Article 11 October 2020 by Tonya Davidson This week, the country received the big stimulatory budget we were all waiting for. The message to Australians was spend, spend,spend.The federal government’s deficit is set to hit $213.7 billion this financial year, the biggest Australia has seen since the end of World War II, due to the costs of managing the corona virus - induced recession. The massive figure is equivalent to 11% of the country’s gross domestic product (GDP).The deficit is then forecast to fall back to $66.9 billion, or 3% of our GDP, by 2023-24. Experts noted that it’s likely we’ve ridden out the worst of any economic contractions, but recovery going forward will be a“slow grind”.A suite of spending initiatives was unveiled on Tuesday night to kick start the economy, with the property market being one of the clear focuses of the budget.First home buyers win big in the budget First home buyers are the obvious winners of the federal budget, scoring one of the big-ticket items in the spending spree.The First Home Loan Deposit Scheme (FHLDS) has been reloaded with another 10,000 places until June 2021. Introduced at the beginning of the year, the scheme allows first home buyers to purchase a home with a deposit of as small as 5% without needing to pay lenders mortgage insurance (LMI). The rest of the 20% deposit is guaranteed by the government.But the new round of the scheme will only be limited to new builds, a move that will stimulate the construction industry. Another key change to the updated scheme is the long-overdue increased price caps that will better reflect today’s property values, particularly in our capital cities. The new price caps are:· $850,000 in Melbourne,up from $600,000 before $950,000 in Sydney, up from $700,000· $650,000 in Brisbane,up from $475,000This effectively means the buying power of many first home buyers has been given a big boost, injecting another $250,000 into their home-buying budgets. The big picture is that this property stimulation will flow up into higher price brackets.Whilst no one can argue that more spending in the property market is bad for the economy, there are concerns that encouraging some buyers to potentially overcommit on their loans could lead to a possible pathway of heartache in the future. Taking care to avoid this situation will be paramount for buyers interested in this scheme.And it’s not just now that first home buyers are ramping up their significance in the market. Lending to first home buyers as a share of total home lending has jumped in the past three years. First home buyers took out $4.5 billion worth of home loans in July 2020, accounting for 30% of total home lending in the month, the latest Australian Bureau of Statistics (ABS) figures showed. That’s up from $2.9 billion or 21% in July 2017.Real Estate Institute of Australia (REIA) data also paints a picture of buyers increasingly getting their foot on the property ladder.In Victoria, first home buyer mortgages surged by 11% in the year to June 2020, and nearly 6% in the June 2020 quarter.These first-timers are also taking on bigger mortgages, with the average first home buyer home loan about $442,000 growing by 12.8% compared to June 2019.Could it be that the younger first home buyers have adapted to this COVID-19 climate better than most due to their tech-savviness, allowing them to continue to move forward with their property goals?And while housing prices are dropping, they are not dropping rapidly and are coming off a high base.In Melbourne, the median property value fell by 0.9% over September to $666,796 according to the latest CoreLogic data. This is a big indication that property owners are retaining much of their equity amid the recession and lockdowns.What happened to the cash rate?On the same day the federal budget was handed down, the Reserve Bank of Australia (RBA) held the cash rate at a historic low of 0.25%. Experts say this won’t be going up until at least 2023.What this means is anyone buying a property will have three years to enjoy record low mortgages rates, with most now between 2% and 3%. Property owners will also not need to worry about their repayments going up.This fact alone should greatly assist with consumer confidence, an essential ingredient at this juncture in recovery.A potential RBA rate cut to 0.10% is also on the cards, with the central bank dropping a suggestive hint on Tuesday. Big four banks NAB and Westpac anticipate it to happen as soon as November. Talks of negative interest rates, where lenders will pay borrowers to take out a loan with them, are also creeping up, though it may be too early to have that discussion. Record low rates, as well as government incentives and falling prices, are encouraging buyers to jump in the market, despite the recession. “With the cash rate and mortgage rates set to remain low or reduce even further, prospective home buyers are likely to feel more confident in making high commitment purchasing decisions, such as property,” CoreLogic’s Head of Research Tim Lawless said this week.Matching this comment, the ANZ - Roy Morgan Consumer Confidence rating increased for the fifth week in a row in the latest week, reaching 95.7. If this is anything to go by, a robust recovery in market sentiment should not be far from us.For now, Melbourne’s initial week out of lockdown has seen the market start to crank up but not at the level agents expected, hindered no doubt by the slow rhythm of private appointments as opposed to open homes. But this is expected to pick up further as people recalibrate their lives, agents regain their mojo and the economic factors discussed lead us to continued consumer confidence increases. Just as Commonwealth Bank’s Chief Economist Stephen Halmarick said this week: “Extraordinary times lead to extraordinary outcomes”.