Graph showing real median house prices?
- Thread starter Zimonya
- Start date
Hi Zimonya,
You can replay ABC programs here... http://www.abc.net.au/iview/
The chart below was presented by Alan Kohler on the 7:00pm ABC news, however it should be noted that nobody was actually collecting house price data in Australia before 1970, so I'm not sure where Alan is getting his source data for 1900 to 1970.
Any Australia-wide house price statistics prior to 1970 are really just guesswork.
Also, the chart is adjusted for inflation, but we can't reliably determine the rate of inflation in the early 1900s. The method used to calculate CPI has changed since then.
Of course, Australia is not just one market... some parts of Australia are above trend, while some are below trend...
Cheers,
Shadow.
They did'nt have much inflation long ago and no printing paper money with no assets behind it.
But the advent of FIAT currency, caused a boom in available money.
Central Banks keep increasing the money supply (ie printing more from nothing), which devaluates the currency's buying power which = inflation.
Of course it the "consumers fault", if you ask them.
But that's the system we're stuck with, and need to make the most of.
But the advent of FIAT currency, caused a boom in available money.
Central Banks keep increasing the money supply (ie printing more from nothing), which devaluates the currency's buying power which = inflation.
Of course it the "consumers fault", if you ask them.
But that's the system we're stuck with, and need to make the most of.
I would have thought a simple check of sales from the stamp duty office would show sales from 1900?
Peter
Peter
I have to call Shadow on those graphs every time just incase somebody takes any notice of them. Demonstrating a constant rate of growth is absolutely meaningless to sustainability of house prices if that rate of growth is higher than the rate of wage growth. Comparing it to CPI or to wages (as Kohler did) is the most meaningful way to look at it as it presents the "real" cost - i.e. what we have to give up of other things to get a house.
I'd love to see a graph of the average cost of building a home year by year.
The chart is not intended to 'demonstrate sustainability of house prices'
It simply shows the rate of growth over the past 30 years, with a trend line extrapolated 5 years into the future. Based on the past 30 years, it shows that prices are currently below trend.
So, sure, over the next 5 years or 10 years or 50 years the trend might suddenly change. Perhaps the trend has already changed. Then again, the trend might revert and follow a similar path to the past 30 years.
If you have a better chart for Sydney over the past 30 years, please post it for comparison.
Shadow.
This seems to be your common theme YM, and causes you a great deal of concern.
I do agree with you that housing affordability is linked to the wages people earn to a large degree.
Based on current figures, I guess you'd have to say that the affordability is out of whack by a good margin, but only if you use the median figures, and average wages.
Of course, the reality is there are an enormous number of properties above and below this, as is with the wages level.
Therefore, I reckon the importance of the affordability and relation to wages is not overly important in the wider scheme of things, as you can find opportunities no matter what stage of the property cycle we're at.
Obviously, it's better for the specufestors if the market is in an upswing, but as you've heard me say time and time again; there's more to making money in property than just cap growth. Rent, add value, tax benefits, loan structure all contribute.
In time, the wages will catch up again. This will be a combination of softening housing markets, rising wages and lowering of interest rates.
Don't sweat it so much. If you keep on looking for the perfect combination, you'll never buy.
Just look for a good opportunity that relates to NOW and take it.
Hi all,
Here we go round the merry go round, the merry go round, the merry go round.
Anyway, there is no reason why average or median prices of wages and houses need to rise at the same rate. Compared to the total stock of houses, the % that changes hands each year is very small.
What probably needs to keep related to wages is entry level housing, whatever and wherever this is. Typically it is on the outer fringe of the cities and the poorer suburbs.
Because such a small % of houses turns over each year, the number of people who have the incomes to match the prices asked in the "median" suburbs is quite adequate. You don't/cant buy those houses with 'average' incomes, you probably need to be in the top 5-15% of income earners, such is the demand and limited supply.
The relationship of median house prices to wages would need to be constant if a huge % (like all of them) of houses changed hands every year, but our taxes, stamp duty in particular, preclude that from happening.
bye
Here we go round the merry go round, the merry go round, the merry go round.
Anyway, there is no reason why average or median prices of wages and houses need to rise at the same rate. Compared to the total stock of houses, the % that changes hands each year is very small.
What probably needs to keep related to wages is entry level housing, whatever and wherever this is. Typically it is on the outer fringe of the cities and the poorer suburbs.
Because such a small % of houses turns over each year, the number of people who have the incomes to match the prices asked in the "median" suburbs is quite adequate. You don't/cant buy those houses with 'average' incomes, you probably need to be in the top 5-15% of income earners, such is the demand and limited supply.
The relationship of median house prices to wages would need to be constant if a huge % (like all of them) of houses changed hands every year, but our taxes, stamp duty in particular, preclude that from happening.
bye
Bill.L makes some good points -
- It's an inefficient market - 3% stamp duty, month long settlements, 3% REA txn fees, illiquid, dominated by non-investors (70% OOs), non-identical goods.
- Disposable income, CPI & IRs need to be in the mix.
- If average wages determine median price, then by extension, you would be able to tell exactly how much someone earned by how much their house is worth TODAY. Young sprogs (earning a motza) would be able to start 1/2 way up the ladder, and those who have done the hard yards for many years paying P&I would be leapfrogged. If someone lost their job (for any reason), they'd be forced to sell up & live in a tent. And if you got a pay rise then you'd have to upgrade the McMansion immediately. What about those on the pension (living in the house they were born in) - sorry the theory police say ya gotta move into a hovel.
The RBAs measure of affordability is similar to Bill.Ls - the average wages of a FHB (aged 25-39) should be able to afford a 30th percentile house. This means that those who have done the hard P&I yards get the reward.
I'm suprised that any economist would ignore all these factors to and come up with a nice simple theory - ie average wages determines median price
.Or my gf's grandmother on a very small pension living on an acre of waterfront property 1km from a CBD. Nevermind shes been living in that house since 1939 and when she bought it she was surrounded by shipyards for the next 20 years (since converted to parkland).
I think this is an interesting point but I don't think it makes it sustainable for the median house price to have a larger growth than the average wage.
It must mean that the 30th percentile house is having the same growth as wages - in order for FOH to buy in future years. This means that the more expensive homes are having even higher growth than average
Once a FHO has bought their (30th percentile) house today and they pay off their house in 10yrs, assuming their house and wage growth is the same 4%. They wouldn't be able to afford the median house price which has grown at 9%. They'd be doomed to live in the 30th percentile priced homes forever...?
Since everyone is a FHO at some stage this wouldn't be sustainable?
Sorry mate, wrong on that one. Kieth has a spreadsheet floating around somewhere which models this quite nicely, but in simple terms it works like this:
They buy that 30th percentile house with a mix of deposit and borrowings. 10 years on they own it outright due to P&I repayments. Now they have 100% equity in a 40th percentile house as price appreciation has pushed their house up the curve. The 30th percentile houses are now further out. What's more they can now sell that house and put the capital gains tax free proceeds down as deposit and prop it up with more borrowings to buy a better house, say the 50th (median) percentile and have just crept up. At the end of their productive earning years they're sitting at the top of the pile in a nice "unaffordable" house to the masses who look up at them with envy eyes asking for handouts to be able to get into the market.
Cheers,
Michael
Ah... life is tough for the poor gen-Ys... surely they deserve the harbourside mansion as soon as they leave school! It's just not fair that they have to wait for 20 years!
Good post.
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