Repeat buyers wait as first-timers retreat THE cheapest part of Labor's 2008-09 stimulus package has come back to bite the economy, with a hole left in the housing market after a record number of first-home buyers brought forward their purchases and forced up prices during the global financial crisis. Demand from first-time buyers is now at its lowest level in seven years, but the slack has not been picked up by repeat buyers. This breaks the pattern of the previous government-induced first-home buyer boom in 2001, when repeat buyers filled the void at the other end of the stimulus cycle. Labor trebled the first-home owner grant for new homes, and doubled it for existing dwellings as part of the first stimulus package announced in October 2008, at a cost of $1 billion. The immediate effect of the handout was to encourage people to borrow more. The average size of a loan taken out by a first-home buyer increased by 25 per cent in the year to March 2009, and house prices followed, with the median price jumping 15.5 per cent in the year to the March quarter last year. This repeated the affordability sting of the previous doubling of the first-home owner grant by the Howard government in March 2001. The average loan size increased by 26 per cent in the year to October 2001, and the median house price rose by 21 per cent in the year to the September quarter 2001. Labor used the grant to prevent a freefall in house prices during the GFC. Sources at the time said it was a confidence play, aimed at placing a floor under the market. As with much of the stimulus, it worked better than expected, and left Australia with the mixed blessing of another house price surge. Officials had long understood the first-home owner grant fed straight into prices when it was increased on a temporary basis. But they didn't anticipate that prices would rise faster during the GFC than they did during the first phase of the mining boom between 2004 and 2007. Now that the market is flat, and prices are falling, the most recent entrants to mortgageville may feel a little ripped off. The evidence in the national accounts is that households generally are saving again. Part of this may be the first-home buyer effect as young families try to pay back some of the principal on their excessive loans. The first-home owner grant had been set at $7000 with the introduction of the GST. State governments have their own schemes on top of that. When the Howard government was facing a polling crisis in early 2001, it doubled the grant to $14,000 for new homes in a market that was already recovering from the hiccup of the GST. Treasury advised against the move. The Rudd government's stimulus in 2008 fed into a market that was in reverse. Treasury supported the stimulus on that occasion. The latest housing finance figures show the number of first-home loans was 60 per cent lower in April than in the same month two years ago, when the GFC was being avoided. The repeat-buyer number was down by 16 per cent on the same period.