Her name is Samantha, and she’s worked out a way to get a private 30-minute financial strategy session with me every single month. How much does she pay me?
In fact, I pay her $40!
Then again, she does wield sharp scissors and often holds a razor to my throat (so I’m the very definition of a captive audience).
Over the past few years I’ve heard about her on-again, off-again, on-again boyfriend (it’s my version of MAFS … each month I get a new episode). Yet over the past 12 months they’ve gotten engaged, and are now looking to buy.
She put in my lap a brochure from a new development on the ‘fringe’ of Melbourne.
“This joint looks more like the back of the mullet than the fringe”, I quipped (as she snipped dangerously close to my ear). “How much are you looking to spend?”
“We’re looking at places around $450,000, and we’ve saved up $50,000”, she said.
“That’s a great start, but not enough.”
“Well, we’ve already got pre-approval from the ANZ!” she countered.
“Did you have to submit payslips or any other documentation?” I asked.
“Er … no.”
That, I explained, is the equivalent of a swipe right on Tinder: you’re not getting married, you’re simply in the ‘maybe’ pile. So I challenged her to spend the next month playing the field, and she dutifully went to two banks and a broker.
The response? “Yes … no … and maybe.”
Still, Samantha is in a rush, and she wants me to wave my magic wand and help her buy as soon as possible, “while prices are low.”
But here’s the interesting thing:
At 23, she has absolutely no concept of an economic downturn. In fact, even her parents, who are in their early forties, have never experienced a recession in their adult lives.
Let’s put that in perspective:
In the 1991 recession, Aussie property prices had their longest fall on record: 20 months of decline.
So how does that compare to today?
Well, nationally prices peaked in September 2017, which means they’ve been falling for 17 months.
However, I’d argue that this slump is only getting started, for three reasons:
First, the Reserve Bank suggests there are almost $500 billion in interest-only loans that are due to be reset to principal-and-interest in the next five years, which their analysis suggests will cost the typical borrower $7,000 more a year.
Second, interest rates are already at historical lows, so small rate cuts add up to only small repayment savings. And besides, it’s unlikely the banks will pass on the full rate cuts.
Finally, the upcoming federal election will likely bring a new government, and with it changes to negative gearing and capital gains tax (CGT).
As a result of all these factors, banks are being very cautious with their lending … and it’s the banks that ultimately control property prices, based on their willingness to lend.
Plenty of people who bought in the past two years are copping a buzzcut. That’s why my advice to Samantha — and anyone else with less than a 20 per cent deposit — is simple: there’s no rush!
Tread Your Own Path!