learn from the above factors is that we are to be aware of the trends and how these can impact on the important first time buyer group.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.