Tasmanian Times

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. No price is too high for the privilege of owning yourself. ~ Friedrich Nietzsche

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. No price is too high for the privilege of owning yourself. ~ Friedrich Nietzsche

Economy

Why you should buy a house. Right now!

*Pic: A castle. Complete with sandpit in backyard

First published August 22

Houses are great. If you own one, you can party in it, raise a family in it, dig up the lawn and plant potatoes (your neighbours won’t like it, but there’s stuff-all they can do about it).

You can bash nails in the wall and hang your 3-year-old’s masterpieces without being scolded by a property manager.

Build a sandpit in the backyard. Paint your bedroom black. You can do whatever you bloody like, because it’s your castle.

A home is where you create the memories that will sustain you for a lifetime. Trust me here, a home with a couple of kids and a dog is as good as life gets.

Big Hair. Big Promises.

To a lot of people though, a house is just another entry on their personal spreadsheet.

Something they’ve been told will make them rich.

Every year, more and more people become convinced that owning property is a magic carpet ride to fame, wealth and fortune.

There’s an entire industry built on the back of this obsession. Think big hair, big promises and big mortgages. Buyers’ agents. Property consultants. Mortgage brokers. These days, you can even hire a property stylist.

Forget about all that. If you’re looking to buy your first home, think of it as a step towards lifelong happiness, not a step on some fantasy property ladder.

Today, I’m talking to those people who want to buy a home, just not in Sydney or inner Melbourne.

Beware of Sharks

Sydney’s a great place. It’s not perfect though — property prices are out of control, a toasted sandwich costs $22 and there are sharks in the harbour. Plenty of sharks in Martin Place too, most of them trying to convince you that if you don’t buy property now, you’ll wind up living in a caravan somewhere west of Cessnock.

You’ve probably read stories about young people in Sydney having to live with their parents until their mid fifties, just to save a deposit for a stinking suburban flat with views of the local Hungry Jacks and a $1.3 million pricetag.

That’s no way to live, so let’s talk about housing affordability everywhere else in Australia.

Because in most places, it’s never been cheaper or easier to buy a home.

Huh? Yep, that’s right.

Down Down, Prices are Down

Statistics don’t lie. The ones based on fact that is, not the rubbery marketing numbers published by the real estate industry and fed to the media.

Hobart, Adelaide, Darwin, Brisbane and Perth house prices are actually lower in real terms (that’s after taking inflation into account) than they were in 2008, back in the days of the GFC.

Nearly every regional area in Australia’s the same.

image

If you bought in 2008 and don’t live in Sydney, Melbourne or Canberra, chances are the value of your castle has gone backwards.

I think that’s great news for people wanting to buy a home. And it gets even better.

Boss, We Need to Talk

When did you last score a decent pay rise. Can’t remember? That’s because wages growth is crap. Still, over time, incomes have risen 2 or 3% every year. Over a decade or so, those penny-pinching pay rises start to add up.

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Average salary – up from $900 week to more than $1150 now

In most of Australia, house prices have been flat for a decade, but wages have been creeping up.

Want more good news?

At the start of 2008, the average mortgage interest rate was 8.3%. That went up to 9.5%, before falling to where it is now, 5.1%. (And if you’re paying 5.1% now, you’re being ripped off).

So we’ve got higher wages, record low interest rates and house prices lower than a decade ago. Now let’s look at how you can go and buy one.

Remember – there’s nothing in the Constitution that says you have to buy your first home in Sydney or Melbourne.

Love in the City of Wine

Meet Kate and Cate, who want to get married and buy a house in the City of Wine.

Their local MP, Corgi Bernardi, wants to stop them getting married, so in protest, I’m going to show them how to buy a house (which in a perfect world would be next door to Corgi).

They’re an average couple earning the average salary (for Adelaide) and want to buy an average sort of house.

Half a million still buys some decent digs in Adelaide, so to stump up a 20% deposit, pay the lawyer, stamp duty and the other bits and pieces, they’ll need $100,000 or a bit more.

Here, I’ve found one for them, priced at $470,000. That’s lower than Adelaide’s median price, so here’s my first tip: buy a house you can afford, not one to impress your friends.

image
BYO paintbrush. Your first house doesn’t have to be your dream home.

