will house prices continue to double every ten years?

[skater]

I think what most people are forgetting is that in earlier years the banks calculated servicability on ONE income. The male of the household was the income earner while the female stayed at home and looked after the house and kids.

These days serviceability is calculated on BOTH incomes now that we have equality of the sexes. If you go back to those charts above (sorry, I didn't copy them) you will find that in 2010, the ratio compared to wages is 7.8% if you only use ONE wage. Yet if you use two wages for the same property the stats look a whole lot different, making property affordable again.

Then if you move to the outer suburbs where property is a whole lot cheaper again you find out that it is amazingly EASY for people to afford their own home.

Sheesh, I'm on the outer fringes of Sydney. If you have two income earners on the average wage, then there is no reason why you can't have it payed off in record time. Problem is that many of the youngsters just don't think they should have to move outside of where they grew up.

Suck it up, I say.

 

[lizzie]

Same old property arguments that simply do not hold up when scrutinised.

and i'll put another one out there ... show me a chart that show "household income to mortgage ratio" and i'll be impressed. most highly mortgaged households nowadays have two income - even if one is part time.

to show a chart of mortgage against single income is not reflective of the times.

it also doesn't take into consideration that other household expenses have dropped - gosh, i bought an lcd tv the other week for 1/4 of the price that same tv cost me 5 years ago. my new car cost exactly the same as what my old car did 10 years ago (with same age and km's) - but wages have gone up since then.

oops - just read the rest of the thread and realised skater said the same thing (but better).

 

[jrc]

I've just done the exercise with two houses that were in our family. One we sold in 1989 for $300000 resold in 2003 for $770,000 - leaving out transaction costs this is almost 7% compounded over that period, but does not take into account the cost incurred by the subsequent owners after us who did substantial renovations adding rooms.

The second house was purchased by the family in 1984 and sold in 2008. It compounded at 6% per annum over that period (or about 12 years to double in price). This is about the average rate of inflation over that period.

 

[hobo-jo]

Yet if you use two wages for the same property the stats look a whole lot different, making property affordable again.

and i'll put another one out there ... show me a chart that show "household income to mortgage ratio" and i'll be impressed. most highly mortgaged households nowadays have two income - even if one is part time.

Regarding dual incomes, you will find that household income is not that much higher than the median single wage. The chart would not be as extreme as vs the single wage, but it still wouldn't show a healthy reflection on house prices.

Further to this the majority of price growth has occurred in the last 10 years. What changes have we seen to the demographic makeup of the workforce in this time period?

I suggest have a read through the relevant sections of "Australian Social Trends" from the ABS which goes into some of these figures. During the period of strongest (housing) growth against wages (1999-2004) females actually lost ground against males as a percentage of the workforce, etc. I would take the time to post more detail, but I'm at work and supposed to be working

 

[wylie]

Further to this the majority of price growth has occurred in the last 10 years. What changes have we seen to the demographic makeup of the workforce in this time period?

That just cannot be right. I have had an IP or PPOR for over 30 years and "majority of price growth" has not only been over the past ten years.

Plenty of others on here would back me up.

I remember very well a chap I worked with who bought two (or three?) crappy, run-down houses in East Brisbane in about 1980 for around $18K to $20K each and rented them out. He was about 22 or 23 at the time and really switched on. He didn't spend much money and his budget was extremely tight. They would be worth a lot now, but certainly not "mostly" in the past ten years.

Plenty of figures I could give on houses we have bought. We have had great growth over the past ten years, pretty similar to the growth the ten years before that, and the ten years before that.

 

[lizzie]

i would be interested to find out ... even if the dual income was only 1.3x the single income, when taken into consideration the cost of purchases is less it might reflect to something closer than 1.5x ... coupled with lower interest rates, an increased population growth, government stimulation, wealth of general economy, ...

... there are just too many factor involved to make clear and consise charts.

i'll stick to my usual attitude of "it is what it is".

 

[hobo-jo]

That just cannot be right. I have had an IP or PPOR for over 30 years and "majority of price growth" has not only been over the past ten years.
Plenty of others on here would back me up.

Sorry wylie, could have been more clear here, but it was a rushed post, I mean in comparison to wage growth it has climbed faster in the last 10 years than in decades prior as is visualised in the chart on the last page.

 

[Ausprop]

i'll stick to my usual attitude of "it is what it is".

if it was not what it is, what would that mean? I imagine the end of time as we know it? or a parallel universe?

point being - to just shrug shoulders at the numbers and walk away is dangerous IMO. Tho to over analyze is equally dangerous.

 

[skater]

Sorry wylie, could have been more clear here, but it was a rushed post, I mean in comparison to wage growth it has climbed faster in the last 10 years than in decades prior as is visualised in the chart on the last page.

