I was talking with friends about Sydney affordability ... there was some debate about linking income to home prices. You know how the story goes ... "well they paid $50K for that house back 20 years ago". No one however talks about wages then. If I compare today ... ** Sydney median home price $505,000 ( Source : SMH Feb, 2005 ) ** Sydney's average wage $70,702 p.a ( source : The Australia Aug, 2005 ). I am just curious if anyone has gone back 15, 10 or even 5 years back to find these 2 averages and see what the affordability looked like.
There is a third factor you need to take into account in "affordability" comparisons - the cost of finance. This includes both interest rates and what you need to do to actually get a loan. The majority of people cannot afford to buy a property outright - they must obtain bank finance. Before deregulation of the lending industry it was much more difficult to obtain finance, and loans were typically of a much lower LVR - thus requiring a larger deposit. Interest rates in recent years have been at historically very low values, LVRs are much higher now - especially with LMI, and so the actual cost of finance has also been low recently.
The cost of finance is an important factor indeed, and one that needs to be considered. I found this in an article from Aug 2003, put out by the Qld Urban Development Institute of Australia: "In the late 1970’s in Australia a monthly repayment on a home of $35,600 was 17 per cent of average household income with interest rates at 10.8 per cent, while today the monthly repayments on a house of $386,900 are 28 per cent of household income with interest rates at 6.55 per cent.” So, whilst interest rates are lower now than they were in the late 70's (and other periods since then) we are now spending a higher perecentage of our disposable income on mortgages. The real concern is for those who have overextended and for whom even a one percent hike will hurt. Affordability, by itself, is not the only variable to consider.
