First Home Buyer Crisis: Housing Affordability

There's been a lot of press lately on first home buyers being sidelined in this frenzied property market.

The Sydney Morning Herald(SMH) recently published an article, 'Home deposit hurdle won't clear itself', stating that out of new housing loan commitments, first home buyers only accounted for 6.8 per cent of buyers in September, down from a peak of 34 per cent in May 2009. First home buyers have been on the decline since the Government winded back their generous housing deposit grants.

The SMH also stated, "...in August(first home buyers) they made up just one in fifteen borrowers in NSW and one in eight borrowers in Victoria...house prices have risen faster than incomes over time-from 2.5 times the average disposable household income in 1985 to about 4.5 times last year, the Reserve Bank estimates...home ownership rates nationally have been in decline...the largest fall is among households in the 25-44 age bracket...the share of households owning their homes outright has slumped by more than 13 percentage points since 1995-96. Almost 35 per cent of the city's households are now renting."

According to RP Data, property prices in Sydney has grown by 13.2% in 2013.

Influential business owners, wealthy individuals, investors and politicians are likely to hold several investment properties, so there's very little likelihood of negative gearing being abolished. Negative gearing alone isn't really a great incentive. It's only useful if property price growth is appreciating more than the losses being incurred.

In another SMH article, 'Investors keep first-timers out of market as  prices surge', there were quotes from Nick Gunn, a first home buyer who had failed to buy a Potts Point apartment for $431k because he was out offered.  He says, "...I don't think I am likely to find anywhere that I can actually afford...there are a lot of us. Basically we sit around moaning about the same thing."

Of course he can find properties that he can afford.

Instead of buying in the heart of Sydney, he might have to look further out either West or South of the city. If he and his friends decide to sit around 'moaning' that they can't afford to buy a property because they only want to buy an inner city property, then that's not an issue of affordability.

If they keep moaning about it, even property further out from the CBD will keep on increasing in price and they will be priced out of both, inner city and outer city suburbs.

Why do first home buyers think that they are entitled to be able to buy their first home in very desirable suburbs and if they can't, then they complain and say that they can't afford to buy anything? They CAN afford to buy something, they just have to downgrade their expectations and look at upgrading later.

Classic Advice On Stock Investing

Have been going through some Spring cleaning otherwise known as Spring dumping and found an old investment magazine from 1997, 'Personal Investment: Shares, Your Next Move'. Good, solid financial advice is always going to remain current.

Here is one old, but good sixteen year old advice from the magazine:

"The market in 1987 proved that if you hang on it will come good. And if you can buy some good  blue-chip shares paying 5 to 7 percent dividends, that is still 1 to 3 percent more than cash management trusts. And if it's fully franked, it's a great alternative."

There are dividend yields for quality stocks roughly at that level again. The cash rate is roughly 1 to 3 percent below the dividend yields. It's as if sixteen years haven't passed.

Like most advice about trading, technical analysis on what to buy and sell, that stuff is not fundamental and has aged. The best strategy with regards to stock investing (if you are not that experienced) is just to buy the solid, blue chip companies that manufacture the everyday products that you use or the companies that provide the services that you use every single year.

Buy the ones that pay dividend so that you'll have income. Buying trendy growth stocks is highly risky, particularly when the company isn't profitable. I thoroughly dislike investing into IPOs for exploratory mining companies.

Liquidating stocks during financial crisis due to fear isn't the best strategy, especially if you've sold your stocks, ended up sitting on cash and didn't buy back into the market because you were waiting for the 'bottom'.

Trading Up And House Hunting

When the stock market is sizzling hot, the conversation at parties and gatherings are about share trading and expanding the share portfolio. Similarly, when the property market is booming, family and friends like to talk about the property market and how they're looking to buy additional properties or trade up to a larger sized house. Why do most of us get the urge to buy when prices trend up?

Friends ABC have just bought a house at Maroubra. The house is smaller than their current abode but they've upgraded their suburb from Narwee. Maroubra is in the catchment zone for better schools for their child so that guarantees an academic competitive advantage for their son provided he is inclined to be educated.

Friends DEF are about to move out of their three bedroom Bondi Junction apartment into their newly built house at Little Bay. Not necessarily a suburb upgrade, but definitely a house and land size upgrade. They're just like Mr SMG and I, oozing out of the apartment with 'stuff' that we've accumulated over the years which means, either upgrade to a house or sleep on top of the entertainment unit and snowboards.

Friends GHI are planning on selling their house in Ermington and buying a house in Lane Cove or Gladesville. House size is probably negligible in difference but the suburb would be an upgrade to a more prestigious suburb.

Friends JKL are looking to buy in the Hills District around Baulkham Hills region. They've just migrated/returned permanently back to Sydney after a 6 year 'sojourn' of working in London. They'll be house hunting shortly. They've just sold their London 1 bedder for almost 500,000 pounds. London real estate prices can be even more insane than Sydney...

Friends MNO are looking for a house to buy. They're still undecided on suburbs and still in disagreement over what type of house and what budget they wish to lavish onto their house purchase so who knows when they'll bite the bullet. But...that hasn't stopped them from attending open houses.

Friends PQR have been looking at buying a house along the North Shore train line, mainly in the leafy suburbs of Turramurra and Wahroonga. That would necessitate them moving out of their apartment in Wollstonecraft so it's more of a suburb downgrade but a housing size upgrade.

The real estate market is really sizzling. Sometimes I read property articles on the major news sites and there are commentators there still going on about the housing price crash and how they're going to buy real estate dirt cheap, and that Sydney has run out of people who have money to buy properties. They've got their blinkers on. Seriously. If they've done their research and gone to open houses then they might see the massive crowd of Chinese folks who have plenty of dough to buy houses non stop. Population growth practically guarantees that we need additional housing built and that existing real estate near amenities and transport will always be in demand.

I'm trying to decide whether it's worth waiting to plunge into another IP after the market has calmed down(who knows when?) or to buy one now. The problem with waiting to buy (as always) is that if the boom creates more price appreciation, waiting will mean having to pay several thousands of dollars more. If property prices keep trending upwards, that means it's better to buy now and enjoy the price gains.

But buying now will mean jumping into the hungry hordes of buyers who are paying above the listed price in order to obtain a piece of real estate. Auctions have seen properties sold way over their reserve price. If we were to buy another IP, then we are very likely to get zero discount from the listed price and probably even have to offer above the listed price to secure the purchase.

As one of my friend keeps saying, "What to do? What to do?".

I'm going to have to set a deadline of next week to work on our budget and figures to see what we can afford in terms of loans and LVRs. The portfolio and numbers are getting more complex, taking longer and longer to compile but I really need to get my act together regardless of how busy I am.