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Major purchases as percentage of income

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Surly

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Following on from the rich people are stingy thread I am interested in peoples perceptions of the amount of their disposable income as a % for a loan repayment and/or multiples of annual income people feel is reasonable to spend on what are most peoples two largest purchases.

The family home and their car(s).

WA average full time salary is ~$80k and median house price is $460k or 5.75 years pay.

Basic Commodore or Falcon is in the 30's or 4-5 months pay.

What ratios do people feel appropriate?

cheers
Surly
 
Not sure about house prices to my income but im not buying now even though i could afford to in theory. When taking a loan one has to consider the interest payments also, not just the value of the product being bought.

As to a car, i will be getting a 'new' (for me) one this year, and will look to spend about 5 - 10% of my annual income

Would be interested in those that rent, what % of income you spend
 
Good point on the rent prawn_86.

Is that 5-10% of annual income on the car or on repayments?

cheers
Surly
 
Surly said:
Following on from the rich people are stingy thread I am interested in peoples perceptions of the amount of their disposable income as a % for a loan repayment and/or multiples of annual income people feel is reasonable to spend on what are most peoples two largest purchases.

The family home and their car(s).

WA average full time salary is ~$80k and median house price is $460k or 5.75 years pay.

Basic Commodore or Falcon is in the 30's or 4-5 months pay.

What ratios do people feel appropriate?
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These ratios changes a great deal depending on whether the family is duel income, no. of dependents, the age of the respondent and location (obviously).

7 years ago when I was single in Brisbane, my home (using a rough guess of market value at the time) to income ratio was 5.5x.

3 years ago, me and my wife were DINKs and ratio was ~1.2x.

Today with wife on part time work and one baby, the ratio is ~2.3x.

For the car the ratios were 0.4x, 0x (had no car for a period) and 0.2x.
 
prawn_86 said:
On the total of the car, personally i would never get a loan for a car
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+1

I really find myself using my car less and less. I can understand someone who lives in the outer suburbs needing one but I have everything within walking distance. I have a small office that I use as somewhere to work during the day because I find working from home too distracting but 95% of the time I cycle in to the office. I think I probably did ~5,000kms last year.
 
prawn_86 said:
On the total of the car, personally i would never get a loan for a car
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+2

Even with a house I'd be very reluctant to take on a substantial mortgage.
In 1989, when we were "between houses" - left a company house in the Pilbara and sold the one we knew we wouldn't go back to - we decided to rent for a while rather than burden ourselves with 17% mortgage rates. Instead, invested the proceeds from the sale at close to mortgage rates while renting a clean, though old, house in a quiet suburb at the equivalent of about 5% interest. By the time the mortgage rates had come down, we no longer needed one.

(fwiw: For the first house, the one we sold in 89, we did take a mortgage; but that was a low-interest, company-sponsored affair, which cost 4% interest. So again, rather than paying cash, we took the mortgage and invested the equivalent amount in term deposits - at better rates. Came the time to accept a better job, I cashed in those savings accounts and gave the Paymaster a cheque for the outstanding amount. Never felt better than at that moment.)
 
Liar's Poker said:
Just so we are all on the same page, are we evaluating ratios on income before or after tax and super?
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Surly quoted average wage in WA being 80k (which i think is distorted personally) so that would be before tax
 
As far as mortage is concerned I dont think the re is a blanket answer for that.
Ive been Zero geared and 87% geared---depends on circumstance---as in when you should be heavily geared and when you shouldnt---not what you earn.

Car unless you can depreciate it then Id just have something I could pay cash for and didnt cost me more in repairs than its worth.

I currently have a Ford Territory and a Toyota RAV 6 all in the Company.
Had a Honda 2000 for 3 yrs but grew out of it!
 
prawn_86 said:
Not sure about house prices to my income but im not buying now even though i could afford to in theory. When taking a loan one has to consider the interest payments also, not just the value of the product being bought.

As to a car, i will be getting a 'new' (for me) one this year, and will look to spend about 5 - 10% of my annual income

Would be interested in those that rent, what % of income you spend
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I live in NZ and spend 30% of take home income on rent. Wife does not work and we have a young family. There is no way would i buy a property at the moment here in NZ, the house price to income multiples are just insane, they will drop eventually.
 
odds-on said:
I live in NZ and spend 30% of take home income on rent. Wife does not work and we have a young family. There is no way would i buy a property at the moment here in NZ, the house price to income multiples are just insane, they will drop eventually.
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Don't get too stressed, here in Perth W.A it is no better 4th year electrical apprentices are on $500/wk, rent is at least $300/wk.
It is o.k saying average wages are $80,000 p.a in W.A. However most councils are paying about $50k - $60k for workers including o/t.
But back on thread, cars have actually become a lot cheaper, as a % of average wages over the last 20 years.
The house situation is a bit different, however people can always start at a lower entry level, add value then move up. I still think there are bargains but it usually entails work, this seems to be the stumbling block.
 
sptrawler said:
But back on thread, cars have actually become a lot cheaper, as a % of average wages over the last 20 years.
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If you look at the nominal price of a car in 1990 versus now then there's not a huge difference whereas wages have certainly risen, hence the fall in "real" value as you say.

