The future of Australian property prices

[young-gun]

Excellent post RandR and that's exactly what it's all about. When you pay it off there will be no more mortgage or rent payments to be made and that is absolute bliss. In the mean time you can do it up as you like and live without the threat of being thrown out at an inconvenient time. Cheers mate, I wish you all the best.

You guys have got to stop boasting this old school mentality. How is having a mortgage for hundreds of thousands of dollars on what should be considered a LIABILITY a good idea? Everyone should be preaching to buy an investment property from the get go(obviously pick your timing). You pay rent for 300$ a week, have all the benefits of a cashflow positive property(not my fault if some idiots choose to negative gear) including the ability to write things off against the house, all the while paying down the mortgage far quicker than if you lived there forking it all out yourself?

Owning your own house is merely a luxury. You are going to progress much faster putting it on hold. Everyone on here talks about sacrifice, how about sacrificing the security of owning your own home for a few years so you generate an actual investment that can then help pay down your dream LIABILITY.

House prices stagnant to down.

 

[Vixs]

You guys have got to stop boasting this old school mentality. How is having a mortgage for hundreds of thousands of dollars on what should be considered a LIABILITY a good idea? Everyone should be preaching to buy an investment property from the get go(obviously pick your timing). You pay rent for 300$ a week, have all the benefits of a cashflow positive property(not my fault if some idiots choose to negative gear) including the ability to write things off against the house, all the while paying down the mortgage far quicker than if you lived there forking it all out yourself?

Owning your own house is merely a luxury. You are going to progress much faster putting it on hold. Everyone on here talks about sacrifice, how about sacrificing the security of owning your own home for a few years so you generate an actual investment that can then help pay down your dream LIABILITY.

House prices stagnant to down.

It's very much of a lifestyle choice and not a financial choice driving my position, personally.

Rent and invest is on paper the better financial move, but I want the security and peace of mind that comes with not having anyone to answer to about how I live.

 

[Julia]

It's very much of a lifestyle choice and not a financial choice driving my position, personally.

Rent and invest is on paper the better financial move, but I want the security and peace of mind that comes with not having anyone to answer to about how I live.

+1. So much more to owning one's own home than the economic considerations. For me, the peace of mind, the pleasure of creating an attractive and comfortable environment, is priceless.

 

[Garpal Gumnut]

+1. So much more to owning one's own home than the economic considerations. For me, the peace of mind, the pleasure of creating an attractive and comfortable environment, is priceless.

+1

gg

 

[Bill M]

It's very much of a lifestyle choice and not a financial choice driving my position, personally.

Rent and invest is on paper the better financial move, but I want the security and peace of mind that comes with not having anyone to answer to about how I live.

+1. So much more to owning one's own home than the economic considerations. For me, the peace of mind, the pleasure of creating an attractive and comfortable environment, is priceless.

+1

gg

+ 2 (wife and I)

young-gun, when I was a renter back in the 80's I was asked to vacate a property when it was in 2 weeks before Christmas, this was in Manly/Sydney. I could just see us now, an older couple looking for accommodation right at the time when everything is taken or booked out, no thanks.

 

[sydboy007]

I've noticed a few for lease signs in my area. Seems to be taking a few weeks to get lodgers these days. Only recently seen for lease signs even. i think at least 1 is still vacant - highly unusual for my an inner west suburb. I'm suspecting the landlord is asking too much, though could just be a bad time fo year to try and lease a property.

Was doing a bit of a check on what the current price is for a standard 3BR house with small courtyard and parking and it's quite sad that an 800K property is not getting much more than 750 / week in my suburb and the surrounds.

I count myself lucky I got in just as the boom was taking off in 97. There's no way I'd want to shackle myself with the kind of mortgages people are taking out these days.

I do agree there's a lot of non financial reasons to own ya own home, and glad I bit the bullet, but if i was 25 now I'd pretty much accept I'm going to be a renter for a long time because I wouldn't be willing to spend 1+ hrs each way to and from work just to live in my own place.

The real question is when will the deleveraging finish? Until then house prices can't really go up much with credit growth and decades low growth.

 

[young-gun]

It's very much of a lifestyle choice and not a financial choice driving my position, personally.

Rent and invest is on paper the better financial move, but I want the security and peace of mind that comes with not having anyone to answer to about how I live.

