Last tooth pulled from RBA toothless tiger

I might agree with you about australia home price on income not beeing the highest in the world but your list is not even close too:
for example if you put aus gdp at 1.2 tril$ and you consider 22 mil people in australia that make close to 55 k$ average income, if you multiply by 6.3 that amount it comes to 340k$ for home prices which is far off reality.
UK is even far wrong as their average home price is around 160K pounds, divided by 12.0 makes just over 13k pound average income :confused:
haven't bothered check other countries

The list is based on house price to household disposable income. It has nothing to do with GDP per capita or single wages.
 
The list is based on house price to household disposable income. It has nothing to do with GDP per capita or single wages.

don't think so, it mention income ratio, i believe an approximate income ratio is the GDP divided by population, anyway the 6.3 rate of your table and home price of 450K$ would imply an income ratio of over 71K$ don't think that is any close to reality (specially if that is the disposable income)
 
"Mortgage stress" is also a myth for naive people. In 1970 you could have bought brand new house for $9000. Your interest payments were about $20 a week, which was 33% of average $60 pw salary.
I just brought my first house 4 months ago, according to "the stats" I'm on an average wage and my interest payments are 33% of my single wage.
I could have brought a McMansion in the outer burbs with what the banks would lend me, but opted for a modest 3brm house within 10km drive of the city and it has everything we need. Location is better than a flash house.

The only thing that is different - we have brought up generation of lazy parasites who want everything at once. They do not want to start their climb on property ladder from outer suburb gradually upgrading to better places like all previous generations did. They do not want to embrace concept of hard work, they want to live ehre they can not afford.
I wouldn't call them lazy, but do agree on they want everything now!
The only way I got to this position is saving, without living like a uni student either. Keep a reasonable standard of living but forgo the luxuries, save the rest.
 
I expect our house price to income ratio will move up from it's current ranking near the bottom of that list and possibly approach the ratios seen in China, Spain, UK, Japan etc.

Great examples, :D no matter how self serving the "evidence". Might I remind you that Japan's property prices have declined for 20 consecutive years. And far from rising, rents have collapsed in that time.

Chinese coastal cities continue to rocket, this seems to scare the government there. I guess if any country has a population of 1.3billion, there will always be some mugs who pay way too much. In many cities in China, wary banks now only lend a maximum of 40% of the security price.

Hope you got in early Shadow, and I also hope you are not as geared as I am. If you think property prices are going to double or triple in a hurry, as Perth did in 2003-2010, then you are in for an unpleasant surprise.

Good luck dude. In your Jack & the Beanstalk world, trees do grow into the sky. ;)
 
15 years ago when the average price of a house in my area was $200k, my father kept telling me prices were too high and to wait for prices to come down. 8 years ago, when average prices in my area got to $350k, my father told me to wait because property prices would fall. Today, a house I purchased 8 years ago is worth $700k. Good thing I didn't listen to the old man 8 years ago, but I am pretty mad at myself for listening to him 15 years ago... Ah well, live and learn. On the prowl for IP No. 4 now, so all good. :)
 
don't think so, it mention income ratio, i believe an approximate income ratio is the GDP divided by population, anyway the 6.3 rate of your table and home price of 450K$ would imply an income ratio of over 71K$ don't think that is any close to reality (specially if that is the disposable income)

Boz, it is definitely based on household disposable income - that means more than one wage per household. Check the Numbeo site via the link in my post for full details.
 
Hope you got in early Shadow, and I also hope you are not as geared as I am. If you think property prices are going to double or triple in a hurry, as Perth did in 2003-2010, then you are in for an unpleasant surprise.

I don't expect prices to double or triple 'in a hurry'. But they will in time.

Good luck dude. In your Jack & the Beanstalk world, trees do grow into the sky. ;)

Please explain?
 
15 years ago when the average price of a house in my area was $200k, my father kept telling me prices were too high and to wait for prices to come down. 8 years ago, when average prices in my area got to $350k, my father told me to wait because property prices would fall. Today, a house I purchased 8 years ago is worth $700k. Good thing I didn't listen to the old man 8 years ago, but I am pretty mad at myself for listening to him 15 years ago... Ah well, live and learn. On the prowl for IP No. 4 now, so all good. :)

Thanks for the example. I have about a dozen of tenants who stuck on rental roundabout since 70s. Now they pay twice as much rent a year as the whole house would cost them back then. Total amount of rent they paid over the years would buy them a house in Sydney nowadays. Their mates have the asset that has grown from $7K to $700K , renters got nothing. Their stupidity costs them close to $1M.