One of the obvious effects of this is that there aren't too many old bombs on the roads these days whereas they were a far more common sight some years ago. That's the situation even in places which don't have compulsory roadworthy inspections.
 
Well Smurph, I am pretty sure when the VN Commodore came out in the late 80's. I went down to the local dealer and on the road with a/c it was $27k, that was a lot of money back then.
Well I see basic Commodores on run out now around $30k and house prices have tripled, well we say house prices. But is it house prices or the cost of land that has tripled.
Would this cost increase have happened if the councils still put in the subdivisions and State owned enterprises supplied the services. I think not.
 
sptrawler said:
Don't get too stressed, here in Perth W.A it is no better 4th year electrical apprentices are on $500/wk, rent is at least $300/wk.
It is o.k saying average wages are $80,000 p.a in W.A. However most councils are paying about $50k - $60k for workers including o/t.
But back on thread, cars have actually become a lot cheaper, as a % of average wages over the last 20 years.
The house situation is a bit different, however people can always start at a lower entry level, add value then move up. I still think there are bargains but it usually entails work, this seems to be the stumbling block.
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Hi sptrawler,
I have highlighted the core points that I think are at the heart of most of today's problems and frustration.
True, $500/wk is but marginally better than age pension and doesn't leave much room to save for a down payment on a 4x2 in a beach suburb. But we're talking apprentices! How many young apprentices did you meet in the '70s or '80s, who lived in their own house and drove a flash car? We toned down our expectations to what we could afford, not to what some TV commercial suggested we're worth it having.
It may be true that an SS Commodore is today more easily affordable - thanks to cheap credit, no doubt - than its equivalent was in 1985. (I know because I bought one at the time, and it came close to what we'd paid for a 2x1 fibro only two years earlier.)
But I'm appalled that even our WA Government tries to lure young school leavers into an apprenticeship in the building industry, showing a souped-up HSV ute with a tray full of sub-woofers as the lure - as if every builder's labourer was given one with his first pay check. And the same Government Department is then totally lost for explanations, why so many young P-platers wrap themselves around trees...
Of course, all those decades ago, we didn't "need" ipods, laptops, home theatres and plasma TVs either, nor did our girlfriends have to fly to Bali or Bangkok to have implants.

Just think of the time we saved by NOT having to keep up with our "social networks", and the money we saved by NOT buying all those gadgets on plastic that increased our debt by 19.9% interest p.a. Those saved hours and Dollars gave us the opportunity to "start at a lower entry level, add value then move up." Sure, it still "entails work"- but who would consider working to achieve your goal as a "stumbling block"?
 
Starcraftmazter said:
That's distorted by the housing bubble.

Cars are distorted by massive amounts of taxes and tarrifs.

So it's hard to say, because in Australia there are no such things as real market prices.
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SCM,

Distorted or not makes no difference. The cost is still the cost and whatever you get paid determines the affordability.

I am lucky enough to have bought a house pre boom at what was at the time under 3x Annual Income. My first house was also 3x a much lower income and repayments at a much higher interest rate ate a greater propoprtion of my pay.

cheers
Surly
 
Starcraftmazter said:
Cars are distorted by massive amounts of taxes and tarrifs.
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The tariff on imported cars is 5%, so not really massive. Add GST on top of that and for a $30k car you end up paying ~$34.5k. As long as you buy a car under $60k it won't have luxury car tax added. And if you buy and Australian, Thai or NZ made car you won't pay the tariff.

A lot of the added cost of cars is complying them to Australian standards. If we just accepted say European standards as our own then car manufacturers wouldn't have the additional cost of complying for a such a small market.
 
Surly said:
I am lucky enough to have bought a house pre boom at what was at the time under 3x Annual Income. My first house was also 3x a much lower income and repayments at a much higher interest rate ate a greater propoprtion of my pay.
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This is very interesting. All the graduates i know from uni earn anywhere from 40 - 100k first year out. So Based on that multiple they would need to find a house/apartment for 120 - 300k. Good luck with that in a capital city (including the outer suburbs)
 
prawn_86 said:
This is very interesting. All the graduates i know from uni earn anywhere from 40 - 100k first year out. So Based on that multiple they would need to find a house/apartment for 120 - 300k. Good luck with that in a capital city (including the outer suburbs)
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If you looked at a proportion of take home pay and said that no more than 1/3 is a comfortable level you end up with your mates affording a house with repayments of $957 to $2,085 per month.

This equates to only slightly more than the 120-300k you mention.

cheers
Surly
 
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