First home buyers are rushing back in the market – in increased numbers!

New figures show a large increase in first home buyer activity in July as rents keep rising, interest rates fall and better value buying create a compelling environment for young people to purchase.

Interest rates play an important role in young people’s decision to purchase. According to the Reserve Bank, current home loan rates are about 50 basis points below their 15-year average. That’s seriously cheap money for young people on tight budgets.

Rising rents are also playing a big part, with RP Data’s latest statistics showing a 3.3% increase in weekly rents across the capital cities over the first seven months of the year alone. As rents get higher, people start comparing the cost of renting v/s buying.

An increase in first home buyer activity impacts the broader market as well. Because first home buyers are generally the most cash-strapped buyers in the market there isn’t a lot of them around unless market conditions are very favourable. When first home buyers start flocking in, it impacts other sectors of the market with a cascading effect.

First home buyer activity on a national level increased by 1.7% from 15.6% to 17.3% in July and is the highest level of first time buying in two years.

In New South Wales, the July increase is even more noticeable at 3.5%, up from 10.9% to 14.4% in just one month. NSW buyers could also be driven by the October 1 deadline for the First Home Owner Grant.

At 22.7%, Western Australia is the state with the highest proportion of first home buyers and this is about as high as it gets. In June 2011, it was as low as 13.3%. Rising rents are probably the main reason, in addition to lower interest rates, prompting young WA buyers to take action. RP Data reports that Perth rents have risen by an incredible 13.7% since January, which is quite astounding and two-and-a-half times the increase in Darwin, where the second biggest rise in rents has occurred at 5.4%.

Here’s a quick snapshot of first home buyer activity nationally and in the main states.

National:    17.3% in July, up from 15.6% in June

NSW:             14.4% in July, up from 10.9% in June

VIC:                21.7% in July, up from 19.5% in June

WA:                22.7% in July, up from 22.2% in June

QLD:             13.8% in July, up from 13.5% in June