The big argument this week was whether Gen Ys should forgo some smashed avo to save up for a house.
If your baby boomer parents are hassling you about speeding up into the market to avoid being locked out forever, here are a few responses you can shoot back while you sit down, eat your smashed avo, sip your latte and relax.
· Australian real estate has never been more expensive
A recent study by global investment bank UBS, using a technique developed by a branch of the US Federal Reserve, showed Australian house prices were about 7 percent above previous peaks in 2003, 2007 and 2010.
· We do not have a property shortage and are heading for a glut
Prices have jumped because we have a terrible housing shortage, I hear the property spruikers reply.
Even in those locations where we might have had a scarcity, it will soon be replaced by a glut.
· We are in one of the world's biggest property bubbles
Seriously, prices are at record highs in Australia's two biggest cities, and many other areas, in absolute terms, comparative to incomes, relative to rents, relative to just about any other measure you care to name. At the same time, household debt, and particularly housing debt, is at a record high.
· Inflation is not going to help you pay off your massive debt
Basically, rates are stumpy because inflation is low. Inflation is low because wage enlargement is slow. Slow wage growth means that the size of your repayments doesn't contract much relative to your pay packet over the decades it takes to pay off a home loan.
This is in difference to most of the baby boomers. Yes, they had to put up with crest mortgage interest rates of 17 percent for a while, but inflation was also much higher which meant the real size of their debt and repayments fell over the life of the loan.
· Interest rates are more likely to rise than fall
There's additional bad news. If inflation does pick up over the medium and longer term, then an inflation-targeting Reserve Bank will have to raise interest rates in response.
While you can get a sub-4 per cent interest rate on many home loans now, more typical interest rates would be around 6.3 percent, which is the average discount variable rate over the past 12 years.
· The dangers of negative equity
If you consider that we are in an overvalued housing market, then a key danger you should think about is negative equity. This is where you owe more to the bank on your home loan than your house or flat is value.
Provided you can afford the loan it doesn't have to be a disaster, as you can often ride out a fall in prices by not selling and wait for an ultimate recovery.
But it could be a long wait and, in the meantime, you are successfully locked into your home and mortgage because if you sold you couldn't pay back the bank and you'd be bankrupt.