7th August 2021

First time buyers feel the squeeze, but that's nothing new

First time buyers feel the squeeze, but that's nothing new
Anytime you are in a market where home prices are going up (which is pretty much the norm, with very rare exceptions) first time homebuyers are always going to feel like they're one step behind. What we are seeing now is actually no different than the 1990s, 2000s or just before pandemic, when first-time buyers and young people were already struggling with affordability issues. The pandemic exposed this fact and made it harder in many ways.

The Covid-19 pandemic shifted the ground between savers and borrowers, with savers suddenly in an even better position than they were previously. These tend to be people who are older, generally Baby Boomers and late Gen Xers who are beyond the stage of student loans and sizable mortgages. The savers of the world have been enjoying a time with low inflation and low interest rates, coupled with really strong stock market appreciation over the last two or three years. These savers are sitting on a lot of cash which is pouring it into the property market. They are doing so in an effort to diversify their portfolios, and the result is an increase in values.

Investors in stocks and shares can end up with so much stock market wealth that they look around and think, "Where else can I put my money Investors still see the housing market is one of the safest places over the long term -- and one you can get some use out of over time, which is not true of the stock market and other asset classes.

It feels particularly acute right now for first-time homebuyers in the sense that they are not only being squeezed by high home values, but also the fact that rental prices in cities are snapping back rapidly as people return to pre-pandemic lifestyles. Unfortunately, this means they are feeling the pinch from two directions. They want to get out of paying inflated rents but are seeing unaffordable asking prices, particularly in popular city center locations, but again, we've seen these circumstances time and time before.

First time buyers need to come around to the fact that purchasing a property is going to be expensive. You have to spend about 30% of your income on housing, whether renting or buying. However, one factor that will work in favor of first-time buyers is the trend of working from home, which means they are no longer tied to the housing market closest to their job. The loosening up of employers over the past 18 months will continue over next few years as companies commit to long-term flexible working. I predict we'll see more evening out in the housing market as homebuyers can expand beyond what used to be acceptable commuting distance to their jobs.

Another positive for the first-time buyer is a really strong job market, heightened by Brexit restrictions on overseas workers. This is also driven by the fact that Baby Boomers are retiring early. The narrative for the last 20 years was that Boomers were going to stay in the market long past retirement, but this simply isn't the case.

For younger people, that means there are going to be a lot of opportunities. There are already many openings as employer demand bounces back as we come out of the pandemic. This brings job security, as well as a strong potential for upward mobility. Their work prospects, which really matter for long-term choices, are now looking better than they have been for their entire working lifetime.