Investors rush to buy as first home buyers also flood the market

In recent commentary, I spoke about a window of opportunity that exists for investors.

Three interest rate drops were always going to stimulate buyer activity.

Winter, however, is usually a quieter time of the year, and so I encouraged investors to get moving before we hit the spring season and before other factors came into play.

That window of opportunity for investors is now starting to close, but it doesn’t mean that prospective investors shouldn’t get moving fairly quickly.

Even though perhaps the very best buying opportunities may have passed, there’s still plenty of reason to act.

There’s no question that buying activity in the real estate market has surged through spring. Leading consumer sentiment surveys show growing confidence in the property market and a belief that another wave of price growth is coming. There are, however, a couple of factors to consider.

First, due to price and often simply by preference, apartments tend to be what investors look to buy.

The latest report shows that Australia will deliver around 30,000 fewer apartments this year than previously expected, as developers hold off on projects they couldn’t sell profitably.

Weak pre-sales and weather delays have also slowed construction.

The number of apartment completions will drop from 64,031 last calendar year to 52,505 this year, which is well below the 81,880 that had originally been forecast.

Second, those investors who saw the writing on the wall have already started to move, and as a result, investor sales are on the rise.

Housing investor credit growth overtook owner-occupier home loan growth in April this year, just after the RBA began cutting interest rates.

We’ve seen investors come back into the market, particularly in places like Queensland.

Credit growth for housing investors accelerated to 6.6 per cent in the year to August, up from 3.9 per cent a year earlier.

Home buyers are also active, with owner-occupier lending expanding by 5.7 per cent.

Between the two, that’s very strong growth in finance, which is always a precursor to increased sales.

But it’s the surge in investor activity that’s really starting to drive the market.

This shows that more and more people are successfully entering the market to buy investment properties.

Confidence in the real estate market is also being supported by easing financial pressure on Australian households.

According to the Reserve Bank of Australia, the number of mortgage holders at risk of falling behind in repayments is now less than 1 per cent - the lowest level since 2013. The number of mortgage holders in arrears - that is, behind in payments by more than 90 days - peaked in the September quarter of 2024 and has been declining ever since.

First home buyer frenzy

The factor to watch now, which could make it more difficult for investors moving forward, is the surge in first home buyers. There’s been unprecedented demand due to the new and extended first home buyer grants, with some brokers’ offices literally seeing queues of people waiting to submit applications.

By abolishing the income limits of $125,000 for singles and $200,000 for couples, Treasury estimates the new policy will make about 70,000 people eligible in the first year alone - up from the previous maximum of 50,000 annual places.

Data reveals that first home buyers are actively researching local market conditions, exploring alternate ownership strategies like rentvesting, and learning about the technical processes involved in buying. This means they’re entering the market far more prepared and strategic than previous generations.

The concept of first home buyers being priced out is increasingly questionable. They’re not waiting helplessly for conditions to improve - they’re actively building their knowledge and preparing to come into the market as informed, confident purchasers.

It’s no surprise that housing prices recorded their biggest monthly jump in just under two years in September, and are expected to accelerate further as cashed-up buyers compete among a dwindling supply of options.

The writing is certainly on the wall.

Limited supply will continue to be an issue for years to come - in fact, it’s getting worse this year. There’s no sign of any easing in house price growth, and it’s a simple case of those who aren’t in the market falling further behind each month as prices continue to rise.