Home ownership struggles will drive changes: Rick Cosier

Home ownership struggles will drive changes: Rick Cosier
Home ownership struggles will drive changes: Rick Cosier

Rroblems buying a home is a major issue for almost every Australian under 30, according to Rick Cosier, a financial adviser and Principal of Healthy Finances Ltd.

He noted on a CuffeLinks blog that a measurement of official house price data and mortgage costs by comparison website RateCity looked at the salary required for a single person to afford repayments on a 30-year loan.

The main criterion was that the individual could not spend more than a third of their income on housing costs. Here are the results for Sydney:

Median House Price: $825,000

Loan Size: $660,000

Interest Rate: 4.74%

Monthly Repayment: $3,439

Annual Income Needed: $137,556

But Cosier suggests these figures are not an accurate reflection on what is happening.

"First, few single first home buyers earn $137,556.

"Secondly, the median house price in Sydney is now a lot more than $825,000.

Click to enlarge

Home ownership struggles will drive changes: Rick Cosier

"Thirdly, people are clearly spending more than one third of their income on loan repayments."

He suggested property prices are more than seven times average income levels.

Click to enlarge

Home ownership struggles will drive changes: Rick Cosier

Whilst not many 30-year-olds earn $137,556, Cosier thought it’s quite possible that a 30-year-old couple can be jointly earning $120,000.

"Given the lower tax rates that two incomes generate over the single person, a 30-year-old couple could generate sufficient income at today’s interest rates to make the necessary mortgage payments listed above."

However, he noted home ownership in Australia has fallen from 71% to 67% in the last 20 years, and more significantly, for Australians aged between 25 and 34, the proportion has fallen from 39% to 29%, and for ages 35 to 44, from 63% to 52%.

First home buyers now make up only 13% of new home loans.

He observed that overseas buyers and investors appear responsible for much of the post-2010 surge, and favourable tax concessions are pushing homes out of reach for a high percentage of younger Australians.

Anecdotal evidence from clients suggests that the desire to get a foothold in the property market is causing many people to adopt strategies that are increasingly risky.

He suggests if the debt repayment becomes difficult due to unemployment, interest rate rises, a property downturn, divorce or an unexpected pregnancy, both the parents and the children could suddenly have a major cash flow problem.

"It wouldn’t take much for both to lose their homes."

Tags: 
Superannuation Housing Costs

Comments

Be the first one to comment on this article
What would you like to say about this project?