If Kate and Cate start from scratch and live on a single income (it’s not that tough, plenty of families live on less than $55,000), they’ll have put away more than $100,000 in two years and three months.

Zero to Hero … In Ten Years

Let’s say K & C buy a place for $470,000 and keep paying one income off the mortgage, plus add half the money they were forking out in rent.

If interest rates don’t go up (stay with me here…), they’ll be debt free in their own home less than ten years after they started with zilch.

Meanwhile, their Sydney friends are still living with the old folks, and whining about house prices on Facebook.

Okay, I’ve make some big assumptions here, the biggest being to use two people with decent incomes as an example.

Confession time … I’ve been a single parent. It’s a tough gig. Trying to buy a home on one wage with kids under your feet is daunting.

It’s not impossible though. It’s a subject close to my heart, and something I’ll be writing a lot about very soon.

What I’m trying to do today is show the sooks who keep crying about housing affordability that the dream is still alive.

Lock and Load

Back to interest rates for a moment. The average rate paid by homebuyers in Australia is currently 5.1%.

You don’t have to get financially mugged by the banks by paying anywhere near that.

According to the interwebs, you can get a five-year fixed rate of less than 3.75%. My advice? Lock it in Eddie, and load up your repayments.

In ten years, you’ll thank me. Send me a picture of your kids playing in the yard of your mortgage-free house.

Yes I know, fixed rates usually end up costing the borrower more. This time, it’s different.

While there’s no guarantee house prices will go up, interest rates certainly will. You might never see a rate below 3.75% again.

The Naked Takeaway

To a lot of people, what I’m saying is rubbish. They’d be the people who read Property Investor magazine and go to seminars called Financial Freedom in Five Years.

My way is different, but it also works.

The simple summary … Save a 20% deposit. Buy somewhere you can afford. Pay it off as quickly as you can (without having to eat Aldi food and collect discount coupons).

And if you’re buying right now, lock those rates in for five years.

You can follow*The Naked Investor at http://www.nakedinvestor.com.au , on Facebook and on Twitter @FinanceNaked.

The Naked Investor provides education, not advice. Do your own research, you know the drill.

*The Naked Investor is known to the Editor

Resolution Foundation: Homes sweet homes – the rise of multiple property ownership in Britain

Greens Treasury spokesperson, Senator Peter Whish-Wilson: Solution to 4-Corners housing exposé is to regulate property investments as a financial products

Watch Greens Treasury spokesman, Senator Peter Whish-Wilson’s wonderful video: Did you see Four Corners last night on the housing bubble? Have you seen the film about the GFC called THE BIG SHORT? Here is my version. It’s quite a bit daggier than the original. Also watch for my mate ‘Spud’ at the end.

Author Credits: [show_post_categories parent="no" parentcategory="writers" show = "category" hyperlink="yes"]
16 Comments

16 Comments

  1. Christopher Nagle

    August 24, 2017 at 8:11 pm

    The fixed welfarist view that the poor, dispossessed and marginalized are poor things who cannot be moved or asked to sacrifice something because hell, they are ‘disadvantaged’, means we can’t house twice as many of them for the same money we already have tied up now. All those old and run down Soviet designed high rise towers built in the day when no one wanted to live close to the city now sit on galactically premium land worth billions.
    All the old age pensioners living in those blocks would love a nice brand new two bed villa unit within electric cart distance of the main drag, the hospital and the golf course in Wonthaggi. The public housing authority would get two to three there for the price of one in North Carlton. A lot of the existing welfare people in the town who have to rent privately could be housed…two to three for one.
    The house next to my home is housing commish and I have some lovely old Chinese people there as neighbors. but they are sitting on one and half million dollars worth of real estate that would buy three nice new homes where the land is cheap, just like the old high risers were in the day.
    It doesn’t matter whether we are talking the private or the public market, the same rules apply and ignoring them just causes unnecessary stresses, dysfunctional outcomes and sub-optimal use of resources, like servicing ridiculous mortgages that guaranteed will keep one income poor for long enough for a terrorist organization to get around to detonating a nuclear device in one of the world’s great cities and cause a nuclear winter in the real estate markets of every other city on earth.
    So, stop spouting the conventional wisdom, rethink, and act differently. It works every time. That is why dead poor new migrants so often do well for themselves and people born here don’t, because the latter have fixed ideas how it has to be and the new chums don’t. The new chums will make big sacrifices to get what they want. The old lags won’t.
    It is that simple
    Thanks a million Naked Investor and George for your wise words.

