On house prices, let’s get real

posted in: News | 0

Grossly exaggerated blanket statements about a looming housing affordability ‘crisis’ driven by rapidly rising markets do nothing to help young would-be homebuyers. In fact, they only make the situation much worse.

When it comes to commenting on the property sector, it seems everyone is an expert. And there’s nothing I find more irritating than opinion pieces about market movements written by people whose professional expertise is in a field far removed.

And yet these sorts of commentators routinely take to an amplified soapbox to decry the horror of house price growth. They make generalised statements based seemingly on a brief gleaning of a few headlines, pepper their views with some alarmist language and then conclude that we’re all stuffed and heading for a generation locked out of homeownership.

It’d be like me bashing out 900 words on something like the football refereeing or nutritional health. To a public that relies on the words printed in the media to help shape their views, I might come across as compelling to some. But for anyone who actually has some knowledge of those topics, I’d seem pretty silly.

So for those of us who live and breathe property, and spend our days conversing with the experts who’ve devoted their careers to the many and varied factors of housing, the sense of senseless hysteria that’s ramping up at the moment is equal parts funny and annoying.

Funny because the claims are typically ridiculous, and sad because the combined words and repetitive frightening messaging will almost certainly result in the exact opposite of what these people seem to be trying to achieve.

They want reform, they want house prices to retract to lows that make homeownership possible for just about anyone, they want us to worry about the future cost of buying a property, they want landlords to be punished for a desire to build wealth through bricks and mortar.

Instead of that, they’re driving the classic ‘fear of missing out’ that traditionally prompts first homebuyers and younger upgraders or second-time buyers to make snap decisions that are often pretty expensive and ill-conceived ones.

This past Monday morning, an email shot around the API office with a link to the latest crying op-ed piece about housing markets. It wasn’t authored by a property journalist, or even a regular journalist who might have some exposure to the nuances of property. No, it was a general issues contributor whose previous work touches on topics as diverse as gender classification, Barack and Michelle Obama, and women who ‘want it all’.

When I got to the part that described the current market recovery as “yet another hysterical burst of investment greed”, I could pretty much predict what rubbish would come next.

Most of these pieces have the same one or two line ‘facts’ littered throughout.

Housing has never been less affordable!

Current claims along these lines are based on a stellar year in property in Sydney and Melbourne. Yes, prices there have risen. Yes, weekend auctions are pretty frenzied at the moment. And yes, the outlook is for continued strong demand that’ll drive further upward value movement.

But no, housing is not historically unaffordable. In fact, thanks to price slumps in the wake of the GFC, a prolonged period of inactivity in most areas, the currently low interest rates on offer and fairly solid personal wealth levels, the portion of household income required to service a mortgage right now is about the same as it was two decades ago.

That was pre the noughties housing boom at a time when rates were much, much higher.

No, things aren’t out of control, as is constantly claimed. On the contrary and in the scheme of things, the market seems to be in a fairly normal phase at present.

We’re creating a generation of renters!

There’s no denying that would-be first homebuyers face some hurdles when it comes to cracking the market. However most actual property experts agree that the main barrier relates to finance.

Banks remain pretty nervous about first-time borrowers. It’s not like the old pre-GFC days when just about anyone could get a mortgage, and usually without a deposit. They could borrow the costs involved too.

Not so much anymore, although the climate is easing and some lenders are back to offering 95 per cent loans. But a deposit is still required and it’s not easy to save it. But then, homeownership has never been easy.

Anyone getting hot under the collar about the current market should ask their parents and grandparents how hard they had to slog to buy their first home.

Have you seen the prices in Surry Hills? How can anyone afford that!

The people who make these sorts of remarks about the inability for young people to buy a patch of house in some hot, trendy urban area need to have a lie down. Again, they should go and ask their parents about the area where they put down roots for the first time. I doubt it was minutes from the CBD in a sought after pocket that’s occupied by people with high incomes and an ability to buy where they want to live.

Yes, a first-timer will struggle to compete to buy a warehouse, terrace or decent unit in Paddington in Sydney, South Yarra in Melbourne or New Farm in Brisbane. But doesn’t that kind of go without saying?

There’s something to be said for starting small within your means and working your way up. It’s what I did and it’s how it has been done for generations. Expecting that someone a few years into their career can stump up for their dream property in a blue chip suburb is as naïve as it is ridiculous.

The other barrier to first homeownership, in my view, is seriously inflated expectations that don’t correlate with the reality of modern life.

Look at all these young people renting!

Yes, the younger generation seems less willing to move out of a rental and into a mortgaged home of their own than generation X and baby boomers. Yet most demographers believe this is more to do with their lifestyle wants and medium-term expectations.

Some people don’t want to be tied down. They enjoy moving around and living in a cheaper rental in the spot they desire, spending their cash on enjoying themselves instead. Renting is less of a hassle – if something breaks, it’s someone else’s problem. If they want to share with mates or try a new, emerging pocket of the city, it’s fairly simple to up and move.

Some might have grand plans of overseas travel, starting a creative business with their mates or taking their time to save a deposit rather than taking on an incredibly long-term liability.

Let’s not forget that would-be first homebuyers were likely entering early adulthood around the time property and financial markets worldwide crashed – an event that still haunts some and has left a lingering nervousness over everything from retail spending to debt willingness.

Yeah, but these price rises are out of control!

Actually, they’re not. Historically, what we’re seeing at the moment in Sydney and Melbourne isn’t even close to par with what took place during booms past. In fact, no one with an ounce of credibility is keen to refer to the current scenario as remotely boom-like.

Furthermore, a number of analysts are tipping a more tapered growth pattern in currently warm markets in 2014. They’ll grow, but at a more moderate pace, it’s expected.

Whether property is going up, down or doing nothing, there are those who love to comment on it with half-baked opinions driven by a desire to cause alarm rather than constructive discussion and debate.

Instead of discussing strategies to support first-time buyers, or even make renting a bit easier for those who don’t want to buy, the bulk of discourse seems to be centred around how evil property investors are causing future havoc with their greed.

A rational examination of the situation shows that’s not the case. Claiming otherwise will only serve to drive a growing sense of urgency and panic among buyers who might be better taking their time.

Shannon Molloy is the deputy editor of Australian Property Investor magazine, www.apimagazine.com.au