Meaningless Property Advice
Beneath this article (that is peripheral to this story) on the investment website Livewire was this comment;
WARREN M (6th June 2023)
As a tertiary uneducated individual who listened to "some old bloke" at my first place of employment - my first piece of life advice, it went something like this.
"Get a girl, stay off the grog, buy a house and pay the damn thing off as quick as you can. Work two jobs if you have too, I'll give you all the overtime you can take.
"I listened back in '86, saved the pennies, bought my first place at 21 ( what a dump), sold it at 23 for not much more and bought a modest family home in the suburbs of Sydney. Still own it today! Careerwise, I ended up in what could be described as a high risk occupation, and knowing one day my time could come way sooner than the statistical average, and not wanting to leave a financial burden for my wife, we paid that place off in 8 years and 3 months. It was a simple concept - sacrifice !
We went without a lot, whilst our friends didn't. My "downtime" was spent working that second job and straight into the mortgage while friends borrowed against their homes for cars, boats and Bali.
The two problems I see these days are hitting people right in the face. There is more factual information ( such as this article ) available to the public from many avenues that can allow people or at least steer them into making an informed decision, but most don't want to read what goes against their preconcieved beliefs.
The second one is sacrifice. I'm not talking about standing about in the dustbowl of death, but if these whinging sub 25 year olds got off social media and their backside, improved their skillsets or worked a few more hours in another role, they'd be in a position to save towards a deposit over a mid term, and be standing ready when property prices capitulate.
But its a fair bet, they won't. We have bred a generation of malingerers.
My reply to Warren is this:
Comments like the above are common when there are reports about house prices – young people just aren’t prepared to ‘do it tough’ like we did. I can remember my mum saying similar things before I’d even left school, so the sentiment of older people hasn’t changed, but something fundamentally has, and that is where comments like this get it wrong.
The author of the comment must be only a few years older than me, so we grew up in a similar time, with similar ratios between wages and house prices and cars and other stuff. I too received advice from a knowledgeable old bloke when I first started work – which unfortunately I ignored. He urged me to join a super fund immediately, but at 21, retirement seemed too far off to contemplate, so I missed out on joining a far better fund than I eventually did. Oh well, live and learn.
Similar to Warren, the author of the comment, I bought a house relatively young and sacrificed to pay it off quickly, but unlike Warren I am loathe to criticise the young for the predicament they are in, and here’s why.
When I started work I was paid about $20k p.a., and around that time a relative of mine purchased a house in Castle Hill (suburb of Sydney) for $120k. We were aghast – how could anyone contemplate spending so much on a house – where did they get the money? Her house was six times my annual salary which would have been a typical starting salary for a graduate.
Fast forward to today and starting salaries for graduates are around $70k. If the ratio of house prices to graduate salaries had remained constant, that house in Castle Hill would cost $420k, whereas today it actually would sell for well over $2million, giving a ratio closer to thirty times a typical starting graduate salary.
The first house my wife and I purchased cost us just over three times our combined gross salaries as recent graduates: keeping the ratio the same for a graduate couple today that would give a house price, in Sydney, of $420k. A typical 3 bedroom brick house in a far western suburb of Sydney currently costs closer to $800k, giving a ratio to combined gross graduate starting salary closer to six times, rather than three times as it was for us.
Consider the situation of a young graduate I know on a typical graduate salary, who after paying tax, rent and bills etc can barely save about $10k a year; and there is very little in that budget for anything like holidays or even drinks after work. If a deposit of 10% is required then it will close to 10 yeras just to save for a deposit; assuming house prices do not go up one cent the next ten years she will be in a position to buy a house in her mid-thirties, instead of early twenties like Warren and I could.
If a young person you know has a – what’s the point – type attitude, you should have a think about the shift in the ratios outlined above, and realise, maybe their attitude isn’t the problem.
It is said that advice is a form of nostalgia, and you can see in Warren’s comment that his views are as much based on comparisons with people his own age who made different decisions to him, rather than to young people today.
The final kicker from Warren is his advice to young people – to be ready when property prices capitulate. For the last 20yrs I’ve been predicting house prices to fall based on the simple premise that they can’t keep rising beyond affordability, but now I’ve shifted my thinking to reflect reality. I expect young people to capitulate well before property prices do, and the Warren’s of this world need to consider what that will mean for our society.