I've been renting for 2 years, and feel as if I own the house, we never hear a peep from anyone other than a quarterly hour inspection that we are never here for. We run a 12 month lease, and considerable notice has to be given if the landlord doesn't wish to extend for another term.

+1. So much more to owning one's own home than the economic considerations. For me, the peace of mind, the pleasure of creating an attractive and comfortable environment, is priceless.

So priceless it couldn't wait a few years?(if you were in my shoes)

+1

gg

+ 2 (wife and I)

young-gun, when I was a renter back in the 80's I was asked to vacate a property when it was in 2 weeks before Christmas, this was in Manly/Sydney. I could just see us now, an older couple looking for accommodation right at the time when everything is taken or booked out, no thanks.

All the above sacrifices are exactly what I am talking about. The luxury of owning your own home for a FEW YEARS compared to becoming financially secure is not a smart move IMO, regardless of how many warm fuzzing feelings you get from owning your own home (which, believe it or not I know all about). Just differences in opinion I guess.

Everyone seems to think renting is the devil, it just simply isn't that case.

Bill your example I imagine is a rare one. If you were asked to vacate before the lease was up then(providing the laws were the same) the land-lord is required to find and provide you with alternate accommodation. Perhaps this wasn't the case back then.

 

[Bill M]

Bill your example I imagine is a rare one. If you were asked to vacate before the lease was up then(providing the laws were the same) the land-lord is required to find and provide you with alternate accommodation. Perhaps this wasn't the case back then.

Yeah you are right, now it's 60 days notice, it wasn't back then.

 

[FlyingFox]

.....
I count myself lucky I got in just as the boom was taking off in 97. There's no way I'd want to shackle myself with the kind of mortgages people are taking out these days.
.....

+1

An honest, financially rational answer.

 

[maffu]

If that's steady income, and assuming that 55k is including super, you'd be eligibile for a loan of about $250-$275k. Property of about $285k with a 5% deposit of about $14500, capitalising LMI for a total LVR of about 96.5%. That would factor in $1200/mth living expenses by the bank - mine are about $1750 as shown above.

Payments would be about 46% of net income in the first year at current rates, well into 'mortgage stress' territory obviously, but for the first 5 or 6 years of the loan if you treat that as your savings + investments as well as housing costs, that's not terribly over budget. At the end of year 5, assuming growth over the period of 2.5% p.a. (not a given, but seems pretty reasonable to me that over a 5 year window a decently located property would at least keep up with inflation) you'd be below 80% LVR without making any extra repayments by the end of year 5. If you had no capital growth and didn't contribute any wage growth to the mortgage, you're looking at 10 years.

Fantastic post overall, and well done with the detail.
The problem with these nation wide debates is people from different cities will have very different opinions. You consider 250k a decent amount to buy a place in Brisbane, but in Sydney 250k is buying you rubbish. There are only 3 suburbs in greater Sydney that 250k will buy a median house.
For example, look at Sydneys cheapest suburbs.

Blackett $232,000
Tregear $237,000
Lethbridge $238,500
Whalan $248,000
Bidwill $257,500
Shalvey $265,000
Emerton $270,000
Hebersham $276,750
Warragamba $295,000
Werrington $297,000

The 10 Greater Sydney suburbs with median prices below $300,000, based on sales for the six months to August 31, 2012. Source: Australian Property Monitors

http://smh.domain.com.au/list-sydneys-10-cheapest-suburbs-for-houses-20121022-280yy.html

These suburbs are all ~50km + from the CBD. With a commute time to the CBD of 1 hour plus in peak hour.

I have friends who are teachers in the public schools in Bidwill and Werrington. You would absolutely not send your kids to a school in the area. It is mostly housing commission, and the teachers get threatened to be stabbed, they are constantly abused, and it is considered a success if a kid gets through the HSC. Pretty much they are the absolute worst areas of Sydney. The local high school sued the Daily Telegraph newspaper years back because the headline when the HSC came out was "Class we failed" as not a single student from the school scored over 50% in the year 12 mark. None of the students from this local schools go onto university, its a cycle of poverty out there and the stories of the kids are pretty heart breaking.

Obviously you can pick up some apartments closer to the city, and the cheapest properties in other suburbs will fall below that 250k mark, but overall its slim pickings.

