First-home buyers borrowing 50 per cent more than they did 10 years ago

Built 1st PPOR in 1996 in Sydenham, Vic. 666 sqm land was about 55k and construction was about 120k.

Built 2nd PPOR in 2011 in Cranbourne, Vic. 651 sqm land was 195k and construction was 220k. But construction was a higher quality with energy saving features like double glazing throughout. 1 year after we bought the land, smaller blocks in the later stages of the estate are 270k.

So over 20 years, it would seem that land has gone up up 400% and construction 100%. But cost of living "feels" more now than 20 years ago. Overall I think it's harder to be a FHB now.

 

I also think it is harder for FHB now in Melbourne.

Back to 7-10 years ago, most of our friends, including myself, as long as we didn't look for a house with a big piece of land in the east or South East, we would still be able to find something good sized townhouse in the north or inner or Middle West and negotiated the price and signed a contract with special condition.

Now I think the FHB market, like Sunshine, Tarneit, Thomastown, and even St. Alban is very strong and competitive. Buyers start to offer unconditional or thru auction, which FHB always reluctant or unable to compete with.

 

I live 19 klms north from the centre of the Brisbane CBD in a "nice" family-friendly leafy suburb, with a newish primary school, preschool and kindergarten about 400 metres away. A new Woolworths is currently being built 500 metres away, next to an awesome hotel that is 5 years old. There are two small shopping centres with doctors and pharmacies 5 minute's walk away. A major sporting facility is about ten minutes walk away. The high school is a 30-40 minute walk away, under 3 klms. Get the picture?

Just before the GFC, my neighbour sold her house to a young FHB family from Sydney for $460k. Our properties are different but easily comparable. We both back onto a lovely park with a walking track to the IGA and the school. Same land 650m2, both 3 bedrooms plus lots of extras. They have a pool but we have a man cave and a larger outdoor undercover area. Our homes are still at exactly the same price point today, maybe pushing $480k. You can all work out the interest rates being charged nine or ten years ago compared to the 5% for new buyers these days.

Go to the next suburbs immediately north of me - Warner, Strathpine and Bray Park - and the prices drop dramatically. FHBs get a similar standard house for about $400k.

COME TO BRISBANE for affordable housing. Yes, shouting.

 

You left out the 4.5 star hotel, Gym and 15 specialty retail stores as well.

2 golf courses with 1-2 min drive.

All this literally on your door step and within walking distance of affordable housing stock. Many selling for less than $500k

Future looks bright.

 

Here's one I prepared earlier. It's not mine.
38 Pegasus Avenue Eatons Hill Qld 4037 - House for Sale #122858318 - realestate.com.au

 

Could it be because parents are also increasingly standing guarantor, allowing them to borrow more? (Pie in the sky thought...). I know quite a few who have bought quite expensive, but small, OTP apartments using guarantees.

 

Could it be net migration + people living longer + lower interest rates + overseas investment + parents gifting their children money + Guarantor + more women in the work force + people having children later in life + family size getting smaller + cheaper cost of living (air flights, cars, education, technology, etc) + banks allowing less deposits + FHOG + LMI + inheritance + extra cash (uber, online businesses etc) + children living at home longer + people's idea of a first home standards + build quality is better + + +

There are so many factors that it isn't purely just 50% more which yes in the number from 10 years ago might be 50% more however there are numerous reasons why.

When interest rates go to 17% (and even long before this) people will not be able to handle this stress and property prices will change and it will be a different story about how interest repayments are now more than triple what they were 10 years ago (not saying interest rates will be 17% in 10 years).

 

I don't think FHB will get much in the future for Sydney (cannot say for other states as I live in Sydney). Sydney is an international city with so much people with lots of money moving into it. Did anyone watch Dateline about 2 weeks ago on the story of Vancouver where the rich mainland Chinese were buying into properties and pushing the prices out of reach of the locals ? I just hope Sydney does not become like Vancouver.

 

You in some ways would if you already owned properties in Sydney

 

Some interesting stats for our youth...

Young people today: overqualified, underemployed and swimming in debt, report finds

These are the youth stats

Income - Real wages for young Australians have increased by 20%, which is about half as much as the average wage growth across all ages.

