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Is home ownership still a good investment?
Australians are waiting longer to buy more expensive property assets that perform relatively poorly compared with other asset classes, new research has found.
Is home ownership still a good investment?
Australians are waiting longer to buy more expensive property assets that perform relatively poorly compared with other asset classes, new research has found.
According to research by investment managers Fidelity International, the average Aussie in 2018 bought their first home at 35, compared to 24 three decades ago.
Anthony Doyle, Fidelity International’s cross-asset specialist, believes younger people might be put off by diminishing returns.
“There are a number of reasons for this trend, including housing affordability, tighter lending standards and changing living preferences amongst younger generations,” Mr Doyle explained.
“However, one consideration that may be influencing the home purchase decision amongst younger Australians may be lower return expectations of first home buyers versus older generations,” Mr Doyle said.
Investors who were born in the ’50s and purchased property at age 30 (1980s) saw the value of the family home grow by 187 per cent.
When repeated for those born in the ’60s, ’70s and ’80s who also bought a home in their 30s, the total returns fell significantly.
“For those born in 1980 that purchased their first home in 2010, the performance of their house has been relatively poor relative to other asset classes, rising by only 9 per cent in real terms over the course of the decade,” Mr Doyle said.
In comparison to other assets over the same time, global equities grew by 145 per cent, Australian equities made 97 per cent more and Australian bonds grew by 63 per cent.
Mr Doyle also highlighted why he does not believe housing prices will continue to grow in the medium term.
“Given the current high level of Australian house prices relative to incomes, without higher wages growth, it is difficult to see the recovery in house prices seen over the last six months of 2019 being sustained over the medium term,” Mr Doyle said.
However, the investor noted that the housing market could see a short-term spike as interest rate cuts and the potential for quantitative easing from the RBA act as a “tailwind for house prices”.
“Given the low absolute level of interest rates, it is unlikely that those purchasing a house today will experience the high house price returns that older generations of Australian home owners have experienced,” Mr Doyle concluded.
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