Why You Won’t Be ‘Priced Out’ of the Housing Market

You’ve probably heard headlines like this before:

“House prices are booming, locking out the next generation of homebuyers.”

Which makes people feel like: “If I don’t buy soon, maybe I’ll never be able to buy.”

The media loves this narrative.  Combining fear and housing is the perfect recipe for clicks.

And to be fair, there’s a grain of truth in it – especially for folks who don’t manage their money well.

But for YOU, dear readers – and anyone who’s half decent with personal finance – this narrative is completely false.

As you’ll see, you’re in a better position than it seems.  Even if you’re renting, even if you don’t want to buy for a while, and even if house prices keep rising.

So let’s unpack this ‘priced out forever’ fear, and more importantly, break down why it’s mostly nonsense for this community.

You can also listen to the podcast version here.

“Home prices are growing faster than you can save!”

Let’s start with this well-worn statement.

You might see house prices jump $100,000 in a year and think to yourself, “There’s no way I can save that fast.”

You worry you’re falling further behind.

While this seems accurate on the surface, it’s actually misleading.

Because as counter-intuitive as it might seem, you don’t need to save as much as property growth dollar-for-dollar to keep up.  What matters most is how much of that property you could afford, relative to your current wealth.

Here’s an example:

Let’s say you have $10k in savings.  A home is $500k.  You can afford 2% of it.

Now imagine that home rises 20%, to $600k in 3 years.  But after 3 years, you now have $60k in savings (very achievable).

So prices grew $100k, while your savings only grew $50k.  You’d probably feel depressed.  The media will say “Property prices outpaced your savings – you’ve now further behind!”

But guess what?  Your savings can now cover 10% of the home – so in reality, you actually caught up. 

You increased your proportionate buying power.  And that’s what actually matters.  Sadly, almost nobody understands this, but it’s incredibly important.

And most readers here save way more than $15–20k a year!  Many couples are saving $50k or more.  Because you do all the right things – you optimise your expenses, increase your income, and you put long term goals over short-term desires.

OK, what about during a full fledged property boom?  Surely that’s gotta be an ugly picture?!

Say the home in question doubled in value over 5 years, from $500k to $1m.

Saving $20k per year gets you to $100k in savings over 5 years = you (again) have 10% of the property covered.  This ignores your initial $10k and any returns you might earn.

That’s a very different picture than what the media is telling you and how most people think about it.

The real risk isn’t house prices, it’s not saving

Here’s the brutal reality: If you can’t save money, you’re already priced out.

Not just out of housing, but of freedom and the truly comfortable life you want some day.

The truth is, some people will always be priced out – whether due to circumstances that are insurmountable, or from poor money management.

But if you can save – and if you’ve been following my content, you absolutely can – then you’re in a much better spot.

Because it’s not property prices alone that shape your future.  It’s your ability to build wealth.  And that’s fueled by:

— Your savings rate (income vs spending)
— Your investing habits
— Your long term thinking (delayed gratification)
— Your flexibility, adaptability and willingness to accept tradeoffs

That’s what builds optionality and control over your life.  And the longer you do these things, the stronger your position becomes.

In the beginning it might seem like, “Prices are so high, I’ll never afford anything good.”  But later, if you keep stacking your savings and do the right things, it’s more like, “Wait, I actually have a few options here!”

Around here we focus on what we can control, not what we can’t.  That’s how you build a motivating life of self-reliance and forward-motion.

No seriously, what if property keeps outpacing wages?

You might think this is some feel-good short-term solution or mental accounting.

Will this really work over the long term if property grows faster than wages?

Let’s explore a more realistic longer term scenario.

Say the median dwelling costs $800k and grows at 5% per year forever – a pretty reasonable yet slightly pessimistic assumption for the sake of our example (if wages grow at 3-4%).

Now let’s say you:

— Start with $40k in savings
— Save $25k per year
— Invest in shares, earning 7% per annum after-tax

Here’s how things look over a few decades:

So, even though property gets more expensive, you have NOT fallen behind.

In fact, by Year 40, your portfolio equals the home price, despite starting at just 5% of the home’s value.

Most people focus on the ‘home price’ column and get paralysed by the big scary numbers.  But the most important column is the one on the right hand side.

Now of course, if you cash in some (or all) of your portfolio to buy a home, there’s CGT.  But the underlying principle is undeniable:

If you can grow your wealth at a faster rate than home prices grow – which is fairly easy to do by saving and investing – your relative buying power INCREASES over time.

And this is only your personal investments – there’s also super, which will also be another substantial pot of cash.

If you end up wanting to buy later in life – super can form part of that buying power.  It can be combined with your other investments, or used on its own when the time comes – either as a lump sum or income stream.

This also ignores pay increases, finding more ways to save, inheritances, and so on.  In reality, as long as you’re saving, you aren’t stuck.  You’re slowly but surely making progress and building optionality.

Someone might say, “Well, how can you even save that much when rents are high.”  To which I’d argue, if you can’t save while renting, you DEFINITELY can’t afford to own.

As I explored in my monster Rent vs Buy post, these things go in cycles, but the true cost difference between renting and owning is often tens of thousands per year for the same property (where most people live).

Yes, property might outpace wages.  But it won’t outpace a committed saver/wealth builder with a long term plan.

So don’t panic if prices keep going up.  Your ability to save is your superpower.  And by the way, this principle still applies at higher price points.

Renting is not a losing strategy

In Australia, renting is seen as a temporary step – this weird state of purgatory you put up with until you can finally get on the property ladder and join the special club of successful property-owning adults.

You’re either in the club, or you’re an outsider and haven’t ‘made it’ yet.

