Houses no longer key to wealth

THE sluggish housing market has sparked predictions that the latest generation of home owners will be unable to rely on their house as a key source of higher wealth, as many baby boomers did.

Instead, analysts say people who joined the housing market in the past few years are unlikely to experience the ‘‘magic money machine’’ effect of bumper rises in the equity in their houses.

In the late 1990s and early 2000s, house prices more than doubled, a trend that benefited even highly indebted owners.

Rising equity – the proportion of the house’s value belonging to the owner, rather than the bank – was credited with boosting consumer confidence and spending.

However, analysts say the trend is unlikely to return, with Sydney house prices down 2.6per cent in the past year and the Organisation for Economic Co-operation and Development this week warning of further risks nationally.

The head of research at RP Data, Tim Lawless, said home owners who bought in the past four years would find it much harder to build up equity.

December figures from RP Data show 6.4per cent of home owners had experienced the value of their house falling to less than they paid for it. This proportion is likely to increase after recent price falls.

‘‘Realistically, anybody looking to build up wealth and equity in their property needs to have a long-term view. They’re not going to be accumulating equity in their property in the current conditions, or over the next couple of years, very quickly,’’ Mr Lawless said.

A consultant, Martin North, said his surveys of consumers had found those who bought in the past four years – about a third of home owners – had received little or no capital growth.

‘‘Property was a magic money machine for the last 20 years,’’ Mr North said.

‘‘I don’t think we’re going to see that over the next five to 10 years ... which means there is a generation now who won’t get the sort of returns from their properties that they were expecting to get.’’

Home owners aged between 25 and 34 have the highest proportion of debt to assets, at 63per cent, statistics from the Reserve Bank show.

However, households are also paying down their mortgages at the fastest pace in years, and most borrowers are making more than the minimum monthly repayment. House prices are likely to remain subdued.

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