We’ve all fallen victim to the temptress of immediate gratification.
She’s there when you grab the Tim-Tam packet and find yourself eating seven biscuits in one sitting.
She’s there when you pay for a $23 Uber trip instead of taking public transport.
And she’s definitely there when you buy that $18 smashed avocado brunch instead of cooking for yourself at home.
In Western culture in particular, we find it difficult to exercise self-discipline in the pursuit of our long-term goals. We love elaborate get-togethers, splurging, and above all, enjoying ourselves in the moment.
But more than that, we like to live comfortably. And with the cost of living as high as it is, sometimes those little rewards are what keep you going during the stresses of life.
Now, as a disclaimer, I’m a millennial. So there’s a chance I may just be wilfully naïve when it comes to the joys of being frugal.
But I, and most others in my age bracket, have to ask: What is life without the little pleasures? Is it worth diligently saving, missing out on social occasions and holidays, only to then begin paying off a mortgage for the next 30 years?
If you’re a fan of immediate gratification, as I am, then the answer is a resounding ‘no’. But that answer also has to do with the unattainability of entering the housing market altogether.
Looking at the statistics, it seems that for young people, purchasing their own home is a dream that has become so out of reach that it’s almost been disregarded as fantasy.
According to HSBC bank, Australia has the lowest millennial home ownership in the world, second only to the United Arab Emirates. Only 28% of young Australian’s own their own home, compared to the global average of 40%.
Not only is this difficult on an individual level, but it’s also detrimental to the success of our economy. With housing so unattainable, and student debts so high, an increasing number of millennials are making the decision to delay, or forgo, getting married and having a family. And as both of these milestones are directly correlated with entering the housing market, millennials are moving further and further away from the classic Australian dream of owning their own home.
In 1960, the average age for men and women to get married was in their early 20s. Fast forward to now, and the median age for marriage is early 30s. That’s if they decide to get married at all, as with the way things are going, millennials are three times as likely to never marry as those born in 1950.
Not only are we not getting married, but we’re also not in a rush to reproduce. In 1990, the share of married households — aged 18–34 — who had children was 37%. In 2015, that number dropped significantly to 25%.
In these economic conditions, millennials have gotten used to sharing. They rent, use ride sharing services instead of owning a car, and freelance instead of working a 9–5 job. As this unstable lifestyle doesn’t lend itself to home ownership, the generational divide can foster feelings of inequality and hostility. And in the worst of cases, it can result in support for extremists groups and cause a dangerous increase in alienation.
As housing prices in Melbourne and Sydney rise, young people are being locked out of the housing market. According to CoreLogic, the median house price across Australia’s capital cities is $655,419. And to produce a deposit for a house at that price would take years of diligent saving. This is particularly difficult in this economic climate, because although unemployment is down, wage growth in Australia and around the world remains at a record low.
As an Organisation for Economic Co-operation and Development (OECD) report recently warned:
‘Wage growth remains remarkably more sluggish than before the financial crisis. At the end of 2017, nominal wage growth in the OECD area was only half of what it was ten years earlier: in Q2 2007, when the average of unemployment rates of OECD countries was about the same as now, the average nominal wage growth was 5.8% vs 3.2% in Q4 2017.’
In addition to low wages, it’s also getting harder to obtain a loan. Not only are lenders reducing the amount they are willing to loan, but they are also looking at applicants’ expenses much more closely than they did before. So if you are paying for luxuries like a gym membership, daily lattes, let alone monthly rent, you might dampen your chances of getting a mortgage.
So in some ways, it’s almost reasonable to forget about the long term. With Australian households taking on more debt than ever, perhaps entering into a mortgage you can’t afford isn’t the way to go. For individuals, or for the economy.
Our resident market expert, Harry Dent, has been closely examining market cycles, including the real estate cycle, for decades now. And his most recent book Zero Hour, brings together all of his major breakthroughs, including his recent discovery of a rare convergence of three long-term cycles that point to a revolution. To get access to his latest book, and find out where the real estate market is heading, click here.
This week in Markets & Money:
Last Friday, the US imposed tariffs on US$34 billion of Chinese imports. And if China retaliates, this figure could rise to over $500 billion in tariffs. As Selva wrote on Monday, we’re pretty much in a trade war already. And Australia will not be left unscathed…
To read the full story, click here.
Whether you follow soccer or not, you’ll be aware that the FIFA world cup is currently being held in Russia. It’s one of the largest sporting, and betting, events in the world. And as Selva wrote on Tuesday, even major investment banks are predicting the outcomes…
To learn more, click here.
It’s harder than ever for young people to buy a home. If you enjoy brunch, using Uber, buying lattes or having a gym membership, you can think again about ever purchasing a house. The cost of living is higher than ever and lenders are offering less and less money to first home buyers. And as Selva wrote on Wednesday, things could get even harder if interest rates are increased…
To read on, click here.
There has been plenty of talk about the tariffs that China and the US have recently imposed on each other. But China is about to up the ante. As Selva wrote on Thursday, China is threatening to sell all of their US government bonds. And as China is the top holder of these bonds, this move could have far reaching consequences…
To learn more, click here.
Before a market crash, all seems fine. Property is booming, everyone has the latest gadget and there are luxury cars on every corner. And then suddenly, everything is in shambles. As Selva wrote on Friday, debt always works that way. And with Australia’s high levels of debt, we could be in for a surprise.
To read the full story, click here.
Until next week,
Editor, Markets & Money