My theory on why the market is a little spooked

[evand]

The average Australian income per household would be nowhere near $130k pa.

Would be lucky to be $100k. Probably more like $80k.

I did a search but could only come up with '09 figures at the lastest which showed $66k. Allowing incremental increase since then, i'd say $80k is about right.

Which would make the 'household income' to property price ratio about 7.5 - 8 times. In reality, its probably a bit higher.

how simplified - 2x wage earners - go spend a good weekend and search through the ABS stats like i did.

 

[Token Funder]

Resources boom or not - the majority of the economy is in the Eastern States. You don't tinker with that otherwise you destroy the economy

The difficulties of managing a two-speed economy don't detract from the fact that the RBA's primary concern is inflation.

 

[Ed Barton]

The average Australian income per household would be nowhere near $130k pa.

Would be lucky to be $100k. Probably more like $80k.

I did a search but could only come up with '09 figures at the lastest which showed $66k. Allowing incremental increase since then, i'd say $80k is about right.

Which would make the 'household income' to property price ratio about 7.5 - 8 times. In reality, its probably a bit higher.

you need to waive a wand over the 66k figure to come up with 130k. the often quoted figures are 'disposable' income for a household. this includes imputed rent, share dividends and super. bing you have the magic number.

 

[Ed Barton]

The difficulties of managing a two-speed economy don't detract from the fact that the RBA's primary concern is inflation.

and how's inflation going?

 

[Beebop]

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.

Yes housing is more affordable than it has ever been. Infact affordability is at all time record highs.

 

[wobbycarly]

We've lived in our place for about 8 years.

When we bought it, it would have been about 4x my (what I consider average) wage.

It's now about 5x my (what I consider average) wage.

Affordable? Yes. And we still invest and raise 2 kids on 1 average wage, partially supplemented by a way less than average wage. We would manage fine on the 1.

Anecdote? Sure. Realistic? Absolutely!

 

[Beebop]

We've lived in our place for about 8 years.

When we bought it, it would have been about 4x my (what I consider average) wage.

It's now about 5x my (what I consider average) wage.

Affordable? Yes. And we still invest and raise 2 kids on 1 average wage, partially supplemented by a way less than average wage. We would manage fine on the 1.

Anecdote? Sure. Realistic? Absolutely!

Then manage on one you super hero you.

 

[weg]

The average Australian income per household would be nowhere near $130k pa.

Would be lucky to be $100k. Probably more like $80k.

I did a search but could only come up with '09 figures at the lastest which showed $66k. Allowing incremental increase since then, i'd say $80k is about right.

Which would make the 'household income' to property price ratio about 7.5 - 8 times. In reality, its probably a bit higher.

If everyone earned 80K or 66K then I'd see the problem.

The reality is there are huge variables when it comes to incomes, just as there are house prices, ie, single 22yo on 50K, single 25yo on 400K () young couple on 120K, young professional couple on 190K+.

Then there are second and third HB with both variable incomes and equity.

There are also many more higher earning professionals and upper end McMansions/luxury properties as well, than there were years ago.

Because you say household income to property price ratio is 7.5 - 8 times (based on averages), doesn't mean many/everybody is buying at that ratio or has no choice but to buy into it.

I think this has provided the balance in the market enabling it to sustain these prices, regardless of ratio.

Because consumer confidence is down it doesn't mean all of a sudden people can't afford to buy. Most are choosing not to buy, for now, while there is uncertainty.

I'd say when they can't for whatever reasons, is when the market drops significantly.

 

[Ed Barton]

Yes housing is more affordable than it has ever been. Infact affordability is at all time record highs.

beebop, we bop, they bop, she bop; a lue she bop. are you old enough to remember lauper?

you don't seem to speak much of the impending crash. if you believe it will happen then rent and save. if you don't believe in a crash then you should buy, as unfair as it might be. don't consider what should be but what is.

i see your true colours shining through....

 

[MrCrumbpacker]

you need to waive a wand over the 66k figure to come up with 130k. the often quoted figures are 'disposable' income for a household. this includes imputed rent, share dividends and super. bing you have the magic number.

Disposable income always used to mean the money you had left in your sky rocket, after paying all your normal outgoings.

In other words the money you had left to spend on yourself.

Pooling incomes to get a higher figure is dubious at best, presumably at some point couples start a family, in which case you really shouldn't both be at work, assuming you don't want to bring up a load of latch key kids.

The old measure that was always used, was to take the average wage of a worker before costs, (say 80k for a carpenter today), triple it, and that should give you a ballpark figure for an average suburban home.

In the UK in the 80's, when a carpenter earned say 20K, a house was 50-60K.

And a pint was 50p........ sigh.

 

[Beebop]

i'll tell you a story.

we sold our house in Karrinyup to my FIL - he made me promise to sell it to him only when we moved. so i did. this was Dec 2007 and the settlement was Jan 2008.

my BIL went 50/50 with my FIL. it's neg geared up the 5h1thouse (well, for my liking anyway) and their rent is about $20pw short of market but he's the old man, what can you say that hasn't been said already?

we bought this house and watched it's value go up 250% in 4 years.

after they bought it, values stagnated for about 18m.

