Median price homes are not bought on median incomes

In an article on the Housing Boom I touched on a price-to-income measure for the state of the housing boom. For those who don't want to go to the article, it just questioned the disconnect between property prices and household wages.

There is a flaw in my logic. Median priced homes are not bought by median income earners in every suburb. In Sydney's eastern suburbs especially, many people say they could not afford to buy the home they are in today if they had to pay today's prices.

This may mean the prices are unsustainable but it more likely means owners will stay in their current homes for at least another 7 years (the average first mortgage life). At 10% compound return, an investment doubles every 7.2 years. Coincidence? I don't think so. Historically that is what Sydney has done.

Median incomes include all income earners. School-leavers and low income earners skew the figures lower. Home and investment property buyers are not in that demographic.

Surely one of our resident number-crunchers could look at the correlation between movements in income levels and median price movements?

Is there a lag? How many asset rich but cash/earnings poor home owners are out there. (and is there a win/win/win in it somewhere for those posting on the innovative thread? :))

Where does inflation or the lack thereof factor into the mix?

What role in the supply/demand equation do the proliferation of home improvement/auction TV shows? Is there an "Location Location/Auction Squad" artificial inflator to the extended boom?

The continued lacklustre sharemarket performance must be a factor in the slow cooling of the property market. (should we all be out there, contrary as ever, buying up big on the market???)

As usual I have some questions, few answers and multiple (sometimes contradictory) opinions!

Hi Nigel,

I agree with Paul, that the connection between median wages and prices is at best a bit loose. Perhaps the correlation between falling yields and increasing prices is more to the point.

"should we all be out there, contrary as ever, buying up big on the market???"

And don't ever say I didn't tell you so!