Unemployment - 14.8% in 1985; 12.9% in 2015 - source ABS

Underemployment - 4.7% in 1985; 17.5% in 2015 - source ABS

Job security - 2.8 times as many young people are employed in part-time positions compared to 1985

So you can kind of see why having to borrow 50% more in a 10 year period is becoming a major issue for affordability. When youth wages have grown only 20% since 1985 compared to 40% for all ages (which includes the youth dragging it down) and consider how much house prices have grown comparably you have a massive disconnect and that disconnect is just getting larger.

We hired our most recent graduate at work for 4k per year less on nominal terms, nevermind real terms, than the one we hired 3 years ago and this is pretty comparable across the workforce for youth workers, because there is such massive unemployment and underemployment right now they basically have no negotiating power and will take whatever they're given or get nothing.

It's just flat out harder to buy a house right now, for the median Australian household on 65k a year I can understand why housing affordability is a major issue. The reality is that you pay the cost when you buy a cheaper house in time, social contact and lifestyle and while they don't have the dollar value to quantify them they're just as much of a cost to consider, especially socially. Then consider that the youth are even worse off than that median household and that they make up those who will be first home buyers more often than not.

There are big issues that need fixing. Yes, ideally fixing the cause would be a better outcome than the effect. The unemployment and stagnant to negative wage growth that are driving the denominator side of the equation are HUGE issues that are being almost completely ignored but they're also incredibly difficult to fix, especially in an economy that is based around the housing industry, they require us to create jobs, innovate and make things better which we've now had about 10 years of slowly removing from the Australian way of doing things, this slow rot on that side of the coin isn't going to change until we get a government who're interested in changing it. The simple fact is that the numerator in the housing affordability equation can be addressed far more easily and thus it has become the target (whether it should is a different topic). Removing CGT concessions would remove a huge amount of the heat that drives housing prices at much faster rates than wage growth (who isn't going to lean and focus on tax free/preferred income sources?).

Unfortunately housing affordability is a major concern because it is a need and it isn't becoming excessively difficult and it is causing massive wealth discrepancies and transfers generationally. I'd much prefer we fix the cause of it but that's a pipe dream that will require real change and focus, the kind we haven't seen since at least Howard and arguably before his governments even. Ultimately we need to fix the equation in some way or those unemployed youth will start leaving the country altogether and then we have an even bigger issue given even with them we've got a rapidly aging population that can't support itself. There are some good ways to start though, get rid of payroll tax, reduce all tax rates (especially corporate), invest in innovation (to be fair, Liberals have at least made a hamfisted effort at this) and provide incentives to hire and create jobs for the youth (we complain about their lack of skills but they're not developing by stacking shelves at Coles, we need to create real jobs). Couple this with removing CGT, means testing and land tax concessions and you'd go a damn long way to fixing housing affordability for good.

 

Interest rates are such a double edged sword.

When they're low, especially this low, they make saving the deposit so much harder and they indicate how poorly the economy is doing which is reflected in the non-existent wage growth but they do make getting bigger mortgages more achievable.

Of course when they change they will destroy all those who could only get mortgages because they were low long before the flow on effects of wage growth from a stronger economy can come through as they're always lagging.

There is so much more to it but the simple fact is that house prices have outstripped wage growth by far too much, especially in the FHB end of the market, and that employment and wage growth is so low and stagnant that this equation is only going to get worse and with interest rates already at basically rock bottom there just isn't any more room to create loans.

 

So much silly.
What's wrong with these people?

 

Being sold a dream they can barely afford.

 

I dont think it is the parents' guarantees that is making housing more expensive all of a sudden, Jennifer. That has been happening for the last 20 years that I know of just in my street. We have debated this topic to death, and the consensus is that it is a combination of several factors. Simply cancelling out any one factor like negative gearing will do diddly squat to address the issue. I can remember discussing with the neighbours how housing was so expensive 20 years ago when average prices in Brisbane were about fives the average wage compared to only two or three times when we bought our first house.

 

Some of them could get unstuck if they're over committed.
I was going to say hopefully not, but it's probably inevitable.

 

Perhaps. My research shows parental guarantors (as a loan function) have only been mainstream in the 2000s.

 

There are some good FHB deals around Perth now. I bought 50% of an IP in Melbourne in 2007 because Perth prices were too high. This year I bought 50% of an IP in Perth because Melbourne prices were too high. Based on my experiences, I would rather be a FHB in Perth now than 10 years ago.

 

The buy side of the equation is certainly pretty good right now. It's a shame that the job and economy side is so bad to sort of counter it largely.

 

Probably why house prices are so low

 

Ye old chicken and the egg