The Australian dream of home ownership becoming unobtainable

On the one hand, increasing the ability of prospective home owners to get a foot hold in the market is admirable. After all, home ownership in Australia is all but considered a right of citizenship. However, to date, the only way governments have done so is to encourage greater debt levels by way of incentives, lower loan-to-value ratios, negative gearing, low interest rates and so forth.

Consequently, even overpriced homes have looked tempting to emotionally led home buyers who’ve heavily invested their future wealth and income into the principal place of residence. They – along with investors – were more than eager to take advantage of the pre-GFC decade-long property boom stimulated principally by debt. According to RateCity, from a random selection of more than 2,000 home loans in mid-2008, more than a quarter had a loan-to-value ratio of 100% – LVR’s now rarely encountered.

However, the above policies that increased funding without adequate investment in infrastructure to ease supply have pushed property ownership (despite the health of the economy) out the reach for an increasing number of would-be home buyers. We’re now facing a situation where the cost of living and subsequent debt levels against housing are an issue of growing concern.

For market watchers, reading the terrain ahead is somewhat clouded by the emotional aspect to property, hence why so many mis-forecast the measure of percentile change in their predictions.  The essential need for shelter, along with our creative capacity to make the home “a castle”, pins a far greater emphasis on consumer sentiment.

Each sale is the result of a carefully negotiated contract between two parties with differing needs and priorities.  In most cases, it’s a long way from being just a simple business arrangement and shouldn’t be classed as such.  Furthermore, because each property marketed has its own intrinsic qualities – which are valued differently from buyer to buyer – trying to lump residential housing alongside stocks and shares, for example, leads to errors when reading and analysing statistics.

The latest data from Residex has indicated that Australia-wide, there’s been a marginal return to growth in the house-and-land market. The news is often jumped upon as a positive sign of recovery.  However, with overall turnover back at levels not seen since the 1990s, how can we herald it as such?

Residex recorded a marginal improvement in transaction figures, however, not significant enough to prove we’ve turned a corner.  Therefore, the figures feeding into the median are representative of a comparatively small composition of properties selling and most likely stimulated by home buyer sentiment.  Broadly speaking, buyers are still taking a back seat, first-time buyers are hamstrung by stricter lending conditions, and increased supply isn’t providing feasible or affordable options to ease the consequential stagnation.

As an outsider – looking at Australia’s current environment of low interest rates, broadly dormant house prices, coupled with the “on paper” health of the economy – you’d be forgiven for wondering why overall transaction figures are so low. As a home buyer however, the increasing cost of living, as well as a general unease about the future of the economy – despite government and RBA insistence of a prospective “lucky country” outlook – is starting to bite.

Consumer sentiment is further hampered when there’s more circulating disagreement regarding the “boom” or “not so boom” cycle in the resource industry than there is surrounding residential property movements.  It’s not helping reassure Australian buyers or sellers of future market stability or job security.

As if we need further evidence of the above fact, the predominant headline from last week – picked up by every major news outlet – was the significant increase of Australian home owners seeking access to their super to fund outstanding home loans.  There’s been a 25% rise in claims between 2011-12 totalling $99.38 million. It’s a worrying statistic.

Meanwhile, the ABS has recorded a 0.1% drop in owner-occupier housing finance for the month of June ,and Westpac’s Consumer Sentiment Survey indicates a drop of 2.5% in August.