According to the chart, prices started to climb fast mid 80's, which would co-incide with the banks starting to calculate the second income. When I bought my first home it was unusual because I was a single female. Very risky! I got across the line because I worked for the bank so had a stable job.

 

[chase]

i dont think it will double every 10 years from now on (major cities), but will grow more sustainable. i think the past decade has seen the largest amount of immigration occur since the 70's, and with current government policies and issues such as house prices, i beleive the government will try and control the level as much as possible, as we all know the consequences now!! of what happens when there is not enough houses and people who cant afford them try and buy them.

but i guess this argument depends on where you currently are standing, there is always going to be that sleepy town where prices will double, triple or quadruple because of various reasons.... good luck finding those places before anyone else does and buying there...

 

[D.T.]

I think what most people are forgetting is that in earlier years the banks calculated servicability on ONE income. The male of the household was the income earner while the female stayed at home and looked after the house and kids.

I think this is an important bit of information that the charts can't see. Charts see incomes as doubling over a certain period when they've infact quadrupled. Instead of someone earning 25K now, they're earning 50k and so is his wife. And this allows for a higher multiple of property price : earnings.

Most of the charts I've seen look at average wage in Australia rather than average household income, even if they sometimes lable it as that.

 

[truong]

From RP Data Rismark: House price vs Disposable household income

In 3 years between Sep 2000 and Sep 2003, the index shot up from about 3 to 4. Has been stable since then.

 

[truong]

The above chart from RP Data Rismark goes against the ratio of 7 or 8 usually quoted by all sorts of sources.

The reason for the discrepancy, according to Rismark, is because:
1. The "others" use house prices and not "all dwellings" prices that include units, townhouses, semi-detached etc
2. They use house price in capital cities while comparing with wages across Australia ("all regions")
3. They use single wage and not household income
4. They use wage and not income (which includes other stuff such as profit from shares, interests, business incomes, etc...)

Truong

 

[hobo-jo]

From RP Data Rismark: House price vs Disposable household income
In 3 years between Sep 2000 and Sep 2003, the index shot up from about 3 to 4. Has been stable since then.

I have seen this chart before. I believe the multiple is currently 4.4 and has risen from a low in the 1990's of approximately 2.7. This is a 63% increase in the cost of housing against disposable HOUSEHOLD income. Not that different to the rise against a single income which went from 5x to 8x multiple over the same period (a 60% increase).

I don't believe RPData provides a chart which goes further back than he mid 90s (at least not available to the public), it would be interesting to see it taken back to 1970 to see if it correlates with the chart on page 4 (it does over the short period we can compare). The only reason the rise doesn't look as drastic as vs the median single income is that it's over a shorter time frame.

Anyone here want to have a go at explaining what justified this rise in house prices vs single or household income over 1999 to 2004?

 

[keithj]

Strong growth over a short period of time does not necessarily equate to a bubble

We're in agreement then.

The last Australian house price bubble of signficance (e.g. comparable to today) was during the period 1880-1890 and was driven predominatly by the same factor as today (availability of easy credit).

Can you let us have some stats about that period. Events from 120+ years ago I haven't considered as especially relevant to today - to much has changed & the stats from back then aren't particularly valid.

Easy credit is not a small factor, it is the main factor (or multiplier if you will, which has jacked prices up to obscene levels). Take all your examples:

- Limited land availability
- Population growth
- Demand for specific areas

None of these would have been able to drive prices to where they are today without the easy credit, however you could drop any 1 of these factors and add easy credit and likely we still would have had a bubble.

I agree that 'easy credit' has been a (small IMO) factor in this recent boom - however, it wasn't a factor in the previous dozen or so booms. Those booms were caused by the long term effect of rising population, limited desirable supply & disposable wages rising by more than inflation - all of which will contribute to the next few booms.

To many people who have only experienced a single cycle, the growth appears to be a bubble or obscene...... when in fact it happens every cycle, with or without easy credit.

So in answer to the OP, yes the price of a house you actually buy will on average double every 10 years. However, due to lots of cheap less desirable houses being added at the fringes, average/median houses prices are less likely to double in that period.

 

[truong]

OK, this one goes back to 1980.

It shows that from 1980 to about 1992, the index went up from 2 to close to 3. It was a period of extremely high interest rates and tough lending conditions.

So in time of tight credit, the index managed to go up by approx the same proportion as in time of easy credit. Have a look...

 

[hobo-jo]

Can you let us have some stats about that period. Events from 120+ years ago I haven't considered as especially relevant to today - to much has changed & the stats from back then aren't particularly valid.

Some things never change, there will always be asset bubbles and there will always be the deflation of that bubble, really the only question remains is how that occurs.

