“Aussie Dream is Dying” read a newspaper headline earlier in the week.
I happened to be reading the article as I was waiting for a coffee. So I turned to my hipster barista — who was all beardy and tattooed and David Beckham-like — and read him the following sentence:
“The Australian dream of homeownership will reach a tipping point, possibly as soon as next year, when fewer than half of all adults are expected to own a property.”
Barista: “Bang on, brother! Why would I bother spending my twenties saving for a deposit … it’s hopeless prices just keep going up. And what do you have to show for it — nothing!”
Barefoot: “Well, nothing but … EIGHTY THOUSAND BUCKS.”
By my reckoning he’d put precisely as much thought into getting his neck tattoo as he had his long-term financial security. He’s not unique. After being Barefoot for 15-odd years, I’ve spoken to literally thousands of young people about making the biggest purchase of their lives — here are the five biggest mistakes they make.
Mistake #1: They’ve given up
Ever wondered why news websites publish so many stories about an impending housing crash?
Because it’s clickbait to a generation that’s priced out of the market and have given up — thinking their only hope for buying is a crash.
That’s a cop-out.
You can’t plan your life around something you have no control over — the only thing you can control is yourself, and your savings situation. The time to start preparing to seize opportunity is right now.
The average full-time pre-tax wage in Australia is $75,000, or $4,800 a month in the hand. So, a couple both earning full-time wages could live off one income (very frugally) and save a $100,000 deposit in 21 months.
Still, your mind should be set on owning your home outright, rather than just limping over the line with a deposit. Think of it this way: saving a deposit is like the Socceroos beating Togo to qualify for the World Cup. It’s the beginning of the campaign, not the end.
Which leads me to the second mistake first homebuyers make.
Mistake #2: They buy a home when they can’t afford it
They mortgage themselves to the hilt.
There’s a reason Australia has the highest household debts on the planet: we borrow too much.
One rule that I’ve lived by, is to borrow less than the bank is willing to lend.
What comes after a bird makes its nest?
Babies … and Baby Bunting bills. And sleep deprivation. And, later, school fees.
Professor Bob Cummins from Deakin University has found that financial stress has similar effects on the body as physical torture.
Is it any wonder that the median duration from wedding bells to divorce bills is 12 years?
The truth is that buying a home creates financial stress and insecurity — until you manage to get ahead of your mortgage. As all homeowners know, running a home is expensive, costing up to 5 per cent of the purchase price each year.
And this is compounded if you take on more debt that you can afford.
Mistake #3: They buy an investment property first
Here’s the pitch that young couples give me: “We’ll buy an investment property to start off with, just to get our foot in the game, and then we’ll use the equity to buy our family home in five years.”
I’m yet to see this plan work (the only exception being couples who buy an investment property to eventually move into). Reason being, the upfront costs of owning a home, and the ongoing costs, take years to recoup.
Bottom line: If you want a family home, save up and buy one.
Mistake #4: They don’t consider other options
My hipster mate had written off the entire housing market, because he wouldn’t live in a suburb whose cafes didn’t serve organic tofu and coconut water.
However, there are options if you really want to buy your own place. You can move to the city. Currently my prediction (made 12 months ago) of an apartment bloodbath in capital city CBDs by 2018 is going swimmingly, especially in Melbourne, with press reports of apartments being re-sold at discounts of up to 30 per cent from their original off-the-plan purchase price.
Some desperate developers are offering holidays to Fiji and Bali worth $5,000, for buying a $350,000 one bedroom apartment. (Is anyone that stupid? It reminds me of Homer Simpson buying a pirate pregnancy test just because it came with a free whistle.) Don’t trip to Bali or Fiji just yet. Prices are likely to go lower as the oversupply really kicks in.
Or you can move to a country area and have less of a mortgage, less stress, and more time to spend with their kids. That’s what I did.
Mistake #5: They don’t back themselves
Yes, we’re living through the greatest housing boom in history (according to The Economist).
However, there’s no reason you can’t get yourself a home if you want to — even if you’re single.
When I met my wife, she’d bought a little apartment on her own (with an oven she found on the side of a road, no less!). No help from anyone — just savings and a determination that a man didn’t need to be her financial plan. And the Barefoot community has heaps of single people on average incomes who’ve bought their (capital city) homes.
They’re everyday people, just like my hipster mate.
Tread Your Own Path!