Thursday, January 6, 2011

Home ownership getting tougher

Please take the time to browse other articles I have put up.

Forward links to this site so that a counter message to Property Spruikers Hype gets out! 

(Comments & Feedback always welcome Good or Bad)

A 7% home loan interest rates in 2010 is equal to over 22.5% interest rate in 1990 .... 

In 1975 only 24% of average income was needed to service a typical Australian mortgage. 

This was with a prevailing interest rate of 10.38%---------

By 1985 it was still steady at 24% of average income needed to service despite interest rates soaring to 13.5%--------

By 1990 Interest rates went to 16% plus but you still only had to use 34% of average income to service a mortgage.-------- 

By 1995 you needed to use 29% of average income to service a mortgage (10.5% Interest rate)--------By 2005 it had soared to 40% (7.3% Interest Rate)-------

Now in 2010 it takes a staggering 50% of average income to service a typical Australian mortgage despite HISTORICALLY LOW interest rates of 7.79% (Norm 10.11%)- Despite this REALTORS continue to say Australian property prices will double every 7-10 years??? --------

How will anyone pay for it? ----- 

Historically interest rates have averaged 10.11% over the past 30% ---- 

Just 3 years ago in 2008 it was 9.5% ---- a 7% interest rate is equal to paying a 22.5% rate in 1990 in comparative terms.Think about that when house hunting. 

In Jan 1990 interest rates hit a record high of 17% & people managed to keep their homes then so how would this compare in todays housing market?...

The 1990 Median house price was $100K with a 20% deposit & a loan of $80K payments @17% interest over 30 yrs would be $1140 pm or 32% of wages with average family wage of $42K in 1990 @ 17% the worst interest rates in Aust history payments only ever got to 32% of average family income...

Fast Fwd to 2010 Median price is $500K less 20% deposit & a loan of $400K payments @ 7% interest over 30 years are $2661 pm or 43% of wages with average family wage of $75K...

In 2008 interest rates were 9.5% this would work out to payments of $3365 or 54% of current wages .... Now historically for the last 30 years interest rates have averaged 10.11% this would works out to payments of $3545 pm or 57% of wages going to mortgage payments ....

So summing up current housing mortgage payments @ 7% is still worse than when rates were at 17% but just imagine what will happen when rates rise? AFFORDABILITY will not allow future CAPITAL GROWTH & investors will D*U*M*P __ P*R*O*P*E*R*T*Y because without MASSIVE CAPITAL GAINS Property investment WONT WORK!
Note: Although My Figures & Figures from the image extracted from the West Aust 6/01/2011 
Vary slightly but concur the same general information 
If home ownership is twice as hard now than it was for the last generation, what chance will home buyers have in 2020?

It is an issue many fear as they watch current entrants to the property ladder mortgaging themselves to the hilt for the chance at the Great Australian Dream.The previous generation of first-homebuyers certainly had no expectations of the drastic slide in housing affordability that would meet their children.

About 35 years ago, loan repayments consumed only a quarter of a full-time income.

According to the Australian Bureau of Statistics, in 1975 local home loans averaged a paltry $17,800, which was about three-quarters of the value of a median-priced home at the time.This was enough to buy a home in the suburbs, complete with exposed beams, clinker bricks and a sunken lounge.

The interest rate in those days was a hefty 10.38 per cent and most families relied on a single gross income of $690 a month or $8,280 a year.

While single-incomes and double-digit interest rates seem harsh by today's standards, families starting out in the 70s had it much easier when it came to buying their own homes.These days, repayments for the average-sized home loan currently eat into half an average full-time wage in WA.

The average loan is now $389,000, according to Australia's biggest mortgage broker AFG.
Just as in 1975, this is equal to about three-quarters of the value of a median-priced home.Interest rates are lower these days at only 7.8 per cent, and the average gross monthly income for a full-time worker in WA appears generous at $5844, or $70,000 a year.

But the monthly mortgage repayments are $2948, which is half a full-time average wage. As the cost of homes continues to rise more quickly than incomes, there is little wonder that single-income families are fast becoming a relic of the past. 

The problem raises questions about how affordable - or unaffordable - homes will be in 10 years.

Will repayments on the average home come to consume three-quarters of the average income?

Where will it end?

Housing groups believe smaller blocks and homes will come to the rescue, halting the slide of affordability with an array of cheaper options on smaller blocks.

In 1975, Perth blocks were typically 750sqm, but homes were much smaller, with about 150sqm of floor space.

WA's biggest land developer, Nigel Satterley,  has forecast that block sizes would drop to as little as 100sqm in 10 years, though these small blocks would be part of a specialised sub-market, with the average plot size settling at 350sqm.

This is a hefty drop from today's average block size of 465sqm, which is down from 580sqm in 2003-04.
Even blocks in the country are shrinking, at 667sqm this year compared with 710sqm in 2003-04.
A study of aerial photographs from Landgate by _The West Australian _shows that blocks have been shrinking for many decades.

People are paying more & getting less land for their money!!!

Historical interest Rates
PROPERTY SPRUIKERS use HISTORY to support their position that PROPERTY ALWAYS DOUBLES every 7-10 years. As PROPERTY SPRUIKERS are so fond of their history here are HISTORICAL FACTS that you may wish to consider regarding Interest Rates. 

The average bank variable home loan interest rate over the past 59 years in Aus is 8.05%. Standard variable  rates were above 9% from July 1974 to August 1993 when they dropped to 8.75% for 1 year then stayed above 9% till November 1996. 

JUST THINK for 22 YEARS of the last 36 years interest rates were WELL ABOVE 9% not that long ago. 

But lets not go back all the way to 1959 lets go back only 30 years which is what the average length of a home loan  & you will find the following..... 

AVERAGE HOME LOAN INTEREST RATES FROM Feb 1980 to Feb 2010 WAS....10.11% ... 

So if you cant afford a rate above 10.11% should you be in property at the peak of an inflated market? 

Property Spruikers use history  as a guide, as you should & budget on an average interest rate of 10.11% ... Go ahead disregard history after all property always doubles HISTORY SAYS SO. 

Want proof on interest here is the Link.. 
Bankwest Property Survey said Perth median house price is too expensive for key workers (Police / Nurses / Teachers) to get a foot on the property ladder. Survey in July 2009 found Perth is unaffordable for key workers with the median house price 6.3 times the salary of a key worker. Perth was the third least affordable capital city in Australia.  In 40% of Perth’s suburbs key workers face house prices which are more than ten times their salary. These are the essential workers WE ALL rely on every day to provide important services. The unfortunate reality is many are locked permanently into the rental market and are unlikely to get the keys to their own home unless they are willing to commute for long distances. Think about this if  Police / Nurses / Teachers are being locked out of the property market by prices rising out of their reach ? So who is going to buy these houses in 5 / 10 years time when property doubles as Spruikers would have you believe??? Here is a link to the report read it for yourself  

Extracts from:

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