The cheapest median house price within 20km of the CBD is Granville with a median price of $430,000, and at the moment, there are no places (houses or units) available in Granville for under 250,000
http://www.realestate.com.au/buy/be...lle,+nsw+2142;+/list-1?source=location-search

http://discover.realestate.com.au/buying/40-most-affordable-suburbs-near-your-capital-city


So using your figures, a person earning above the median salary in Australia of 55k, can only buy a median house in the 3 worst suburbs in greater Sydney, and can't get anything in the cheapest suburb within 20km of the CBD.
It shows how there is a big disconnect between the wages being earned, and the house you can afford to buy. I actually find it a great example to illustrate that on average, the Sydney housing market is skewed.

 

[young-gun]

consider 250k a decent amount to buy a place in Brisbane.

You don't live in brisbane do you.

 

[Vixs]

Fantastic post overall, and well done with the detail.
The problem with these nation wide debates is people from different cities will have very different opinions. You consider 250k a decent amount to buy a place in Brisbane, but in Sydney 250k is buying you rubbish. There are only 3 suburbs in greater Sydney that 250k will buy a median house.
For example, look at Sydneys cheapest suburbs.

These suburbs are all ~50km + from the CBD. With a commute time to the CBD of 1 hour plus in peak hour.

Obviously you can pick up some apartments closer to the city, and the cheapest properties in other suburbs will fall below that 250k mark, but overall its slim pickings.

The cheapest median house price within 20km of the CBD is Granville with a median price of $430,000, and at the moment, there are no places (houses or units) available in Granville for under 250,000

Hi Maffu - there are a few things that I should clear up.

My post was written in response to this one by Mrmagoo

OK show us a budget.

55k with a HECs debt, but a house.

(Gotta love these rich people who haven't budgeted since the 1990s try and write a budget threads)

The 55k single income figure came from that statement. The median full-time employment income from the last census was a good bit higher than ~$1050/week.

...So using your figures, a person earning above the median salary in Australia of 55k, can only buy a median house in the 3 worst suburbs in greater Sydney, and can't get anything in the cheapest suburb within 20km of the CBD.
It shows how there is a big disconnect between the wages being earned, and the house you can afford to buy. I actually find it a great example to illustrate that on average, the Sydney housing market is skewed.

On top of that, nearly 60% of Australians are married or in a de-facto relationship according to last census. Homes just aren't priced for single people to purchase and pay off on their own, dual income families have been the majority for a long time now.

If you are single, you can expect to be able to afford half of what a couple can afford. If you earn less than the median, you can expect to buy a house in the lower half of the market. If you are single, borrowing with 1 income AND earn less than the median Australian wage, what can you really expect to buy on your own? Studio/1 BR apartments would be geared at that market, 2 bed 2 bath places would be geared at 2 or more borrowers/residents.

Whilst income figures are rather difficult to rely on, I daresay that the median salary in Sydney is higher than just about anywhere in the country for a non-resources worker. It certainly is in my field (finance), where I could expect 10-25% more money in the same position, as well as access to higher paid roles in the industry that don't exist outside Sydney & Melbourne.

The fact is it costs more there because people have paid it or are paying it.

 

[Julia]

The fact is it costs more there because people have paid it or are paying it.

And that's the essence. Simple market forces.
I have a cousin in Epping whose home has just gone onto the market for $1.5M. The agent has assured her she will get close to this.
The area is very pleasant, peaceful and leafy, close to the station.
The house is original Federation style, always requires heaps of ongoing work, but very attractive if you like that older style.
However, it has only three bedrooms, one bathroom, and no air conditioning or even ceiling fans!!

 

[FlyingFox]

And that's the essence. Simple market forces.
I have a cousin in Epping whose home has just gone onto the market for $1.5M. The agent has assured her she will get close to this.
The area is very pleasant, peaceful and leafy, close to the station.
The house is original Federation style, always requires heaps of ongoing work, but very attractive if you like that older style.
However, it has only three bedrooms, one bathroom, and no air conditioning or even ceiling fans!!

More like distorted market forces. Almost sounds incredulous that something of that description in a suburb that is 20 km from the city should command such a high price.

 

[sydboy007]

And that's the essence. Simple market forces.
I have a cousin in Epping whose home has just gone onto the market for $1.5M. The agent has assured her she will get close to this.
The area is very pleasant, peaceful and leafy, close to the station.
The house is original Federation style, always requires heaps of ongoing work, but very attractive if you like that older style.
However, it has only three bedrooms, one bathroom, and no air conditioning or even ceiling fans!!

