Australians Have Taken to Saving for First Home Purchases

Friday, October 5, 2012, AM | Leave Comment

A popular adage in the current global economy says that the only nations and individuals that manage to successfully sail the murky waters of the recessions are those who learn the valuable lesson of frugality.

Frugality is not to be equated with living far below one’s means, but with practicing foresight and a responsible attitude with respect to one’s material and financial assets.

Australia is a renowned case on the global scene of this attitude: not only have Australians started to save more since the onset of the recession, but recent research has also revealed that this frame of mind has extended over first-time residential property buyers.

They are holding out for longer spans of time before they buy and they are also making an effort to raise bigger minimum deposits.

According to the market survey issued in early September, most people looking to buy their first home at the moment are aware that the residential property market is possibly at its most competitive.

First Home Purchase

The prices are low enough to turn most deals into a good deals, but only 17% of all those polled will be definitely making a purchase within the coming three month. Most (roughly two thirds) are looking into buying their first home over the coming year.

Affordability is the main factor taken into account, closely followed by location (how close are the means of public transport? What about the shops?).

More than 10% of all those polled stated they are saving up for a home, a figure which has doubled over the past few years.

Another part of the strategy is to live at home with the parents for as long as it takes, in order to save the money that would otherwise be spent on rent. Most first-time buyers are saving somewhere between 5%-10% of the mortgage value, which indicates that Australians might be turning into savers, rather than debtors.

Identifying an affordable home loan, with good p.a. interest rates is also an important factor when buying a home for the first time. Lender Bankwest (Australia) provides an overview of the offers available on the home loan market.

While the ABS explains that savings is one economic indicator which cannot be precisely determined, but approximated, it is equally true that the data it has released points to an increase in savings among Australians since the onset of the global recession.

The method used for calculation entails subtracting consumer expenses from the total disposable income of the nation—the resulting difference will be small, yet unarguably relevant.

The ratio between the country’s gross domestic product and its net savings increased by 3.0% per cent during the 1990s, from 4.9%, up to 7.9% at the end of 1999; yet, overall it has fallen substantially from the onset of the sixties, when it stood at 15.9%.

The main contributing sector of the economy is the household sector on the long term, yet, it, too, has fallen since 1975 onward.

However, financial experts indicate that this very household sector started saving more since the beginning of the global financial crisis.

At the end of the fourth quarter in 2011, the ratio stood at 9.0%, and even in spite of a slowdown in increase over several preceding quarters, there was no sign of decrease at the time.

The 9.0% ratio is the double of the 4.5% average of the previous two decades; another interesting correlation is the one between the rate of economic growth and that of net household savings.

The increase of the economy started its dramatic fall below long-term averages during the December 2007 quarter. That same fourth quarter of 2007 marked the beginning of a span of time over which household savings average in at a spectacularly elevated 8.8%.

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