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

[steveadl]

2) Rent. There is an unnecessary stigma about renting in this country. At this point it is a very attractive proposition and people should consider it. Financing through a bank is 8%. Financing through your friendly landlord is 4%.

Fully agree. If you aren't in the position to buy yet, then do something about it! As YM said, invest your money, have it work for you (heaven forbid some people may even choose to buy an IP before a PPOR).

Unfortunately, this is not in the mindset of the majority yet, because Aust. up until now has still been a place where generally anyone can buy their own home (even if that does entail some hardship). If in fact prices continue as they are, then perhaps it will become a reality for more people that they no longer have the automatic choice of buying or renting. But until that is more widely accepted, prepare to hear a lot of whining.

Look at cities throughout Europe etc. - renting is the norm, owning is unusual, and in a lot of people's lives not even considered. And I'm not talking about big capital cities, I'm also talking about smaller industrial cities in regional areas etc. too. Why do people feel this can't happen here?

 

[yieldmatters]

Though tell me, YM, which country / city would you suggest?

Any major city in Germany. Eastern cities of Canada (Toronto, Montreal).

 

[keithj]

I agree that the median home price is not a valid indicator for first home buyers. They shouldn't be buying the median home.

This affordability spiel seems to have moving goalposts - first it was all housing is unaffordable, then FHB can't afford a median priced house, now it's FHBs can't afford any house within (an arbitrary) 1 hour of CBD.

Take the average weekly earnings (which is generous as the average is skewed by high income earners) and you get $1105.12 / wk (Average Weekly Earnings, Australia, cat. no. 6302.0). If I take $400 from this (which is also generous as the $1105 is gross wages) and plug this into a loan calculator I can borrow get $220K.

Don't forget to add the 20% deposit, FHOG to your sums.... you did make sacrifices & save the 20% deposit first didn't you ?

If I buy something for $220K within an hour from the CBD I will get a complete almost unliveable dump.

'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, ....

Compare this to my parents that bought in the 70s - new 3 bedroom house, 35 mins from the CBD, 20 mins from work, all on a single average income.

Theirs was 35 mins from CBD - how far was it from the sticks ? Do you expect everyone (inc FHBs) to be able to live within 35 minutes of the CBD regardless of the population ?

I'd guess that back in the 1800's everyone lived within a 10 minute canter of the CBD, so in the 1970's your parents would have considered society was moving backwards.

Sounds to me like you should really be asking why the govt hasn't made it faster ( <1 hour) to get to the CBD from more outer ring suburbs, or encouraged more jobs in the outer ring... hmmmm.... or prevented the population from growing!

 

[BayView]

I'd guess that back in the 1800's everyone lived within a 10 minute canter of the CBD, so in the 1970's your parents would have considered society was moving backwards.

Actually, I think back then everyone was living a half a day's horse and cart ride from the city, and they went there twice a year.

 

[yieldmatters]

Theirs was 35 mins from CBD - how far was it from the sticks ? Do you expect everyone (inc FHBs) to be able to live within 35 minutes of the CBD regardless of the population ?

Don't focus on the distance - it doesn't matter to my point. In the 70s that was on the edge of town (cows were still wondering around the development). But my point was they bought a beginner home on one income. Today it can't be done.

 

[alexlee]

Don't focus on the distance - it doesn't matter to my point. In the 70s that was on the edge of town (cows were still wondering around the development). But my point was they bought a beginner home on one income. Today it can't be done.

What, a beginner home at the edge of town can't be bought on one income? Do you consider $50k to be a normal income these days? You can still find decent houses out in Western Sydney for $200 - $250k. That's affordable on one income. Besides, a beginner home back then was a 2-3 bedroom shack.
Alex

 

[alexlee]

Any major city in Germany. Eastern cities of Canada (Toronto, Montreal).

