Another Day, Another Homebuyer’s Dream Dead

Since when is buying your own home a dream and not a feasible reality?

Unless you’ve been living under a rock for the last decade, you’ll know that dream is fast moving out of reach for most Australians.

Apparently too much money is being spent on avocado on toast and lattes by young Aussies. And now no one can afford to buy their own home. But if you take a closer look, you might just see it’s not exactly people to blame for not being able to control their finances, but rather a variety of conditions which have pushed property prices to record highs.

As discussed in last week’s Money Weekend, when a market enters bubble territory and values become blurred, a collapse or correction has to occur. Only then can the market steady again and reflect more accurate values of assets. This is particularly relevant for our housing market. To the extent that even the mainstream financial media can’t ignore it any longer. But they’re looking at all the wrong causes.

It’s clear to see why mainstream media outlets find it easier to blame individuals. That’s much easier than analysing the complex economic conditions which are making owning a home seem unattainable for so many.

However, it’s not just young Aussies locked out of the housing market who are suffering. When a bubble swells this large, offering unheard of gains in one investment class, it draws investors in with a fear of missing out. It’s hard not to go with the crowd, when you hear about the kinds of gains your friends and neighbours have made for seemingly doing little or no work.

That can be a trap, however. The more people have come to believe in recent decades that housing can never fall, the more danger they’re in. Homeowners and investors who bought near the peak of the bubble, assured that property values only ever go up, could soon find themselves owing far more on their mortgages than their houses are suddenly worth.

This dangerous perception has spread through all of Australian society, and is only now starting to be questioned.

It may seem hard to fathom a crisis or crash of any kind in the face of our booming economy, but this uninterrupted growth may just be what got us here in the first place.

As reported by the ABC this Wednesday:

The pool of funds Australia’s big four banks are increasingly accessing to source home loans has become more expensive.’

In some cases, it is as expensive as it was during the height of the global financial crisis.’

Australian’s aren’t saving as much anymore

There seems to be a crack in the system which could not only affect up-and-coming homebuyers, but mortgage payers too. Although we can’t really blame individuals for worsening economic conditions, it seems a combination of higher living costs and stagnant wage growth has made saving money for Australians more and more difficult. ‘A key part of the problem is that Australians are not saving as much anymore,’ wrote the ABC. Savings rates are reportedly so low that they are at ‘roughly the same level as they were during the height of the financial crisis.’

Just take a look at a few of the headlines this year:

‘Australian millennials among world’s worst for home ownership: HSBC survey’

Domain

‘How millennials are screwing themselves out of home ownership’

News.com.au

 ‘Home ownership in Australia in decline for three decades’

ABC

‘’Mortgage prisoners’ trapped with higher rates as lending rules get tougher’

ABC

Tough times ahead for property prices

It would seem as though we have a problem on our hands, one that some economists have been predicting for years now. Controversial and often correct economist, Harry Dent, has been calling out our property market as bubble for quite some time now. Yet many are still shocked that there may be deep issues within our banking and mortgage sectors.

If you’ve heard stories of San Franciscans living in their cars and showering at the office due to ludicrous property prices, don’t be alarmed when something similar happens in our own backyard. You’ve been warned. Tough times lay ahead.

Just yesterday, Harry Dent warned readers in his Boom & Bust Letter that Chinese ‘closet’ apartments are on the rise. 66 square feet of living is enough apparently, enough to fit ‘A bed, a toilet and sink, a small drawer and closet’. Think that sounds scary? Well similar measures may need to be taken on our soil if our housing market isn’t corrected soon.

Dent continued:

How could cities and countries not understand that super-high real estate prices are bad for the economy? It only raises property taxes for the government — typically not commensurate and on a lag — and largely rewards older people who already own their homes.

It kills the younger workers that will drive the economy for decades to come.

Many can’t afford to buy until much older. Some will never be able to afford to buy housing. This causes income spending to shift towards housing and leaves less for everything else, especially discretionary spending like eating out and vacations.’

So, if you’re an Australian keen to buy your first property, maybe now is the time to sit back and watch the market correct itself.

But remember, a housing crash wouldn’t just hurt investors and homeowners. A large enough one could crash our banking sector in turn, and potentially even send our whole economy into recession.

Best wishes,

Julija Zivanovic,
Editor, Money Weekend

PS: In this free report, economy expert reveals four ways you could cash in on the global infrastructure boom. Download now.


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read. Money Morning Australia is published by Port Phillip Publishing, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.


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