With interest rates dropping to a record low of 1.00 per cent in July, forecasters are predicting further growth in sales activity and property prices across the nation’s major city housing markets, as we edge towards 2020.
While this apparent resurgence might be good news for investors and those sporting a nice assortment of assets to leverage off but first home buyers have once again been left feeling frustrated and out in the cold.
So, what’s been happening?
Earlier this year, Melbourne was reported to be in the middle of the most significant property downturn since the 1980’s.
After overheating throughout the first half of this decade and beyond – hot on the heels of Sydney’s history making housing boom – things stalled pretty quickly for the “most liveable city’s” real estate market in November 2017.
Since the May federal election however, buyer sentiment and numbers have been steadily rising across inner city Melbourne, with auction clearance rates peaking at their highest point in July, after remaining on an underwhelming trajectory for the past 18 months.
But here’s the kicker…or the proverbial “kick in the teeth” rather, for those looking to move into their home buying “golden years” of life – before they actually reach their golden years.
This recent “downturn”, which saw median house prices across the city fall by a total of 10 per cent from the peak of the cycle to its lowest trough, didn’t really give first home buyer’s the breathing room they need right now.
Far from it in fact, when you consider that Melbourne’s overall median house price is currently 49 per cent higher than in 2013, according to Domain’s June quarter House Price Report.
Domain’s recent housing market data demonstrated an across-the-board “shoring up” for Aussie, inner city real estate. Again, great news for those who already have some “skin in the game”. But not so welcome tidings for anyone trying to get their proverbial (and literal!) foot in their first abode.
It would appear that the “slightly ajar door” of opportunity for first timers to jump into our bigger inner city markets (in the form of this recent downturn), is slowly closing on them already. Hot on the heels of a record-breaking upswing in the cycle that seemed like it would never end.
And it’s not just Melbourne that recorded a rise over the June 2019 quarter, with unit prices increasing by an average 2 per cent and house prices by 0.3 per cent. In our smaller cities, Canberra and Hobart, median house prices gained ground by 1.5 per cent and 0.7 per cent respectively.
Given me a home among the inner city
One of the major concerns around property prices already starting to creep back up, is the fact that inner city real estate has experienced a brief hiatus at best, and once more seemingly refuses to go anywhere but skyward.
Sure, the recent median price rises reported across these cities are not particularly impressive in isolation. But when you consider the bigger, geographical picture of where the majority of growth was concentrated, the social implications start to become somewhat concerning. Especially for younger generations.
The majority of buyer demand during the last boom phase of Australia’s property clock, was consistently directed toward the inner suburbs.
Everyone wanted a piece of the inner urban action across most major capital cities (and still do to be fair), causing almost every last bit of developable land to be swallowed up, and every “renovator’s delight” to be, well renovated, over this last decade. Which meant mass gentrification of traditionally “more affordable” neighbourhoods, still within a reasonable commute from the “big smoke”.
Neighbourhoods that have long been hot spots for younger people seeking convenience, commutability and ease of access to amenity and employment opportunities, without the comparatively exorbitant rental or home buying price tags.
But that was then…
Now, Domain reports that in Melbourne, these more popular inner city hubs experienced a 5.6 per cent price gain for units across the June quarter, and 6.5 per cent for detached dwellings.
And let’s not discount the fact that Melbourne’s inner city median house price is currently sitting at $818,237. Compare this to the average annual income for 21 to 34 year olds of $58,635 (ABS data), and one notices a significant gap between the means and the end.
Firstly, there’s the challenge of raising a deposit close to $100,000 while likely paying a hefty sum in weekly rent and living expenses.
Then there’s the issue that, even within today’s looser lending parameters, the actual loan size granted to owner-occupier borrowers would usually be no more than five to six times their annual household income. It’s not hard to see the problem here when you do the maths.
The fact is, young people are being pushed further and further down the commuter line, with little choice but to expand their search parameters into the outer suburbs to find an affordable version of the Great Australian Dream.
Here’s where it gets really tricky, particularly for post-graduates starting out on the career ladder and desperately seeking employment opportunities.
Experts suggest this demographic is at risk of being alienated from much needed access to major key infrastructure and industry; i.e. the jobs they need to pay for their housing, because of increasingly long travel times between work and home.
Then you’ve also got town planning and infrastructure dilemmas to deal with, like inevitable urban sprawl, as burgeoning populations place greater strain on public transport and key road arterials.
And now, as an increasing number of people are funnelled out onto the periphery of suburbia, psychologists are weighing in on the housing affordability debate. Pointing to the potential for increasing social isolation from peers, and an unhealthy work/life imbalance, impacting on young people’s mental health.
Just rent something already!
As more Gen Y’s and Millennials end up stuck in the ever growing tenant pool, there’s not a lot of relief to be found in the major inner city rental markets right now either.
Throughout some of Melbourne’s more popular inner suburbs like Southbank, Windsor, Carlton and Kensington for instance, it’s actually cheaper to pay off a mortgage than come up with the going weekly rent. The same applies for the Melbourne postcode 3000, where it’s $79 cheaper to make a weekly mortgage repayment than rental payment.
Similar trends can be seen across Brisbane, where rent is higher than the average monthly mortgage across 45 inner city suburbs.
And again…what are the social implications of 30-somethings being stuck either in a sea of other tenants, or worse, at home with their parents? But that’s exactly what’s happening right now. Among swathes of this younger demographic. And many are all but losing hope of home ownership. Especially as the competition, once again, looks to be kicking off in earnest.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).