If people aren't even willing to move an hour or so out into the outer suburbs, mainly because they don't want to be away from family or where they grew up, how likely are they to move to Germany? I don't know about you, but I can't speak German. I think people are going to end up preferring to buy a smaller place (2 bed unit instead of a house, for example) than move to Germany or Canada.

Go ahead and wring your hands all you want. The reality is simply not going to change. Not when YM's only solutions are to either rent or move to Germany.
Alex

 

[BayView]

Don't focus on the distance - it doesn't matter to my point. In the 70s that was on the edge of town (cows were still wondering around the development). But my point was they bought a beginner home on one income. Today it can't be done.

If you're saying that the "beginner home" was new, then in the 70's it still couldn't be done by most.

The standard purchase for a first home buyer then was a second hand home that needed work.

Only the better paid first home buyers could buy something new.

My mum remarried when I was 10 (1971). Both my step dad and mum were working. It took 2 years of renting and saving before they bought a house. Second hand.

 

[JIT]

Take the average weekly earnings (which is generous as the average is skewed by high income earners) and you get $1105.12 / wk (Average Weekly Earnings, Australia, cat. no. 6302.0). If I take $400 from this (which is also generous as the $1105 is gross wages) and plug this into a loan calculator I can borrow get $220K. If I buy something for $220K within an hour from the CBD I will get a complete almost unliveable dump. Compare this to my parents that bought in the 70s - new 3 bedroom house, 35 mins from the CBD, 20 mins from work, all on a single average income.

Just going to summarise the things you should have done prior to making these claims:

- Use the scaled tax rates instead of flat tax rates
- Use a 5 year interest only rate of around 8% pa
- Purchase done using a 100% offset account, so all cash savings are offsetting the loan amount
- Take into account tax rebate for spouse
- Take into account family tax benefits
- Take into account 'baby bonus'
- Take into account 'low income tax rebates'
- Add the 20% deposit you would have diligently saved
- Add the generous 10k FHOG

Do all of the above, then tell me what your affordable purchase price for a property is...and I'm sure we can do much better than you initially claimed.

 

[steveadl]

Don't forget to add the 20% deposit, FHOG to your sums.... you did make sacrifices & save the 20% deposit first didn't you ?

C'mon Keith, sacrifices in this day and age?! That's asking a bit much. Get with the program!!

 

[keithj]

Don't focus on the distance - it doesn't matter to my point. In the 70s that was on the edge of town (cows were still wondering around the development). But my point was they bought a beginner home on one income. Today it can't be done.

The goalposts move again....... now it's FHBs cannot even afford on the edge of town.

So your parents bought on the edge of town - have you talked to them about why they bought there (& not somewhere better)?, how long did they save before they could afford it? did they get help from their parents? did they make sacrifices? did they have an above average income ? .... and did they ever in their wildest dreams ever expect their 'edge of town house' to become so valuable ? You wouldn't be hard pressed to guess the answer from me, my parents & also grandparents.....

Many posters have listed examples of <$260K houses on the edge of town, I'm not sure what anyone else can say to convince you.

I'd agree that at this time in the cycle they are generally less affordable than they were 7 yrs ago, and are probably less affordable than they will be in 4 years time - that's the beauty of the cycle, deal with it - that cheap rent is a great time to be building up a deposit. But to say that there are NO affordable houses anywhere in the city isn't correct.

If you read 1000 threads you may find out why I think affordability (as defined by median price & average income) doesn't actually matter much.

 

[FHB]

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).

I agree too,

I haven't read this whole thread, but from the posts I've read so far it seems there is an ongoing assumption that affordability is poor due to unrealistic expectations. Most potential FHBs know this isn't true. A recent ABS study comparing first time buyers from 2006 to 96 showed that more are now buying smaller dwellings (units and townhouses), in 96 it was 14%, now 40% from memory. FHBs are also generally high income earners, those on average or low incomes can't afford to buy anymore, and loans are higher relative to income than they were 10 years ago. So to become a FHB you have to have high incomes, borrow more (ie. take on more risk) and get less, yet FHBs are still doing it. Doesn't seem like they have raised their expectations, rather lowered them.

