Cant afford a house: Consequences/bad luck?

ok without getting emotional or generation bashing,

whenever I read an articl about how hard it is for many young people to buy a house I always end up scratching my head asking myself

"Ok, can these people not afford it because they wanted to live for the moment and had no plans to save????? or their expected lifestyle has simply got too high standard that saving for a deposit is financially not feasable or the expectations of what they consider as an acceptable house is too high (eg new, 4 bdr, 30mins of cbd, backyard) or it actually is far too expensive for the average person t o afford an a reasoanble property"

discuss please

 

Expectations are too high methinks. The acceptability bar has been raised, and people don't want to give up anything too much, in order to afford that house.

My first house was built for <$200k (total) in early 2000s in Gladstone, fortunately I sold it before the boom/bust nonsense. It was a small 3x2x2, I was able to use it to buy in Perth when prices dipped during the GFC.

You have to start somewhere affordable, buying smart (or in my case dumb-lucky) and leverage up. I don't think it's been any different for anyone else.

Imagine buying in St Kilda 30 years ago? People would think you were depraved or just couldn't afford anywhere else.. What about Redfern in Sydney?

 

I would not like to be a first home buyer in Sydney. I would like to be an employed first home buyer in Perth.

 

2 bed unit in Galesville, only 11.4km to Sydney CBD, few months ago sold 595k.
Sold 5/23 Meriton Street, Gladesville NSW 2111 on 05 Apr 2016 for $595,000

If you scrap out the entitlement and have modest expectations to start then its all doable. But no. They want what they want, where they want it and want it now. They want a 10. Well that's fine too. Just make sure you're coming to the table with a 5 + 5, and not a 4 + 2. Its so simple.

I've helped a handful of people over the last 5 years who thought they would never be able to buy a place all buy homes. The top 3 things they had to do in order to succeed were:

1. Develop strict spending/saving habits
2. Modify Expectations
3. Stay in employment.

If common sense could be bottled and sold...it would become a gazillion dollar industry.

 

Show them this article from 15 years ago... The young are growing up poor - smh.com.au

Then this article from 30 years ago


I find its general misconception and high expectations, especially during a huge boom. A lot of the younger people I talk to who say it's unafforbdale go on the assumption they must pay $800k-$1m for a house because those are the headlines. They believe they must put down a 20% deposit. They believe they must make enormous sacrifices that impact their adversely affect their lifestyles. They also believe they must be allowed to continue enjoying spending hundreds of dollars every week on beer and going out.

The only thing that has changed for tha majority is that they need a bigger deposit.

Back in '91, 60% of income was going towards mortgage repayments. Now you're considered to be in mortgage stress if you're repayments are 30%!

Mortgage repayments on a median priced house require less income today than in 1989.



They'll read silly stories like this one and believe they just can't do it- First home buyers struggling to pay the mortgage

Sounds like it's a new thing!

Really? Pretty sure any broker could have got them the mortgage for half that. So, what, $35-$40k each for deposit, Stamps and closings? Unaffordable!

Should have thought of that before you bought after having a child And by "so much more", she means a whole extra $3k each per year over what they were paying in rent! $57 extra per week to own their own 3br house

After taking on the new responsibility, Mrs Lemmon accepts her whole lifestyle will change.

#thestruggleisreal

But there's good news, she's very good at money management so they can work something out! Oh wait...

 

Depends on the circumstances, if the person is living at home paying next to nothing they should be able to save a deposit even with an average job within a couple of years. If they have moved out though and are paying rent and "teh bills" it's a totally different ball game. Very hard to escape that cycle. This only really applies to Sydney and to an extent Melbourne. Any where else it's a lot easier.

 

Lower interest rates with higher prices is making it more difficult to save a deposit even if serviceability makes it achievable once purchased:


At an individual level a lot of people who complain about how expensive property is could probably reduce their expectations and buy "something", but anyone sticking their head in the sand and suggesting affordability today is little changed from the past (particularly in Sydney or Melbourne) is not worth listening to.

