You can’t blame 30-something Generation Y couples for being angry about the property market.
More of them – around one in four – are living at home with their Baby Boomer parents in comfortable family homes they are never likely to be able to afford.
It might sound terrible to say it, but with life expectancy moving ever higher the likelihood of the family inheritance also seems like too little too late.
Interest rates are at record lows, but that is pushing up the price of properties across the board.
So while 30-somethings look on and grind their teeth, investors are having a field day and home ownership in Australia looks like dipping below 50 per cent for the first time ever.
New home buyers are now accounting for only 7.6 percent of real estate purchases.
It is little solace for young people to know that experts see house prices as significantly overvalued.
In this tough world, how can 30-somethings get into the property market and avoid a lifetime of renting.
Here’s a couple of ideas:
- Pool resources with friends or siblings. You are comfortable living in a share house, how would it be if everyone in the share-house owned part of the house rather than paying a landlord?
- Get your friends to buy it for you! If you have a three-bedroom house, rent out two of the bedrooms to your friends and get them to help with your mortgage.
- Take the investment route. You don’t have to live in the house you buy to get a foothold on the property ladder. Don’t be ambitious about what you buy first up, as long as it gives you a decent income stream you can service the mortgage.
- Investigate negative gearing and make it work for you. Despite some murmurings during the election that it would be done away with, negative gearing is still available. Claiming on the loss between interest and rent can help defray the cost of getting into the market.
- Check out first homebuyer grants. These vary across the states but you might be able to access up to $15,000 towards your first home. In NSW, there is also an incentive if you buy outside of the Sydney metropolitan area. You can do a tree or sea change and get on the ladder!
Meanwhile James Kirby, Wealth Editor of The Australian, has a different take on the banks’ behaviour this week.
Here’s what he wrote today:
Just occasionally our supersized banks can change the terms of finance in Australia.
At a stroke this week the big four banks created the perfect landscape for first-home buyers and pushed property investors to the side.
Seeking to justify an official rate cut while the housing sector is still showing signs of real strength, outgoing RBA governor Glenn Stevens said he believed house prices are stabilising thanks tighter lending standards.
The jury is out on whether Stevens has called it right or not, but the remarkable move by the banks — acting together once more — to hold back on passing on the rate cuts in full and instead lifting deposit rates — instantly pushes investors back to cash and away from property.
Property investors must now contend with a string of negatives which have rarely combined so perfectly in the local market:
1. The rate reduction cycle is being cut off early by banks expressly favouring depositors over investors.
2. Rental yields are falling, worse still rental growth is fading.
3. Foreign buyers, invariably from China, now face new difficulties getting money out of the mainland and then an absence of finance provision within Australia.
4. The prospect of acceptable price growth is slim in most cities with the exception of pockets in Sydney and Brisbane.
But the remarkable aspect of these major changes to the property market is that first-home buyers actually benefit from almost every one of these recent developments. Vincent Turner, chief executive of the recently launched online mortgage broker and comparison site, Unohomeloans.com.au, says lending to first-home buyers is likely to rise.
“We’ve watched as the first-home buyers shrunk back and investors got the upper hand in recent years. The level of first-home buyers in the wider lending market fell well below 20 per cent — more traditionally it had ranged 30-40 per cent — and I think we will see it lift again from here.”
Investors squeezed on two fronts
For the millions of investors who depend on the fully franked yields in bank stocks, there are fears that a battle for depositors among the banks can only bring trouble.
Leading bank analyst Brian Johnson of CLSA has already pointed out the business of offering higher headline deposit rates at banks such as CBA and NAB while the RBA is dropping official rates is going to be expensive.
Johnson indicated the trade-off between holding back on rate cuts and lifting rates is a losing game suggesting all-important bank net interest margins will be “negatively impacted”.
Meanwhile, two groups in the residential property may be heading for a fall. First, “off the plan” purchasers where the termination rates are already rising. A recent BIS Shrapnel report warned almost all the major markets are moving towards an oversupply.
Second, the interest-only brigade — with one in 10 primary home loans now classified as interest-only — a significant portion of the market is going to be very exposed if prices soften in any fashion.
And with a vacuum left by exiting investors, the path is clear for first-home buyers — and perhaps the “downsizers” — to cherry-pick a market where the banks have moved the goalposts.