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You’re 27. Settling down with your girlfriend and thinking about marriage. You have both just moved into your first home that is a great investment for the future. Property is safe, and with the help of the First Home Owners Grant that the government offers, you have managed to get a $26,000 deposit after paying your stamp duty and other fees. Not bad on a $300,000 house! It’s a relatively small loan by today’s standards, with just $274000 owing to the bank.

I’ve been harping on about the house price crash for a long time now and basically the only people that believe me are my beautiful fiancee and my future brother-in-law. I think he does anyway..

You don’t have the believe me, but just consider the possibilities after buying your house:

1. You lose your job almost immediately. Don’t say it can’t happen. Private enterprise is on average firing 10 to 15 per cent of their staff. While production line workers are losing their jobs, many high income earners are too. Lawyers, finance workers, those of us in IT. No skill-set is exempt, although some are more resilient than others.If you lose your job, what happens next? Do you have enough in the bank to make your next repayment? Banks are less lenient with renegotiating loans at the moment. Non-performing loans affect the banks’ credit rating, so they aren’t going to scratch your back if you’re not scratching theirs.Then what? You can sell up, and you may lose $10,000 as you have to sell quickly. Things could be worse though…
2. It’s the end of 2010 – house prices crashed over the last year and a half. You and your now wife worked hard to pay your loan down and the principal is sitting at $267,000. Only problem is that your “$300,000 property” is now worth $240,000. The full value of the government grant has been lost (and then some), and it looks like things will get worse with future house price values dropping in the future. If you keep your job it’s not ideal – you’re paying off a loan that is bigger than your property is worth. Don’t say it doesn’t happen – 1 in 5 home owners in New Zealand with a mortgage are in this situation.
3. The crash has happened, but now you’ve lost your job. You and your wife have no choice but to move back in with your family and the house has to go. It’s sold for less than the market value at $215,000 as a quick sale is needed. You now owe the bank $52,000 and have nothing to show for it. Many others are declaring bankruptcy. It’s a hard decision to make though.

Now while all of this might be a complete farce, it might be entirely possible.

On the flip side, what is the worst case scenario about waiting to buy a house? House prices may not crash (although I don’t believe this), and you probably won’t lose your job, but unless you have nowhere to live, there is no benefit of buying the house early. Prices won’t go up unless there is a new First Home Owners Scheme and it is bigger than in the past (which I doubt, as the Government will just run out of money, and as soon as they do there will just be a bigger crash), so you aren’t going to ever “miss out”. Now is the peak of the market.

I realised a few years ago that I like to be well insulated. By that I mean I like to avoid possible issues or conflicts, and I do this by planning around these situations. While my fiancee and I bought land a few years ago, if I knew what I knew now we never would have. I was one of the sheep who listened to our parents and it seemed like a great idea at the time. The property is acreage, and we will live there one day, but for the mean time we are happy to live with my family and pay off as much of the loan as possible. After two years we expect to have paid 90% off of the principal.

My only suggestion is for others to do the same. Stay away from debt when you can see the storm coming. Don’t buy high and sell low, do the opposite. Now is the time to save and do your planning. When the storm passes, be ready to get out there and use your preparation to set yourself up.

Aside from your family and close friends, nobody cares about you in this world. Don’t let yourself be burned by the media, government, real estate agents and so on. Do your own research, don’t dismiss people like me who tell you to look at your options, and make an educated decision. Take care in your decisions and insulate yourself from being burned during this recession. After all, if you make the wrong decision, you are the one that will be wearing it!

Out parents love us, right? Albeit frustrating to spend time with mine the majority of the time, I know they have the best of intentions. I’ve been reading a lot on the differences between the generations lately and it’s pretty interesting stuff.

To a lot of people, us Gen Y’s are just plain annoying. I’ve read about how Gen X’s are probably the most sour about everything. They are a generation with the biggest mortgages, transport and living costs. As it stands, they have the most to gain from Australia’s economic “slowdown”. (Makes me laugh when they use the term slowdown). Falling interest rates and petrol prices are set to benefit the Gen X’s the most. Essentially, they have had a “hard life”. They’ve worked hard to get nowhere in their eyes, while the Baby Boomers get rich from specufesting (speculation investing), and the Gen Y’s seem to get all of the good jobs while treating their employers terribly.

