Are Millennials Better off Than their Parents?

Source:REIV

Melbourne Property Market Wrap

There is a lot of noise in the media at the moment about property in particular the new and Off the Plan apartment market which looks like it’s in trouble, more about this further down though.

Over the weekend it was very wet and cold, most real estate agents I spoke with and saw buyer numbers through opens were down across the board in the North and Eastern suburbs. At the same time, all three agents reported high clearance rates and good to very good auction results despite the bitter cold.

This got me thinking and looking into how much our market has changed, in particular for certain previously considered “hot” suburbs. My main focus was Manningham where we compared demand for each suburb and we saw some interesting findings. Looking at statistics provided by realestate.com.au, demand for houses from buyers have plummeted some 40 per cent while in Templestowe, Doncaster East and Box Hill figures show a downward trend of 25 per cent compared to May last year. Figures for Balwyn Nth show a fall from 1076 visits per property in May last year to 561 for April this year, a significant 48 per cent fall in buyer visits per property on the market.

So what’s happening in these markets? Well one of two things, there is either a flood in the supply of properties coming on the market and so the number of buyers looking in the area are spread or demand has fallen or both.

The concerns I have for some of these “boom areas” is just as they appreciated rapidly in value so to do they look like correcting. It’s worth considering that we are nearing winter and stock levels are supposed to be very tight, so if we are to experience a big an influx of property as has been the case the last two Spring seasons and there is no increase in buyer demand then we could expect a substantial price correction. 

The above properties mentioned suburbs are just a small sample of what’s happening in Melbourne at the moment and really demonstrates the point of markets within markets. For every suburb falling in demand there have been staggering rises in other suburbs, so quality analysis is important when buying or selling.

These small insights gives us an indication as to how strong demand is for a prticular property type ina suburb which helps when buying and selling.

Source: Shuttesrstock

Are Millenials better off than their Parents?

The hotly debated question at the moment is whether it is easier for millennials to buy their first home than it was for their parents? The current perception is yes of course, but a recent article in the Australian Financial Review gives us an alternative view with a surprising outcome.

One major difference I see with millennials these days is that they want their perfect home from the outset, which in most cases is impossible. Perfect location on a some land, fully renovated or new and inner city will mean a price tag of $1million, a very difficult ask. There should also be enough money left over for a nice new car expensive clothes and overseas holidays. Unfortunately though for many young people this is not reality.

Complaints that it was much easier for their parents to buy a home back then than it is now have been sounding for a couple of years, but is this true? The AFR story goes on to make the comparison between 1989 when a property was purchased in Mentone for $151,000 on an average income of $28,000 and at 17% interest rates, versus 2014 figures where median house prices for the area were $770,000, average income is a whopping $74,000 and interest rates were 5.35 per cent.

Breaking down the numbers in 1989 the parent’s repayments were $25,670 or 90 per cent of the gross income while in 2014 repayments were 56 per cent of the gross income or $41,195, a substantial difference. So affordability has improved.

The problem with Australians in particular those recently entering the property market, is that they are heavily indebted. In 1990 median house prices were 2-3 times annual income while today they are more like six to eight times.

If interest rates should begin to rise outside of the Reserve Bank rates many highly leveraged individuals could default on their loans. Greater risk arises when there is no income derived from the purchased property and it is a principal place of residence. Conversely should there be a downturn and the millennials decide to move back with the parents in an attempt to save their home will they find tenants and if so at what rent level?

In what I believe is just the tip of the iceberg on the collapse of the new apartment market the rise of defaults  at settlements will bring enormous pressure on developers, Off The Plan Purchasers and of course banks over the next 24 months. There are already reports of developers across Australia turning their backs on billions of dollars’ worth of contracts because the numbers no longer add up and risk has increased.

Over the weekend I was told about a recent inner city Melbourne development which was due to settle.  Over 10 per cent of the apartments could not be settled by the purchasers. Running some ‘rough’ numbers on a napkin I calculated approximately 10 per cent of the gross total sales of this building defaulted and walked away from their 10 per cent deposits, quite a black hole in the developer’s profit margin. Interesting times ahead for those purchasers of apartments in buildings yet to settle, let alone be constructed.

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