Your Life

It is just as challenging to buy a house now as it was in 1989

- March 17, 2023 2 MIN READ
Challenging to buy a home

“Don’t complain, I remember paying 17 per cent on my home loan…”

Yes, Your Honour, I have been guilty of making this comment to my adult children as they complain about rising interest rates on their home loan. But does this argument stack up?

History is very clear as this chart clearly shows.

Is it harder to buy a house now or in 1989

Source: Freddie Mac PMMS via Note: Chart represents weekly averages for a 30-year fixed-rate mortgage. Average for 1971-2023 as of 26 Jan 2023.

BUT things are very different these days. The reality is that Aussie households can seriously claim that it is just as tough today meeting mortgage repayments as it was when rates were 17 per cent.

Loans are up, wages aren’t

The reason is that the size of the loans have grown as property values have risen. And, on the other side, household incomes have not risen at the same rate.

AMP chief economist Shane Oliver has done the numbers and says that the percentage of household income needed to meet home loan repayments today is the equivalent of 1989 levels when rates reached 17 per cent.

If official interest rates rise further and are passed on to borrowers, the financial pain felt by average Australian households will be worse than the late 1980s-early 1990s… that’s because household debt to household income is three times higher than during that period.

So us oldies need to stop lecturing our adult kids and playing the martyr… and that includes me.

3 things to know about being a first home buyer

However, before we conclude that’s it’s impossible to buy your first home, let’s take a step back.

There are three things to keep in mind:

  1. Buying your own home has always been the biggest stretch most people ever make.
  2. There are plenty of other ways to invest your money, if that’s what you’re buying property for.
  3. There are options available if buying is more about security, peace of mind and home.

Alternatives to buying your first home

If #2 resonates with you, read these:

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Money focus: How can I buy my first home?