Downsizes v First Home Buyers – Why the downsizes are winning hands down
The age mix of the Australian population in our short 200 plus year history is changing; and it is changing permanently.
In the early 1970’s, 31 per cent of the population were aged 15 years or younger. The proportion of Australia’s population aged over 65 years has grown from 8 per cent in early 1970’s to 13 per cent in 2001-02 with a projection that over the next 40 years, the proportion of the population over 65 years will almost double to around 25 per cent. (Australian Government, n.d.)
What does this mean?
An ageing population has implications for our country on several levels. The average age of our workforce, the cost of an ageing population on society from a social perspective, the pressure on immigration policy to grow our population, to name a few; but that is a discussion for another time.
Our focus here is what impact does the aging population have on the property market and those trying to enter it?
Well firstly we need to take a closer look at the biggest group to ever move through Australian society; the Baby Boomers. I can hear my mother cringing at the use of this term, however a group so large that can influence various markets by their sheer size is worthy of a catchy name. After all that’s the reality, babies boomed after the war!
Get over it Baby Boomers.
So, what is so significant about this group I hear you say. Well they are cashed up. They have super, they bought homes, they invested, and the result is they are the wealthiest group to have ever moved through Australian society.
When a group this large makes decisions about what to invest in, what type of home they will live in, in general what they do with their money, they have the potential to influence and influence in a big way.
What has it got to do with First Home Owners?
The overwhelming trend for retiring older Australians is to downsize. The kids have left home, travel is on the cards so what is their most popular option? Sell the big home on a big block close to the city and replace it with a modern low maintenance smaller home on a smaller block of land. Less to clean, less to mow = more time to enjoy life.
These types of properties tend to be a little further out from the city, in newer suburbs with new land releases. They have all the facilities they need, and the overall lower price point of the property puts more cash back in their already fat bank account.
Lets pretend you are a builder and you have house and land packages for sale. You have a solid business but you rely on selling your house and land packages quickly with minimal risk and fuss so you can move onto the next build. In fact, you may have already built a few a spec homes (houses that are constructed using the builder’s money, as they are not yet sold) so the pressure is on to cashflow the next build.
Your agent presents you with 2 contracts.
Contract 1: $15K off asking price, $1000 deposit, 14 days building and pest and 21 days finance and settlement in 30 days.
Contact 2: Full Price, $10,000 deposit, no finance clause, 30-day settlement.
Now the reality is Contract 1 will undoubtedly need more time for finance and those of you who read my last article on the royal commission into the banking sector will add “that’s if they get finance under the tighter lending criteria” which in turn blows out settlement.
Contract 2 is essentially a cash contract. Very little risk of it not proceeding and low risk of settlement extending. Definitely a preferred option without a doubt.
So, the presence of the classic baby-booming downsizer in a similar market as the first homebuyer, just makes it all the harder for the first homebuyer to secure a deal. And before you all say, “the new homebuyers don’t buy new houses in the same areas as downsizers”, take a look at the typical new homebuyer.
Current First Home Buyers are different to the first home buyers of yesteryear. They don’t want old fixer uppers. They want new, the best of everything and they want it now.
However, many times this leaves them short on the negotiation table. Suddenly, buying that 2nd hand car for $10K instead of a new $70K SUV makes much more sense….
Someone needs to remind them of the reason the baby boomer generation is so wealthy in the first place. They bought/borrowed within their means, worked hard and traded up, went without and made sacrifices to get where they wanted to be.
Ok I can hear my kids crying poor me now! Have to go!
Yours in Property
For more information on this article or anything property related, contact us via 1300 66 77 89 or via email here.
Jason has been involved in the property industry since 2007 in varying capacities. His strong accounting and business management background has provided a solid foundation for making strong information based decisions rather than emotional ones, something he is keen to share with his clients. Helping to guide people through the minefield of misinformation is very important to Jason. Good information is king!
- 2019 Property Investor Sentiment Survey Results PIPA
- How it all Began
- You want to be a landlord?
- Negotiation Tips Series – Introduction
- How to find the Best Development Site – Live Webinar August 1st 2019
- Stress Free Property Selling?
- APRA changes and how they effect you
- Better investment returns using a car?
- A property that pays for your new car?
- What does a mid cycle slowdown look like?
Are You Ready to Get Real Property Advice?
Please Complete the Details Below:-