Might happen sooner than that. Note what has been happening with New Zealand house prices in response to interest rates being lowered and staying low.
Westpac MD Gail Kelly says compound growth in house prices are over for good!
- Thread starter hobo-jo
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There was an article in the NZ Herald about long term price rises.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10812696
It's reiterating arguments from a recently published book, that there are three misconceptions about property investment.
I'd agree with what EvanD said: If wages grow at 3% to 5%, which is roughly their rate of growth over the past decade, then it might take a long time for incomes to catch up with property prices, particularly if the expectation is that they'll return to a similar ratio as they were some years back.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10812696
It's reiterating arguments from a recently published book, that there are three misconceptions about property investment.
- House prices go up over the medium and long term
- Dips are an opportunity to get into the market because they are relatively brief
- Prices grow well ahead of the rate of inflation making houses a very good investment.
I'd agree with what EvanD said: If wages grow at 3% to 5%, which is roughly their rate of growth over the past decade, then it might take a long time for incomes to catch up with property prices, particularly if the expectation is that they'll return to a similar ratio as they were some years back.
whose expectation is that? half the population couldn't find the on button to the calculator to work that out
You only have to look at over the past 3 decades and the profound impact property prices have had on our economy,and in property there is so many models out there for people to emulate,the demand never stops only the entry price,like any free market..
also how many "years back"? there has been a big structural change compared to say the 70s and most women work now too. i think household income is a more accurate measure
it is definitely harder for a single income household to own a home compared to decades ago but thems the breaks i guess
Really?
Two decades ago a single income HH could probably afford a property in the "mortgage belt". I suspect that it is still the same case now. it's just that the mortgage belt has shifted 30km further out from the CBD.
The only difference is people's expectations.
People want to live closer to the city and enjoy sipping lattes, going out every night, eating out and then complain that they can't afford the place they live in.
One thing people can not do these days, is make short term sacrifices (that being one to 3 years) for long term gains.
Yes we should be promoting polyamorous relationships. Would certainly make housing more affordable. A big group orgy with the benefit of being able to afford a home.
you're preaching to the converted here, i dont buy into the gen y's cant afford a home nonsense as im early gen y myself and have bought and sold quite a few properties already
i dont think there can be any argument that if you look purely at housing as a single person now it is harder to own say a home on a block than 20 or 30 years ago or even 10 years ago if we're talking perth
i do see what youre saying, i just think there were a few more affordable metro bargains back then
for example i know someone who bought a 1 bed apartment in maylands for $105k in 2005 or so and someone else who bought a 3x1 villa in riverton for $85k in the late 90s. both parties were not savvy investors who bought significantly under market value either, so they were market prices.
both were roughly 2 times average wage for the time, you would not be able to find a single property in metro perth for that now, mortgage belt or otherwise
of course plenty of other things are cheaper now like travel, white goods etc and im not in any way indicating a "you lot had it easier in your day" type thing either.
Prices as a ratio to household income have increased by a similar amount to the change vs single incomes:
http://somersoft.com/forums/showpost.php?p=691187&postcount=123
You don't need to go back to the 70s. In the last 15 years alone we've seen prices rise around 60% relative to household income.
Wasn't that also roughly the time we finished moving from a very high - relatively low interest rate environment.
http://www.tradingeconomics.com/chart.png?s=rbatctr&d1=19900101&d2=20120630
A much better indicator would be 'mortgage repayments' relative to 'household incomes' over time. Does anyone have that graph?
No guarantee that the low interest rate environment continues permanantly, but this probably close to what you're looking for:
http://bilbo.economicoutlook.net/blog/?p=11770The following graph shows the household interest-servicing payments as a percentage of disposable income. In 1989, the interest rate was 17 percent. But when interest rates were 17 per cent, the average mortgage holder was better off than now because the mortgage repayments as a percent of average household’s disposable income were much lower. This is because wages growth was stronger then and the debt levels were lower.
The interest burden on household debt as a percentage of disposable income (what you have to spend after taxes) has risen dramatically in recent years because of the private debt binge.
In June 1989, the mortgage rate was 17 percent but interest payments only constituted 8.7 per cent of disposable income. In June 2010, while the mortgage rate was down to 7.4 per cent, the interest burden was 11.9 per cent.
So the average mortgage holder is worse off now even though rates are lower. Many households are walking a financial tightrope and further interest rate rises will challenge their solvency.
Those god damned younguns....in my day.....
I agree with some of the sentiment in this thread that property can still be afforded by those prepared to save/sacrifice and then leverage to the max, but at the same time it's pretty obvious that housing costs have risen substantially over the last 15-20+ years even when taking into consideration the lower interest rate environment.
