While industry experts contradict ongoing reports of a potential price collapse for Australian housing, Queensland’s popular coastal resort of Noosa is proving the naysayers right, with house and apartment prices nose diving in the coastal community.
Since peaking in 2008 says RP Data, the median house price has fallen by 18% and the median apartment price by 24%, and with 800 properties currently languishing on the market it’s unlikely we’ll see a pick up in values any time soon.
Down south from Noosa, the Gold Coast market is not faring much better at present, with a glut of 2000 apartments forcing $1 billion worth of property into the hands of receivers.
According to the RP Data findings published in a The Sydney Morning Herald article by Adam Schwab, Queensland is not the only state that’s lost its luster in recent times.
Auction clearance rates in Melbourne and Brisbane dropped recently to 65% and 55% respectively and some are suggesting further rate hikes from the Reserve Bank this year could see capital city prices continue to move sideways or show some correction throughout 2011.
Once again, these fears come off the back of continuing reports that Australian housing is the most over-priced and least affordable in the developed world. Schwab states that in 1994 the average annual wage in Australia was $28,080 and by 2010 it had increased by 80% to $50,824.
He says if people spent the same proportion of their income on their home in 2010 as they did in 1994, that would have resulted in a relative 80% increase in house prices resulting in a 2010 median of $267,000 (subject to other factors being equal, such as number of people working in each household).
But of course we know that property prices have risen far more since the nineties. In 1994, the median property price was $148,800, while in 2010, RP Data found the median was about $450,000 – an increase of more than 200%.
Schwab suggests that rather than house prices increasing at such a rapid pace in comparison to the average wage as a result of a property shortage or rising incomes though, the real underlying reason is that people are borrowing more. He says since 1994, the ratio of household debt to housing assets has risen from 15.8% to 28.7%.
Further, Schwab points out that due to the exponential increase in property values over the past two decades, yields have declined significantly as the income generated by housing has not kept pace with sharply rising prices. This is due to the fact that house prices have not been driven by higher rental yields, but by purchasers using more leverage to pay for the same asset…and Schwab places the blame for this trend squarely on the shoulders of lenders.
He says rental amounts have in fact increased in relative proportion to household earnings, causing net yields to drop to an average of around 2% in capital city markets.
But if you’ve been following my blogs you’ll know I am not one to chase yields, so the deduction Schwab makes that you’d be better off putting your money in the bank rather than into property, is a notion I definitely do not subscribe to.
In fact the 200% rise in capital housing values that he talks about proves my long-held (and tried and tested) opinion – when it comes to creating long term wealth, there’s really nothing quite as safe as houses. I know some would say this massive price growth just means we’re in for a crash – you can read my thoughts on that by clicking here.
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