Property is cheaper than 10 years ago

Property is cheaper than it was ten years ago.

That’s going to sound like a pretty wacky thing to say given the phenomenal boom in prices we’ve seen over the past ten years or so, especially in Sydney and Melbourne.

(Maybe Spiro’s got the chart upside down? He’s normally pretty sharp with those things…)

But what I really mean is, property is more affordable.

Again, that’s going to sound pretty crazy.

But the truth is, when we’re talking about affordability, we can’t just simply look at prices.

Because almost nobody (apart from the Chinese) buy with cash. Pretty much everyone buys property with finance.

That means we need to look at finance costs as well – not just the purchase price.

And on that front, finance costs are falling… fast.

Record-low mortgage rates have made it easier to meet finance costs – easier than it has been in decades.

Australian Bureau of Statistics calculations show that as recently as 2005-06 it took an average household 19 per cent of its gross income to meet ongoing housing costs. By 2015-16, it had fallen to 16 per cent.

That’s the lowest point in over twenty years of data.

The average mortgaged household now spends less of its income on housing than it does on food, a turnaround from earlier surveys in which it spent more. Housing costs include mortgage payments and water and rate payments.

And to think about affordability, you also need to add in increases in income.

Adjusted for inflation, the average mortgaged household paid $434 per week in 2015-16, much the same as in 2005-06. But over the same period the average income of mortgaged households climbed from $2272 per week to $2759.

“Mortgage and property values have also increased in the last decade,” said Dean Adams, the Bureau’s director of household characteristics and social reporting. “Ten years ago, the real median dwelling value was $449,000, which climbed to $520,000.”

The ABS guy reckons that the mortgage burden could be even lower than the survey results suggest.

“Our survey measures what they chose to pay in mortgage costs, not what they had to pay,” he said. “As rates have come down, some will have spent more than they need to in order to get ahead on their loans.”

He reckons that Canberra is the easiest city in which to pay off a mortgage, with monthly payments of 15 per cent of income, a near record low. Darwin is the most expensive, with monthly payments of 18 per cent. Sydney and Hobart have monthly payments of 17 per cent, and Melbourne, Brisbane Adelaide and Perth monthly payments of 16 per cent.

Now look at these figures, where mortgage payments are at a record low, and tell me there’s a bubble.

Sure, you might worry if it’s sustainable, particularly if rates rise. That’s a valid question.

But this idea that property prices just reflect some collective insanity is just not true.

People pay what they can afford to pay. Our prices reflect that.

It’s just what the maths says, people.

Do you think property prices are unaffordable?

Spiro Kladis
Managing Director, Cashflow Capital

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  1. mick stewart
    12 months ago

    interesting stats

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