What the majorities don’t realise though, is that the Gen Y’s are both the Baby Boomers’ only hope to retire on a healthy sum of money, and the best way to keep the Gen X’s in a property that is actually worth something at the end of the day.

Unfortunately what most also don’t realise is that in Australia, the Gen Y’s are the equivalent to a subprime investment. The majority have a huge HECS debt, credit card debt, have little to no savings as they haven’t been earning for long at all (due to studying), are quick to sign any contract (car, laptop, mobile, internet, pay-tv) and so on. Financially… woeful!

Work is becoming harder and harder to find for a lot of Gen Y’s. I know very intelligent people who have attained high grades in university, and some two years after finishing uni are still working casual at a pub. If you’ve got a job, great, but if you don’t, times are already tough.

Now granted these are generalizations.. I also know a lot of Gen Y’s that are good savers, have very safe jobs, and are financially “on track” (whatever their path may be). I also know a lot aren’t though.

None of this really concerns me. What is the big deal about having a twenty grand debt? Sure, to me it seems like a waste of money to me, paying interest on that money, but it’s not a massive amount of money and it doesn’t affect me directly if someone else wants to do that.

What does concern me is this big juicy First Home Owners Scheme (I imagine they don’t call it a scheme for a reason). $7000 FHOG, $7000 “Boost”, $4000 from the SA Government (different schemes in different states), and an extra $7000 if you build. $25000 in free money!

“House and Land Packages from $300,000. Take advantage of the First Home Owners Grant and low interest rates. Rent money is dead money!”

Although loans are becoming harder to get, things haven’t hit home in Aus yet. Notice how there’s a for sale sign in just about every street of the country? They are the smart people. Well they are the people that are smarter than most. The really smart people sold up at the peak a while back, but these ones are happy to cut their losses and get out now before anything worse happens. The Baby Boomers are selling. The Gen Y’s are buying (and allowing the BB’s to retire early).

The FHOG is keeping the housing market afloat in Australia. Practically every Baby Boomer in the country is telling their kids to buy. Interest rates this, FHOG that. Despite their kids only having a few grand in savings, and a job that they have only worked for 8 months. “Get in before the next boom”. After all, “house prices don’t fall, they double every ten years in Australia”……

Now believe me or not, I’m going to say this. From an economic point of view, it is widely accepted that house prices will fall in Australia. It’s happened in history (as above), it’s happened all over the world, and it happens in any other investment market. A LOT of people have something to lose by this happening, hence the naysayers. I won’t go into the specifics because that is a massive rant in itself, but if you want to do some reading check out bubblepedia.net.au.

So we’re going on hypotheticals, because you’re probably skeptical that this will never happen, but lets just say it does…

The Gen Y’s all buy up on housing from the “smart” Baby Boomers. The BB’s are selling their investment properties due to a looming house price crash. First Home Owners Grant and all, Gen Y’s are buying up big, their parents are oh so proud, and celebrations are in order. Then as it happens, the “slowdown” that Australia was having turns out to be a “depression” after all. Whoops, who saw that coming? Unemployment is rife, with the Gen Y’s to go first since they have had no job loyalty in the past, and really they are just an annoying eccentric kid, right Gen X’s? They try to keep above the water for a while, try to keep paying off their loan. Maybe renegotiate with the bank and take an interest only loan for a few months while they find a new job. Rent out the house even? Unfortunately the rental market is at an all time low due to a housing surplus too (not a housing shortage as all of the developers will have you believe… coincidence?), plus all of the other unemployed people are moving back in with their parents or sharing with others.

Time for the subprime of Australia to start declaring bankruptcy. What a nice start to life Gen Y’s. Good luck getting a loan in the future with your credit status now.

But mum and dad love you, it’s a big mean world out there. It’s not your fault things didn’t go your way, nobody saw it coming. Nobody except all of the people that tried to tell you not to buy before you did.