FHB saving in case the economy deteriorates

A Bankwest/Mortgage and Finance Association of Australia (MFAA) research report found that 43.8 per cent of potential first home buyers are saving money in case the economy deteriorates. 47.9 per cent are now looking at purchasing cheaper properties that originally planned.

The new report comes as welcome relief after a year where first home buyers were encouraged into taking out loans they couldn’t afford by the Federal Government dangling the First Home Vendors Boost carrot in front of them. The boost was watered down at the end of September and will be removed at the end of the month. 28% of first home buyers said the grant simply over-inflates house prices.

» First Home Buyers Shun McMansions – MFAA, 23rd December 2009.
» McMansions out of favour after grant slashed – News Limited, 23rd December 2009.
» McMansions out of favour after grant slashed – Sydney Morning Herald, 23rd December 2009.


  1. I’m in the same boat at this – there is a large number of Generation Y’s out there that can see how much of a scam that property is at the moment. I live in North Melbourne for $280 a week rent, the same place would cost be between $600-$700 per week (depending on interest rates) if i was paying it off on a mortgage. At this point of my life, I’d rather save that $300 a week and have it as ‘real’ equity then face the prospect of having negative equity on a hefty mortgage when the property hysteria ends in mid-2010.

    Without wanting to sound up myself, I would love to see the average IQ level and the average ethnic background of all of these so called ‘first home buyers’ that have jumped into the market. All of the people that have jumped into property in the last 12 months were either the kids that had very low grades at high school, came from ethnic families, or both. Unfortunately it is the people of lower intellect that believe the hysteria that property only ever goes up, they need to buy now or they will miss out forever, and America is different because the banks don’t repossess as much here.

    Not investing in property is seen as a failure to a lot of children of Greek, Italian and to an extent Asian families (my grandmother is Greek so this is not a racist rant!). This is because it was investing in property that made these very families ‘rich’ when they came to Australia. A lot of these families have also gone guarantor for the children without understanding that property can go down in value either. This guarantee was needed because the ‘children’ were stretching to afford the property in their own right even at record low interest rates.

    You will find that the potential FHB’s that are sitting on the sidelines now are waiting for interest rates to rise back to more ‘natural’ levels, prices to plateau, or lower a little, and pick up the pieces of those that thought they could get rich quick.

    There is another wave coming, the tipping point most likely will be 3Q 2010 (or just after whenever K Rudd calls the election – I’m tipping an early election so he is not going to the polls later in the year as interest rates and oil prices push back higher). Oil is forecast to climb to around $100 USDB next year – as this is the level that Shell needs to make exploration profitable (only BP, Woodside, and Chevron) can currently produce barrels of oil below $60 USDB. Interest rates were only the second most effective stimulus, with the greatest being the falling oil price.

    This time the Federal Government’s of the world will not have enough stimulus to keep the boat afloat by the end of 2010.

  2. J. Hill’s assertions that the current FHB’s are of the “low academic grade” mentality just doesn’t pan out in practice – colleagues of mine (M.Sc, Ph.D graduates) have been just as keen to jump into the frying pan and buy a place of their own – even at what seems the very top of the current “Consumer Durable masquerading as an Asset” boom in housing! Academic ability and ethnic background all take second pace the the very strong Human “Herd” mentality – which can be directly traced back to our earliest Hominid ancestors, where to be “part of the Herd” was to provide an enhanced survivability (“Safety in Numbers – on the basis of probability you’ll be less likely to be the “lunch” for whatever predators are out there!). Neurologically / Psychologically this is very much a “Hard-wired” response, and under most circumstances, the “following the Crowd” psychoology is the safest and most productive strategy. Unfortunately it just doesn’t work in Finance, and this is the main reason for asset booms and busts – the current housing boom is no different. Social / Family / Peer pressure also conspire to ensure conformity – so in order to be “part of the Crowd” people will go to amazing lengths – which includes purchasing over-priced property, and then paying an additional fortune to meet the “perceived expectations” implied by the current raft of “Home Improvement” programmes – this month’s must haves seem to include all stainless-steel kitchen appliances, and all bedrooms with en suite jacuzzi! (must’nt forget the illuminated wave pool, triple garage, basement home theatre with 60″ LCD . . . .) Overinvestment in a non-productive Consumer Durable is never good (or any) economic sense, and the only “good” time to buy is when it’s cheaper to buy than rent.

    Looks like 2010 is going to be an “Interesting year” for all the wrong reasons!

  3. I agree with your herd mentality statement – in fact the rate of growth of the herd probably correlates to the growth of property prices.

    Given the ‘cost of entry’ to the herd is effectively household income of $100,000 p/a it will be interesting to see how much this herd can grow in the near future.

    Companies emerging from the Financial crises are not keen to give out massive salary increases – and with the gap between renting and buying increasing – its much cheaper to rent.

    I was talking to a guy I work with thats around 40 and looking at an investment property. I told him that the place i live in at North Melbourne is worth around $400k and i pay $280 p/w in rent. He said that the negative gearing equation would only work on that property price if the rental income per week was about $380 p/w. Thus he said, investing in property is only worthwhile at the outer suburbs where the cost of entry is lower.

    A few houses around here have been sold to investors (as they appear up for rent the next week) recently, and the asking rent is through the roof (probably 30% higher then the market). Many of them have been vacant for some time, but the investors are hell bent on leaving the property empty and asking the higher rent because thats the only way the negative gearing equation will work.

    The bubble in property prices hasn’t flowed through to rents yet, and when it does, the wheels will stop turning.

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