  2. Christopher Nagle

    August 24, 2017 at 8:11 pm

    I think George has put his finger on it. If it is at all humanly possible, don’t live in a fantastically expensive and extremely congested place like Sydney or Melbourne. And if you do, and you don’t have much money, you have to get a bit creative in your arrangements.
    It is really easy to sit back and moan about real estate ‘injustice’. My Greek in-laws were peasants who arrived here in ’54 with zippidy dooda. They shared houses, with parents and their 2 daughters sharing a room for nearly 10 years. Twenty years later, the Vietnamese were doing the same.
    My mother-in-law worked as a presser in a freezing in winter, boiling in summer commercial laundry, starring as a premium piece worker, and secretly stashing money because her husband was an alcoholic and drank most of his wages; a bit like the Vietnamese women whose husbands were being fleeced by Crown casino. But none of them whinged. They just resolutely got on with making a success of their lives; well at least the women did…
    Mum bought a cheap house that she and her wretched husband could afford in 1963, in Northcote, in the days when it was not a cool place to live. Today she would buying at the edge of the 100 km arc around Melbourne CBD, but only 50-60 km from the industrial areas in the North, West and South, where she was likely to get work.
    These days one might even see if one can get work in the now reviving regional country towns that once looked like they would gradually disappear. Some of them now have very good infrastructure and leaders who are savvy in getting government funding for community projects. And the towns are no longer looking sorry for themselves.
    Or, if one has the sort of job or business that at least in part works off the end of an internet connection, one just camps two or three nights a week in a camper trailer in a caravan park in town and spend the rest of the week home somewhere nice, elsewhere.
    People who just complain aren’t using their brains and being flexible and creative about the way they conduct their lives. Nothing stays the same, so what once was the go, but now isn’t, needs to be something else. And that something else should be a very satisfying way to live if one is using the little grey cells and keeping the eyes open.

    (cont)
    When I first saw Wonthaggi on the Bass Coast in the early ’90s, it had just lost its railway line to the city courtesy of chainsaw Kennet, which was on top of losing its coal mines a few years earlier. It was a sorry place and people were leaving, but they were replaced by welfare families who saw the opportunity for cheap rent. They saved the joint.
    This century the place has started to boom and all the big retailers are there and the tourist, teleworker and retirement demographics have pushed the real estate prices up a bit (still cheap) but now the private rental market is starting to become too expensive for the welfare demographic, who are moving on to places they can afford, like Wonthaggi used to be.
    The welfare people are bellwethers of what is hot and what is not, but up to a point, so are we all, at whatever level we are at. And working that out is the trick. The poor have to respond quickly to change because they don’t have the opportunity to crucify themselves by borrowing an extra two or three hundred thousand to ‘get into the market’. They can only max out the credit card, and that’s it.
    What is not smart is trying to entrench a particular view of what constitutes an ideal lifestyle in a place where it has become very hard to do it, like Sydney and Melbourne. Only the affluent can really afford to live there, so if you are not affluent, make other arrangements.
    And once you have got your head around that, opportunities abound. And if you really want to head back to the big smoke for your dream home close to Melton Station, wait until you can afford it. And it may be the case that by the time you can, Melbourne is becoming a bone yard with half its infrastructure broken down and the other full of desperate addicts…who’ll kill for your jogging shoes.

    cont …

  3. George Smiley

    August 23, 2017 at 1:30 am

    Working on construction in Sydney during the pre-olympic boom: I stayed in share houses for $90 -100 a week. So a 3 bedroom would have been grossing $1200 a month which implies (10% return p/a)) an enterprise value around $120 k. Yet some poor sucker who wanted on the property ladder was working 2 jobs to subsidize me and so many others bent on dying with a felafel in their hands because these houses were costing $5-6 hundred thousand then for a working- class rabbit hutch. Further they all needed another 100 thou or more repairs and renovations. So now 18 years later they have doubled and are worth $1 -1.5 million. But the proud aging owners have spent that in not-yet-inflated dollars on mortgage repayments, rates and improvements which implies a ZERO return for investors. If the owner lived in it he is ahead the rent. But either way they now have a $million plus asset, and the enmity of their millenial kids who can never afford to get on the housing ladder themselves or let’s call it the life-long treadmill of a compulsory low-interest savings plan.

