Today's newspaper has a special section on the whole process of finding and buying your first house. I browsed the articles and one statement stood out from the rest. Something that I consider is a lie, and something that keeps those who want to buy a house in the next few years effectively outside the housing market.

To paraphrase,

The bank will require a 10% down payment on a house, something that practically no-one can afford unless they already own a house or apartment that they can sell with a profit.

Come again?! In effect, what the newspaper states is that it is practically impossible to save enough money to pay a 10% down-payment without already owning a house. Sounds like a catch-22 here. And that is the lie that I am talking about - by making this statement, and if a family believes it, it will be true for that family. But fortunately it is false.

A few of the numbers mentioned in the article are that the average price of a house is 3.3 million and that the minimum household income to own that house is 450 thousand per year. (local currency)

Let's take out the calculator. The down payment is 330 thousand. If the family saved 10% of their annual income it would take about 7 years to save enough to cover the down payment. Inflation may change the numbers slightly, but the income also increase with inflation and so does the house price - so it is not a huge leap to believe that they more or less will even out over time.

It will take approximately 7 years for the family to save enough money for the down payment to buy the house if they start from nothing.

QED. It is not impossible to save enough money to cover a down payment!

The article stated that it would be necessary for the family to own a house or an apartment with an unrealized profit – I assume that the article refers to the house or apartment as the only available investment vehicle for the family. Let us investigate. According to one source the real house prices have increased by less than 3% per annum since 1975 (adjusted for inflation). Inflation has average around 3.5% p.a. (source). Together approximately 6.5% p.a.. In the same period the S&P 500 index has averaged 8.3% p.a. (Yahoo! Finance). That is, the stock market has actually been a better investment vehicle than a house - since 1975.

Therefore it is safe to say that it is not necessary to own a house to appreciate money for a down payment. The difference is that a house provides collateral for a loan and it is probably the only way that a bank will give a 1-2 million loan to the average family for an investment. That is, the house may be the best investment for a family over time as it is bought on credit - but stocks and shares can actually give the same performance even from a smaller amount.

Back to the calculation. Let us use the historical values from the S&P 500 index.

If the 10% savings for the down payment could be invested in the historical performance of the S&P 500 index, it would take 5 years to save enough money to buy the house. 5 years!

Almost impossible for a family to save for a down payment? Quite the contrary! Of course it takes a few years - but what do people expect!? I think it is very unwise for a large newspaper to state something so blatantly incorrect. The article should have stated;

The bank will require a down payment of 10% of the house price. Not a sum that every family can pay without planning, but a sum that most families can save for over a few years.

Note: It is necessary to understand that the stock market is not a sure thing. The value of investments may increase or decrease depending on many factors. The historical performance of the stock market can not be used to predict future performance, and all investments come with the risk of loosing the invested sum or more. This is also true with house prices, which may increase or decrease over time.