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1985 vs 2016

Discussion in 'General Property Chat' started by MJS1034, 4th May, 2016.

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  1. MJS1034

    MJS1034 Well-Known Member

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    Hey guys,

    As a 25 year old everyone around my age is saying how hard it is to buy properties these days in comparison to back when our parents were that age so thought I would do a (broad) comparison on wage vs repayments.

    Obviously there are so many more variables that can be added but it's a good starting point. Interested to hear people's opinions!


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  2. Player

    Player Well-Known Member

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    The percentages appearing higher in 1985 are due to interest rates. They climbed even higher but then dropped sharply as well into the 1990's. The thing to realise even in light of the higher median wage/price ratios today is that life is cheaper on so many levels, except property :)

    Cars are much cheaper in real terms as are white goods, TV's , etc, and all the improved functionality, safety and technological advancements with the hard consumer items we buy. Whilst the multiple of value to wage is higher, serviceability is lower as far as rates go. Looks like they could go even lower fueling another property bull run then that multiple will really blow out.

    On the flip side the median property is different also. It generally sits on a smaller lot size with the advent of urban sprawl and the attempt at containment of urban fringes to allow for much denser development in inner city areas and key urban hubs/nodes. In that sense you are getting less bang for buck whilst paying a higher multiple relative to average wages. I didn't realise the average wage today was $ 58,000. I thought it was a little higher, although admittedly I am out of touch and not informed with employment issues.
     
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  3. euro73

    euro73 Well-Known Member Business Member

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  4. dan_89

    dan_89 Well-Known Member

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    Last edited: 4th May, 2016
  5. euro73

    euro73 Well-Known Member Business Member

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    The ABS link says full time adult, not family.... there is a lot of conflicting data on what people earn...
     
  6. datto

    datto Well-Known Member

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    Back in 1985 you could probably pick up a house in Mt Druitt for $30K.

    Today it may be worth $450 K. That's a whopping 15X multiple.

    If you lived there all that time you would have had your house broken in a whopping 15 times not to mention how many whopping times your car would have been stolen,.

    Don't forget the muggings, assaults etc. That's a lot of whoppings to consider lol.
     
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  7. House

    House Well-Known Member Premium Member

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    I remember doing something similar for a friend moaning about property prices.

    Something simple along the lines of "In 2008 the median was $678,500. The home loan rate back then was 9.45%. So about $64k pa in repayments.
    The median now is about $1m but with IR down to 5%, it costs $50k pa to own. So while prices have increased, it's actually cheaper to own your own home"

    He was quite surprised ;)
     
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  8. ashish1137

    ashish1137 Well-Known Member

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    Hi Mate,

    I notice your love for Mt. Druitt such that you cant stop praising it in any thread.:D But I love your posts. Keep it going.

    Cheers
     
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  9. Graeme

    Graeme Well-Known Member

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    I think that the interest rates in the example are a bit high. According to Loansense's historical interest rate data they were between 11.5% and 13.5% in 1985.

    The average house price in 1985 might be a touch high too. According to this paper, Sydney's was $88K, and Melbourne was $75K. But I'll roll with the $80K figure, as it doesn't make that much difference.

    There's a big difference between deposits. In 1985, a 20% deposit was just over a year's gross wages. In 2016 it's nearly two and a half years.

    Lastly, the figures are for interest only rather than repayment. With high interest rates, these are close together, whilst at low rates there's a bit difference.

    So here are my numbers. The figure in the brackets is the percent of gross salary taken up by mortgage payments.

    1985: 15% Interest Rates with a 20% deposit

    IO: $800 pcm (66%)
    Repayment: $812 pcm (67%)

    1985: 13.5% Interest Rates with a 20% deposit

    IO: $720 pcm (60%)
    Repayment: $736 pcm (61%)

    2016: 5% Interest Rates with a 20% deposit

    IO: $2333 pcm (48%)
    Repayment: $3036 pcm (62%)

    2016: 5% Interest Rates with a 10% deposit


    IO: $2625 pcm (54%)
    Repayment: $3415 pcm (71%)

    Depending on what figures you believe, the cost of buying a home in 2016 with a repayment mortgage is either slightly more expensive or a lot more expensive than in 1985, but with an interest only loan it's cheaper.