    Tell your kids: you need to live in the big city? Then let someone else subsidize your rent. You want a house? Learn to build one and do it somewhere nice or wait a while and maybe you can pick something up in Altona for Detroit prices; that’s $10 thousand plus replacing the looted copper plumbing and wiring (and wallboard). If the auto industry doesn’t crash all us old crumblies will anyway, all good things come to those who wait.

  4. Steve

    August 23, 2017 at 12:19 am

    #11; A fortunate daughter who apparently still isn’t living in her own home and enjoying a “couple of kids and a dog”.
    Every time someone makes money on a property, someone else loses a bit.

  5. Leonard Colquhoun

    August 22, 2017 at 9:14 pm

    “Federal public servants have been on 0% increases for about 6-8 years” (Comment 2 claim) – not so, according to the Canberra Times in mid July this year. Link – nowhttp://www.canberratimes.com.au/national/public-service/unions-to-blame-public-service-wages-growing-fastest-at-higher-levels-20170713-gxabpd.html

    Interesting that the Victorian government is amending their Landlord (Is that term still halal?) and Tenant legislation to bring 10-year tenancies under the Act. That noted, Darryl Kerrigan and family are still one of my heroes.

  6. Lynne Newington

    August 22, 2017 at 4:11 pm

    @6. A fortunate daughter reared by father to listen to advice and take it.
    Good luck to her and any others who followed a similiar example.

  7. Second Opinion

    August 22, 2017 at 3:52 pm

    Come on in sucker! (directed at real estate salesmen …)

    (edited)

  8. PHilip Lowe

    August 22, 2017 at 4:41 am

    Property smuggies go to sleep at night thinking about how much their house is worth. In the trendy pubs the smuggies talk mostly about the value of property, and in particular their property. The rental market has become social blackmail. The lower end suburbs are grime and crime. No wonder some people just give up on trying to live decent and better lives.
    They give up on family, work, society. And then the property smuggles have all the answers. Shock, horror, disgust, anger.
    Some poor bugger couldn’t get him or herself from out of the bottom of the heap because they didn’t buy a house. One of the very best places I saw in Tassie was the communal compiles on Marlin Ave. up Strickland Ave.

  9. Steve

    August 21, 2017 at 10:03 pm

    6; Hmmm, I suspect another missing the point. Mind you, perhaps I am?
    Surely the point is that owning a home is a good thing? Not because the house you bought, that you never lived in, is going to be a good investment, but because you actually own where you live?
    It seems to me that Australia has become hooked on unearned profit. Where do you reckon that’ll end up?

  10. Simon Warriner

    August 21, 2017 at 9:37 pm

    I would advise any budding real estate investor to take a very careful look at the graphs from the “limits to growth” series and make sure they understand the implications of a shrinking economy, and what will happen to the population curve, and the implications that has for real estate demand.

    Just saying.

  11. Christopher Nagle

    August 21, 2017 at 7:22 pm

    With all due respect Greg, I think Naked has done his/her homework here.

    I agree with Naked’s assessment, but it needs teasing out. If one has to live in Melbourne or Sydney for work reasons, one can still get into the real estate market by living with Mum and Dad, and buying properties that are outside the metropolitan area or interstate.

    About five years ago, my own daughter, who lived in Melbourne, bought her first property in Stawell, about 250 Km out of town.

    Armed with an initial $10,000 that she had inherited from her grandfather and a bit of her own money, she got onto realestate.com and domain.docm and looked around Victoria for properties she could afford and that had a bit of potential to upgrade.

    She bought an old Housing Commission House that someone had tried to do some renovation work on, but had botched it and given up. She got the place for $60,000.

    She spent every weekend up there and camped in the place and fixing it up with the help of very helpful local tradies who did not charge like wounded Melbourne bulls.