"It's always been tough to buy and taken sacrifices", that's the usual line trotted out. What a cop out.

Just checking. Was $595k for a 2 bedroom unit supposed to be an example of a cheap / affordable starter property? LOL if so.

 

In my old place, if I simply rented it (and hadn't bought), say at $550 a week for 7.5 years, we would have paid $214,500 out in rent. That's a staggering amount lot of money and after that time, we still wouldn't own it. Instead, because we bought it, we paid the mortgage instead of rent and the house made us 87k annually in capital gain. Now obviously the capital gain is not a given, but owning it and not paying someone $214,500 for the right just to live there is nice.

Btw, we paid the bank interest but we had really paid it down, so the interest ended up being a lot less than rent. (Great that interest rates started dropping too while we owned it). Owning a house gives you a motivation to not waste money frivolously. Great to see the amount outstanding drop rapidly too.

And at the end of the day, i'm very glad we didn't pay that $214,500 to a landlord.

To contrast, a colleague at Amex was renting a house in Lane Cove. Two professional incomes. I said to him, why don't you buy? They had 3 small kids. He said he'll do it when he gets a promotion..... I would also think a FHB shouldnt buy a house in Lane Cove as there are much more affordable places to own... these places are obviously further out but they were definitely affordable. I had asked this to him back in 2008. Well, prices have since doubled or more.
So... do it sooner rather than later. Set a deadline.

 

Paying a high price for a property in a low demand area is called expensive. Paying a certain price for a property in a very high demand area is called reality. Something some people have a hard time coming to grips with.

 

Agree. And Gladesville is a great spot.

 

Isn't it?

The cost of a dwelling in country towns like Brisbane, Adelaide or Perth may be cheaper and travel distances to the cbd shorter but you are talking about living in a city.

 

Here's a copy & paste from an article I read yesterday, personally I wouldn't consider a unit which is 7x median income to be an affordable 'entry level' property.

Wages in the "town" I live in aren't that much lower than Sydney (at least nothing like the comparison in home prices).

 

From my perspective the stats are mostly hocus pocus. Helped my friend buy a unit a year ago 610k (he had savings from good money management habits for approx 3 years ) and he recently revalued got 60k out and onto his second place. So 2 places in 4 years. The stats are poison.

 

If you're only using a single income, best to pick a more relevant property such as a 1 unit apartment. Median for those in Gladesville is $500k. Is 6x the median still too unaffordable for entry level?

$500/wk repayments P&I at 5.5%. On $84k median income, after tax one could comfortably contribute an extra $300+/wk to smash through the mortgage significantly quicker and still have $400/wk left over.

I don't understand why anyone would only be saving 20% of disposable income to buy a house. If you're not saving 70-80% of play money you're not even trying.

 

I believe those stats above were actually household income, but in answer to your question, yes. Because the comparison for an entry level home should ultimately be made using entry level income which would blow out the ratio much further.

I think anyone looking at a $600k unit as a reasonably priced entry level home has perhaps lost touch with the reality of the incomes most people live on.

 

That's all it is, more difficult. And guess what, when interest rates were 11%+ it was also more difficult, just from a different angle.

I'd obviously disagree

I also believe those stats may be inaccurate as the link that claims to use "ABS’ data on median household disposable income as at June 2014" was "last updated 19 January 2007".

 

That is the last updated date for a generic missing document page, not the data. Looks like the link in the article was broken, but income stats look about right to me (from previous references I've seen). If you think that median household income is substantially different then feel free to source your own for the discussion.

 

More difficult to save the deposit and undertaking greater risk to take a substantially larger loan relative to income, which is all part and parcel of affordability in my view. As I wrote here:

Why Serviceability ≠ Affordability (Australian Property) | 2340
Does Australia have a housing affordability problem? | 2340

Serviceability is not the same as affordability.

 

Bne also. Anyone fhbs in bne are going to to well

 

I would not consider $595 achievable for all fhbs even if disciplined. Aprof couple yes. But a low income couple with kids, no. That's the difference these days.