    OK, that's not the whole story. In 1985 inflation was higher, so incomes would have risen faster, and the percentage of salary going to mortgage would have fallen within several years.

    In 2016, with the economy at risk of tipping into deflation, slower wage growth means that the burden of a loan will stick around for a lot longer. At a guess, it might take three times as long to wear it down.

    The other question is what is (or was) the first home buyer mortgage in 1985? According to the SMH, the average in 2015 was $362,000. This graph goes back to 1993, and I'd be curious to see the figures from further back.

    LoanSize.gif
     
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  10. Graeme

    Graeme Well-Known Member

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    As an aside, back in the late sixties, or early seventies it was common for young couples to buy a house for life. Click on the thumbnail for the full piece, which is about a Pettit and Sevitt project home designed by Harry Seidler.

    Curvilinear.jpg
     
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  11. Hanison

    Hanison Well-Known Member

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    Add in to the mix double income households being the norm and what do we have .....

    The same.
     
  12. vbplease

    vbplease Well-Known Member

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    This would be true if a home loan was typically paid off in a year.. you're capturing just a single point in time which is kinda pointless when a home loan is paid off in 20+ years.

    It was way more affordable to buy back then, provided you stay on a variable rate for the life of the loan..
     
  13. Hodor

    Hodor Well-Known Member

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    If you had new for old car replacement reach time it was stolen or torched you'd still have a new car. Just makes financial sense to live there
     
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  14. Hodor

    Hodor Well-Known Member

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    I don't agree. In hindsight it was easier to pay off as once rates came down the multiples were more favorable.

    What everyone seems to be complaining about is it is impossible for young people to get INTO the market and buy their first place. Which is no more difficult.
     
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  15. Plutus

    Plutus Well-Known Member

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    The RBA has already done this to death. Houses are more expensive now due a tonne of factors, some of which are mentioned on this thread, almost all of which have been mentioned in other threads, to name a few:

    • De-regulation of the banking sector
    • OS investment
    • decreased fertility rates
    • rise of the dual income household
    • shortsighted town/master planning
    "kids these days" threads get really repetitive.

    [​IMG]
     
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  16. Mumbai

    Mumbai Well-Known Member

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    I wasn't here in 1985, so wouldn't know what was the norm back then, but wonder if women worked and got paid the 'average' salary. If not, then it is a big factor to consider. There are lot of DINK and just double income in general to share the mortgage stress.
     
  17. Xenia

    Xenia Adelaide Property Manager Business Member

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    There were even more excuses and more fear in the 80s than now.

    .. And no support or like minded people to talk with.
     
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  18. Plutus

    Plutus Well-Known Member

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    If you're really interested in these topics, browse some of the RBA bulletins on it. They are funded by taxpayer $$ so you might as well get some benefit. Even if you just look at the graphs & skim the conclusions, you'll pick up a lot.

    http://www.rba.gov.au/publications/bulletin/2015/sep/3.html
    ^^ Really good one
    http://www.rba.gov.au/publications/bulletin/2014/jun/2.html
    http://www.rba.gov.au/publications/bulletin/2014/mar/4.html
    http://www.rba.gov.au/publications/bulletin/2013/dec/4.html
    http://www.rba.gov.au/publications/bulletin/2012/dec/2.html
    ^^ Really good one
    http://www.rba.gov.au/publications/bulletin/2012/sep/2.html
    http://www.rba.gov.au/publications/bulletin/2012/jun/4.html
     
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  19. Plutus

    Plutus Well-Known Member

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    Are you sure that's not because you're talking to different people now vs the 80s?

    A boom period with IR's to slow spending (while not always a perfect metric, high IR's = things are going well, low IR's = things aren't going so great, stimulate!) vs a slow period where the "real cost" of housing is now significantly more expensive due to numerous factors.
     
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  20. emza

    emza Well-Known Member

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    $14500 in 1985 is $39,803 in 2015. The $80,000 house is $219,604. Ratio of 5.5.

    Someone with an income of $39,803 today isn't buying a house.

    Yet in 1985 the average income could have bought the median house.

    That house they could have bought in 1985 is no longer available because the ratio of income to house price has radically changed.
     
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