*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.
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.
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.
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
• 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.