Monday, May 03, 2010

Cages Rattled!

Hi InsideStory Readers

Well the SHOWDOWN 1 Wednesday promises to be a big event as Property people go head to head with Share Brokers but read this report and explain to me how the property bubble will burst with such a lack of supply. People have to live somewhere! I know escalating prices and affordability are a real issue, but supply and demand factors are too, check these stats on the shortage we are heading into!!

CommSec Research: New housing report to rattle cages (pdf)


Anthony Toop, Managing Director.
© Toop Real Estate Group


Paul said...

Lets say the average home price is $450k (inclusive of stamp duty), and mediam wage is $58k. So on a 20yr loan, the capital repayments are about $20,000pa, the interest repayments (@7.5%) are about $34,000pa, so total repayments are about $54,000 pa. A couple each on $58,000pa less compulsory Supa means total pre tax family income is about $105,000pa, and after tax family income is about $84,000pa, which means the couple has about $30,000pa to live on after total home loan repayments. Home insurance, council rates, water rates, electric & gas costs & general home maintenance would amount to at least $8,000pa, thus the couple (say with 2.3 kids) is left with $22,000pa to live on. Grocery bills for a family with 2.3 kids would amount to at least $250/week or at least $13,000pa, thus leaving a MEASLY $9,000pa for personal expenses, car expenses, phone expenses, school expenses, birthday/christmas gifts, etc. Which leaves just about ZERO for any savings. If interest rates went up an additional 150bps, then interest repayments in the above example would increase by about $7,000pa, leaving the family in the above example with problems! Of course, if 1 person lost their job for a reasonable amount of time then the family has HUGE problems. The above example clearly shows the current home prices relative to wages is closing in on a topping point and affordability is a HUGE issue. The above example clearly shows that property cannot go up 100% during the next decade unless wages rise almost as significantly which is unlikely in my opinion.

Rob said...

Asset price rises often accelerate when approaching the peak before the dump occurs. Seems like we might be approaching that peak after the 20% rise yoy.