Over the last few months I have begun to notice a despondency amongst some younger people about their lot in life. Specifically, how out of reach home ownership is for them. However, there’s no need to panic.
It’s tempting to start an article like this with “when I was your age…” but all that would do would be to stop people reading it. There are many reasons why younger people feel this way and there are many myths around the subject of property and financing that needs to be dispelled.
Myth Number 1: Property is unaffordable.
If property is unaffordable to you then you’re looking in the wrong place. If you have your heart set on a 5-10km ring around a capital city, and earning less than the average wage, you need to re-assess your ambitions. If you haven’t caught on yet, many younger people are buying an investment property in an affordable suburb that is on the fringes of capital cities and renting closer to town. As a strategy, it works. It gets you on the property ladder. It’s not my favourite but that’s the point. Whatever suits your financial circumstance is what’s best for you. There are plenty of property spruikers out there that will cater to most budgets.
Myth Number 2: Interest rates may go back up to double digits.
Let me be perfectly honest here. There would have to be a significant uplift in the global and Australian economies on a scale never seen before if that were to happen. The more likely scenario – if the Australian economy showed GDP of around 4% and unemployment at the same number – would be that rates were increased gradually by perhaps 1-2%. That’s still significant but it maybe worthwhile remembering that banks are currently stress testing your servicing capacity at a rate of around 7.6%. That’s around 3.4-3.7% above current rates.
Myth Number 3: Property only goes up in value.
Property – like all other investments – goes through investment cycles. If you’re currently living in Sydney or Melbourne, you can be forgiven for thinking that property only goes up in value. If you’re under the age of 30 you probably had better things to do in the early 1990’s and 2000’s to worry about the double digit falls in the property market. Some blue chip suburbs fell by 20% and took a decade to recover. Unlike most other investments, property is a long term play. That doesn’t mean timing is not important.
Myth Number 4: I’ve Missed the Boat. Again, if you’re under 30, you can be forgiven for thinking that it’s too late for you. That’s probably a healthy attitude in the current cycle. However as explained in the previous myth, this cycle will not last forever. There will be a correction and a little pain. There is no need to fear that you’re missing out. Your turn will come at a price you can afford. If not, as explained in Myth Number 1, you’re looking in the wrong place.
Sure there are plenty of other myths that should be debunked but I could go on forever and bore you to tears. Remember that articles in the media are mostly bunkum. There will be a real estate editor that needs to fill space and they end up scaring the crap out of their readers.
Be patient and as stated in the heading, there is no need to panic.