    She spent about $15,000 on the place and the rest was her elbow grease. The place owed her less than $80,000 and she got $250 a week rent for it. Do the sums….And she sold it two years later for $110,000. Not bad

    She then took her money and bought a property in Elizabeth, north of Adelaide….still cheap, but not as cheap as Stawell and giving the kind of rental return you could only dream of in Melbourne.

    She is on the property ladder and still a low end feeder, but she is on the internet, working out what is good value and what isn’t. She has her eye on property about 100 km out of Melbourne, going towards Phillip Island. She can get something reasonable for around $200,000….It is in commuting distance of Melbourne’s South Eastern industrial suburbs. And the area is starting to wake up from a long slumber after the timber industry wound up a hundred years ago, as young working class families begin to figure out that it is a doable commute to their work.

    She is on her way. And she would be on her way even faster if she were still living with Mum and Dad.

    The takeaway is to start at the bottom and work your way up. And while you do that, you learn a lot about houses, how markets work and how you find value others can’t see and/or create value that other people will pay for, because they now can see it.

    It isn’t rocket science so much as having the imagination and enterprise to apply yourself to a path that will keep on being empowering throughout your life.

    When I bought my first house in North Carlton in 1972, it was a cheap, run down and raffish area full of migrants bent on ‘modernizing’ nasty old Victorian homes, students slumming it near the uni and housing commission high rise flats designed by Soviet Siberian architects. My parents couldn’t understand why anyone would want to live there…..Ho hum.

    And that is the thing about most parents; yesterday’s adventurers, but today’s conventional wisdom….

    There are just as many real estate opportunities out there a begging today for beginners to get their teeth into as there have been at any other time in history. But every generation has to find its own way. And understanding that is the trick, and not just as it pertains to real estate.

  12. Steve

    August 21, 2017 at 4:36 pm

    #4; Some figures to support this point might be in order.
    Are the only job rich places Sydney and Melbourne?

  13. Invicta

    August 21, 2017 at 4:06 pm

    Some good points here, but what about jobs? Property prices may be affordable everywhere other than Sydney and Melbourne, but you still need steady, reasonably well-paid work to service any sort of loan. And that can be in short supply in the other capitals, and in regional areas.

  14. TGC

    August 21, 2017 at 3:53 pm

    Anyway- nice cottage! (main picture)

  15. Steve

    August 21, 2017 at 1:45 pm

    #1; I suspect you’re missing the point of the article. Surely, the advice is to not consider your home as an investment in the property market?

  16. Greg Bars

    August 21, 2017 at 12:16 pm

    Normally Naked is spot-on and gives great advice, but I don’t know about this.

    The quoted house price growth seems suspicious. My property is now market value 400% of it’s purchase price, while inflation over that time has been 42% per RBA calculator. That doesn’t support the argument about real price change being negative. Every article I read about affordability says that property has never been more unaffordable, even during the record interest rates of the late 80s.

    Advising people to invest in the property market at what is widely being acknowledged as pretty much the peak seems like incredibly poor, even dangerous advice to me. Multiple investor stories suggest that many are completely leveraged and even a small interest increase will result in hardship and defaults across the nation.

    Why would you sign up for at least ten years of servitude of a massive loan when you can wait for the market to correct and pay far less? Why give the banks any more money than you absolutely have to? What happens if your ten-year plan fails and you revert to an unsustainable rate?

    Also wage growth is the lowest it has been in a generation. Real wage growth (not mentioned here) is negative for almost everyone, meaning that even on fixed interest, cost of living will be going up and up. Federal public servants have been on 0% increases for about 6-8 years now, and State public servants 2% or less. Private is slightly better depending on the sector.

    I can’t see why anyone would voluntarily sign up for a massive loan when almost every advisor outside the real estate industry is saying prices will fall.

    fwiw, I actually followed Naked’s advice. I had a ten year plan in 2002 when I bought in seeing how prices were going and would have made it except for a financial hiccup. I will complete mortgage next year. That said, I live a monastic life. I do not go on holidays, go out, eat out, have a car, buy at Big W/Best and Less/Reject Shop. Almost all my disposable income goes into the offset – a life of denial for 10+ years isn’t the life for everyone.

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