New housing finance data released by the Australian Bureau of Statistics show that the number of first home buyers is now at their lowest level in more than a decade, dropping from 14.4 per cent in April to only 13.9 per cent in May. Back in 2004, the proportion fell to 12.8 per cent as grants for first home buyers came to an end.

“A drop of prices of some sort is needed, but we’ll also need a reduction in expectations in terms of what first home buyers are looking for,” said Angie Zigomanis, BIS Shrapnel senior manager of residential. “At some point, they have to come back, in theory, but for now, the market is tough.”

A slowdown might also be in the cards, as evidenced by the decline in overall lending figures from 2015.

“We’re seeing a pullback in housing finance that has been going on since late last year, which is consistent with the idea that the housing market is set to cool,” said HSBC chief economist Paul Bloxham. “It’s a result of tighter prudential settings and is also a sign that the exuberance has come out of the market. There was a concern that strong activity from investors was overheating the market.”

For Bloxham, a return of first home buyers in the market is imminent, perhaps due to a pullback in apartment prices and significant apartment supply. The same view is shared by Domain Group chief economist Andrew Wilson, citing the surge of loans approved over May to investors.

“Investors are re-entering the market,” he said. “The catalyst was lower interest rates and the prospect of a change to negative gearing, but they have been itching to get back in any way.”