Can property prices outpace wage growth?

Discussion in 'Property Market Economics' started by Marcus Yuuu, 23rd Jul, 2018.

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  1. Bender12

    Bender12 Well-Known Member

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    That's more than I would've thought.
    Also with regards to the median income, anyone know how it's measured? Does it only include wages from main job or include all income from investments, side jobs?
     
  2. WattleIdo

    WattleIdo midas touch

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    I guess my point is that some do. And that's why it matters where you invest.
    You wouldn't invest in Europe for example.
    Or Japan.
    But Australia is growing. The cities are growing. Some of the regions are growing. Where do you see the most consistent growth? In the most affordable markets where the higher proportion of the population can afford. Where there is infrastucture, jobs, immigrants, trade, government contracts, etc.
     
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  3. WattleIdo

    WattleIdo midas touch

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    Wow, great graph. First thing that really stands out is that terrible dip in 1945. Half the population gone so quickly.
    The next thing I see is that there are A LOT of baby boomers born in Tokyo. Approx 3 million in 5 years.
     
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  4. Perthguy

    Perthguy Well-Known Member

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    Over the long term I think you are right.

    "In just 20 years, the average Sydney house price has increased more than fivefold from $233,250 in 1997 to $1,190,390 today, while in Melbourne prices over the same period have increased by more than six times from $142,000 to $943,100 today.​

    While it's true that wages have increased over this time, earnings growth has not kept up with house price growth. In 20 years, average annual full-time earnings have not quite doubled from $42,010 in 1997 to $82,784 today."
    In 20 Years The Average House Price In Sydney And Melbourne Could Exceed $6 Million

    Note the central thesis of the article is that median house prices in Sydney and Melbourne will exceed $6 million in the next 20 years. I doubt this is possible.
     
  5. hobartchic

    hobartchic Well-Known Member

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    I think people want to be careful using Tokyo as a real estate example for Sydney to emulate, or be compared to. Real estate prices in Tokyo crashed 70-90 per cent in 24 hours at the peak of the Asian Economic Crisis.

    The Asian Crisis, the IMF, and the Japanese Economy
     
  6. hobartchic

    hobartchic Well-Known Member

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    Back to the original question, will property prices outpace wage, growth? For short periods of time. Forever? No. It's not sustainable. It's only been sustained in Australia by record low interest rates, IO lending on a historically grand scale and historically generous family welfare. All of which is being unwound.
     
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  7. Sackie

    Sackie Well-Known Member

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    For me a more interesting question is " Is it essential for property prices to outpace wage growth in order for savvy investors to do well?"

    In my opinion, no.
     
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  8. hobartchic

    hobartchic Well-Known Member

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    A far more interesting question. I also agree with your answer. Not much of a discussion point though :eek:
     
  9. Sackie

    Sackie Well-Known Member

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    You can bet your socks off that there will be investors in the next 5,10,20 years making good investment choices and do very well. While others like to debate economics (or trickonomics as I call it), I prefer to stalk markets looking for value then......meow....meow.....meow...PAO!! Snap a deal. Rinse and repeat.
     
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  10. hobartchic

    hobartchic Well-Known Member

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    I love a little bit of economics. It covers all the topics a "lady" should not discuss, like money and politics. Thankfully, I'm not much of a lady, so life's far more interesting. I'm doing a bit of stalking myself :D
     
  11. Sackie

    Sackie Well-Known Member

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    We can share stalking tips :D

    We both seem to be insomniacs too.. :cool:
     
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  12. Perthguy

    Perthguy Well-Known Member

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    Get some sleep Leo :p
     
  13. Sackie

    Sackie Well-Known Member

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    Oooooookaaay...
     
