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Every Australian knows what a first-home buyer is entitled to by now. A heap of free money! But is there really such a thing as free money?

According to a recent report by market research firm Brandmanagement, young home buyers’ loans have jumped an unsustainable $52,000 (23%!) in the past two years.

From February 2008 to February 2009, first-home buyers have flooded the market, up 9.6% now comprising 26.9% of the market. It’s almost as though there’s something they don’t know!

Here we essentially have a boom within a boom. The increased madness of first-home buyers rushing to get into the property market before they lose their “free money” or “before the next boom” has pushed prices up, despite times of economic doom and gloom. This “mini-boom” in itself gives first-home buyers more reason to commit earlier than they should. In the belief that property will only increase in value, they want to enter the market as early as they can at any cost.

Andrew Inwood, from Brandmanagement is quoted saying:

“What the government incentives appear to have done is transfer the money from the people who are borrowing money to buy their first homes into the pockets of those who are selling at a more attractive price.”

The issue for me is the short sightedness of this whole situation. Anyone who has taken the time to do the research knows that Australia is not in a sustainable economic situation right now, and propping up the bubble with grants like these is just prolonging the inevitable. Why give people a false sense of security and then screw them over?

It’s hard to make a comparison, and this example is probably a little extreme, but during a war what would you prefer? To have your country bombed and suffer considerable damage in an instant, and then have the attacking country leave? Or to have troops attacking nearby, tormenting the families and fighting for five or ten years? The way I see it, instant annihilation, while hard for everyone, allows the country to be rebuilt immediately. People will realise what is actually important in life, and pull together to reconstruct their homes, hospitals, and so on.

It’s amazing how this whole situation is only centered around money, not life or death, and yet people still want to believe that everything is peachy, while all they are really believing in is a slow and painful death of the market.

Enough with the grants already!

Australia already has a First Home Owners Grant to “help” people get into one of the most overinflated investment bubbles in the world.  Free money has been handed out to Australians as part of stimulus package, which will cost this country dearly in the future too. Now we have the Holden Owners Grant. Not actually a government grant of any kind, just clever advertising that will no doubt convince thousands of uneducated Australian’s that there’s never been a better time to buy an overpriced, poorly engineered piece of devaluing steel.

Whether it’s a car, a house, computer, clothing, or so on, if people can’t afford it it’s either one of those items that only a special few can afford to buy (which is part of it’s appeal), or quite simply the price is too high. For example, people pay big money for clothing brands like Prada. It’s high prices and label is what makes people aspire to wearing that label. Now obviously Prada are making a profit at their current prices, so their business model works. By selling only to the “elite”, they can turn a decent profit.

On the other end of the spectrum though is the brands that need economies of scale to make their products profitable. Holden is one of these brands. They need the masses to buy their cars, and in order to get the masses to purchase your product it needs to be affordable.

If these items aren’t affordable, quite simply your business is going to fail. Although housing is a tricky one to compare this all with, it’s still a similar situation. People can’t afford to buy houses at it’s current value so there needs to be a grant to get people into the market. All this does is keep the prices inflated and in the long term helps no one except for the “investors” already in the market.

A so called Holden Buyers Grant is just ridiculous. Obviously they can’t move Holdens at the moment at their recommended retail price, so they need the grant to sell their cars. Australians are more likely to buy cars from Asia and Europe as they are either cheaper, or a similar price and of a much higher standard.

For Holden it’s a simple case of provide the market with what they want, or fall down. Unfortunately they and many other Australian businesses fail to see this. In Australia I foresee this crash being harder than any other that we have had in the past, as it is going to be an enormous readjustment for our businesses, and as a result our people.

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.