Parental Guidance Not Recommended: An Illustrated Guide to the Latest Trends in Affordability

The death of Australian housing affordability - MacroBusiness

The key findings from this year’s report are as follows:

• Melbourne’s median house price to income ratio has reached 10x;
• Sydney’s median house price to income ratio has reached 13.7x;
• The median house price to income ratio in Australia has hit 9x;

• It now takes more than 8 years for FHBs to save 20% for a deposit for a house – a record high;

• Mortgages issued today will consume a greater proportion of FHBs’ incomes over the lifetime of a new loan than ever before.
• The cost of buying in Australia remains far out of reach for FHBs;
• Parents of FHBs continue to take irrational risks to secure home ownership for their children; and
• Government subsidies to FHBs (FHOG/B and stamp duty discounts) increase demand for housing and increases prices which only serves to make housing affordability worse.

 

Lucky that Brisbane, Adelaide, Perth, Hobart and Darwin are affordable for first home buyers then.
Alternatively, peoples first homes might have to be a small, old, partly run down place on the edge of a major city.
I feel sorry for the young ones that can't live in Newtown or buy a 4 bedroom McMansion as their first home.
It's a horrible time to be alive when you can't have everything right now.
The interest rates that are half of what they were in 2007 shouldn't skew results or your stats at all. My house is worth double what I paid in 2007, yet interest rates halved, shame I can't do maths.

 

What's the maths on the deposit? and when interest rates continue to rise?

 

When I read these sort of articles that use medians as their source:

Do you understand that the world does not revolve around you and your "do whatever it takes, ruin as many people's lives, so long as you can make a name for yourself as an investigatory journalist, no matter how many friends you lose or people you leave dead and bloodied along the way, just so long so you can make a name for yourself as an investigatory journalist, no matter how many friends you lose or people you leave dead and bloodied and dying along the way"?...

 

On the other hand, google the LF economics people. Been predicting a crash for years.

 

I'm not sure how we get the younger ones to see the poor logic in their thinking when it comes to this way of viewing the world. It's just like the "I've just finished high school, so I should get a $100K+ per year salary, in a managerial role, with company car and expense account" job mentality that so many youngsters appear to have.

And, before I get the under 30's on here jumping down my throat with a "we're not all like that" (I know you're not, clearly, otherwise you wouldn't be here on PC), please know that the 'degree of entitlement' of younger people has definitely shifted over the past 5-7 years (and with over 20 years of teaching teenagers, I think I'm experienced enough to be able to confidently make the statement!)

I'm in my 40's, onto my 4th PPOR (with a few IP's and shares bubbling along), yet am still nowhere near buying/owning my 'dream home', and still buy second hand furniture and accept hand-me-down clothes for my child. Sure, I'd like 'bigger, better, and nicer', but the maths often just does not add up.

And, after 20+ years in the workforce, I'd like to think I'm far more 'entitled' to a Newtown place (if I actually wanted one) ............

 

How do they calculate the years required to save for a deposit? I call bull dust, there is no way a working couple should take 8 years to save.

We earn just over half the average income and can still put away one of our salaries as savings and just live off 1 persons income. 8 years of saving would get us the deposit for a close to a 2 million dollar property! A FHB should not be looking for a property worth anything near that!

Lets do the maths... If a couple is working earning the average of 80k each per year. Live off just one income and the partners income is purely savings (60k/yr after tax). After just 2 years they have 120k deposit so can buy a 600k property. After 3 years 180k deposit so 900k property, and after just 4 years 240k saved allowing a purchase of around 1.2 million...all depending on serviceability of course, but as far as 20% deposits go, not that hard really.

 

Your maths don't match reality though.

If they did then why aren't there more people on this very forum buying more and more properties every two years?

Oh, because they don't earn $160K combined income. Because they have children and stop work. Or they get sick. Or wages in Australia are flat or falling in real terms.

You can't have the price of homes radically increase, outstripping wages increases and not expect the time to save a deposit to increase too.

 

Amazing that this kind of stuff still sees daylight on here.

It's like PropertyChat Bingo all over again.

The b.s. lie that "young ones" want to live in Newtown or buy a 4-bedroom McMansion. No evidence for that.

The b.s. lie that "they want everything right now". No evidence for that.

The complete non-understanding of basic maths when referring to current low interest rates... ignoring time to save a deposit and that housing prices have radically increased, outstripping wage growth significantly.

Yeah, that's a good thing to do - borrow huge amounts of money to buy on the edge of a city (hey, what's a 1.5 hour commute? Stop complaining), ignoring the fact of 5000-year record low interest rates. Nah, those rates won't increase?

What? You'd like to live near where you work? ENTITLED!

Oh, you think that maybe you'd like to live in a house suitable for your family size? ENTITLED!

Congratulations, you win PropertyChat Bingo!

 

You're right it doesn't match reality of the general population. Majority of people aren't financially educated and believe all the media articles like this one.

Reality may be that you earn half the average income, a general entry level retail job paying $21/hr 41k a year. A couple both earning this can apply the same rule of save one income and put away 35k a year after tax. Still after only 3 years you've got the 105k deposit for a 500k property...Sydney and Melb might need to give it another year or 2 but anywhere else 500k for a FHB is great starting point. It won't be your dream home and shouldn't be, It's a first home!

Who says there isn't people on this very forum buying more and more properties every 2 years? There are 1000's of us buying multiple properties, many add a few every year. It is not the reality of the public but it is the reality of a property investment forum.