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  14. MikeyBallarat

    MikeyBallarat Well-Known Member

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    ‘Brand new apartment’...yup says it all
     
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  15. Guest

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    Can you elaborate?
    Looking at prices over the period I doubt the trends would differ much for established home prices.
    I feel you have been answering this (different) question since the beginning of the thread ;)

    I agree with your answer, but would add that it is easier to make money going with a trend than to work against it (in my experience).
     
  16. Sackie

    Sackie Well-Known Member

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    No disagreement there. Even better if you're adding value. Not a slave to organic growth;)
     
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  17. euro73

    euro73 Well-Known Member Business Member

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    Its easy to explain how this happened. Debt to income ratios that started at 3.5 x income maximum possible , expanded to 15 or 20 x income maximum possible.

    Sure, not too many people went to 15 or 20 x income, but it was possible to do so if one desired.

    Now, with debt to income ratios being soft capped at 6 - 7 x income by most lenders ( with higher DIR's allowed by exception only , generally) the explosion in house prices that happened above isn't mathematically possible moving forward, unless we see very significant wage inflation and/or very significant debt reduction.

    Based on 6-7 x income, for a $2 Million median to occur ( slightly less than double the current Sydney median and slightly more than double the current Melbourne median ) then median household incomes of 250-300K would need to occur . I don't see that happening in 7-10 years, so I don't see Sydney or Melbourne's "cycle" of doubling , on average every 7-10 years being repeated. If no debt was being paid down, one could argue it might take the better part of 20 -25 years to see sufficient increases to median household incomes that DIR's would get below 6-7 x income.... but with P&I repayments reducing debt, I suspect we will be looking at something more like 12-15 years. Unless APRA reverses things, of course. Then it could happen sooner.

    Otherwise, that my friends, is the broad maths of the situation for Sydney and Melbourne... yes there are some lenders where exceptions exist... but you really need most borrowers to be able to access more money from most lenders in order for most prices across most locations to rise. Little niches here and there wont shift the needle too much in most locations.
     
    Last edited: 25th Jul, 2018
  18. Perthguy

    Perthguy Well-Known Member

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    Or more than 2 wage earners on a loan. Instead of mum and dad buying a house, now it could be more than 2 wage earners on the loan. What happens to household incomes then?

    According to the census they already live together. How long before they start buying together?

    Multigenerational living is fast gaining traction

    Multigenerational households have become the norm in many of our largest cities. At the time of the last census in 2011, more than one in five Aussies lived in multigenerational households. In Sydney, one in four residents lived in multigenerational households.

    Multigenerational living is fast gaining traction

    The stats say it's already happening

    Emerging home ownership trends in Australia

    3. Group loans
    Co-ownership of property is nothing new but continues to grow in popularity, and the number of requests for split reports that we receive is testament to this. According to analysis from CommBank this home ownership trend is rising, with 67 per cent of applications in 2016 having two or more applicants. They also found that the number of single applicants for mortgages is decreasing.

    An increasing number of Australians are choosing to enter into a mortgage with a sibling, friend or trusted acquaintance, in addition to the more traditional choice of a partner or spouse. This growth seems to be in line with the rise of multi-generational living, which is a major social trend we’re seeing at the moment.

    Emerging home ownership trends in Australia

    I am not saying that property prices will double in the next 20 years but to run a "mathematical analysis" on the traditional "mum and dad" buying model underestimates home buying and ownership trends. It remains to be seen how much these trends will impact prices.
     
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  19. euro73

    euro73 Well-Known Member Business Member

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    You’d need massive volumes of JV purchases.
    Introduce polygamy and they may be onto something :)

    Sydney’s and Melbourne’s medians are already 50% above 6 x income. Add a 3rd salary and you’re just restoring 6x income. Wont change anything in a hurry . You’d need 4 buyers on median incomes to get Sydney down to 5x DIR and Melbourne down to 4.5 x DIR ..... which still wouldnt leave much room for growth back to 6 x income
     
    Last edited: 25th Jul, 2018
  20. Perthguy

    Perthguy Well-Known Member

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    From another thread...