Are market conditions hindering first-time home buyers?

First-time buyers are often considered to be one of the pillars in a strong home-buying market. However, current market dynamics could be prolonging first-time buyers from taking the leap towards homeownership. 

External factors have played an intricate role in market over the last six months with consumers having experienced an interest rate hike, fuel prices reaching record levels, along with food and utility prices going up. The higher cost of living makes buying a property seem a lot harder in the current market. However, despite all of this, surveys suggest that many first-time buyers are still holding onto their dreams of owning a home, and are eager to get their foot into the property market as soon as possible. 
“Although the factors mentioned above may delay first-time buyers from purchasing a property, it has not deterred them from wanting to own property as millions of consumers that are currently renting say that they aspire to homeownership,” says Adrian Goslett, CEO of RE/MAX of Southern Africa. “In fact,” he says, “recent reports from leading mortgage origination group Betterbond, state that almost half of the home loan applications they have received over the past year have been from first-time buyers, with the average age of the applicants being around 34 years old.”
He points out that data such as this proves that many consumers want to purchase a home, but they are doing so a lot later than some of the past generations and are having to work harder to do so. “People believe in homeownership and see it as one of life’s key milestones, however factors such as the expected further interest rate hikes, rising home prices, high personal debt levels and deposit requirements by financial institutions, have kept some buyers out of the market for longer than expected. Another factor is that property owners are remaining in their homes for longer, which has led to inventory shortages and possibly less entry-level properties available on the market. During the recession many investors also seized the opportunity to grow their rental portfolios by purchasing many of the entry-level properties,” says Goslett. “Stronger demand for property has also attributed to the property stock running low, with increased numbers of transactions in recent months depleting stock levels.”
He notes that the strong demand for property and the tight inventory situation has led to home values increasing and first-time buyers having to dig deeper into their pockets. Goslett says that while the positive property price growth over the last two years, with further growth expected this year, has been welcomed by existing homeowners who are possibly now seeing good returns on their investment, it has pushed some properties out of the affordable price range for certain buyers.  According to Betterbond’s statistics, the average home purchase price paid by first-time buyer has increased by 7.9% in the last year, while the average overall purchase price has grown by 11.7%. While the average price of property has increased, deposit amounts required by banks has decreased, which somewhat mitigates the effect of the increases for potential buyers.
According to Goslett for the housing market to continue on its upward trend, more affordable homes will need to enter the market to compete with the growing demand, particularly among first-time buyers. “Homeownership aspirations are very much alive and well, but first-time buyers will have to successfully contend with the current financial environment to make the dream of owning a home a reality. While the market was once very much in the buyer’s favour, external factors have put both buyers and sellers on a more even footing. Moving forward, potential first-time buyers should reduce personal debt whenever possible and save for a deposit and the other costs associated with a property transaction,” Goslett concludes.

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