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Why 2021 is likely to be a bust for first home buyers
First home buyers are tipped to be the biggest losers in 2021, as house prices rise and government incentives dry up, ultimately acting as headwinds for people looking to enter the market, an economist has revealed.
Why 2021 is likely to be a bust for first home buyers
First home buyers are tipped to be the biggest losers in 2021, as house prices rise and government incentives dry up, ultimately acting as headwinds for people looking to enter the market, an economist has revealed.
According to Archistar’s chief economist, Dr Andrew Wilson, while economic downturns are typically an advantage for first home buyers, a turning market can be quite perilous.
“The outlook for first home buyers is much bleaker than last year because the cycle has turned,” Dr Wilson told Smart Property Investment.
“The toughest ask for first home buyers is to confront rising house prices because, as first-time buyers, [they] do not have a trade-in to bring to the market.
“A number of incentives for first home buyers will either cease or diminish, such as the first home buyer deposit scheme, which will finish in the first half of this year,” the economist explained.
As such, the COVID-19 economic downturn actually favoured new market entrants, with governments seeking to stimulate the economy by pumping more money into housing.
“First home buyers are active during times of economic stress because of low interest rates that improve affordability,” Dr Wilson said.
“It’s a myth that higher unemployment and economic stress are bad for the housing market. It’s usually pretty good due to governments using the lever of lower interest rates to stimulate the economy to activate buyers.
“While the stress of unemployment usually impacts a portion of the population, typically they aren’t the home buying part of the market. So, in the short term, it is just a confidence thing,” he said.
Historically speaking, previous stimulus packages have seen a record number of buyers enter the market.
“First home buyers are the beneficiaries of specific grants or incentives to get the economy up and running again. We’ve seen it a number of times, with 2020 being no exception,” Dr Wilson said.
“The problem now, following last year’s strong results, is higher prices, flat income growth and a lack of incentives.
“So, you get a big boom one year and a bust the next,” he concluded.
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