Above is a graph showing the 1890 bubble and also graphs at this link show it:
http://www.stubbornmule.net/2009/06/property-prices/

Unfortunately there is not as much data about the 1890 bubble as there is our current one, there are however charts and newspaper articles from the time that indicate that it was debt that caused the 1890 bubble as well as the current one:

http://www.henrythornton.com/blog.asp?blog_id=1006

I agree that 'easy credit' has been a (small IMO) factor in this recent boom - however, it wasn't a factor in the previous dozen or so booms.

Those booms were caused by the long term effect of rising population, limited desirable supply & disposable wages rising by more than inflation - all of which will contribute to the next few booms.

Could you be more specific about what “dozen or so” booms you are talking about (e.g. provide years and % growth over this time)?

To many people who have only experienced a single cycle, the growth appears to be a bubble or obscene...... when in fact it happens every cycle, with or without easy credit.

What is the length of one of the cycles you refer to?
Do you think that these smaller cycles could be sitting within a much larger cycle that you are dismissing?

OK, this one goes back to 1980.
It shows that from 1980 to about 1992, the index went up from 2 to close to 3. It was a period of extremely high interest rates and tough lending conditions.
So in time of tight credit, the index managed to go up by approx the same proportion as in time of easy credit. Have a look...

Firstly, thankyou for coming to the table with data to analyse, a lot of the posts thrown around in this thread so far are simply anecdotal experiences, opinions or property myths that are not backed up by facts.

The first thing I note about this chart is that it is single income and not household income like the last chart. You are right that as a multiple of single incomes it does appear house prices increased during the 80’s and it was during a time of high/increasing interest rates. Could it be that the rerating of single to dual incomes happened during this period? Perhaps although interest rates were rising during this period, the banks could have been making credit easier in other ways, by allowing females to borrow for property (does anyone know when this became common place?). I will have to do some hunting perhaps and address the differences between what caused the two increases in multiple of wages another time.

Truong, what in your opinion was the main driver for price increases over wage increases over these two different periods? Do you think the same drivers? Different?

 

[keithj]

Unfortunately there is not as much data about the 1890 bubble as there is our current one, there are however charts and newspaper articles from the time that indicate that it was debt that caused the 1890 bubble as well as the current one:

Yes.... that's what I mean - there isn't really enough data to form a meaningful opinion. IIRC Stapletons graph that you quote was created from a statistically insignificant number of newspaper advertisments for the early years ?

Could you be more specific about what “dozen or so” booms you are talking about (e.g. provide years and % growth over this time)?

See 1st graph in post #78 .

What is the length of one of the cycles you refer to?

See thread title

Do you think that these smaller cycles could be sitting within a much larger cycle that you are dismissing?

Quite possibly..... but if it exists, then it's a multi-generational cycle. Timing such a cycle (which may repeat/rhyme every ~100 yrs) isn't my idea of an investment strategy. I place a lot more weight on recent data than 100 year old data.

Do you think there is a longer cycle in play ? and what is it ? and how many occurrences of the cycle has we seen ? and how is it helpful / how do we time the market with it ? Maybe start a new thread ?

 

[yarraboy]

Look at the chart posted in the thread. You're telling me that population growth is the reason for the price movement for the last 10 years? There was higher growth in each decade from 1960 to 1990, yet somehow with lower population growth we manage a higher increase in housing against wages

Same old property arguments that simply do not hold up when scrutinised.

No doubt the extra population adds some factor to the equation, but the real reason for house price growth has been the same as any other country with a housing bubble, easier access to more credit. If easy credit is removed (via rising interest rates, tighter lending criteria) the bubble will burst or at worst partially deflate.

hobo-joe hit the nail on the head.

 

[yarraboy]

I think what most people are forgetting is that in earlier years the banks calculated servicability on ONE income. The male of the household was the income earner while the female stayed at home and looked after the house and kids.

These days serviceability is calculated on BOTH incomes now that we have equality of the sexes. If you go back to those charts above (sorry, I didn't copy them) you will find that in 2010, the ratio compared to wages is 7.8% if you only use ONE wage. Yet if you use two wages for the same property the stats look a whole lot different, making property affordable again.

Then if you move to the outer suburbs where property is a whole lot cheaper again you find out that it is amazingly EASY for people to afford their own home.

Sheesh, I'm on the outer fringes of Sydney. If you have two income earners on the average wage, then there is no reason why you can't have it payed off in record time. Problem is that many of the youngsters just don't think they should have to move outside of where they grew up.

Suck it up, I say.

When my parents bought their first house in the early 70's, they both worked. Same when they upgraded and required a mortgage.

Two wage households are not new. They have around for many years.