I wasn’t the best or worst maths student, but managed an A or B grade, according to years 8 and 9 report cards recently rediscovered atop my wardrobe.
One teacher suggested I talked too much.
Touche. Some would say that hasn’t changed.
But the formula for home ownership is becoming harder than algebra.
When I graduated high school in 2000, the average annual income in WA was $33,620 and the median house price was $170,000.
Now, 24 years later, house prices have more than trebled to be up 305 per cent while income is up 190%.
Interest rates were 8 per cent of a much lower base.
Even if you subtract the smashed avo from your weekend routine, none of that adds up to good news for the next generation.
Our neighbours put the For Sale sign up last week, making the most of the property cycle to pursue a new renovation dream.
But in between mowing the lawn and sweeping the driveway for the next home open, they echoed the growing concern of many parents: how are our kids ever going to afford to move out at these prices?
I wondered out loud if Australia has become a nation where home ownership depends on generational wealth.
Our parents worked long and hard to climb their first rung of the property ladder but by the time it was our turn, that meant they were able to help.
My husband and I needed that leg up to buy our first humble abode and again, later, to upgrade to make room for a family of four.
Suburbia’s continuing price trajectory up means we’ll be able to help our children out in turn.
But what about families who missed the first step of the ladder?
How do their kids catch up now that hard work and a single income isn’t enough?
A property boom that is outpacing both wages and new builds is resulting in a new class divide, in a nation that was born out of the idea of equal opportunity no matter the circumstances you were born into.
A noble theory, not always reflected in reality.
So what’s the solution?
Negative gearing is an easy horse to flog but property investors are an important piece of the housing bubble.
I can’t understand why stamp duty isn’t under a heavier spotlight.
It’s calculated on property value, meaning the amount an average homebuyer has to pay is increasing much faster than wages.
It’s a State tax that was meant to be axed when the GST was introduced. Also 24 years ago.
Maybe that’s one part of the GST deal WA should revisit?
Or at least ensure the stamp duty-free threshold for first homebuyers keeps pace with prices too, before the great Australian dream becomes a furphy beyond their reach.
House prices are the go-to metric for measuring the housing market. The logic is that if the average cost of a UK home at the point of sale is rising, so is demand. Over the year to December 2023, government data shows house prices fell 1.4 per cent, the impact of higher interest rates having broken a decade-long streak of rising prices.
There is another way of looking at it. Rather than calculating an average house price based on data from some point in the sales process – at completion for the government numbers, at the mortgage approval stage for lenders Halifax and Nationwide, or from asking prices in the case of Rightmove and Zoopla indices – Savills has been measuring the market differently for over 20 years. According to its data, the total value of all UK homes as of the end of 2023, whether on the market or not, and whether owner-occupied, rented, or vacant, was £8.68tn, down 0.3 per cent from 2022 in the first fall since 2012.
This presents a slightly different view of the market. For those who consider a home an investment, whether because they are renting it or planning to sell it, home value makes more sense as a tracker of performance. After all, when real estate investment trusts (Reits) want to judge their portfolio value, they use holding value rather than the price at market sale. Likewise, homeowners are better off tracking the value of their investment instead of scrutinising the entire market for monthly changes in average price at the point of sale.
As expected, home value has fallen as transactions have dried up, but it is not by much. The 0.3 per cent drop looks more like stagnation than anything else. This is very different to 2008 and 2009, when over £800bn in home value was wiped out over the two years, a 14.3 per cent drop. Home values didn’t recover to their 2006 peak until 2013.
With some market data tentatively suggesting house prices are rising again as buyers take higher interest rates on the chin, Savills’ head of residential research, Lucian Cook, does not believe we will enter a 2008 or 2009-level downturn, for several reasons. The first is that the number of people on fixed-term mortgages has spread the pain of higher rates out across a longer period.
Cook says that’s partly because banks have “learned the lessons” from 2008-09 not to lend to those who can’t afford it. So far, this has meant fewer repossessions, which means there isn’t a sudden glut of stock. Indeed, as has been the case for years, housing supply is tight. Finally, there’s an economy which, though stagnant, hasn’t been accompanied by mass unemployment. This further bolsters people’s ability to pay their mortgages.
