Residex's Dec report - median price for Melbourne & Brisbane to reach $500,000 in 08

[steveadl]

PS Those houses should be affordable for only one person on the average income (someone posted earlier it's about $43k after tax, I'll take that as correct as I can't be bothered researching it). Now how much more affordable are these houses if there are 2 incomes! God forbid!!

 

[steveadl]

Of course this isn't the case, otherwise FHBs would not still be buying.... some are, some aren't.

My point is, people keep using the median house price and average wage etc. to tell us how it can't be, whilst sitting on the market this very moment are real life examples of how it is possible.

What I'm unsure of is if property can continue to rise faster than incomes, at 10%pa house prices will exceed 12 times income in 10 years, is this sustainable?

That's why they have great features on REA.com that enable you to restrict your searches to only apartments if your inner suburbs become too expensive to get a house, or you can refine your search to the outer suburbs only (or ones that in the future that don't even exist now) if they must have a house.

 

[BayView]

I'm going to bite....

Being a recent FHB, i'm going to have to agree with Nth Brisbanite. Basically it has come to the point where first home buyers need 2 incomes to purchase a home. My partner and I have recently purchased a house out in the suburbs, 1 hour drive from the city and it is no way a McMansion. If one of us lost our jobs, we'd basically lose our home (for example if we had kids).

And before someone goes off and says "i bet you bought a house above your means" or "you're spending too much money going out, on cars etc..." you'll be wrong. The partner and I are both quite frugal and "smart" with our money.

The fact is, houses are damn expensive these days and while they're not unafforable, life becomes tough once you buy a house.

I'll give a simple example:

Imagine a couple in their mid 20's with with a new born, single income of $60,000. After tax that's approximately $42,000 (based on 30% tax rate). If they go off and take out a $250,000 loan to purchase a house, repayments will be in the vicinity of $22,000 per annum. That leaves $20,000 a year (or $1666 a month) for other living expesnses.

Once bills, groceries, car insurance, home insurance, petrol, rates, and items for the baby are paid for, it doesn't leave the couple with much, if anything...

JB,

out of interest, how long did you save for a deposit, and how much deposit did you put down? What did your property cost to buy?

Assuming the above scenario you mentioned is you, and you put down 20% deposit (including FHOG) plus costs of around 6% of purchase price, then the $250k loan means the property cost around $300k?

For a first home buyer, there is no need to spend anywhere near this much. A 2 bed unit is all a couple with a baby needs. You can buy them all over the country for around $200k in the major cities; and not out in the sticks either.

Take out FHOG - $7,000 (or is it more now?)
20% Deposit - $40,000
Purchase costs (6% approx) - $12,000

Loan of $141,000.

So, I'm guessing the FHOG would all but cut out the purchase costs?

At 8% interest only, the repayments per month on:
$141k = $940 p/month.
$250k = $1666 p/month.

Big difference from $250k, and a frugal couple would have that paid off in 10 years or less, and have a lifestyle, and the property would have doubled in value.

Then trade up to the bigger, better house; like I did, like my parents and their parents did.

The problem is now that FHB's don't need to save a bigger deposit any more; they can get 90-95% loans, LMI and all that stuff to get 'em in there faster.

So the loans are higher, the repayments higher and the cashflow is tighter, and dare I repeat the statement made so often now; have bigger expectations, but all these factors don't mix.

 

[JIT]

PS Those houses should be affordable for only one person on the average income (someone posted earlier it's about $43k after tax, I'll take that as correct as I can't be bothered researching it). Now how much more affordable are these houses if there are 2 incomes! God forbid!!

That's true, maybe someone clarify whether that figure is individual or household income, I think it's individual.

 

[s_t]

The figures that I was 'throwing around' were from the calculators from realestate.com.au. You're right, 8% of 250k is 20,000 per annum, however thats just interest. Most people who buy a PPOR pay interest and principal. So at an interest rate of 8% paying interest + principal, it comes to $22,000 per annum.

Further, in my previous example, I had used a flat rate tax rate of 30% to simplify matters. Working in tax, I am well aware of how our marginal tax system works.

Whilst I can see how some people on this board are fed up with FHBs complaining about not being able to afford their first home, I think we need to sympathise with their position.

If we look at the HIA home affordability indicator, it is measured by :

"The HIA-Commonwealth Bank Housing Affordability Index measures accessibility to home ownership for an average first home buyer. It is measured by the ratio of average income per household to the income necessary to be able to meet repayments on an average established dwelling purchased by first home buyers (qualifying income)."

So by the above definition, first home owners today, are having to commit a higher proportion of their household income to meet repayments on an average established dwelling. THEREFORE, houses are more unaffordable today for FHB then they were 20 odd years ago.

That calculation is still expectations based. If the "average established dwelling purchased by first home buyers" is more incity/upmarket etc than in earlier generations, then of course the affordibility calculation remains lower compared to previous years.

So yes, if first home buyers want to be average, and keep up with there peers then you are correct. But if they had the same expectations as there parents (which was less than their current peers), then it is nonsense.

 

[lizzie]

'almost unliveable dump'.... yup, that's where I started - it wasn't perfect, on a main rd, 30yr old carpet/wallpaper, stank, next to noisy shop, but I made a few sacrifices, spent some money on it, ....

my first home was bought from an old lady who had moved into a nursing home. the carpet was so putrid i stayed up all my first night ripping it up and dragging it into the backyard. the kitchen cupboards were so full of mildew that i daren't put anything in them and couldn't afford some flatpack cupboards until 6 months later - and even then i could only afford four underbench cupboard and a new laminate top. in one bedroom the walls were almost black with mould from the humidity from the kero heater the oldie used - nothing a few buckets of bleach and rubber gloves couldn't solve.

i was so poor that i even kept her saggy old bed to sleep in for 6 months before i could save enough to buy a new bed on special.

and that was only 10 years ago ... on one income at 1/5th of the cost price. man, if i'd had access to two incomes in that initial period - wow!

to those fhb's who keep whinging - suck it up and grow a backbone!