Do Young Buyers Really Have It Tougher Than Their Parents?

One of the recurring themes in news media about real estate affordability is the claim that today’s young buyers have it a lot harder than their parents did when they were buying their first home, perhaps a quarter of a century ago.

But, like so many things espoused in mainstream media about residential property, it really isn’t true – not when you look fully at all the factors in play and crunch the numbers.

Recent research – which used data from the Australian Bureau of Statistics and the Reserve Bank of Australia – found that Millennials actually have it easier than did Baby Boomers, when it comes to the portion of weekly income spent on the monthly mortgage.

And, as one of those Baby Boomers buying my first property back in the late 1980s, I can testify to how hard it was – primarily because interest rates were so incredibly high and there were considerably fewer loan options.

And that really is the crucial difference.

Here’s what the numbers say, comparing the present-day situation with the typical scenario faced by Baby Boomers buying a home in 1990.

The median dwelling value back then was around $107,000, compared with $700,000 today.

A 20% deposit was about $21,000, compared to $140,000 today.

On that basis, it took five years to save that deposit, based on 15% of average weekly earnings, in 1990 – and today the same scenario would take 10 years, twice as long.

So far it looks like it’s much harder today than it was a quarter of a century ago.

But the big difference is with interest rates. 

In 1990, you typically had a mortgage interest rate of 17% – yes, 17%, and I can remember as a home-owner paying 17% on my mortgage. 

Today, even with the 10 interest rate rises recently, you’re likely to be paying around 5.5% as an interest rate on a mortgage.

In 1990, a typical mortgage cost $280 per week, compared to $730 per week now.

And, based on full-time adult average weekly earnings, that was 53% of income spent on the mortgage back in 1990, versus 40% today.

So, according to these numbers, the typical Baby Boomer with a mortgage was having to allocate more than half their income to the loan repayments, compared to 40% of income now.

So, on that basis, Millennials have it easier than their parents did back then.

Where today’s young home buyers have it harder, is the time it takes to save a 20% deposit, based on these numbers.

But that’s where the comparison is flawed because today you don’t need a 20% or anything like it to get into the market. 

One of the things in favour of today’s buyers, compared with 1990, is that you can get into the market with much less than a 20% deposit – and there are so many more borrowing options, because there are so many different lenders in the market.

There’s also a high level of government assistance available today.

So, in many ways, getting a loan is easier today – although, less me say clearly, I’m not suggesting it’s easy.

I am suggesting, however, that it’s NOT impossible, as mainstream media implies constantly.