Aerial view directly above established houses in older Adelaide southern suburb: looking down on front & back yards some landscaped, one with construction work. Yellow & red topped wheeled garbage (rubbish) bins are parked on kerbside awaiting collection. Powerlines run down the street for the houses. Cars parked on the street and in private properties.
A recent report has highlighted a significant shift in how Australians approach their first home purchase, suggesting that the concept of the ‘forever home’ is becoming increasingly elusive. As property prices continue to soar, younger generations are adopting a strategy known as “stepping stone buying,” viewing their first property mainly as a means to enter the market rather than a long-term residence.
The findings from the latest Mortgage Choice Home Loan Report reveal that half of Millennial borrowers (54%) and 47% of Generation Z buyers see their initial purchase as a stepping stone, compared to just 35% of Baby Boomers. The report emphasizes a growing generational divide in perspectives on home ownership.
While 41% of Baby Boomers purchased their first home intending to stay for life, only 17% of Gen Z buyers and 31% of Millennials share that view. The report also noted a rise in the trend of purchasing ‘fixer-uppers,’ with 22% of Gen Z and 19% of Millennials opting for homes needing renovation, compared to only 9% of Baby Boomers.
Record High Property Prices Challenge First-Time Buyers
According to the PropTrack Home Price Index, national property prices reached a record high in July 2023, increasing by more than $40,000 over the past year. With median house prices in capital cities now exceeding $1 million, first-time buyers are feeling the pressure to find affordable options.
Mortgage Choice’s CEO, Anthony Waldron, explained that younger generations are increasingly viewing property as an investment opportunity. “Our survey findings reveal the rise of stepping stone buying or strategic property purchases, with a third of Gen Z buyers motivated to buy property as an investment,” Waldron stated. He contrasted this with Baby Boomers, where only 41% bought their first home with the intention of staying for life.
The trend of stepping stone buying is echoed by mortgage broker Rob Lees, who shared the story of a Gen Z couple, Lachie and Bec, who purchased their first home in 2023. They recognized that their property would not be their forever home but viewed it as a necessary first step into the market. “If they had been Boomers, they may have been able to afford a larger home as their first purchase,” Lees remarked.
Economic Factors Influence Buying Decisions
The changing landscape of property buying is also influenced by economic factors. Economic analyst Megan Lieu noted that buyers are increasingly active in the market, following the lowest lending rates in two years. The Reserve Bank of Australia has implemented three rate cuts this year, reducing the cash rate from 4.35% in January to 3.6% in August 2023. These changes enhance borrowing capacities and lower repayments, making home ownership slightly more attainable for first-time buyers.
Lieu anticipates that the effects of these rate cuts will soon become more pronounced, predicting an increase in loans for both owner-occupiers and investors. “Lower interest rates will continue to stimulate demand in the market and add to the current price growth momentum,” she explained. Despite these positive trends, housing affordability remains historically low, which may temper growth.
The report from Mortgage Choice underscores a pivotal moment in the Australian property market, where younger buyers are compelled to adapt their strategies in response to soaring prices. As these trends continue to evolve, the dream of a forever home may increasingly give way to a more pragmatic approach to property ownership.