As far as a solution, I'm sure the market will sort itself out eventually as it has done historically. YM's idea of renting, getting access to an asset for 4% and using your freed up cash flow and savings to invest is appealing.

 

[JIT]

those on average or low incomes can't afford to buy anymore

They need to change their expectations, just like their higher income counter-parts.

 

[JoyBoy]

And add to that, if you used interest only at 8%, then on 250k, that is $20000 pa, not $22000, every little bit counts...

People continue to throw around numbers saying it's unaffordable but just aren't looking at it precisely enough, which is important, especially at the lower end of the income scale.

And wasn't there also a 'baby bonus' available?

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.

 

[FHB]

They need to change their expectations, just like their higher income counter-parts.

Ahh, so its only the high income earners who have lowered their expectations. I don't really have enough information to decide if low income earners have unrealistic expectations or just can't compete with other buyers in the market place. It is interesting though that high income earners are accepting lesser assets for more money, while the poor aren't or can't.

We have previously discussed this in depth over at GHPC

 

[willfong]

A recent ABS study comparing first time buyers from 2006 to 96 showed that more are now buying smaller dwellings (units and townhouses), in 96 it was 14%, now 40% from memory. FHBs are also generally high income earners, those on average or low incomes can't afford to buy anymore, and loans are higher relative to income than they were 10 years ago. So to become a FHB you have to have high incomes, borrow more (ie. take on more risk) and get less, yet FHBs are still doing it. Doesn't seem like they have raised their expectations, rather lowered them.

Those who actually bought our first home in the past few years had lowered our expectation. Those who are still whining and doing nothing about it are not. I bought my first home 4 years ago. A tiny 2br in Melbourne western suburb, how many of the whiners will even consider that?

 

[FHB]

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.

In the past house prices hovered around 2-3 times income, then as dual income households became more common they jumped up to ~4 times. The jump up to 6-8 times income seems to have been supported by lower interest rates, relaxed lending and high employment. This isn't a permanent situation, but this doesn't mean FHBs won't find new ways to permanently increase their buying power. For instance FHBs in the past earned less, they had to work their way up to a decent income, these days FHBs can start out on high incomes earlier and can afford to pay more. There may also be new trends like investing young and using this to put towards buying their first home.

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?

 

[steveadl]

I'm sorry, this argument seems to be moving to the notion that FHB's can't afford any properties. I'm having real problems seeing how.

Sydney: $229k, 38km to CBD
http://www.realestate.com.au/cgi-bi...r=&c=56899214&s=nsw&snf=ras-syd&tm=1198301440

Melbourne: $250k+, 31km to CBD
http://www.realestate.com.au/cgi-bi...r=&c=62408510&s=vic&snf=ras-mel&tm=1198302503

Adelaide: Mid $200k's, 12km to CBD
http://www.realestate.com.au/cgi-bi...header=&c=64851865&s=sa&snf=rbs&tm=1198302907

Disclaimer: I don't know the areas in these cities (except Adelaide), only did a quick search on REA - I'm sure others who know these cities could get you closer for same price, I just picked an example from the first page of listings. Although note, they are all houses, you can get closer in with units/apartments.

Side Note: I'm sure all 3 suburbs are not suitable to the cafe late set, so perhaps it's not fair these are brought up in a FHB discussion?

 

[FHB]

I'm sorry, this argument seems to be moving to the notion that FHB's can't afford any properties. I'm having real problems seeing how.

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

 

[FHB]

Those who actually bought our first home in the past few years had lowered our expectation. Those who are still whining and doing nothing about it are not. I bought my first home 4 years ago. A tiny 2br in Melbourne western suburb, how many of the whiners will even consider that?

You are right, the information I posted agreed that FHBs are considering buying lesser properties to enter the market.