Rent Trap Looms For First-Time Buyers

Rent trap looms for first-time buyers
By Kevin Eddy

First-time buyers face a vicious circle of rising rents and rising house prices over the coming months, according to Genworth's acting chief executive.

Paul Caputo commented at the launch of Genworth's Home Buyer Confidence Index that the "rent trap" is set to return for many would-be homebuyers as a result of rising rents and increased living costs making it harder to save for a deposit. This, combined with an increase of more than $44,000 in the average cost of a starter home, means affordability is likely to come back as a major issue over the next year.

Caputo didn't think that first-home buyers would be priced out of the market altogether, though.
"Slower growth for the near future will offset some of the affordability issues," he commented. "We would also expect to see first home buyers changing their behaviours in other ways in order to help save for a deposit - downgrading their rental accommodation, house-sharing or moving back in with parents."

Even so, he commented that the overall affordability issue is unlikely to be resolved in the short term, and would ultimately only be eased by an increase in supply and demographic changes - particularly a decrease in the average house size.
Caputo also commented that confidence "is on a tightrope" at present, depending on which way interest rates go over the next few months.

"While the general economic situation is strong, the expectation of increasing cash rates will be a continuing negative factor on confidence," he added. "However, if rates stay on hold for the next six months, confidence is likely to grow."
The Home Buyer Confidence Index revealed a bearish picture, with 20% of borrowers expecting repayment difficulties in the year ahead. Out of those respondents, 61% cited rising interest rates and a higher cost of living as key reasons for this likely difficulty.

Market sentiment on whether it is the right time to buy a house also plunged, with only 25% of respondents saying it was the right time to buy a home - down from 50% - and 26% saying it was the right time to buy an investment property (down from 43%).