Didn't say you needed the average 160k income at all, gave the perfect example of us earning closer to half that but easily saving to buy property. If you have children that is your choice and you can't whinge or blame anyone for not being able to afford a property because you chose to have a family first which from a financial perspective is 2 massive hits (added expense and reduced income) all at once. There is nothing wrong with having kids before buying, only that it will slow or stop you buying if income on lower end.

I do agree saving a deposit has increased, obviously, house prices have. The issue I have with this article is the way the calculations are done for the results. They use average wages and median house prices. Even with house prices where they are today a working couple on average incomes should only take a few years to save up deposit. The data used suggests a working couple on 160k is only saving 25k a year and that is why it takes 8 years. If people can't save 60k a year when on a 160k combined income they're spending waaaaay too much. Some of us frugal people would probably save closer to 90k of that sort of income. Because the media says this is how long it takes to save many give up and jump on the whinge bandwagon.

 

Not all houses have.

Higher-demand areas will always rise above the averages, and those who are at the higher end of incomes can afford to spend more anyway, and often do in those areas; which escalates those properties' rates of increase beyond any FHB's or even average wage earning folks.

Here's a little anecdote for ya's; my wife and I have a combined PAYE income of around $160k per year.

We have 3 kids under 16, and 3 cars (owned by my Business, but have no debt).

We have a $440k loan on a PPoR site, which is currently rented, and we rent ourselves.

We also have:
* a $100k LOC debt against our other IP which is also rented, plus:
* $25k CC cash-advance debt over 2 x CC's
(The above debts used towards our Ubud Dev Project - which doesn't earn an income as yet)...

We still manage to save $500 per week....

Not a lot compared to some here I'm sure - but you get my drift...

 

Someone shows up with credible research backed by evidence. People who have a certain position decide they don't like that evidence and start arguing against it.

They don't come back with any credible research backed by evidence. There is no alternate position where it's easy to save a deposit in a short time...

So we get to anecdotes and maths based on contrived examples.

And we get that judgment - that those people taking eight years to save for a deposit are only doing so because they're lazy or spendthrifts or whatever.

PropertyChat - present facts and evidence, get anecdotes back.

 

You're literally arguing against credible research backed by evidence with an anecdote.

Can you not see the issue here?

 

Yep.

The reason why we come back with anecdotal stories and so forth is because the anecdotal stories are real life situations; which always fly in the face of models, stats and graphs.

What you say is true - the prices have gone up more than wages in many cases; but there are still plenty of cheaper places around for FHB's to buy....just not in the areas they would like.

Unless we suddenly stop all immigration and births, and open up far more land for residential developments; the demand will not decrease at all.

The majority of people want to live near cities, and/or cool suburbs - so this is where the property spikes will always be the worst.

This means that FHB's need to look further out for their first property....like we all had to.

Once you get your first one, and smash away at the Loan - like we all had to - then you can trade-up to a better location after a few years....like we all had to.

 

When people find it hard to buy houses...it reduces the competition for us investors who do. I find it difficult to invest on the stockmarket or trade in currencies, so guess what, I don't. Life is not meant to be fair. If you want to buy a home, you will figure out how and WHERE to do it. If you don't want to live in the place you can afford, you won't.

There are quire literally thousands and thousands of affordable homes for sale right around Australia. It's up to the individual to figure out how to buy it. Or not...their choice!

 

Oh gosh, that tripe again... just not in the areas they would like. Are we really up for another round of PropertyChat Bingo?

It's really strange that people who I'd think could do maths can't seem to see that the financial calculations on property have significantly changed.

When the median property was three times the median income, you could indeed buy your home and smash away at the loan.

But when your house is eight to ten times your income... you can't do that. There is no magical way to smash that loan down. It's just a whopping debt hanging over you.

This is the reality. It's not the same as it was. You can look at inflation calculators and put in your wage from back in the day and realise that you, now, wouldn't be able to buy the same house you did back then. You wouldn't even be able to buy a terrible house on the outskirts.

It's simple mathematics but so many people can't do it for some reason.

 

Census reveals continued home ownership plunge

Home ownership rates have once again fallen. It's not all doom and gloom though as people with mortgages are now generally paying less in repayments due to lower interest rates. The median monthly household mortgage repayment is $1755, which has fallen from $1800 in 2011. The median household weekly rent is $335, which is up from $285 in 2011.

 

You're right I've done it all wrong

I've earn't around half the average Australian income all my life in mostly casual jobs so I shouldn't be semi retired at age of 30...

The facts, research and evidence say I can't do this so I must have done something wrong. I'm going to walk away and start all over and follow the credible research backed evidence that says it takes me 8 years to save a deposit for a first home, however I earn too little so it will actually take me around 16 years to save. But wage growth has slowed and I'd want a family so we will drop an income. Now it will take me 25 years to save a deposit because I'm not a good saver and the rise in house prices for my beach or inner city suburb keeps going up, plus have to wait till kids are adults so wifey can work full time again. Now I'm 55yrs old and have a deposit but have to retire at 70 so loan term can only be 15 years and the repayments are too high over that shorter term so I don't service for a loan...

I wanted to buy that 1 bedroom regional apartment when I was 21 but the research and evidence shown in media articles told me FHB's had to buy in cities at the median or above. The credible evidence also said that it is impossible to save a deposit in 3 years between 18 and 21 whilst studying at uni. It takes 8 years and that's after you've done 3 contiki tours, spent that deposit money (oh I mean savings) on renting that nice inner CBD apartment with no housemates for a few years. Should of probably lived in that converted dining room in the share house so I could save