Many have changed in Australia, especially in the real estate sector. Few things sum up how things are getting harder than this 20-year comparison.
At the turn of the new millennium, it seems Australia had it all in its favor.
The economy was booming and households were sharing the country’s good fortune as they saw their pay packages increase rapidly.
In short, it was a good time to be Australian.
Looking back at that time, it is somehow hard to recognize when contrasted with how things have changed over the last two decades. Undoubtedly, one of the biggest and most notable changes that have taken place is the rapid rise in the cost of housing.
In order to explore how this has changed from a real-world home perspective, we will analyze the age of the first average home buyer through more than two decades of data.
A changing landscape for borrowers
According to figures from research firm Digital Finance Analytics, when the calendars clicked in the 2000s, when radio was giving the first No. 1 hit of the year, NSYNC’s Bye Bye – The average age of the first home buyers in the country was 24.5 years. At the time, mortgages were usually taken out at 20 years.
Even if this hypothetical average home was hit with some major blows in terms of illness, family problems, or financial hardship, they could generally work to be mortgage-free when they were 50 years old.
This is, of course, a great help not only to the fortune of the individual household, but also to the economy as a whole. Because the household no longer pays to pay the mortgages every month, these funds could now be spent on goods and services for all kinds of businesses.
We are moving fast until 2022 and things have changed drastically. The average age of a first home buyer nationwide has risen over a full decade, to 34.5 years. With housing prices today significantly higher relative to household incomes, loan terms have been extended and 30-year mortgages are already commonplace.
On paper, this will let the first households to purchase a home today pay off their loans until they reach what was once the goal of working life, 65 years.
However, the results can vary greatly depending on the state in which the first home buyer lives.
For example, in South Australia, the average age of a first home buyer is 33.6 years, compared to 36.3 in NSW.
It is perhaps not surprising that the more expensive states in Victoria and NSW have the highest average age of first home buyer. Meanwhile, South Australia and Queensland have the lowest.
Long-term challenging consequences
While we can now look back to the early 2000s as a golden age of affordable living and strong growth in real family income (adjusted for inflation), even these conditions ended up resulting in some significant changes. in the amount of debt the Australians had to retire.
According to a 2017 analysis by Curtin University professor Rachel Ong ViforJ and RMIT University professor Gavin Wood, between 1990 and 2015 the average mortgage debt / income ratio for Australians over 65 went from 72 % to 152%.
The proportion of large households in debt has also increased significantly, with 7% of households over 65 with mortgage debt in 1990, compared to 12% in 2015.
For homeowners aged 55 to 64, the increase has been even more pronounced, as the proportion of homeowners with mortgage debt has risen from 14% in 1990 to 47% in 2015.
The vast majority of these households would have bought their homes for a fraction of current prices and, in general, with significantly shorter loan terms. However, despite these headwinds, a growing proportion of households were already retiring mortgage debt.
It’s not hard to imagine a larger proportion of today’s first home buyers taking mortgage debt into retirement, as their loans are usually much larger and the average buyer has more than a decade less to pay off their loan earlier. of retirement.
According to a recent Channel 7 report, some in the finance world are raising the idea of 40-year mortgages. Since the average age of first home buyers is now 34.5, if a buyer could take out a loan at 40, he would still pay it off at 74.
The perspective
The last three years have brought all sorts of surprises to Australian households – first the pandemic and now the return of the high inflation of the decade. Therefore, any kind of vision of the future will be clouded with extremely high levels of uncertainty.
However, from the trends we have seen in the past and the growing size of mortgages, it could be argued that more and more households are facing what is almost equivalent to a life of debt. This is a far cry from the homes that bought homes at the turn of the millennium, many of which are now mortgage-free and free to spend their income as they please.
Ultimately, over time this will have consequences for the economy and consumer spending, as households spend more years paying off their mortgages and making the necessary sacrifices to do so.
Tarric Brooker is a freelance journalist and social commentator @AvidCommentator