interesting question and i think you are right, when i bought my first place, it's almost 6 times of my salary
My theory on why the market is a little spooked
- Thread starter Ocean Architect
- Start date
Not necessarily! I think there will be many variables. We bought a new PPOR a couple of years ago. Purchase price was much less than 4 times income, and that is single income only. Please note that it was NOT one of the cheap places out this way before commenting.
Compare that to first PPOR. This was about 2.5 times my salary only. Note though, at the time I was on very low wages with very minimal deposit and just bought what I could get a loan for.
Then we have our eldest who is currently shopping. She is only on minimal wages, but does have a sizable deposit to help her along. The budget for her is around 5.5 times her wage. If she had a higher wage, she would still be looking in the same price range, however the ratio of income to price spend would differ.
I think he's included rural data - hence "if you get country-wide prices"
The received wisdom of a comforting platitude, I always wonder who came up with that on and why it is never examined.
Thing is, cycles, in property, can be kind of long term too, on a generational scale, witness Australias thirty odd years of above normal growth. How would you feel if it now entered a Japan style twenty year correction (and still counting), would you be encouraging people to jump in with their boots on?
Most people I talked to here who have invested in property in the last ten years or so tell me they bought because prices were going up, not because they thought the rental yields made sense.
When people like that buy property for those reasons, guess what, they push prices further up, and so the vicious cycle begins, until eventually it can't be sustained (without Gov stimulus).
The problem is, when prices begin to fall, that can also become self reinforcing, as more people stand back to see what happens, so price drops gather momentum, at least until such time that true value is found, and people can make good returns as landlords again.
The problem I see for many, but not all parts of Australia, is that the irrational exuberance of recent years coupled with irresponsible Government meddling has caused the disparity between prices and yields to blow out.
I used to expect a return on my property a couple of points above borrowing, and would allow 1.5% maintenance, otherwise why bother quite honestly.
Any capital gains were cream, and should average out over time hopefully, and that is pretty much what happened to me between 1985 and 2000 in the UK.
my first place was 2.5 times.
This 4.5 times ratio is fairy land... commonsense says it is currently about 8 - 10 times. And this is just on median property - what I bought as a median property in 1990 is now considered quite close in. A median house currently is miles out in a sandpit, probably with a fancy name like The Oaks at Mesa Vista.
This 4.5 times ratio is fairy land... commonsense says it is currently about 8 - 10 times. And this is just on median property - what I bought as a median property in 1990 is now considered quite close in. A median house currently is miles out in a sandpit, probably with a fancy name like The Oaks at Mesa Vista.
From Chris Joye / Rismark, whose methodology has been roundly criticised/examined here,
http://macrobusiness.com.au/2011/03...on-australias-dwelling-price-to-income-ratio/
$65k average.
76% of the population live a 2person + dwelling, so that being a significant majority means that we should include $65k x 2.
cheers.
And why would interest rates rise? The fact that retail is dying does not support any rationale to increase rates. Don't listen to those 'research analysts' predictions. If they were so smart they wouldn't be working 9am-3am jobs everyday and telling you what they see in the crystal ball that is BS.
Inflation.
resoures boom
Household income is already available, there is no need to make one up, especially using formula where a single mum & kid are assumed to be on 130k a year because there are 2 of them.
And where does most of the population live?
Why is the market spooked? Here’s my view.
Growth in RE is achieved via higher mortgages.
There is a point where growth can no longer be achieved as people are simply unwilling / unable to take on larger debts.
This point is reached when mortgage repayments = disposable income.
Disposable income is only increased by higher wages / business income, lower taxes and lower consumer prices.
If we live in an environment where the costs of living are rising greater than the increase in our pay (i.e high inflation, raising interest rates, raising taxes) the most people can borrow stagnates and can even drop.
As an investor you need to stop looking in the rear vision mirror and look ahead. Pop growth, resource boom etc, etc. are all good. But ask yourself this. In real terms are people in the future going to have more money in their pocket to spend or less?
If the answer is less property prices will decline in real terms.
Growth in RE is achieved via higher mortgages.
There is a point where growth can no longer be achieved as people are simply unwilling / unable to take on larger debts.
This point is reached when mortgage repayments = disposable income.
Disposable income is only increased by higher wages / business income, lower taxes and lower consumer prices.
If we live in an environment where the costs of living are rising greater than the increase in our pay (i.e high inflation, raising interest rates, raising taxes) the most people can borrow stagnates and can even drop.
As an investor you need to stop looking in the rear vision mirror and look ahead. Pop growth, resource boom etc, etc. are all good. But ask yourself this. In real terms are people in the future going to have more money in their pocket to spend or less?
If the answer is less property prices will decline in real terms.
how simplified - 2x wage earners - go spend a good weekend and search through the ABS stats like i did.
We've shown you more than once that housing is not too expensive and that even a low income earner can afford them. But that's fine.......you keep believing that. We need renters. The more there are, the more demand, and I'm loving my rents going up each six months.
A low income can afford them? Sure, if you buy way undervalue and rent closes that negative gap considerably.
First you have council rate, water rates, repairs, maintenance fees (smoke alarm, water certificates etc), insurance (building and landlord) and not to mention a variable interest rate. Then you need to tack on your own personal expenses for the basics of life.
A property, for low income earners, who are just starting out, is anything but an easy proposition. I find these kind of bullish throwaway liners equivalent to the squack hawks on fox news that can only see the sun when there are dark clouds all around it.
How convenient! Either you have not read the entire thread (and followed the links) or you are just cherry picking stuff that fits with your own way of thinking. Just in case you missed it - or were too lazy to go and look at it - here is a link to the same thread that I asked Evand to have a look at.
You will find examples of very affordable properties if you read through it all.
http://www.somersoft.com/forums/showthread.php?t=69876
Not sure what the point is here... obviously the south east for now. what;s that got to do with inflation?
this is just the conundrum that the nation faces. the RBAs major mandate is to control inflation. last boom they did state that they may let inflation run a little hotter in future, but in the end manufacturing and services in this country must be 'creatively destroyed' because we are one nation and one monetary policy. there is broad consensus that there is a required population shift from the south to the north, this will have to happen. Alternatively you just let the resources sit in the ground and develop them in our own merry time - but it is too late now, horse has bolted.