Think about how society treats different types of risk:

— If someone wants to start a business, people will be worried for them and they’ll be urged to stay in the safety of their job.

— If they invest heavily in the sharemarket, people will say it’s risky and warn them they could lose all their money.

— If the same person buys a home with seven figures of debt, people will congratulate them on such a wise purchase.

It would be funnier how dogmatic this mindset is if it wasn’t 97% of the population.  For those of you on the path to financial independence, you realise this framework is outdated – or at least heavily flawed and situation-dependent.

Renting doesn’t mean you’re lagging in some way.  Renting and investing can be a very powerful strategy for those who are open-minded enough to see it as such.

And sure, it’s not for everyone.  Renting certainly has its downsides, which are spoken about endlessly.  But it can absolutely work for people who know how to manage money.

Read my full breakdown of the both the problems and opportunities of renting vs owning here.

You might not want to rent forever – and that’s fine.  But if you’re happy renting for now – enjoying the freedom and flexibility, AND you’re investing a healthy amount along the way, you’re going to be OK.

Renting may just work better for your situation right now.  You can always buy at some point down the road – when your life situation changes, and when the mortgage won’t pressure you financially.

This fear around being ‘priced out forever’ simply doesn’t apply if you’re good with money.  The ability to wait – to delay lifestyle creep, avoid liabilities and expensive purchases – is a key competitive advantage in the modern world.

Consistent action and patience are an incredibly powerful combination that serves you well across all areas of life.

Cycles and security

When prices are booming and rents feel expensive, it can seem like things will never calm down.

But property moves in cycles.  It always has, and it always will.

Prices surge, then they slow down, and yes, they even drop too.  Rents shoot up, then they level off and stagnate for a while (and sometimes fall too).

We just don’t know when the slowdown will occur, which adds to the frustration.  But part of this picture is zooming out and realising there will always be more opportunities in the future.

So if things seem a bit insane right now, don’t pressure yourself to make any rash moves.

Instead, it may make more sense to be patient, keep saving, and think long term.  That’s what puts you in the best position to buy when the time is right.

By the way, I’m not saying to wait for the sake of waiting, if you can afford to buy (more on that in minute).

And if the security of home ownership is super important to you, that’s completely valid.  But that doesn’t mean you have to buy immediately or you’ll miss out.

As the numbers show, you can rent while you build wealth, and then buy from a position of strength later.

‘Security’ is not a magic feature that is unlocked solely by a successful home loan application.  The truest sense of security comes from wealth, optionality, and having a sense of control over your life.

That can come from owning a home, but it doesn’t have to.  Housing does not have a monopoly over the feeling of security (no pun intended!).

While owning a home gives you a certain kind of stability, financial independence gives you several kinds of freedom.

I know these thoughts may not be popular, and there’ll be a kneejerk reaction to many of these statements.  But my goal is to break through the toxic combination of religion and fear that surrounds the Aussie housing market – helping you see the world in a more accurate and empowering way.

The unseen challenge

You’ve seen the numbers. And you’ve seen how saving and investing can build wealth faster than property prices rise.

But I’ve also been sprinkling in another theme here: how do you want to operate your life?

Do you want to be the kind of person who does something out of fear or social pressure?  Or can you separate yourself from that, focus on the bigger picture and know you’ll be fine even if you follow a different strategy?

In some ways, it’s not really about renting or owning.  It’s about fear vs confidence.  It’s about reacting to the external world vs planning your own path.

Quite often, the real challenge comes back to our own identity – how we make decisions, how we deal with uncertainty, and very often, how comfortable we are straying from the herd.

The most important factor in your financial future isn’t owning a bunch of bricks.  It’s being a person who knows how to build wealth.

But if you’ve been saving for a while, you may be wondering…

“Should I buy now to ‘lock in’ my price?”

If you’re in a financial position to buy –  and doing so will give you peace of mind – then I do think purchasing something sooner make sense.

Especially if you meet several of the following criteria:

— You plan to live in the property someday
— You’re comfortable having a mortgage
— You’ve got surplus cash to keep investing
— You don’t mind being a landlord for a while

What matters is making it a strategic decision, not one rooted in FOMO.

And if you’re reading this ad not sure how you can buy something without derailing your finances, I’ll be writing about that soon.

In general, it’s wise to start with something smaller and more affordable.  You can eventually get an expensive place if you want – but do it AFTER you’ve built a nice level of wealth.  Otherwise, you just become a mortgage slave (despite how many compliments you might get from peers or family!).

Most people do the opposite.  They max themselves out and are then left hanging on every RBA decision, wondering why they can’t save.

Final thoughts

While some people feel like the housing situation is hopeless.  You now realise the outlook isn’t quite as bleak as you’ve been told.

If you’re someone who’s thoughtful with money – who invests and lives below your means – then you’re absolutely NOT going to be ‘priced out’ of the housing market.

Not even close.

If anything, you’ll be catching up, and speeding past the average internet complainer in a way they’ll never understand.  All without HAVING to buy a home as soon as possible.

At the end of the day, the more wealth you build, the more options you have.  And when you know what you’re doing, all the noise becomes irrelevant.

The housing market doesn’t get to decide your future.  You do!

Here are some resources you might find helpful:

📘 My Book
Your complete guide financial independence in Australia.  Available on Amazon, Audible and Spotify.

🏡 Mortgage Broker
Deanna and her team have helped me and many readers with home loan strategies over the years (including debt recycling). Check them out.

💼 Financial Advice
For those wanting personalised guidance with strategy, super, tax, or retirement, I can connect you with someone I trust. Find out more.

If you use the above services, this blog may receive a benefit at no extra cost to you. I only recommend things I use myself and genuinely believe in – thanks if you choose to check them out.

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