Where is the next wave of buyers coming from?

A good reason why price falls are just unlikely.

Chinese buying seems to be coming off the boil lately.

We don’t have great data on it so it’s a bit hard to tell, but that seems to be the ‘vibe’.

So want to know where the next wave of buyers is coming from?

I’ll tell you. Young locals.

Right now there’s a large (and growing) pool of young buyers looking to get into the market.

Take a look at this chart here. This is home-ownership rates for each state (taken from the HILDA survey).

Home ownership rates have been falling in Australia since the 90s, down to around 65% (of all households) in 2014. But there’s been some particularly sharp falls in Victoria (from 74% to 66%) and NSW (68% to 62.5%).

And what’s been driving this trend decline in home-ownership? There’s a few factors, but this chart is interesting. It looks at home-ownership rates by age-cohorts.

What we can see is that home-ownership in the older cohorts (55+), has been broadly steady. However, there have been large falls in the younger cohorts (25-44 year olds). So if home-ownership is falling, it is because younger people aren’t getting into their own homes.

Now there might be a few reasons for this. I’m sure a lot of younger folks might just prefer to rent until they’re ready to settle down.

But it looks to me like the biggest obstacle is probably price.

This table looks at what has happened to house prices between 2001 and 2014. We all know that median prices have done very well over this period – up 76%.

But look at where those price gains have been concentrated. This table compares the cheapest 10% of houses (10th percentile) with the most expensive 10% (90th percentile)

So while the most expensive houses grew by 47% over this period, the cheapest houses jumped a massive 108%.

In percentage terms, a lot of the action has been at the cheaper end of the market.

But these are our entry-level homes. This is where younger families would typically start out. This is where they would get their foot on the property ladder.

But prices at the cheap end of the market are accelerating quickly, keeping home-ownership just out of reach for younger Australians.

For my money, this is one of the reasons why I just can’t see property prices falling far or for long. There’s a huge pool of buyers at the affordable end of the spectrum, just looking for their shot.

Prices could fall an inch and they’d be in there in a flash.

Ok, so maybe this isn’t the legendary Chinese buyer willing to drop $2m in cash. But it is a very big segment of the market.

A big, and hungry, segment of the market.

And that’s why price falls are so unlikely.

Spiro Kladis
Managing Director, Cashflow Capital

 

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