Study hard, earn your degree, get a job, save for a house. Living the Australian dream, right? But is that just it, a dream? Just how hard is it for university graduates looking to take that next step in their journey and are faced with the daunting prospect of saving for a house.

The good news for graduates is that all those years of hard work should be worth the hefty HECS debt. The 2018 QILT graduate outcomes survey found that on average 72.9% of university students found full-time employment within four months of graduating.

The national average starting salary for graduates is currently $56,000. Unfortunately, once the tax-man takes his cut and the student loan repayments hit, after-tax income totals $45,253. Fortunately, in the three years following university the median salary increased from $56,000 to $68,700. Accounting for basic expenses, no holidays (you should be working anyway) and no luxury purchases, we can see how the numbers shake out.

*Expenses sourced from MoneySmart average for individual < 35
Forecasts account for inflation based on DAE
All values in AUD

The housing boom over the last 30 years has priced out first-home buyers (FHB), particularly graduates from entering the market. At a time in your life when you are earning a salary well below the national average and are beginning to feel the effects of paying down your HECS debt; it can feel like there is no chance of saving enough for that elusive 20% deposit. Saving upwards of 40% of your take-home pay will still take 4 years to afford even the cheapest options; and things get even worse if you are burning money on rent.

Source: CoreLogic rolling annual median sale price as at 1Q19

It is easy to point to the exponential increase in median house prices as evidence of how unfair it is for FHB, but the goal posts have shifted from when our parents purchased their first home. Yes, 30 years ago the median house price was AUD 90,000 in Perth, but the sting in the tail was interest rates of 17%, essentially making it expensive to borrow money. The challenge has just shifted from repayment affordability to saving for a deposit.

Figure 1: National House Prices versus Interest Rates
Prices are national 3 month rolling average
Source: ABS, RBA, CoreLogic

However, now might just be the perfect chance to get into the housing market due to:

• Falling property prices nationally the past year;
• Record low interest rates, with the cash rate at 1% and the possibility of further cuts;
• Investor demand down 49% since Jan 2017, resulting in less ‘crowding out’ of FHB;
• More than 85,000 new apartments in capital cities across Australia since 2016 providing choice and downward pressure on prices;
• Tax cuts for low income earners;
• APRA relaxing lending restrictions;
• First Home Super Saver Scheme, FHB Grants; and
• The Federal Government’s 5% deposit guarantee scheme (although this is only available for about 10% of FBHs).

There is no question that buying a first home remains a daunting prospect for any recent graduate. Nevertheless, the confluence of factors including low interest rates, a lack of competition from other buyer types, a range of incentives, and early evidence that property prices are starting to stabilize nationally, mean that right now might well prove to be a great time for any first-time buyer that can get over the deposit challenge to enter the market.

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