I am astounded - how people are not afraid of not buying a house?

BTW - Shadow - special thanks for your stats. Big thanks.
 
BTW - Shadow - special thanks for your stats. Big thanks.

A little bit of education is a dangerous thing. Yes, we all want a nice home and/or several IPs. On my part, I have 14 IPs in Australian cities, and a few more overseas. However, one would be pretty misguided to pay too much for any IP - as so many are doing these days, obviously in anticipation of prices rising ahead of inflation. Caveat emptor. Never pay too much, unless you want pain later.

Boz, it is definitely based on household disposable income - that means more than one wage per household. Check the Numbeo site via the link in my post for full details.

It's hardly a reputable site. Do you have reputable data from universities or central banks?
 
Boz, it is definitely based on household disposable income - that means more than one wage per household. Check the Numbeo site via the link in my post for full details.

whatever you put it that is wrong data.
according to abs the household average (mean disposable income was 811$ week 2 years ago (42000k$). link
42k$ by 6.3 makes 264K home price.
Even if you take the highest income from ABS table of a couple only with no kids you get 1155$ a week that makes 60k$ a year and by 6.3 makes 378k$.
 
yes boz ... but shadow was comparing the disposable income of those "who have bought" houses. not the entire population of australia which includes pensioners, dependants, retirees, careers etc who are all on low incomes and skews the figures.

i agree that one problem is that expectations have changed. the younger generation look at the older currently living in houses they bought 20-30-40-50 years ago, that are now in middle ring (or inner ring) suburbs and bemoan that they can't afford to buy there ... but ... when the oldies bought, all that time ago, those suburbs were on the outer fringes, often with dirt roads, no public transport and boarding on farming country.

take newcastle for example...

80-90 years ago merewether was considered the sticks and farming country by those that lived in cooks hill. now it is an inner ring prime suburb. adamstown was opened up around 60 years ago, the road were dirt and those that lived in town bemoaned about having to visit friends "all the way out there". now adamstown is on the outer edge of the inner ring. right up until the 1960's people used to take full day trips to picnic on the northern shores of lake macquarie - now it's only a 20min drive from the cbd and well developed. oh, and the house was generally only 2 bed/1 bath/no gge fibro or weatherboard - not 4 bed/3 bath/dbl gge rendered brick with a pool.

so - to compare to modern day (again in newcastle) - the young buyers should be comparing the oldies who purchased in these "now" prime suburbs with those currently buying in maryland and fletcher and warabrook, because in 50 years time the new generation will be bemoaning those lucky people living in those "prime" suburbs.

so sydb, stop moaning - buy your 3/1/0 house in the dirt road sticks with no public transport and get on with it.
 
whatever you put it that is wrong data.
according to abs the household average (mean disposable income was 811$ week 2 years ago (42000k$). link
42k$ by 6.3 makes 264K home price.
Even if you take the highest income from ABS table of a couple only with no kids you get 1155$ a week that makes 60k$ a year and by 6.3 makes 378k$.

Are you serious? And what is in your opinion average house price in Australia is? I repeat - even in metropolitan Sydney prices for free standing houses start in region of $200k, not counting for Broken Hill, Targomindah, Pinnaroo, Narranderra and others. $264K is about right. And you seem to be unable to see beyond the rubbish dump you live in.
 
Anyone can afford a house in Australia- it just depends on where you want to live. I'm sure you can pick up a half decent house on the other side of the black stump for under 100k but who wants to live there?
Affordability is a real issue and I can understand resentment from FHBs over where they find themselves. Sadly, we all have to subsidize the baby boomers growing old disgracefully:D
 
affordability has "always" been an issue - it is nothing new. it is the expectations of affordability (ie, what you get for your money) that is always the problem.

gosh - i kick myself for not buying in potts point 20 years ago when it was considered prostitute heaven! times change, areas change - unfortunately expectations of "wanting it all now" don't change.

my first house was a spec 3/1/1 home at lockup (builders fire sale) in one of the new suburbs on the outskirts of town - no carpet or curtains. very very basic laminate kitchen. only landscaping was the long and very steep driveway. i remember many a weekend spend lugging huge quarry rocks around to make retaining walls. i didn't own a car so caught the bus to and from work for 6 years.

not many fhb-ers would want to buy that nowadays ...
 
My parents built one of the first houses in Hillarys. Right on the outskirts it was, miles from anywhere, nobody around...

