Mortgage brokers, in Rockingham, Kwinana and Baldivis, hear every possible complaint or analysis of the housing market. We talk to other people in the business a great deal of the day. We read about all things having to do with housing. One of the largest complaints from prospective borrowers and many economists: “the housing market is pricing Generation Y out of home ownership.”
The more pessimistic view is that the housing market has risen so much that younger families can no longer afford to purchase their first home. Investors are being scapegoated as the “cause” for many millennials not having enough money to purchase a home.
But are investors really the reason for a lack of affordability? And how many of Generation Y, also known as millennials, are really being “locked out of home ownership”?
The “Affordability Crisis”
Westpac conducted a survey in which one out of three millennials said they felt they would never be able to afford to buy a home. In the CBD and inner ring of Perth, Sydney, Melbourne, Canberra and Brisbane, prices are generally too high for millennials because they haven’t been in the workforce long enough to attain a financial position that would allow them to purchase properties in the most expensive regions of Australia.
In Australia, roughly 75% of the population lives in the inner rings or CBD’s of major cities. This is where homes are the most expensive and jobs are the most plentiful. This situation creates supply and demand issues. Banking giant ANZ estimated that there was a shortage of 250,000 homes in 2010. Part of this is caused by more people living alone. In previous generations, 100 homes would house 400 people. In the current era, it would be closer to between 150 and 200 people.
Many economists feel that we aren’t building new homes fast enough to compensate for an ever-increasing population. It is estimated that we will grow from a population of 22 million to one of 35 million by 2050. Many predict that prices will continue to rise and that many will soon be priced out of ownership. But how accurate is this projection?
Motivated Millennials
It turns out that many millennials are opting to rent units in cities closer to work and purchase investment properties in outer suburbs or even in regional Australia for their first homes. This gives them the best of both worlds. They get to enjoy the benefits of the CBD, inner ring lifestyle, while building equity in homes they can afford.
The 2014 Housing Affordability Sentiment Index revealed that 89% of Gen Y property owners had already bought their first properties by the age of 30. 9% actually bought their first properties when they were less than 20 years of age. Half of them bought between the ages of 25 and 29. For comparison, 37% of Gen X homeowners bought between the ages of 25 and 29, while 31% of baby boomers did the same. 53% of millennials are already property owners, with 23% owning investment properties and 47% planning to buy an investment property within five years.
While 84% of millennials believe that housing is less affordable than it was for previous generations, they are still finding a way to buy homes.
What it Means to You
Our opinion is what it has been since shortly after the market bottomed out: prices will never be lower than they are now. Think of how much money you would have saved buying a home three years ago compared to now. In 2009, the median home price in the Perth market was $450,000. Currently, it sits at $540,000. You could have saved $90,000 on an average if you had bought a home in 2009 compared to now.
Call Smartline Rockingham today and let us find out if you can afford your first home. The process is easy. With basic information, we can have loan offers for you within 24 hours.
Call (08) 9527 1800 today.
