If I didn’t work in the real estate industry, I would have little concept of who or what to believe.
By CATHERINE CASHMORE
It brings to mind the recent controversial advert depicting Julia Gillard as a puppet of the Labor machine, however instead I wonder if the true puppets depicted should be the public at the hands of the great media machine?
After all it’s the media that decides to make what is often a minor issue a major headline for the sake of attracting a greater readership. Whether we recognise the folly of the debate or not, we can’t help but be influenced. Hear a message enough times, and your subconscious starts to believe it.
It could be argued that the effect is relatively harmless, however when it comes to investment, running sensationalist headlines based on misleading statistics can have far reaching effects on our economy. A mere rumour, whether substantiated or not, can cause the stockmarket to plunge or in an atmosphere already financially unstable, a ‘run for the hills’ scenario such as witnessed in the United Kingdom during the GFC when investors did a panic run on the Northern Rock bank.
Any ‘Chinese whisper’ can create a scenario where we risk becoming writers of our own recessive doom.
The influence is possibly more pronounced than previously because younger generations now have the physical memory of a world financial crisis – something a little more influential than reading about post-war recession in a history book.
A series of reports have recently claimed that housing affordability is unsustainable. Apparently it’s ‘our turn’ to have a major house market crash (similar to that seen in the United States.) Furthermore, according to the media reports, our first homebuyers may as well give up now or look forward to a future of debt like a mill stone around their neck.
A few recent headlines quoted home buying as “a never ending dream”. Saving for a deposit took more than a “decade” in 1955, $7000 bought a house and now “it’s not even a deposit on a dream”.
However talk to anyone who purchased a property 10 or 20 years ago and they’ll tell you it’s no worse now than it was when they entered the market. In fact if you search newspaper archives prior to 2000 similar comments about mortgage stress are reported.
The ones who should know what’s happening to our economy are board members of the Reserve Bank of Australia (RBA). After all they hold the most reliable source of research we have and are not ruled by public debate.
Recently Ric Battellino, Deputy Governor of the RBA, addressed the Financial Executives International of Australia (FEIA). Commenting on a series of financial matters, he placed housing affordability at the top of the agenda and opened with this insightful comment: “The Reserve Bank monitors developments in household debt very closely as they have significant implications for the economy.”
The RBA report shows since the 1980s there has been an increase in household debt. However this is to be expected; since 1980 there has been a sharp rise in the availability of credit which prior to 1980 was under much tighter control (in fact even getting a home loan prior to 1980 was remarkably harder than it is today).
The greater part of our household debt has been taken on by middle aged households – those with secure jobs and assets. The ones with the ability to finance the repayments. Households in the higher earning bracket and at the high end of income distribution and other research cited shows over half of our owner-occupiers are ahead of payments on their home loans – not behind, as many in the media report.
Perhaps the most telling figures come from the recorded arrears rates on loans. Australia has one of the lowest arrears rates out of the major developed economies – currently about 0.7 per cent – so if we take all of the above into account it doesn’t look too bad does it?
Catherine Cashmore is a senior property adviser and buyer advocate for JPP Buyer Advocates in Melbourne. Originally from the UK, Catherine has extensive experience in all matters real estate, successfully purchasing and negotiating on over $100m worth of property each year. Visit: <http://www.jpp.com.au>
I’ve purchased two properties in the last 20 years my first in 1993 and the second in 2001. I’ve never seen the property more unaffordable. Property is unaffordable for most Australians and our economy in is a bad way. Why would the government require our savings and then offer a cash for clunkers scheme. Ironically the number of grants released for cash for clunkers is 200,000 the same as estimated property shortage. Australia’s property market would have crashed in 2009 if it wasn’t for the government guarenting the banks and the doubling of the first home buyers grant.
Comment by Peter — July 29, 2010 @ 3:11 pm
Housing affordability is at or near records lows, and as some one who is involved with buying, selling and valuing real estate every day I can say most people recognise this. Whilst there have been changes over time, the overall trend has been for greater house prices relative for average incomes for a long time. People may be able to take on more debt than earlier times to compensate, and defaults are low, but there are a large portion of people out there that struggle to purchase and pay off a mortgage on a property, even in modest areas.
Comment by Adam Takacs — August 1, 2010 @ 2:39 pm
Affordability is a first home buyer problem. What we’re seeing is the emergence of a two tier society between those who can afford to buy and those who can’t. Clearly – saving the deposit is a large part of the pain for a first home buyers. Those who have been ‘gifted’ a deposit by their parents/relatives (who have benefited from an increase in the value of their assets), or who enter into purchases with friends and share the cost, will be able to get a foot on the ladder and subsequently go on to ride the wave of positive property investment
buoyed on by population growth.
However affordability is a real issue for young people on average wages who struggle in a generation that commands a consumer heavy lifestyle, to save enough money to buy a property the size of a postage stamp anywhere close to the city. These are the ones who will be forced to rent, and if this doesn’t change twenty years from now we will be looking at the European model of home ownership. 25% of the people will be property owners and 75% will rent . Already we’re seeing a reduction in the number of Australian’s who own their own home.
Bank loans will need to be generational; 50 years or more. Longer leases, on terms such as 5 or 10 years will be traded like property ownership is now.
There is an answer, however it’s not the governments present system of building new estates in rural areas and handing out reckless first home buyer ‘incentives’ in an attempt to encourage a market.
If people could commute from our existing regional centres such as Geelong to Melbourne on a fast train in 30 minutes, then we could begin to grow these areas productively – (where there is already good infrastructure for families.) This would not only add value to the cities but relieve the pressure on Melbourne and provide a feasible option to get a foot hold into the market.
However saving was a natural habit for our older generation who lived in simpler times. Young prospective buyers initially need to change their psychology towards money and be prepared to sacrifice lifestyle in favour of the Australian dream of owning a home. In many ways it’s not physically harder to save, but psychologically harder.
Comment by Catherine Cashmore — August 1, 2010 @ 4:10 pm