Soaring property prices have dampened first-home buyer spirits, but their fear of missing out on a chance to get into the market appears to override those concerns, a new survey has revealed.

The ME Bank Quarterly Property Sentiment Report found more than 8 in 10 of the property buyers surveyed felt worried about paying too much for property in the current market.

Of the 1000 first-home buyers, investors and existing homeowners surveyed, those looking to enter the market for the first time were unsurprisingly the most concerned about housing affordability.

“When property prices and interest rates lowered last year during the pandemic, a unique buying opportunity opened up for confident first-home buyers with cash savings and secure employment,” said ME’s head of home loans and personal banking Claudio Mazzarella.

“Now prices have rebounded strongly and affordability is going down, first-home buyers aren’t feeling as positive.”

‘Fear of missing out’ driving activity

Despite a dip in confidence, first-home buyers were also the most likely to be planning a purchase, with more than half looking to buy a property in the next 12 months.

“Our findings show they are still eager to buy property over the next year,” said Mr Mazzarella.

“There’s also a sense of ‘fear of missing out’ in the current market, which can be a key driver for this behaviour,” he said.

First-home buyer activity has surged due to record low interest rates and government incentives, with the latest lending data from the Australian Bureau of Statistics revealing first-home buyers accounted for 41% of new loans issued over the past six months – the highest level in more than a decade.

“First-home buyer activity in the market remains at its highest level since the stimulus associated with the GFC,” said Housing Industry Association senior economist Nick Ward.

“HomeBuilder wasn’t targeted at first-home buyers, however, the eligibility requirements of the grant meant that this cohort were significant beneficiaries of the program. They are also taking advantage of other stimulus measures such as the First Home Loan Deposit Scheme and state government incentives,” he explained.

The fear of missing out – or ‘FOMO’ – factor is being felt across buyer groups, with the survey finding more than half (58%) of those looking to buy ‘feel a sense of FOMO’ in buying property in the current market.

Investors returning to the market

A recent lift in investor activity has raised concerns over whether first-time buyers will be able to compete with increasing competition.

In March, home loans for first-home buyers eased from the recent highs as the federal government’s HomeBuilder scheme drew to a close.

In contrast, investor loans jumped almost 13% during the month – the fastest pace of growth in 18 years.

Still, investor activity remains well below the peaks seen in the last housing boom.

Sellers are feeling more confident

While demand continues to outstrip supply, listing volumes are starting to rise as vendors feel more confident to put their homes on the market.

A survey by realestate.com.au conducted in April found seller confidence was at its highest level since the onset of the coronavirus pandemic, with almost half of the respondents saying now is a good time to sell a property as rising prices lift home values.

The desire to sell appears to be driven by investors looking to cash in on the strong selling conditions, with the ME survey finding 23% of investors want to sell their property in the next 12 months, compared to 11% of owner-occupiers.

However, buyers still believe there aren’t enough properties on the market.

Overall, 60% of respondents in the ME survey believe there ‘isn’t enough choice in the current residential property market’ – up from 43% in January.

Listing volumes plunged in 2020 as homeowners waited out the economic uncertainty.

“Stock levels were extremely low last year and early into this year, but they have improved a bit over the last couple of months,” said realestate.com.au director of economic research Cameron Kusher.

“Despite some recent increases, the supply of stock listed for sale has generally been much lower than the level of demand since the end of lockdowns last year,” he added.