Sydney House Price and Mortgage Repayment to Income Ratio

[Shadow]

Somersoft members may find these charts useful...

Sydney House Prices (Residex Index)

Sydney house price to income ratio (currently where it was back in 2002, over a decade ago.)

Note that the chart above is for freestanding houses to single income. The all-dwellings to household income ratio is around 6X rather than 9X.

Sydney Mortgage Repayment to Income Ratio

This chart uses historical mortgage rates to calculate the annual mortgage repayments on a Sydney median freestanding house as a proportion of the average single adult income, assuming the buyer borrows 100% of the house price (no deposit).

Amazingly, it would have taken more than 80% of a single adult wage to service a 100% LVR mortgage on a Sydney median house in 2008 (when the average SVR mortage rate hit 9.5%). This has dropped back down to just over 50% today, which is pretty much were it was in 1994.

So in terms of true affordability (mortgage repayments to income), Sydney is back to 1994 levels.

Imagine how high Sydney house prices could go if the mortgage repayment to income ratio rose back to 2008 levels under current interest rates.

Sources... loansense.com.au, residex.com.au, abs.gov.au/AUSSTATS/[email protected]/DetailsPage/6302.0May 2013

 

[Terry_w]

Thanks shadow. Love graphs - it make it so much easier to understand.

 

[see_change]

Interesting your comparison with 94 .

That's when we bought our first PPOR in pymble and after that prices just went steadily up after a preceding flat period of around 6-7 years .

Cliff

 

[Richard Feynman]

Thanks for sharing. Very insightful.

 

[Shadow]

The Sydney construction boom that kicked off in early 2012 is now up to 2002-2003 Sydney boom levels, in terms of dwelling approvals.

I expect this boom to peak sometime around 2016...

 

[TMNT]

pls explain something to me,

wouldnt these sort of cases be the ultimate example of never assume history will repeat itself?

sure due to the ecnomy construction isnt going to collapse or fall, but how on earth can you predict when the future peak will be?

people might realise its too expensive to build, or the west syd market might flatten out

nobody knows is my opinion

 

[nhg]

Cool, thanks.

Would you have a graph of house prices against median house-hold income?

I'm thinking of the neighborhoods I've lived in, usually more than 1 income per household, would this be a more accurate?

 

[Deltaberry]

Not really. Mortgage-to-income is probably the most accurate.

For example, if:
- Houses costed $1,000,000
- Income was $50,000
- Price-to-income ratio is 20x

However, if:
- Interest rates were 1%
- Debt was unlimited
- Interest to Income would be 0.2

which would imply property still has a long way to go.

The counter-argument would be, what happens when interest rates rise from whatever it is today to much more? Say 15%?

Well that is a big risk. But what if interest rates fall to 0.5%? Answer: some of us will be very very rich.