Don’t fear buying first home

Can you think back to a time when we weren’t all scared? When you, or those around you, weren’t fearful of an impending catastrophe?

We live in a constant state of global panic – war/terrorism, financial and disease, in roughly that order.

Fear is good. It stops complacency. Keeps people on their toes. Inevitably, relatively small adjustments (for example, increased security and health checks) seem to calm things. Sometimes we feel we need to bomb the crappers out of terrorists.

But with property … forget it. Rationality is a far-off place. It lives in a nicer house in a better suburb. Particularly for first-home buyers.

We lurch from first-home buyer pity, to investor hatred, from property boom to home-owner gloom, almost instantly. Often many simultaneously. There never seems to be Goldilocks normality with property.

Currently, say the headlines, first home buyers are “locked out” of the market and investors, foreign and domestic, are pushing up prices. There are stock shortages – we’re not building enough houses. We’re letting in too many immigrants. FIFO workers are distorting regional markets. Governments don’t release enough land.

Go back just a couple of years and no-one was buying. Prices slid for more than two years. First home buyers weren’t buying. Why buy when prices could be lower next month?

Panicked, outraged, gloomy, despondent. Choose one. Choose many.

Is it because we don’t understand the fundamentals of property and buying our first homes? Let me give it a try.

Property (like all investments, actually) is cyclical. It’s a “growth” asset. That’s code for sometimes it goes up and sometimes it goes down.

But not in equal parts. It is not a zero-sum game (like currency trading). Over time, property spends far more time going north than south. This is partly to do with inflation and rising wages.

What did your parents pay for their first home? What’s that property worth now? What were they earning then and what would the current owners be earning now? How much bigger has that city become since you were growing up?

For the overwhelming majority of home buyers (in major metropolises), you will look back in 10 years and be stunned at the “bargain” you got. And you’ll probably wish you’d bought earlier.

After the last peak in 2010, property prices went into free fall nationally. Just two years ago, we were complaining about property prices in a funk.

In early 2013, when prices bottomed after 8-10 per cent falls around the country, were first home buyers’ saying: “Bargain! Better get me some.” Did they grasp that golden opportunity?

No. Well, not enough did.

First home buyers, don’t try to time the market. That’s a game for investors. And sometimes they’ll get it right. Sometimes they’ll get it wrong. But there won’t be any tears shed if they blow up their money.

First home buyers should buy when they can afford to buy. If you want to get the great headstart in life that home ownership can get you … then buy a property.

Down the track, when you need to upgrade, you will be selling that home and buying the next home in the same market. If prices are high, you’ll get more for your current home, but have to pay more for your next home. Same thing in reverse if prices are lower.

Even if you buy at the peak, it’s the same story. When you go to buy the next place, your place might have fallen in value, but so too will the value of your second home.

Homes don’t, actually, need to make money. They just need to do whatever the broader market does. Which could be nothing. If you buy and property prices flatline for the next 20 years, what difference does it make to you? You’ve had the same enjoyment from the house. And you’ve paid down your mortgage.

But falling, even flat, prices is death for investors. Investors need higher valuations (or rents to rise, which won’t happen without rising property prices).

You lovely young couples need to stop living in fear. Finding reasons not to buy is easy. Taking the plunge into home ownership is hard. But rewarding.

You don’t know enough to time the market, so don’t try to.

Bruce Brammall is the principal adviser with Castellan Financial Consulting and a licensed mortgage broker (www.castellanfinancial.com.au). E: bruce@castellanfinancial.com.au.