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There is a fascinating - and frightening - paradox about Australian first home buyers

CHICAGO, IL – APRIL 25: Gulls fight over food in the outfield as the Chicago Cubs take on the St. Louis Cardinals at Wrigley Field on April 25, 2012 in Chicago, Illinois. The Cardinals defeated the Cubs 5-1. (Photo by Jonathan Daniel/Getty Images)

The surge in Australian house prices over the past 2 decades, and the stunning acceleration in Sydney in particular in the past couple of years, has made it difficult for many young Australians who want to buy their first home to enter the market.

But in an incredible paradox it’s this very acceleration of high prices which has Australia’s cohort of first home owners wanting to enter the market.

That’s the finding of the latest update of Digital Finance Analytics (DFA) Household Survey report, which has 26,000 participants.

Martin North, principal of DFA, provided Business Insider with an early release of the latest survey which, among other things put paid to the idea that Australia’s negative gearers are battlers.

But it is the responses to the survey from the cohort of Australians wanting to purchase their first home which in many ways are the most interesting.

DFA’s survey “identified about 321,000 households who are first time buyers. The majority are seeking to purchase, or have recently purchased an owner occupied property (72%), the remainder preferring an investment property.”

DFA asked first-time buyers about the biggest barriers to purchase.

The report noted the biggest barrier to purchase was “high house prices” with 52% of those surveyed stating this was their number on concern. The second biggest concern, one that is unlikely to be unrelated to prices, is “finding the right property” which was cited by 24% of respondents. Only 7% were worried about unemployment and just 6% said rising costs of living were keeping them out of the market.

It’s hardly a surprise that cost and finding the right property are the number one and two reasons first time buyers are finding it difficult to enter the market.

Indeed DFA said (our emphasis):

When we compared the elements which influence a buying decision, we see a stronger focus on price in 2015. Schools are important, then access to transport. We see consideration of absolute commute times to be less important now than in 2010. However, almost all elements are traded away because of high prices.

But first time buyers aren’t giving up.

While “traditional wisdom is that first time buyers are sitting out of the property markets, because prices are high, loans harder to get, and confidence is falling,” DFA found in its survey that “one of the most significant developments surrounding first time buyers is that many more are now going direct to the investment sector.”

This is where the disquieting paradox facing this cohort of Australians rears its head.

Why are first time buyers chasing prices, and purchasing houses at these levels?

They are betting that prices are going to keep rising and have an acute fear of missing out.

The DFA report said its “analysis of buyer motivations draws some striking observations.”

Specifically the report notes that the prospect of “potential capital gains is still the number one driver at 27%” just ahead of the “desire for somewhere to live is just 27%”. Martin North told Business Insider that there was a hair’s breadth in it but capital gains was a little higher unrounded.

He also noted “the prospect of gaining tax advantage is growing, now up to 12%,” as a driver for first time buyers.

North says that’s dangerous and leads him to conclude that first time buyers are:

Being infected by the notion that property is about wealth building, rather than somewhere to live. This notion, which served previous generations quite well (once they were on the property escalator), may be tested if interest rates rise later, or property prices fall from their current illogical
stratospheric levels. The overriding result from the survey is the first time buyers are very fearful of missing out, and that delaying potential entry into the market will simply make it less affordable later.

Happy house hunting.

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