BIL and my new SIL want to buy a place of their own, now, so Karrinyup is on the market - agent has recommended a min price of nearly $100k over what they bought it for. it's a renovated 3x1 opposite a park with a huge front deck overlooking it, squished in between lake gwelup and karrinyup shops. mintox position.

after neg gearing, that's still $25k profit each in an apparently flat-to-falling market. that's a better wealth hedge than gold at present (*gold bugs need not reply - it's a JOKE).

so guess what? they're buying what they can afford. SIL wants to start a family so they're looking at buying something they can afford on BIL's wage alone.

Girrawheen is looking like their budget, and they're happy about it because

1) they don't have to rent (there's the 80% not caring too much about values).

2) they can afford it (smart homebuyers not dreaming)

3) they get land component at least 60% of the property value (my influence)

4) they can settle down and start a family on a big block close to most amenities

5) did i mention that they don't want to rent?

so there we have it. 2x GenYers wiling to sacrifice position and suburb status to own something outright that they can afford on one wage. wife leaning on the husband because she wants a house. buying in the lull against all odds. ignoring potential economic fundamentals.

appears people aren't just happy to rent, and like i said, there will come a time for most people when renting is just not cutting it anymore.

buy what you can afford, even if you have to downgrade.

food for thought.

Downgrade to a tent. ?

 

[Beebop]

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.

Yeah, screw people who work. they're idiots. Trying to do the best they can. What morons. Everyoner should be a property inve4stor.

 

[wobbycarly]

Then manage on one you super hero you.

Hmm, can't decide.

or

Once again, you completely miss the point *sigh*

*double sigh*

 

[Ed Barton]

Disposable income always used to mean the money you had left in your sky rocket, after paying all your normal outgoings.

oh you're obviosuly english with you cockney slang

In other words the money you had left to spend on yourself.

Pooling incomes to get a higher figure is dubious at best, presumably at some point couples start a family, in which case you really shouldn't both be at work, assuming you don't want to bring up a load of latch key kids.

no. these days you just have a kid on your lunch break and you're back to work by the next day at worst.

The old measure that was always used, was to take the average wage of a worker before costs, (say 80k for a carpenter today), triple it, and that should give you a ballpark figure for an average suburban home.

In the UK in the 80's, when a carpenter earned say 20K, a house was 50-60K.

And a pint was 50p........ sigh.

a pint hasn't ben 50 pee for a long time

my message needs to be at least ten characters. hopefully this meaningless line solves this websites dumbness.

 

[Aaron Sice]

Then manage on one you super hero you.

Manage on none you keyboard warrior, you....

 

[wylie]

We've managed one one average (but for a long time, less than average) income with three kids. We must be superheroes?

I wondered why hubby has taken to wearing his underpants OVER his pants lately!!

 

[Beebop]

If everyone earned 80K or 66K then I'd see the problem.

The reality is there are huge variables when it comes to incomes, just as there are house prices, ie, single 22yo on 50K, single 25yo on 400K () young couple on 120K, young professional couple on 190K+.

Then there are second and third HB with both variable incomes and equity.

There are also many more higher earning professionals and upper end McMansions/luxury properties as well, than there were years ago.

Because you say household income to property price ratio is 7.5 - 8 times (based on averages), doesn't mean many/everybody is buying at that ratio or has no choice but to buy into it.

I think this has provided the balance in the market enabling it to sustain these prices, regardless of ratio.

Because consumer confidence is down it doesn't mean all of a sudden people can't afford to buy. Most are choosing not to buy, for now, while there is uncertainty.

I'd say when they can't for whatever reasons, is when the market drops significantly.

Really ? And in the past this was also the case, but houses were much cheaper. You really think everyone used to earn exactly the same wage ?

 

[VYBerlinaV8]

Really ? And in the past this was also the case, but houses were much cheaper. You really think everyone used to earn exactly the same wage ?

What about the more expensive items?

1) Household appliances (fridges, tvs, etc) - 10+ times as expensive in real terms

2) Cars - several times as expensive

3) Travel - out of reach for most and many times more expensive

4) Entertainment - out of reach for many

5) Food - staple for most aussies was meat and three veg

etc

Also, people had lower income in real terms.

Of course houses were cheaper - people didn't have the money and they couldn't get the credit.

 

[Paul Do]

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.

Yes, to understand the changes in valuation multiples, you have to look at decades to get the big picture view.

http://www.ibhb.com.au/resources/valuations.htm

 

[weg]

Really ? And in the past this was also the case, but houses were much cheaper. You really think everyone used to earn exactly the same wage ?

For starters women are far more likely to be tertiary educated and earning a lot more than before - the difference there would be significant.

These women are often partnered up with other educated people as well. Almost a whole new high earning demographic group right there.

They are also lending to these high earning single women (and low earning), whereas they didn't before.

Men in trades are earning more. Employment has been up but low paying labour and manufacturing jobs are down.

The size and quality of houses has increased significantly in number too. People would put their nose up at what many were happy to purchase to live in years ago. That in itself has widened the gap and made some deluded low income earners of today feel they're entitled to be living in these.

And like I said in another post, interest rates sat much higher than now, determining what you borrowed. We have been able to borrow more because our interest repayments are down.

Beebop, if you're earning 50K, you probably will be paying a high income to property price ratio if you buy a 4/2/2 in a nice estate, or a 3/1/1 very close to the city.

Have you thought of buying a unit or 3/1/1 in the outer suburbs that needs some work, like a lot of us here have done.

Or you can keep renting.