Owners feel the pinch as prices stall
Shane Wright Economics Editor, The West Australian April 24, 2011, 8:30 am
Tens of thousands of Perth homeowners who bought property at the top of the boom before the global financial crisis are facing big losses as the market goes through its worst period in almost two decades.
Special analysis of median house and land prices across the city reveals that people who bought at the peak of the market in late 2007 and early 2008 hoping to see their investment grow now hold "negative equity". Once inflation is taken into account, a person who bought a median-priced block of land in Perth three years ago is at least $48,000 worse off, while someone who bought a median-priced house is down by almost $25,000.
The median price of a house sold in Perth grew 162 per cent between early 2002 and the end of 2010, while the median price of a residential block of land rose 182 per cent.
But all that growth was up to the peak of the market in late 2007.
Since then, the median price of a house has lifted just 3.2 per cent to $480,000, while for land it has fallen 9.4 per cent to $240,000.However, this does not take into account movements in the inflation rate.Between 2007 and 2010, overall prices in Perth have risen 8.7 per cent.
If house prices had kept pace with inflation, the median price would now be $505,000.
For someone who borrowed all the value of a median-priced home in Perth, that translates into a loss so far of $25,000 coupled with interest repayments of $75,000 over the past three years.
It is worse for people who have bought land.
If residential land had kept pace with inflation, an average block in Perth would now cost $288,000. That translates into a loss of $48,000, given the current median price.
It's the worst performance by the Perth market over three years since the early 1990s when median house prices fell.
Special analysis of median house and land prices across the city reveals that people who bought at the peak of the market in late 2007 and early 2008 hoping to see their investment grow now hold "negative equity". Once inflation is taken into account, a person who bought a median-priced block of land in Perth three years ago is at least $48,000 worse off, while someone who bought a median-priced house is down by almost $25,000.
The median price of a house sold in Perth grew 162 per cent between early 2002 and the end of 2010, while the median price of a residential block of land rose 182 per cent.
But all that growth was up to the peak of the market in late 2007.
Since then, the median price of a house has lifted just 3.2 per cent to $480,000, while for land it has fallen 9.4 per cent to $240,000.However, this does not take into account movements in the inflation rate.Between 2007 and 2010, overall prices in Perth have risen 8.7 per cent.
If house prices had kept pace with inflation, the median price would now be $505,000.
For someone who borrowed all the value of a median-priced home in Perth, that translates into a loss so far of $25,000 coupled with interest repayments of $75,000 over the past three years.
It is worse for people who have bought land.
If residential land had kept pace with inflation, an average block in Perth would now cost $288,000. That translates into a loss of $48,000, given the current median price.
It's the worst performance by the Perth market over three years since the early 1990s when median house prices fell.
If house prices had kept pace with inflation and wages then the price you quoted of $505K is nonsensical. starting with the 2002 as a starting point that you quoted then perhaps the real price now (in line with inflation) should be less than $250K.
ReplyDeleteAlso, lets face it, as the press was warning people during the accellerated build up (2002-7)that punters were taking a risk of long term prices reverting to the mean and that they could well end up in negative equity, then on their heads be it. Or am I being somewhat ironic here?
We are in the midst of moving to Perth from the UK process should take apprx 12 months from now. Once we are there we will probably rent as the ex-rate is shocking $1.53 compared to previous historical levels. What are the predictions for 18 months down the road for ex-rate and house prices compared to now?
ReplyDelete@ Steven (Firstly the article is not mine but a extract from our local paper) What the author is saying is had the price from 2007 kept pace with inflation it would be $505K today {Not the price from 2002.}
ReplyDeleteBTW you may wish to also look at this story on my blog: http://nfbpsh.blogspot.com/2011/01/home-ownership-getting-tougher.html
@ Simon in 12 months the Perth prices should have imploded. So your timing is good.
Exchange rate? any ones guess but house prices should be down 20-30% you don not want to touch property for 2-3 years. Just rent it is half the price of buying & property prices are falling so whats the rush to buy?
Think Ireland / USA. It is a toss up weather Canada or Australia will crash next?
Not sure I agree with you on Canada. Looking at Table ES-3: Housing Affordability: Major Metropolitan Markets (Over 1,000,000 Population) http://www.demographia.com/dhi.pdf, while Vancouver is on par with Sydney and Melbourne in the 9+ range, on average, Canada is much more affordable. See:
ReplyDeleteTable ES-2: Housing Affordability Ratings by Nation: Major Markets (Over 1,000,000 Population): Australia=7.1, Canada=4.6
Table ES-4: Housing Affordability Ratings by Nation: All Markets: Australia=6.1, Canada=3.4
In fact, all the Canadian cities over 5.2 are in British Columbia so you could argue they are in for a correction at some point but Canada as a whole seems less likely.