30 years ago someone saving hard for a home could probably have put away a 15-20% home deposit over a couple of years. Today they would be saving maybe 5-10% over a similar time frame. So they are leveraging a smaller deposit toward a larger mortgage (nominally as well as relative to their income)... and in the lower interest rate environment they are more at risk from even slight interest rate rises.
In an environment with 12% mortgage rates a 1% increase in rates burdens the borrower by an extra 8% in interest costs... a 1% increase in rates when mortgages are 6% is an extra 16% and this increase is even further amplified by the higher average LVR today than in times past.
Regardless of whether the current generation can survive on two minute noodles so they can live the dream of owning their own home, it seems fewer are choosing to do so. You can see this from the volume trends, especially over the last couple of years. Problem is with so much vested interest now in prices continually rising the government keeps stepping in with various grants and subsidies to try and get people buying again and at higher prices.
Now the shoe is on the other foot, rather than the young complaining about prices being too high, it's current owners complaining that the young aren't buying and that prices are falling... oh the irony
30 years ago someone saving hard for a home could probably have put away a 15-20% home deposit over a couple of years. Today they would be saving maybe 5-10% over a similar time frame. So they are leveraging a smaller deposit toward a larger mortgage (nominally as well as relative to their income)... and in the lower interest rate environment they are more at risk from even slight interest rate rises.
In an environment with 12% mortgage rates a 1% increase in rates burdens the borrower by an extra 8% in interest costs... a 1% increase in rates when mortgages are 6% is an extra 16% and this increase is even further amplified by the higher average LVR today than in times past.
Regardless of whether the current generation can survive on two minute noodles so they can live the dream of owning their own home, it seems fewer are choosing to do so. You can see this from the volume trends, especially over the last couple of years. Problem is with so much vested interest now in prices continually rising the government keeps stepping in with various grants and subsidies to try and get people buying again and at higher prices.
Now the shoe is on the other foot, rather than the young complaining about prices being too high, it's current owners complaining that the young aren't buying and that prices are falling... oh the irony
Also note that I would much rather have a $300k mortgage at 12% interest rate, instead of a $600k mortgage at 6% interest rate.
Interest only payments may be the same, but they are definitely not the same scenarios, even though the pretty graph of interest repayments to disposable income may tell you that they are.
There is no way that they are equally affordable, especially as you get close to retirement and still have a massive outstanding debt.
Interest only payments may be the same, but they are definitely not the same scenarios, even though the pretty graph of interest repayments to disposable income may tell you that they are.
There is no way that they are equally affordable, especially as you get close to retirement and still have a massive outstanding debt.
Now the shoe is on the other foot, rather than the young complaining about prices being too high, it's current owners complaining that the young aren't buying and that prices are falling... oh the irony
I think it should read; NO-ONE is buying.
Of course; there are areas that are still turning over a little bit.
I agree with some of the sentiment in this thread that property can still be afforded by those prepared to save/sacrifice and then leverage to the max, but at the same time it's pretty obvious that housing costs have risen substantially over the last 15-20+ years even when taking into consideration the lower interest rate environment.
30 years ago someone saving hard for a home could probably have put away a 15-20% home deposit over a couple of years. Today they would be saving maybe 5-10% over a similar time frame. So they are leveraging a smaller deposit toward a larger mortgage (nominally as well as relative to their income)... and in the lower interest rate environment they are more at risk from even slight interest rate rises.
In an environment with 12% mortgage rates a 1% increase in rates burdens the borrower by an extra 8% in interest costs... a 1% increase in rates when mortgages are 6% is an extra 16% and this increase is even further amplified by the higher average LVR today than in times past.
Regardless of whether the current generation can survive on two minute noodles so they can live the dream of owning their own home, it seems fewer are choosing to do so. You can see this from the volume trends, especially over the last couple of years. Problem is with so much vested interest now in prices continually rising the government keeps stepping in with various grants and subsidies to try and get people buying again and at higher prices.
Now the shoe is on the other foot, rather than the young complaining about prices being too high, it's current owners complaining that the young aren't buying and that prices are falling... oh the irony
Was having a chat with an overseas friend from europe, where prices are so high where people simply rent and dont even think about buying, but in australia we have the mentality of "the great aussie dream" plus neg gearing. Maybe aus people will change its way of thinking down the track,
as for gen Ys not being able to afford their first home, true, they have made choices in their lifestyle that makes it unaffordable, eg ipods, ipads, foxtel, annual overseas holidays, the latest plasmas, but from an income to price ratio perpsective, property has become far more expensive, unless you buy in those estates miles from civilisation. If they lived on 2 minute noodles, maybe every genY could afford a $500k first home
but surely there must come a point where, gen Ys cant afford anything or choose not to, that properties outside the FHO's price range simply stop selling that the prices have to retreat or not move for generations???
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