It would be interesting to see what the valuation of the land is.

I think my postage stamp is around 127 s/m and the most recent valuation put it at around 400K.

When I was in Germany many moons ago on a back packing tour of the world, I rented the living room of a couple that had an apartment in east Berlin. Say what you like about the Soviets, they know how to build family friendly infrastructure.

The apartment was a good size, 3 bedrooms, living room was around 30 s/m. The block was around 5 stories high and in the middle of the complex was a nice garden when the retirees would sun themselves and kids could play without worry about them being in any danger.

I can't help but think these kind of apartments in middle ring suburbs would be 1 possible solution to affordable housing that doesn't require 2 hours of commute time a day.

 

[maffu]

Hi Maffu - there are a few things that I should clear up.

My post was written in response to this one by Mrmagoo



The 55k single income figure came from that statement. The median full-time employment income from the last census was a good bit higher than ~$1050/week.



On top of that, nearly 60% of Australians are married or in a de-facto relationship according to last census. Homes just aren't priced for single people to purchase and pay off on their own, dual income families have been the majority for a long time now.

If you are single, you can expect to be able to afford half of what a couple can afford. If you earn less than the median, you can expect to buy a house in the lower half of the market. If you are single, borrowing with 1 income AND earn less than the median Australian wage, what can you really expect to buy on your own? Studio/1 BR apartments would be geared at that market, 2 bed 2 bath places would be geared at 2 or more borrowers/residents.

Whilst income figures are rather difficult to rely on, I daresay that the median salary in Sydney is higher than just about anywhere in the country for a non-resources worker. It certainly is in my field (finance), where I could expect 10-25% more money in the same position, as well as access to higher paid roles in the industry that don't exist outside Sydney & Melbourne.

The fact is it costs more there because people have paid it or are paying it.

The Australian median wage is actually much lower than 55k, as the workforce moves more and more to casual work and contract work, the full time median wage reflects a smaller and smaller proportion of the actual workforce each year. According to the 2011 census data, Australia's median household income is $64,168. So only a touch higher than the example of 55k per week we just used. So again, that shows that the median family in Sydney can not afford to buy a median house in Sydney, in fact they can't even afford to buy the cheapest house within 20km, and can only afford to live in the absolute cheapest ghetto area in Sydney.

So while I agree with you that purchasing a house will require a dual income, the market is still so skewed away from being good value, that the dual income median family earning 64k is going to be struggling.

Is it possible for the median family to buy a median house in Sydney? No
Is it possible for the median family to enter the property market in Sydney? Yes, using the numbers you provided, and the suburbs I showed, it is possible.
Is it worth it at the moment? Not even close in my opinion. Just like I won't buy stocks that I perceive as overvalued, I won't buy housing that is overvalued.

 

[FlyingFox]

For the record the median income for greater Sydney area was ~$75K. While higher than the national average, it is not by what people might think.

 

[sydboy007]

The Australian median wage is actually much lower than 55k, as the workforce moves more and more to casual work and contract work, the full time median wage reflects a smaller and smaller proportion of the actual workforce each year. According to the 2011 census data, Australia's median household income is $64,168. So only a touch higher than the example of 55k per week we just used. So again, that shows that the median family in Sydney can not afford to buy a median house in Sydney, in fact they can't even afford to buy the cheapest house within 20km, and can only afford to live in the absolute cheapest ghetto area in Sydney.

Not sure if it's still true, but I remember reading an article by Michael Pussey a good many years ago and he was saying that only around 30% of people earn the avg or more. At that time the median was something like $125~ a week less than the average.

Possibly with the casualisation of work the average will be even more skewed to the higher earners???

 

[FlyingFox]

Not sure if it's still true, but I remember reading an article by Michael Pussey a good many years ago and he was saying that only around 30% of people earn the avg or more. At that time the median was something like $125~ a week less than the average.

Possibly with the casualisation of work the average will be even more skewed to the higher earners???

There are graphs on the ABS website if you are interested. The figures reported are medians which by definition mean that 50% of households earn more. However it is a very skewed distribution.

Just had a look and the median and mean are not very far from each other but the point about 30% may still hold.

 

[againsthegrain]

http://www.realestate.com.au/property-other-vic-wantirna-111839875

as robots would say plenty of opportunities and little gems around guys, looks like a respectable residence in a respectable place for a average couple to start a family