First home owners overreaching

A report from property valuation firm LandMark White this week showed that new records are being hit in terms of both the number and size of loans granted to first home owners in New South Wales.

This suggests that Barry Lambert’s warning that the Government was creating a financial disaster in the first home owners market appears, unfortunately, to be coming true.

At Money Management’s State of the Industry breakfast in April, Lambert spoke about what he saw as looming “government incentivised financial ruin” in the first home owners market. Lambert, the former head of one of Australia’s biggest financial planning groups, said the subsidies currently being provided to first home owners were creating Australia’s next financial disaster.

First home buyer activity has been strong across Sydney in the first quarter of 2009, the LandMark White report states. During March this year there were more than 6,000 new dwellings financed by first home buyers, which the property valuation group said was the highest monthly number recorded since the data started being monitored by the Australian Bureau of Statistics in 1991.

“During this first quarter of 2009, over 14,500 dwellings were financed across New South Wales, well above the previous quarter of 11,683 or the 2008 March quarter, where only 8,843 were recorded,” the report said.

And the size of the loans granted is also increasing.

“In terms of value, the average first home buyer loan has also seen a strong uplift in this past three months, currently at $299,000,” the report states.

“This too is the highest amount on record for New South Wales. This value has increased 5.54 per cent in the last quarter or 20.47 per cent on last year's result.”

The report quoted Office of State Revenue figures pointing to certain areas of Sydney that could become potential trouble spots.

Over the year to April 30, 2009, the New South Wales suburbs that had the highest use of the first home owners grant were Liverpool, Wentworthville, Blacktown, Campbelltown and Hornsby. Other regions that make up the top 20 include Gosford, Wyong, Bankstown, Parramatta and Wagga Wagga.

In April Lambert warned that many first home owners were “overreaching”, a matter of serious concern in a low interest rate environment and one in which unemployment is expected to rise.

“You give them a few thousand dollars more and they go and buy a house for $30,000, $50,000 or $100,000 more than what it’s worth,” Lambert said.

Lambert warned that when interest rates rise, “these people will suffer”.

“The prices of houses in this country are much, much higher than the prices of houses that brought down the US sub-prime [market],” Lambert said at the time.

“And they’re much higher than the houses in the UK which we’re reading about. And this is subsidised by the Government. It is the next disaster.”