Housing Affordability Australia wide

A different view to the mainstream media: http://www.switzer.com.au/the-exper...gage-affordability-is-not-that-bad-after-all/

While I agree that mortgage payments are easily affordable - it's the deposits that are hard to come by for new entrants.. so the barrier to entry is still high.

It also highlights the truth that the boom has been Sydney centric, even though the general public thinks the whole of Australia is in a property boom...

 

Yep, it's the paying rent + bills + saving for a deposit that represents the real barrier.

Speaking with some friends who rent at the lower end of the market, decent enough income, but had some big bills (she had to pay for her fathers funeral and fly back home to the US) bye bye 10% deposit, back to saving for another year. Given up saving up a 20% deposit as the longer they wait the more houses cost so the deposit isn't enough.

 

Some wonky maths in there. Notice how the graphs say "Relative to average since March 2004"? That's the first sign of dodgy sums.

The ratio of median income to median houses is 5.4 in some areas. In others it's 9. In some parts of Sydney it's about 20.

No mention of wages anywhere either - which have been flat while housing is going up 10% per year.

And the key point from the article: "Yet given still very low mortgage interest rates..."

Lowest they've been in ... ever. How about this guy runs the sums using the mean interest rate and see if it's still affordable?

 

Perth is moving back into affordability territory.

 

Perth, Adelaide, Brisbane, Hobart.......

 

Continuing on the theme of wonky maths:

• The author (Bassanesse) is using median house prices and average incomes. The ABS tends to report income as a mean, that's where the $70K to $75K / year figure comes from. The median is probably $60K to $65K.
• He's probably also overstated household income. Nearly $120K / year seems high after tax, given the above. (I found some figures that put it at $931 per person per week in 2012, about $97K per year for two adults.)

And, as @MGF pointed out:

• Saving $120K as a deposit on a $100K to $120K household income is going to take a few years...
• Affordability is being driven by low borrowing costs. If interest rates go up to 7% or 8% then repayments would be 40% of household income. (Or over 50% if you use my lower figure above.) Anything over 30% is generally considered unaffordable.

The latter is important, as we've currently got interest rates at their lowest level in, oh, 5000 years.



There will almost certainly be an uptick in the next few years, and wages aren't growing strongly in the current low inflation environment.

 

Ever since the GFC developed economies have all been playing the low interest rate game, which has prevented inflation. With inflation tracking along at 1.5% and wage growth only marginally better I don’t see how it’s possible for houses to keep ‘doubling every 10 years’. The US were supposed to raise interest rates for the first time in 2006 this month. Yet they kept their rates on hold. Given Europe is struggling, China is going through a slowdown, and Japan is still fighting their deflation battle I can’t see interest rates rising within the next few years at all to be honest.

 

Well spotted - it's a funny date to start an evaluation from.

 

Agreed - people who panicked and fixed their rates recently were doing so for no reason - all the signs are continuing to point to a Japanese-style prolonged period of near-zero interest rates, possible for the next decade. The fact that the US Fed baulked at raising rates last Friday morning for fear of crashing the very fragile recovery over there shows just how ridiculous the situation has become - all the central banks (including our own) are too frightened to try and normalise monetary policy in case it sends everyone broke.

 

Deflation is a very real possibility. Not sure if this would be good or bad. I'm still saving for house #1.

 

If deflation does occur wages will start falling so there will be less money around, which would impact spending and consumer confidence. Falling wages are a major problem for people holding debt. Usually someone would purchase a house in a normal inflating market. You lock in today's lower prices and your wages increase over time, which helps your serviceability and makes the debt less of a burden. However, if deflation occurs your wages start falling so instead of the debt being less of a burden it becomes more of one. Depending on how long the deflationary period lasts for it can result in assets depreciating in price because people like yourself think 'why bother purchasing a house now when it will be worth less in 5 years?'.

 

I know quite a few FHB and entry investors who work very hard, have good spending/saving habits, are focused and determined. Some have kids. Guess what?

They all bought! All in NSW too.

This nonsense has gotta end. People need to take responsibility for their lives. They need to change. Otherwise they are going to get nowhere.

Its that simple.

My opinion.

 

But I wanna live in Redfern! Waaaaaaaaaaaaaaaaahhhhhhhhhhhhhhhh!!!!!!!!!!!!!!!

 

According to an article at The Guardian, the median gross household income is about $81K, so approximately $70K after taxes. These are the ABS numbers, so should be pretty accurate.

Recalculating the figures:

• The median property price of $636K is approximately nine times of disposable household income.
• A 20% deposit is around 22 months of disposable income.
• The mortgage cost would be around 50% of disposable income.

As for Sydney, a median apartment or unit is around ten times net disposable household income, and a house is about fourteen times.

 

My son is at Uni and lives on an income below $20k per annum. Once he graduates he can expect to be employed in the country somewhere on a starting salary of $60k, in subsidised housing which currently costs less than $60 per week. Even getting himself a far newer car, he expects to be able to save $100k in four years. At today's prices, that will be a 20% deposit on a $500k house. In todays dollars, he can buy a nice house in Hervey Bay or Bundaberg for about $350k.

I understand that about 4 million people live in the greater Sydney area. That's nearly 20 million people who don't.

 

You could also buy a house in Rockhampton for less than $300k or for less than $350k in Cairns. The argument about housing being unaffordable is contained mainly to our major cities. Even outer suburbs of the greater Brisbane area are accessible for less than $350k. Adelaide is very affordable.
The mass media hysteria about affordability concentrates on those trying to cram into 10km of Sydney and Melbourne but its not the full story.

 

My primary worry for our economy is that average wage-earners are experiencing backwards movement in purchasing power because wages in the last few years have been dropping in real terms; eventually that will filter through to everything else. There's also the problem of everyday goods price inflation with every cent drop in the dollar because we import nearly every single thing we consume - has anyone else noticed that electrical goods have really gone up in price the last few months?

 

People cram into those cities because that's where the jobs are (in fact Joe Hockey's 'good jobs' are nearly all in those cities). I don't know much about the QLD real estate market but I'd imagine those prices in regional QLD are a reflection of the job situations in those respective towns?

 

There are no jobs in Hervey Bay or Bundaberg.

I'm self-employed now but before I escaped I had to live in a capital city because that's where my industry was. I had no choice.

It's nice your son will end up with subsidised housing but that's not the reality for everyone else. It's full-price housing and that significantly cuts into the ability to save.

A $320 p/w house with no rent rises will cost $66560 over four years. Your son will pay only $12480 in that time. That's $54080 cheaper - half of the $100K you say he will save.

Given prices are rising also, every year he saves the houses move further out of reach. Save $20K a year but houses increase by $40K... what then?

 

Its exasperated by state governments ensuring various government departments being located in the CBD of Brisbane and other capital cities. Its not necessary, efficient or the best use of resources especially in QLD which is highly decentralised.