What do you remember about 1991? For some, the answer might be nothing, because you were not even born, for others 1991 was a time of recession for Australia and high interest rates.

The recession started in the September quarter of 1990 and lasted until the September quarter of 1991. GDP fell by 1.7%, employment by 3.4% and the unemployment rate rose to 10.8%. Like all recessions, it was a period of disruption and economic distress.

Paul Keating also made his famous statement in November 1990. “The first thing to say is, the accounts do show that Australia is in a recession. The most important thing about that is that this is a recession that Australia had to have.”

It was also a period of reforms between 1990 and 1991, with Australia’s telecommunications opened to competition; and tariffs were reduced to 5%, while the phasing out of textile, clothing and motor vehicle protection began.

A slow recovery from recession began around the September quarter in 1991, though unemployment continued to rise until late 1992.

I was reminded of this period when I recently came across a book by Jerry Tyrrell: Househunting – A consumer’s guide to buying a home in Australia. There’s no great detail about the author but he appears to have been an architect and builder.

The book, now with its tell tail yellowed pages gives an interesting insight into what the housing market looked like 26 years ago, and so after finding it sitting neglected and little read for a quarter century, it makes interesting reading. It is full of hints and suggestions for anyone hunting for a home, including a bright red flash to the cover that reads: ‘How to buy in a depressed market.’

The book was dedicated to Tyrrell’s mum and on the outside back cover takes a somewhat sober view. “A successful home purchase can set you up for life. Sadly, consumers rarely get the right advice about home-buying until it’s too late. Then it can take years to recover from what is an expensive mistake.’

Tyrrell’s view might very well have been a reflection of the times and he goes on to suggest that success in the market will come from plenty of planning, research and patience and yes the advice in his book!

Buyer’s Motivation

One of the key topics I was most interested in, and wondered if the book might shine a light on, was if there had been much of a shift in buyer motivation over the last 26 years.

A good place to start was to read about the pros and cons of buying. The main benefits were listed as: no more rent to pay, stable accommodation, the satisfaction of ownership, investment potential, home often becomes a productive hobby and status and independence. In 2017 I wonder how that order or list could change?

Perhaps investment potential and status (emotion) would take on more prominence.

Then looking at the disadvantages outlined in the book: difficulty in saving deposits, high mortgage repayments, repairs and maintenance, lifestyle changes and loss of mobility (with the fall back being that it’s always possible to rent), were highlighted.

Today there’s much more pressure required to save for a deposit, and so not much has changed in 26 years, apart from the amount of deposit required. While mortgage rates in 1991 were far removed from today. And in our market, we remain on alert for any potential for a rapid increase in home loan interest rates, in 1991 rates and prices were very different, as Tyrrell illustrates.

Interest Rates and Home Values in 1991 

An interesting comment, which is different from today, was that most lenders would loan 95% of a property’s value although the ‘usual’ deposit is quoted at 15-25%. The example quoted was for a total cost of $196,500 and that was made up of:

  • Deposit $45,000
  • Loan $140,000
  • Cost of purchase $11,500
  • TOTAL $196,500

Interest rates at the time had risen sharply and ranged between 15% and 17%. The approximate monthly repayment would be 17% over 25 years and have been $2014/month on the $140,000 loan. Getting your deposit was still a big hurdle, even at the assumed amount of $40,000.

The number of weeks needed to save a home loan deposit had been on the rise since 1985. In 1985 it would have taken around 90 weeks (less than 2 years) to save the deposit, but by 1990 that had increased to 280 weeks (more than 5 years).

Today the figures are very different and according to recent figures published by USB: taking the average Sydney house price of $1.2 million into the equation it would take around 40 years to save for a deposit.

In 1991 average weekly incomes were approx. $654.00 today that’s increased to $1592.00, while the average home loan in 1991 was $73,700 and today its $376,000, but that’s an average and would not go far in Sydney or Melbourne.

What to Look for in 1991

So just putting aside all of the facts and figures, and to finish this first look at the market in 1991, what were among the suggested ‘golden rules’ to look for when you did buy, here are some of the suggestions.

Avoid streets with poor presentation, look for potential, to extend and or renovate a property, avoid poor access including homes with steep drives, look for special features like a view or access to a park and one final point, which is still very much on the mind of today’s buyer make sure you have on-site parking. Parking and views, both sound advice today.

The other question that buyers were encouraged to consider in 1991, and is still the case today, is where to buy.

Buy the worst house in the best street (now that’s familiar), buy a small home in an up and coming area, look for areas with improving facilities and access, again very true today, avoid living under the flight path or near noisy sports grounds, two notions that will be familiar to many in Sydney.

Other hints included the need to ask yourself how soon the property might sell if you had a forced sale, and to also look for an area with a good community spirit and one final point, and it’s one I have often suggested, is to speak to the locals, including the local shop keepers about the area and any future developments.

In 2017 shop keepers are far less common, but the access to market information is at our finger tips. In my next post, I’ll explore how marketing and the apartment market have changed since 1991, it’s pretty amazing stuff and thanks to Jerry Tyrrell for his book.