Buying A Home In Your Twenties
Friday, August 22, 2014
I left home when I was 16. Nothing against my Mum, but I just couldn't wait to leave. I travelled, lived overseas, did stuff. But I didn't buy a home. I came close at one point but things took off on a different direction – I was given a chance to live in another country for a while – and I never did. Now I'm, er, older, I rent and am happy with that. But should I have bought in my twenties? Is it worth thinking about buying a home when you're barely out of school?
For many of that age now, the pressure to do so can be very real. Firstly, there is a prevailing obligation to be financially aware today that hasn't always been there. With more financial products than ever on offer, it’s relatively easy to get access to a home loan for even those with a fairly limited credit history, say, someone in their twenties. It's become important, even fashionable, to know about it all.
Even with more means of education, this can bring what might be called consumer pressures: as we cop a barrage of marketing, we may feel compelled to dive in above our heads. In Australia, the pressures are particularly acute as we are traditionally a nation of home-owners. Our parents bought, our grandparents bought, why shouldn't we? And if the lenders are keen to lend, interest rates are low, what's stopping us?
With this plethora of products, the current economic trends, and the unique culture of ownership Australian youth face, the usual issues faced by twenties can be quickly nudged out by home loan brochures and real estate search engines and Saturday morning chill outs can soon become auction inspections in far flung suburbs. And that's not taking into account the examples of misinformation out there, making the whole landscape even more difficult to navigate.
So, firstly, take a backward step and take a look at yourself. As Vanessa Wilkins noted in her Insight post on buying at 22, there are sacrifices and commitments that need to be made if you want to up stakes from Mum and Dad and sign your name on your own digs. Not everyone is up for that, so it's important to work out if a home loan and a mortgage is really your goal.
Trends tell an interesting tale. Australian Bureau of Statistics figures show that home ownership debt still peaks in the 35-44 age bracket. This suggests that most 20 year-olds are still choosing not to take on a mortgage until later in life. This is confirmed by historic figures which suggest the proportion of first home buyers in the 15-24 age bracket hasn't altered much over the decade to 2009/10 (up slightly from 9.6% to 11.1%) and has actually decreased in the 25-34 age demographic (61.4% to 57%).
Also the proportion of first time home buyers among all new mortgages is the lowest it has been in a decade.
This may prompt the question: is it still possible to buy a home in your twenties? Well, as Vanessa has shown in her earlier post, it certainly is.
But it's not for everybody. In many ways, buying a home is something of a consumer decision and just like buying a car, a TV or a tube of toothpaste, a range of variables should be considered. Factors such as timing, affordability, career, family and lifestyle all orbit the home buying decision, and are given added weight by the significant cost and time commitment required to take on a mortgage.
Increasing real estate costs, certainly in major centres, must be considered. And, it should be noted that now more Australian home owners have a mortgage than don't. This is quite a historic cross-over point and highlights a sense that many are struggling to pay off home loans as quickly as they used to, even given an environment of low interest rates.
As society becomes increasingly fluid and malleable, as employment patterns shift geographically and skill sets come and go in popularity, settling down early and buying a home is perhaps less a reflex than it used to be and more a considered choice. And it's arguably a harder one to make than before as flexibility is a virtue in today's rapidly moving world.
One way of working towards home ownership for a 20-something that addresses many of these issues is via a real estate investment strategy. Taking on a mortgage on an owner occupier basis can be hard if you're studying or on the lower paid rungs of a career path. However, buying a property and then renting it out, allowing your tenants to help you with your mortgage may allow a home owner to ease into a mortgage commitment more gently.
This approach probably works best if the young first home buyer living with their parents and on a good wicket with the folks, thus not needing to turnaround incoming rent to pay their own rent. But even someone away from home, in a share accommodation arrangement say, will likely still be in front if renting out their place at market rates and have bought wisely.
Recently, the Reserve Bank of Australia argued it is probably better right now to rent rather than to buy. "Many observers have suggested that future house-price growth is likely to be somewhat less than this historic average. In that case, at current prices, rents, interest rates and so on, the average household is probably financially better off renting than buying," an RBA statement said.
As such, those looking at the real estate market in their 20's might be best to bide their time and wait for conditions to shift. And, one thing 20-somethings have that most of us don't is time.
That's going to be music to the ears of Generation Rent, and the “I-told-you-so's” are likely to get even louder.
So, right now, being in your 20's and looking to buy a home can be considered to be bucking the trend on most counts. But, for those like Vanessa, trends are there to be bucked. Complicated, expensive and oh-so-grown-up it may be, but buying a home in your 20's is not impossible and may well be the path to your financial future. Whether it's worth it or not is perhaps a more personal question.