The data reveals other things. For example, in 2008 and 2009, the market downturn was seen across the country, whereas 2023’s drop was London-led. But the overall returns available remain the most telling statistics. If you bought a home in 2013, the data implies its value has jumped by about two-thirds. If you bought in 2001, you might be looking at a 263 per cent return on investment (ROI). And although home values have gone up and down over the years, the change over any given period has generally been less volatile than for equities. That has helped solidify the nation’s penchant for property investment.
I’ve been accused of being anti-aspirational when I question the value of degrees, as though I am determined to make universities a privileged-only zone and stop talented low-income kids from becoming lawyers, doctors, teachers, scientists.
Everyone should get to go to university if they want to. And of course, we need those professions. I also don’t want to be too mercenary.
If there is a subject that you love, and learning about it makes your heart sing, then you should go forth and graduate – but embark upon that degree with your eyes open to the long-lasting financial agreement you are entering into.
I had no clue. I was a particularly naive 18-year-old who went to university simply because it was the next step. It never occurred to me that I was making a commitment to hand over a significant portion of my salary for years to come.
I didn’t know what I wanted to do and, looking back, I wish I had taken some time to think and try my hand at a few jobs rather than just going with the (educated) herd.
It took me ten years to find the thing I wanted to do – journalism – and I even did a masters in it. But I can honestly say that everything I needed to know I learnt on my first job, at a press agency, where I worked hard and was paid appallingly, received no bylines, but benefited from the best training in the business.
I don’t think this is journalism-specific. I suspect that most careers are learnt on the job and not in the lecture hall.
We all make mistakes, but I’ve still got £21,000 to pay off for mine.
Before the BoE started to push up mortgage costs in 2021, a new buyer earning an average income would have expected to spend around 30pc or less of their take home pay on mortgage payments.
In the wake of the September 2022 Liz Truss/Kwasi Kwarteng mini-Budget, that share for a first-time buyer temporarily surged to near-50pc.
While the cost for a first-time buyer has fallen since then, they can still expect to spend close to 40pc of take home pay on mortgage costs – even on the best-priced mortgage deals at around 4pc. That is still expensive.
But despite the lingering headwinds, demand seems to have turned a corner. The closely-watched RICS survey showed that new buyer enquiries rose in January for the first time since April 2022.
Judging by the average of the Halifax, Nationwide, Rightmove and HM Land Registry indexes, prices at the start of the year have risen by around 1pc from their Q3 low.
While stronger household balance sheets and more resilient banks remain the key reason why rising interest rates have not crashed the market, labour market resilience explains why house prices have held up even better than expected.
During the 2000s, homeowners had been artificially boosting their purchasing power via home equity withdrawal – to the tune of 5pc of their post-tax income in the boom years.
As long as house prices rose, banks had been happy to recklessly over-extend credit to households. But once house prices started to fall, the banks turned off the taps and the game unravelled. The resulting income shock hit consumer spending which in turn caused unemployment to rise, adding to the housing market correction.
But homeowners have been paying down their mortgages over the past 15 years. As a result, the negative feedback loop of falling house prices and rising unemployment via the consumption channel never set in. Instead, employment has remained close to all-time highs.
As long as people keep their jobs, the sensible improvements in mortgage regulations after the GFC now ensure that new mortgages remain affordable – even if painfully so – in extreme interest rate scenarios.
Leaning back, it is even more obvious why the panic over a housing market crash was overblown. So is it time to turn positive on housing? Yes, but with an important caveat.
ACCORDING TO THE latest DAFT property index, the average asking price for a home in Ireland is now just over €320,000. That makes the average repayment on a 90% mortgage around €1,300 a month much cheaper than the average rent of €1,721 and theoretically within the reach of the typical renter.
The catch? To buy that home, you will also need to find a deposit of €32,000, pretty much impossible to do when you are paying so much on rent.
For those unable to rely on the ‘bank of mum and dad’ the way around this is to use the Help to Buy scheme to fund the required 10% down payment.
However, the scheme only applies to new build properties which are €87,000 more expensive than average at €407,000 according to the same report. Making the mortgage required too large for many would-be First Time Buyers.
