Saturday, September 10, 2011

Perth Property The Next Victims

Meet property Power Couple Emma Wych a Registered nurse from Armadale Hospital & her partner Spray Painter Aaron Bini. Both were featured on page 37 in a Sunday Times article ( 11/11/2011) Unfortunately their story will be a defining one when property prices crash & burn around them.

They have both decided to take the plunge & buy into property "FOLLOWING A HUNCH" (their own words) that prices will head "NORTH"  {Whatever That means} in the next 12 months. 

They think they have snapped up a bargain  4 x 2 built a year ago for $440,000 (Down from $550,000). However they have failed to notice that the developer of their estate is offering House & Land packages all around them for $330,000 to $350,000 & in a sign of desperation the developers are throwing in a $10,000 "Freedom" furniture package as a sweetener. All around them house listings are growing by the day & vendors are dropping prices to get out of the market, but Emma & Aaron have a "HUNCH".

Now lets look closely at just what they are in for. Emma states that the decided to buy because it was just a "Few Hundred " dollars more than renting (The article fails to state if that is a few hundred dollars more per week or month) Assuming these "Kids" (22 & 24 Years of age) have saved a 10% deposit with FHOG etc ($40K) They would be up for a loan in the vicinity of $400,000 (At 22 & 24 WTF!!)

Currently in Baldivis there are over 20 homes 4x2 "To Let" at under $350 PW so to rent the same house they are about to buy will cost them no more than $18,200 pa. in "DEAD MONEY" (Her words)

Why so many new homes to rent? People can no longer afford to keep them & they are unable to sell them & pay out the bank
To buy this house their repayments on a $400K loan @ a 7% rate will be $33,000 pa + Rates/Ins/Maint etc it will cost them at least $36,000 pa or $692 pw (Almost twice as must as renting!!!)

These "ASTUTE" home buyers working on a "HUNCH" think that ownership will only cost them a "Few Hundred" dollars more than renting!!!

Now if Emma & Aaron continued to rent for $350pw & banked $342pw @ 6% (Savings from not buying) in 5 years time they would have over $106,000.

Baldivis is a FHB suburb effected by the slightest movements in interest rates.

In 2008 when interest rates went to 9.5% Baldivis prices plunged by 7.8%, the only thing that saved Baldivis was the GFC forcing rates back down to under 5%.

Many houses that are currently for sale in Baldivs were purchased at the height of the GFC with the assistance of a $21K FHOG & fixed interest rates that were under 5%.These houses were bought by people who could not previously get into home ownership because they could not pay rent & save enough to get a deposit to buy. These people would also never qualify for a home loan when rates were at normal levels because they simply did not earn enough.

Now interest rates are 7% they are having difficulties flooding the market with discounted homes. 

Historically interest rates have averaged over 10% no doubt Emma & Aaron have budgeted for this because it will take their house payments to over $810 pw!!!  But of course that will never happen?? so there is no need to worry about this.

Emma & Aaron will pay a big price for property ownership. No doubt they have plans for that "Big" wedding but how do you save for that & own a home? Well like most couples these days they expect the price of their house will have gone up  & they can draw down on any equity they might have built up. 

Emma & Aaron will also need to put off having children till they are both over 30, because they will have to have the 2 incomes coming in without the additional cost of children to service the loan when interest rates revert to their 30 year historical rate of 10% plus (Psst Kids that's over $810 per week V's $350 pw Rent).

Emma & Aaron can look forward to seeing their friends actually having a life touring the World & Australia instead of being chained to the Great Australian property dream.

But then they might be right & I am wrong. 

Time will tell but I bet they will a big box of this to impress their friends.

The scary bit is that this is what Perth property currently has as it's support base. just imaging how secure your house price is if this is what is sustaining it?

No comments:

Post a Comment