Now the outskirts have moved out a bit, that's all. The trains are faster, the cars are faster and safer, and if you don't want to live 50k's from the city, you can move to Bunbury and live 10k's from that city, or Geraldton, or Albany, or gosh darnitt, you could move to Karratha and bank a couple hundred g's in a couple years.

Why should first home buyers be able to afford a house in Hillarys, when my parents couldn't afford to live in Subiaco? (And still can't, but that's because they didn't buy investment properties, more on that later Mum!)
 
Here ya go then:

Property valued properly

Greg Hoffman said:
Charles Darwin wrote: "The number of large houses and other buildings just finished was truly surprising; nevertheless, every one complained of the high rents and the difficulty in procuring a house."

Some things never change. Rents always feel high if you're paying them, as does mortgage interest, but they're both obviously limited to what people are earning.

Over time, though, you'd expect the earning power of property (the rent it can generate—or save you if you live there) to rise roughly in line with the growth in average wages.

Over the very long term it has to be this way - it's not possible for people to pay more than their income in rent. In its 2001 yearbook, the Australian Bureau of Statistics (ABS) published a book full of statistics regarding the previous century of federation.

Figure 1: A century of rent.

Average weekly earnings (2001 dollars): $217.50 (1901), $830 (2001)
Average rent on a 3 bedroom home (2001 dollars) $65 (1901), $250 (2001)
% of income spent on rent: 29.9% (1901), 30.1% (2001)
Source: ABS

The average weekly wage for an adult male grew from "$4.35 for a working week of almost 50 hours, which after inflation equates to $217.50", to "$830.00 for around 37 hours work, in far better conditions."

So salaries averaged annual growth of 1.35% over and above inflation.

When it comes to rent "the average weekly rent for a three bedroom house in 1901 was $1.30, equivalent to about $65.00 today. The actual value today varies depending on location, but the average of eight capital cities for a three bedroom house is about $250 a week."

At 1.36% per year, the average growth in real rent was almost identical to the growth in salaries. It seems a fair assumption that this relationship will be maintained.

Same as it ever was, same as it ever was...

Get it? Any "real" increase in salaries above "nominal" flows through to a similar "real" increase in rents. Rents are a key determinant of affordability as they're the yield investors consider. Assuming constant yields, property prices grow in line with rent increases. They're also the opportunity cost of not buying so impact owner occupier prices as well. So, of course, the % of income devoted to housing has increased. We earn more in "real" terms so have more disposable income which we've put into our housing. Of course, everything else is a heap cheaper so our quality of life has gone up considerably. But people still whinge about putting the same amount of money into property as they ever did. Same as it ever was...

The rest of his analysis misses the mark a bit as he doesn't allow for negative gearing deductions nor depreciating principle debts, but the ABS stats linked above speak for themselves.

Cheers,
Michael
 
Here ya go then:

Property valued properly
Same as it ever was, same as it ever was...

The proviso I'd add to this is that rent won't always be highly correlated with 'average weekly earnings'.

If/when the variance between the bottom and top weekly earning quartiles increases dramatically, the bottom quartile (substantial portion of renters) will be less able to afford 30% of average earnings.

With the growing casualization of the workforce, longer periods of study by students, aging population, 1.5-2% migration, the forces are in play to increase the variance of average weekly earnings, and therefore lower the average earnings of the lower quartile.

Of course, average is a silly thing to use. If the richest 10% of the population owned 90% of the wealth, average weekly earnings could still be the same as if that 10% owned 10% of the wealth.

Fat tails and kurtosis render 'average' woefully inappropriate for measuring affordability.
 
don't think so, it mention income ratio, i believe an approximate income ratio is the GDP divided by population, anyway the 6.3 rate of your table and home price of 450K$ would imply an income ratio of over 71K$ don't think that is any close to reality (specially if that is the disposable income)

Boz, if you clicked on the link, you would see this:

House Price to Income Ratio is the basic affordability measure for housing in a given area. It is generally the ratio of median house prices to median familial disposable incomes, expressed as years of income.

The measure of income is median household income. Not average income, not disposable income. Now, what is more relevant to home buyers, average income, or household income? People who use average income are not taking into account the fact that most households are two income households.
 
Just read the article in detail Michael linked to. Hmmmm.....so the guy is trying to compare the cap rate of property to the cap rate of stocks....

What he is overlooking is that the cap rate is based on capital one doesn't own. It is a liability, a bank loan. And property investment's advantage is its higher LVR and safe leverage cf margin loans.

Hoffman would be better to use IRR in comparing two investments.

One has to question the breadth of his reading, that he doesn't understand this.
 
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