If you read my regular blogs you’d know that while I have some short term concerns for the strength of our property markets I have confidence in the medium and long term performance of property as a strong investment.
And despite some commentators suggesting up to a decade of minimal growth in house prices, it seems we are reluctant to give up on the ideal of buying our own little piece of suburbia.
While I don’t agree with the conclusions of these commentators, because they are credible sources, I thought I’s share a recent study which is bearish on property price growth.
According to a recent study conducted by the National Centre for Social and Economic Modelling (NATSEM) and AMP, the past decade has seen a 147 per cent spike in our nation’s median house prices to $417,000, while the average wage has only risen by 50 per cent since 2001.
Consequently, there’s been a massive blowout in the housing price-income ratio from a reasonable 4.7 in 2001 to a disturbing 7.3 this year, a level deemed “severely unaffordable” by NATSEM’s Income and Wealth report entitled – The Great Australian Dream – Just a Dream.
Speaking with The Australian, report author and research fellow Ben Phillips said that the issue goes beyond the simple fact that Aussie housing is unaffordable, with the primary concern being just how unaffordable it really is.
“Ten years ago, housing affordability was primarily a Sydney story, but it has now spread to all capital cities and beyond to most big non-capital cities,” he said, with the unaffordable list now incorporating areas such as Wollongong, Newcastle and the Gold and Sunshine coasts.
Sydney topped the ranking of least affordable cities across the nation, with harbour city home buyers being forced to shell out 8.4 times their average annual household income to buy property, followed by Melbourne at 7.9 times and Adelaide at 7.7.
That’s just the general story though. When you break the data down, Melbourne’s inner suburbs have taken the lead as Australia’s least affordable with a 10.2 price-income ratio.
And if you think you can live the dream for less by looking further afield, think again! The once relatively affordable outer suburbs are creeping beyond the reach of the average Australian family due to the continuing trend toward large McMansions, which have pushed up house prices across the board.
The only glimmer of hope for struggling first home buyers is the recent slowdown in the housing market that’s seen prices stagnate or fall in some areas, but experts say this stalemate would have to continue for at least another ten years in order to curb the current affordability crisis.
Chief economist with AMP Shane Oliver, said the Australian housing market did not look to be heading toward a crash, but it nevertheless remains considerably overvalued.
“For the next five to 10 years, I think we’ll see house prices going up at a more moderate pace than the economy, but I doubt it will be completely flat,” he predicts.
According to the report, 60 per cent of first home buyers are parting with more than 30 per cent of their after-tax income on housing – a level considered to cause “mortgage stress” – as they are forced to borrow far more to get onto the property ladder.
The number of households experiencing mortgage stress is highest in Sydney at 28 per cent, followed by Brisbane at 19 per cent, Melbourne at 18 per cent and Adelaide at 16 per cent.
A decade ago the average first mortgage was a comfortable $131,000, whereas today it has more than doubled to $280,000. Not surprisingly, many are having to postpone their home purchase, with 37 per cent of under 30 year old’s managing to secure a property this year, compared with 39 per cent in 2001.
However the ingrained ideal of home ownership that is part of Australia’s collective psyche continues to see us take on the ever growing burden of budget busting mortgages and with our nation’s deep seated passion for all things property, no amount of bad press is going to change that any time soon.
As I said I don’t agree with the conclusion that prices will remain flat for years to come. I’m not just saying that because that’s the result I’d like. I have explained the reasoning behind my thoughts in previous blogs and will continue to do so in future blogs.
I’ve seen these same predictions from supposedly credible experts before. They said prices wouldn’t go up for years in early 2004, but look where they are now. They said the same in 1991 and in the early 80’s, but darn those property prices. They just won’t behave and keep going up!
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.