First Home Scheme
This is where the other big housing support, the First Home Scheme should come into play, launched in July 2022 it provides First Time Buyers additional finance for new builds through a shared equity plan.
When used with Help to Buy it gives First Time Buyers a further 20% of the purchase price upfront, in return for the scheme getting the same share of your home when you sell at an ultra low fixed interest rate of under 2% per year on average.
On a new build of €407,000 a buyer could therefore get most of their deposit of 10% funded through Help to Buy (€30,000) and then 20% (€81,400) from the First Home Scheme, leaving €10,700 from savings and €284,900 to be funded through a mortgage.
Including the average interest on the equity, the total repayments in this example would be €1,350 a month, only around €40 a month more than if the First Time Buyer had bought a non new build property for €320,000. If you want to work out your own budget you can use a mortgage calculator to work out your buying options or a mortgage repayment calculator to work out what your repayments would be.
Crucially though, with the new build, instead of forking out €32,000 you only need to find €10,700 for the deposit in this example thanks to the Help to Buy scheme. The First Home Scheme is based on a successful UK scheme introduced in 2013 and used with the Help to Buy Scheme has huge potential to free trapped renters by helping households who can’t access additional funds from family. Based on the UK numbers, the scheme could help over 30,000 Irish households to get on the property ladder. To date though only 1,255 homes have been purchased with the scheme, with 7,530 applying.
Some of the low take up so far is due to the lack of understanding of the scheme, but the biggest issue by far is the property price ceilings currently imposed by the scheme.
In Dublin for example the scheme can only be used to purchase properties for less than €495,000, but the vast majority of Dublin’s new builds are already considerably more expensive than that according to the same Daft.ie report.
The worry in Government circles is that without caps limiting the availability of the scheme new build house prices will rise even further.
They will, but that shouldn’t matter, as those houses are still more affordable due to the subsidies being available. It’s whether houses are affordable after the subsidies that matters, not whether house prices seem high or low.
Contrary to what many think, developers aren’t making super profits on new housing developments right now, as costs have shot up in the last few years. That’s why housing construction and supply are so limited. Higher new build prices will therefore stimulate supply by making developing more profitable and help fix the root cause of our housing crisis, supply.
Politicians and policymakers are paranoid about high house prices and the negative headlines that come with them, but that’s the tail wagging the dog. What they should worry about instead is expanding housing affordability.
The Help to Buy and First Home Scheme have huge potential to help us fix both housing supply long term and help trapped renters in the short term if we have the courage to lift the current caps.
Mark Coan is Founder of Online Financial Guide moneysherpa.ie.
In a recent analysis conducted by the Njuškalo online advertisement website, it has been revealed that house prices across Croatia experienced a continuous upward trajectory throughout 2023. The study showcased a significant surge, with the average asking price for flats soaring by 21%, reaching €3,223 per square metre. House prices experienced an even more substantial increase, rising by 40% to €2,606.
Dubrovnik and Istria Counties: Pinnacles of Property Rates
The coastal regions of Istria, Dubrovnik-Neretva, and Split-Dalmatia emerged as the epicentres of the escalating property market, with these areas commanding the highest prices. In Istria County, the average asking price for a flat reached €3,836 per square metre, and for a house, it was €3,183 per square metre. The Dubrovnik-Neretva County followed closely, with figures at €3,602 and €2,699, respectively. In Split-Dalmatia County, the corresponding prices stood at €3,590 and €2,960.
In the capital city, Zagreb, the average asking price for a flat reached €2,987 per square metre, while for a house, it was €1,795. Rijeka experienced a 26% increase in flat prices, reaching an average of €2,661 per square metre. Split witnessed a 20% surge, with flats commanding an average of €4,061 per square metre. Meanwhile, Osijek saw a 17% rise, with an average asking price of €1,733 per square metre.
Osijek Leads House Price Surge
Osijek, located in the eastern part of the country, recorded the most substantial increase in house prices, jumping by 15% to an average of €963 per square metre.
The findings point towards a dynamic real estate market in Croatia, with certain regions, particularly Dubrovnik-Neretva and Istria, standing out as hotspots for property investments.