Howard Jenings

House prices are up 6% here

ABCDiamond

Where is here ?

northernlights

Nice post brendarover,

Not only are the IMF warning of overpriced housing in Aus, also Glenn Stevens of the RBA was worried about a housing bubble forming.

Also, Rob Druitt, perma bull spokesman from REIWA spoke of a bubble developing. The West newspaper didn't publish his negative comments, as they get 66% of their advertsing revenue from Real Esate. His negative comments were posted on Perth Now though.

Amazing to hear this from a guy who is representing the whole of the Real Estate industry in Perth and has for the last several years has only talked prices up, even with the GFC.

Times are a changing, the days of making money out of housing are over for many decades as the world is deleveraging.

nigel and wendy

+1

its about time people relise they cant live on "credit" forever. i.e. mortgaging up to the hilt and relying on "houses always go up in price" so i`ll be ok

you cant beat 4x wage for a mortgage and working to pay it off = affordable housing

ABCDiamond

Many Australians stick with the older 3 times...

New South Wales average earnings.
Full Time Adult Total earnings.
Male; $1,331.80 = $69,253.60 py
Female; $1087.50 = $56,550.00 py

Total Household income = $125,803.60

3 x times household income = $377,410.80

Median House price for Sydney Western Suburbs is $350,000 (90% mortgage = $315k)
Median Unit price for Sydney Western Suburbs is $275,000 (90% mortgage = $248k)


Over one third of Sydney’s population lives in the Western suburbs.

northernlights

So, for prices to boom again, do we need 3 household incomes in the future?

If 2 people are required to work full time and one loses their job or gets hours cut, they can't service the mortgage, they both need to work full time. You'd struggle to pay a $337K mortgage on one average salary. Never mind about having kids or one gets sick and can't work. On the other hand, if mortages were serviced comfortably on one salary and the main bread winner had their hours cut, then their partner could do a part time job to help out.

Can you see how ridiculous it's all become ABC?

The trouble with rising housing costs is that the broader economy misses out. People are paying a larger percentage of their income on mortgages, therefore can't spend as much on goods and services. Goods and service industry suffer and lay off people.

ABCDiamond

The problem these days, is that because most households are two income families, they are living up to those incomes, having larger houses with better fittings etc etc.

They COULD have smaller houses, but they choose to spend that same % of their household income, as was spent in the past.

The difference these days is that most households are now 2 income families. Back when I was working on the 3x income rule, it was still 3x household income, with many households being single incomes.

I was just explaining that the % of household income spent on mortgages isn't changing that much in some areas.

And yes, I reckon we will see 3 incomes per household at some stage, as more children stay at home longer, and they pool resources to get even larger houses with Media rooms, swimming pools etc etc, as the "average" property.

People have the choice. Cheaper properties are available, IF the average person wants them.
But as always people will spend to what they have.

northernlights

RBA stats showing a higher percentage of household income spent on debt.



See above chart, gone through the roof since 2001.

I cannot see 3 x household incomes to maintain a mortgage on a house in the future. Say for example, my son can't afford to buy a property, so I say, "how about you get a 30 year mortgage and we'll build an extra room or 2 on our exisitng house and you can live with us until you pay it off". Sometime in the future, he wants to leave his job, study, get a new career, travel the world, get married and move in with his new beau, etc. (teenagers/20 somethings are a fickle lot). I say, "Sorry son, you've got to now pay off the loan, we're both working and can't afford to take it over. Can you see how ridiculous this scenario is? All for bloody shelter.

The only other senario I can see if the Govt. bring in a new law to approve polygamy. I could have 4 husbands, each earning $69K average wage, 4 x $276K = $1.1 mil mortgage. Bingo.

Average housing should be affordable to average income earners.

ABCDiamond

There are a few problems with that graph from 'whocrashedtheeconomy.com'

One is comparing prices to overall average wages, including the many part time wages of people 15+.
It also includes credit card debts, personal loans for cars etc.
That will obviously skew the figures, with many people being included, who should not be getting a mortgage on their $200 pw part time income.

So, although it is not good, it cannot be directly compared to the income levels for those who would have a personal mortgage debt.

Another is the massive number of people who bought investment properties in the early 2000's, which may easily have skewed the total Household debt in comparison to income.

I agree, but .. What is an average house ? 3bed, 1 bath or 5 bed 2 baths and a pool ?

One problem is that an 'average house' in many areas must have easy access to some of the worlds most popular beaches. A price premium must be expected for that.

Go inland a bit more and prices drop closer to realistic figures. But... no one wants them.

Hence people are making the choice to pay higher for the environment that they want, which has a premium.

Those that are prepared to have a smaller older place, can go for something like this for $210,000, but still only 1 hour from Sydney CBD


or go further out and $100,000 gets you this



Although, with that one, you wouldn't want to work in Sydney, as it would be like computing from Liverpool to London

nigel and wendy

you see the thing is the banks or banksters have been force feeding us credit more more over the last 4 or 5 years. why? because the more credit "products" they sell the bigger bonuses they get,and before someone says "well you dont have to to take it"......just remember we live in a "keep up with the joneses" society fueled by property porn on the tv (ala crusty sorry kirsty and her side kick)and celebs with the latest designer tat that everyone wants

i`m just glad i listened to my parents........."if you want somethin son....save for it"

flame away

northernlights

The graph was using RBA and US Fed data, so I can't see how the graph has probs. How about this one then?



Another bad idea by the Govt, negative gearing. If there were no tax breaks for higher income earners, re neg gearing, then perhaps house prices would be lower and more affordable to the average Joe, not just a vehicle for a tax break for high income earners. Spend a dollar to save 40 cents, while pushing up prices. It's insane, I don't believe any other country does that in the world, other than Cananda



That's all very well saying you can get a house 1 hours commute from Sydney for $210K. But, what about key workers in central Sydney, nurses, police, teachers, etc. After a hard days work, sometimes finishing in the early hours of the morning, then driving home for an hour, knackered because the public transport is closed. What about fuel prices for these people? These people are essential to the expensive cities. No wonder they are leaving their occupations in droves, the Govt. doesn't give a toss. Higher house prices come at a massive social cost, it's not a good thing for Australia.

ABCDiamond

It wasn't good in England either. I use to leave home at 7 to get to work at 9, then leave at 5 and get home at 7.

I know many people who did similar commutes, in both UK and Western Sydney.

The option to be able to live close to work in a Capital city, is to pay the premium price.

northernlights

Too true, it's all about the bottom line - the bank's profits. If the Australian Banking system fails due to dumping house and commercial property then the whole economy goes down with them.

Saving is the new black. Paying down debt and saving has to be done by everyone before we can all move on.

ABCDiamond

The only problem is that is does not relate to the question I was answering, or the figures for the average multiple of wage to house price.

If people want to use part timers wages then you could say that a $300k house on a $200 pw income is just not on, and I agree completely. You need a full time income to buy a house. Or a very good part time income

ABCDiamond

If everyone did that, things would be much better