Wednesday, February 24, 2010

Housing less expensive than six years ago: CommSec

Dear InsideStory readers,

Below is a great little article from CommSec.

I would argue that if the size and facilities included in today’s houses was also factored in to this report the affordability would look even better than this report shows. The expectations of today’s home owners has risen dramatically in housing and in apartment living. A 45 square meter apartment was acceptable 10 years ago, it is double that today, while houses today feature multiple bathrooms, massive family rooms and outdoor entertaining as an entry level expectation.

As an example, in the 1970’s when I was growing up, I lived in a very small 3 bedroom home with one bathroom and a single carport. The kitchen was tiny and there was no family room, no outdoor area and yet because it was new we thought it was just a fantastic home. There were 6 in our family so we all shared bedrooms and we shared a tiny built in robe in each bedroom which had 2 beds, no room to swing a cat, you could hardly get the door open!

Today you would rarely see this as expectations have moved so far…and yet these changes in expectations and size of homes is rarely talked about when it comes to the debate on affordability.

In my 35 years of selling property, little has changed when it comes to buying a home. If you have a job and have a savings record you will be able to afford a home….just as was the case in the late 70’s.



Housing less expensive than six years ago
Housing affordability
· A new measure has shown that housing affordability has changed little over the past six years. In fact housing affordability has actually eased slightly over the past six years.
What does it all mean?
· The general perception – not only in Australia but also across the globe – is that Australian housing is expensive. We get questions on the subject when we are presenting on the economy both locally and overseas. While we try to explain that the issue is more perception and poor use of data rather than reality, it is difficult to change entrenched views.
· Rismark Australia has released a new housing affordability index that seeks to counter the general wisdom. The index uses data on all property transactions made in Australia, via the RP Data database. That is, it covers data on capital cities and regional/country areas as well as detached houses and apartments. The figures on household disposable income are based on the Reserve Bank definition. So it is hard to fault the accuracy of the data.
· The data shows that housing affordability has changed little over the past six years. That is, home prices have held between 3.7 times disposable incomes and 4.3 times incomes over the past six years. As at September quarter 2009, home prices stood at 4.1 times household disposable incomes, below the reading of 4.2 times income that existed at the end of 2009.
· As we have tried to explain to customers and clients over time, incomes have been rising over time. In fact real incomes have risen by 11 per cent over the past six years. So a raft of goods has become more affordable, boosting disposable incomes – not just in nominal terms, but also in real terms.
· The Rismark Australia data shows that household disposable income has risen by 44 per cent since the end of 2003 while the median home price has lifted 41 per cent, from $270,000 to $380,000.
· Over a much longer span of time housing affordability has weakened. From 1993 to 2001, housing affordability held between 2.5-3.1 times disposable incomes. Home prices accelerated between 2001-2003 while incomes didn’t keep pace. But over the past six years, housing affordability has been little changed.
· Of course this doesn’t mean that housing affordability may not have weakened in some cities and for various occupation and demographic groups. But in a broad macro sense, it is clear that the myth that Australian home prices have become dramatically less affordable in recent years has been busted.
· Certainly the Reserve Bank will continue to closely assess home prices and affordability over time. The goal for housing supply to track close to demand hasn’t changed.

CommSec EconomicInsights (pdf)

© Toop Real Estate Group

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