Shares or NSW Property

That’s a massive call, with the median price for a house in Sydney sitting at $531,500 (got this SMH from Nov 08, probably lower by now), your saying in 5 years or so the average price of a house in Sydney is going to be $1 Million +.

So that’s an average house, mortgaged by an average family earning an average income. What sort of average income can support the following repayments on a $1 Million mortgage?

At 6% pa interest over 30 years that’s a monthly repayment of $6,000, which is $72,000 p.a. after tax
At 7% pa interest over 30 years that’s a monthly repayment of $6,650, which is $79,800 p.a. after tax
At 8% pa interest over 30 years that’s a monthly repayment of $7,337, which is $88,000 p.a. after tax
At 9% pa interest over 30 years that’s a monthly repayment of $8,046, which is $96,552 p.a. after tax

Australians as a whole will need massive pay rises across the board to fund such high property prices. As we are headed into a period of deflation and recession the chances of incomes rising significantly over the next 5 years+ is wishful thinking.

Low interest rates will maintain prices for now, but without extra income to support bigger mortgages I can’t see any major stimulus to boost house prices

 

What sort of average income can support the following repayments on a $500,000 mortgage?

At 6% pa interest over 30 years that’s a monthly repayment of $3,000, which is $36,000 p.a. after tax
At 7% pa interest over 30 years that’s a monthly repayment of $3,325, which is $39.400 p.a. after tax
At 8% pa interest over 30 years that’s a monthly repayment of $3,668, which is $44,000 p.a. after tax
At 9% pa interest over 30 years that’s a monthly repayment of $4,023, which is $48,276 p.a. after tax

I just simply divided it by half. I am not going to comment about current affortability in Sydney. It all comes to individual situation, single or double income, deposit, first home or upgrading property etc..

 

No I didn't meant it to sound that way.
I am expecting the low end of the Sydney market to double.
If this doesn't happen it won't bother me because as of next month all of my IP's will be +ve geared so my holding costs will be nil.
In the meantime, I am waiting for fixed interest rates to fall a bit more
and I plan to fix most of my loans for 10 years or so.
(Till my retirement kicks in...... )

 

Middle and upper Sydney market doesn’t need to double to benefit higher capital gains.

What do you think chances are if bottom end of the market doubles people start upgrading to more expensive housing?

 

Dudek

Upgrading to more expensive properties happens all the time
but there is still a very big gap between the 2.

I've always believed that there is too much price difference between entry level property and the much more expensive ones.

It's hard to define " more expensive" but I remember in the old days there was $50-150K difference between entry level and 2nd home buyer territory. Now that difference is much greater.

I could be wrong but I am of the opinion that now the conditions are right for a correction towards the norm.
This means that the high end will come down and/or the low end has to increase.

 

I have seen it few times in the past but it always in reverse order. It was almost always top end of the town going up then rest of the market followed. Opposite in bust times, first prices are going down in poorer suburbs then top of the town gets aftershocks. You may be right outer Sydney will double in the future but I think prices will start raising at other end of the time first.

BTW Both ends of the Sydney marked were relatively close around 2003/4 where house in Bankstown (around $600K) was not that chipper than (around $700) house in Northern Beaches. It happen for short period of time as people soon realised that something is not right. That is when N. Beaches couldn't go up any more and Western Sydney started slowing then returning to more suitable prices ....