With the smashed avocado debate continuing to rage this week, opinions have generally been one of two versions: whether the lifestyle of the younger generation is destroying their chance to purchase a home or whether they can even afford it.
However, Michael Janda, business reporter at
ABC News, has offered up a third viewpoint on the topic, saying that Generation Y shouldn’t even bother buying a home just yet.
In a business analysis written on Sunday, Janda suggested that it was better to wait to buy a home for the following reasons:
1. Australian property is at record highs
While not the most expensive in the world, real estate in Australia is around 7% above previous peaks of 2003, 2007 and 2010, according to data by UBS Bank.
An annual study by Demographia found that Sydney was the world’s second most expensive relative to income after Hong Kong with property prices 12.2 times the typical annual earnings.
Elsewhere in Australia, Melbourne came equal fourth with Auckland and San Jose while Perth, Adelaide and Brisbane were all rated “severely unaffordable”.
2. We are heading towards a property glut
Analysts from a number of institutions including Citi, UBS,
Westpac, Morgan Stanley and Deloitte Access Economics have warned of an apartment oversupply especially in Brisbane, Melbourne and some areas of Sydney.
According to Chris Richardson from Deloitte Access Economics, a property glut will inevitably lead to lower house prices with independent consultant Shane Lee predicting a 15-20% drop in the Sydney area.
3. We may be in a massive property bubble
With both house prices and household debt at record highs, Australians are borrowing more to cover the increasing amounts of money they need to spend on real estate.
The OECD, IMF and the BIS have warned of an impending bubble especially with a significant portion of our borrowed money coming from overseas.
4. Low inflation will not help
With low interest rates caused by low inflation which, in turn, is caused by low wage growth, a typical Australian’s repayments won’t decrease relative to their pay packet over time, Janda writes.
This puts the younger generations in stark contrast to the baby boomers who – while they did have interest rates as high as 17% – experienced high wage growth which saw the size of both the debt and repayments falling over the life of the loan.
In fact, the former assistant governor of the Reserve Bank Glenn Stevens actually spoke of this back in 1997 during a talk to the Real Estate Institute of Australia.
Related articles:
Capital city prices too much for single income Australians
Marriage or mortgage? Millennials choose the latter
Australians put life and family on hold in favour of property
