Reserve Bank governor Glenn Stevens says it has always been a struggle to get into the housing market.
For any first home buying hopefuls, here’s a read for you by Megan Neil in an article published online at The Australian today.
However before you finish the read prematurely, make sure you check out my footnote that is a little more relevant to Cairns!
“IT was for me, it was for all of us here,” Mr Stevens said, gesturing to the three senior central bank employees sitting beside him at his six-month grilling by politicians in Canberra.
“I think it’s perhaps a bit more daunting now because the size of the deposit that you need to accumulate is larger, that is why we see many families helping their children and transferring the wealth through the generations that way.”
Anyone trying to get into the property market, even at a time of record low interest rates, must first confront their biggest challenge: a home deposit requires more savings over a longer period, while house prices keep rising.
In 2000 it took about five years to save 20 per cent of a capital city house price, ANZ deputy CEO Graham Hodges told a federal home ownership inquiry.
Today it is more like seven years, he says.
Non-bank lender Homeloans’ Will Keall says getting into the market is becoming increasingly challenging, particularly in Sydney and Melbourne where house price growth has been strong.
“I think anyone that has sat down and worked out how much deposit am I going to need for a home is probably quite daunted by the size of that.
“The latest figures show the proportion of first-time buyers in the home loan market fell to 15.4 per cent in July, with JP Morgan economists saying first home buyer loan growth remains in the doldrums.
“We expect this group to remain on the sidelines for a while yet, however, with rapid price appreciation (largely concentrated in Sydney and Melbourne) creating affordability issues for these potential buyers.
“It said the effect of rising prices was evident in the pick up in average loan sizes, which rose to an all-time high of $364,400.
Independent economist Saul Eslake notes conventional measures of housing affordability do not take account of the impact of rising property prices on the difficulty of accumulating the 20 per cent deposit.
“Nor do they take account of the other costs associated with purchasing a median-priced dwelling, which, in Sydney and Melbourne at least, include considerably greater commuting times and expense than would have been the case when mortgage rates were at 17.5 per cent in order to locate the median-priced or lower-priced home.
“There has been a trend for first home buyers to become investors, buying where they can afford and renting where they want to live.
Usually that’s in the same city but CoreLogic RP Data senior research analyst Cameron Kusher says there are examples of people who live and work in Sydney or Melbourne buying their first property in a city in another state if they grew up there.
“I think it really just highlights that whereas people used to think of being a first time buyer as buying a house to own, people are thinking outside of the square as a way to actually get that asset and be able to live where they want to and the way that they want to.
“Some first home buyers get a helping hand from the Bank of Mum and Dad, who either act as guarantor or help out with a deposit. “I know some people are fortunate enough that their parents can do that, others are not,” Mr Kusher says.
Related: Guaranteeing Your Child’s Loan
Mr Keall says one thing that hasn’t changed is that first home buyers probably can’t afford to buy in the suburb where they grew up.
“A first home buyer needs to be realistic about where they can afford to buy and should probably be focusing on `hey this is me getting into the property market’ as opposed to `this is me buying my dream home’.
“Once they’re in if they’re able to hang on to that property for a number of years they should see reasonable capital growth that will position them well to take the next step towards that dream home.” [end]
Now that they’ve said their little piece about the Sydney and Melbourne markets, let me take things closer to home for you. In reference to the article you just read, and looking at the chart below for Cairns, here are some things I’d like to point out:
– be realistic about what you can afford, and don’t discount units as your first step into the property market;
– the size of the deposit that you need to accumulate for a median priced unit is now still smaller than it was during the period 2007 to 2011;
– you can own your own home within 15 mins drive from the Cairns CBD; and
– yes, it still is a struggle to save for a deposit!
Have a read of my “What’s the secret to buying my first home?” post.
I specialise in helping first home buyer’s enter the market, and would love to hear from you if you’d like some smart mortgage advice and guidance with an obligation free assessment of where you need to be to get into your first home. Oh, and my service is completely free!
Jason Thomson | Mortgage Advisor and Finance Broker | Smartline Cairns