Property News, Insights & Education

    Can you afford to buy a house AND eat smashed avo at a trendy cafe?

    • Figures from CoreLogic show “entry-level” properties targeted by First Home buyers have grown faster in value over the past year than more common “median” measures of home price growth
    • The figures show properties in Perth at or below the 20th percentile have grown at an astonishing rate of just under 25% in value in 12 months
    • Entry-level properties in Melbourne have grown just 1.5% in the past 12 months, less than half the southern city’s median home price growth rate, presenting good opportunities for buyers and investors

    Bernard Salt is one of Australia’s best-known social demographers.

     

    His weekly column in The Weekend Australian is always a great read, combining his insights into demographic trends with property and wealth data.    

     

    In 2016 Mr. Salt set off a social media storm with a tongue-in-cheek article berating Millennials (the generation born between roughly 1981 and 1996) for complaining about housing affordability while they were chowing down at trendy inner-city cafes.

     

    “I have seen young people order smashed avocado with crumbled feta on five-grain toasted bread at $22 a pop and more,” he wrote.

     

    “Twenty-two dollars several times a week could go towards a deposit on a house”.

     

    To underline his point, Bernard Salt posted a picture of himself with a plate of smashed avocado and feta on toast on his Instagram account.

     

    Bernard_Salt_Feb18_2024

     

    The “smashed avocado” column caused howls of outrage from Millenials priced out of the housing market, with many pointing to the apparent hypocrisy of a Baby Boomer who has enjoyed much cheaper home prices lecturing young people. 

     

    “Never bought smashed avocado, still can’t afford a house though….” and “Today I smashed avocado on my own toast. Do I get a house now?” were just some of the less abusive ripostes on social media.

     

    Bernard Salt’s new challenge…

     

    Now the dust has settled on the “smashed avocado” debate, Bernard Salt has thrown out a new challenge regarding housing.

     

    He says the specialist consultancies that track home prices in Australia need to provide better metrics. 

     

    “The cost of housing is often quoted in terms of the median house price, which is the midpoint in a range of values, and this can be misleading,” he wrote in his column in early February.

     

    “In a global city like Sydney, for example, knowledge workers and business owners can cram into the upper end of the housing market, thus dragging up the median.”

     

    Bernard Salt says this measure is unhelpful for first-home buyers and those struggling to get into the market, who are more concerned with price movements at the market’s lower end. 

     

    “It’s time, Australia, to change the way we look at and measure the value of housing,” he wrote.

     

    “We need to seek out and better understand entry-level accommodation for everyday Australians.

     

    “Move over, Mr Median, there’s a better way of finding a more affordable home.”

     

    Answering the challenge

     

    We love a good challenge at Australian Property Update so we reached out to our good friends at CoreLogic, one of those “specialist consultancies” Bernard Salt referred to.

     

    And within minutes, CoreLogic’s Head of Research, Tim Lawless, sent us these figures:

     

    Median_prices_Feb18_2024

     

    In the table, you can see the 50th percentile or median value figures for January that CoreLogic uses for its industry-leading Hedonic Home Value Index figures, used by everyone from local real estate agents to the Reserve Bank of Australia. 

     

    But of more interest in this case is the 20th percentile figure.

     

    That's the point which marks the bottom fifth of home values in the market. 

     

    So everything from that point downwards in price is the “entry-level” properties that first home buyers and those “struggling to get into the market” are targeting.

     

    So nationally, while the median Australian dwelling price is $759,437, those focused on the bottom of the market can expect to be looking at properties at or under $511,992.

     

    Of course, the actual price varies wildly between Australia’s different property markets and between homes and units. 

     

    For example, in Australia’s most expensive property market - Sydney - an average “entry-level” house is going to cost an eye-watering $955,978 while a unit in the same category will set you back $600,453.

     

    At the other end of the scale, a house at the 20th percentile in Australia’s cheapest capital city, Darwin, will set you back $473,261, with apartments in the vicinity of $284.860.

     

    According to CoreLogic, the cheapest place on average to pick up an entry-level home in Australia is buying a unit in regional or rural South Australia at $214,348 or less.

     

    How are these “entry-level” properties performing?

     

    We all know that last year was quite an extraordinary year for residential property.

     

    With a lack of listings coming onto the market at a time of high population growth and soaring rents, home buyers shrugged off no less than 13 interest rate rises from the Reserve Bank to send Australian home values to new record highs.

     

    CoreLogic figures show nationally, property prices grew by 8.7% between the 1st of February  2023 and the end of January 2024.

     

    But that’s the median home price, not the “entry-level” price.

     

    So we went back to Tim Lawless at CoreLogic to ask if we could compare year-on-year growth in the 20th percentile to see if these properties are outperforming the broader market.

     

    This is what he came up with:

     

    APU_Graph_Feb19_2024_V1-07

     

    You can see that properties in the 20th percentile grew a bit faster (at 9.1%) than the national median, with houses adding an impressive 10.5% in value and units 6.9%.

     

    Price growth in the combined capital cities was 10% for the median and slightly higher at 10.4% for the 20th percentile.

     

    But when you break the figures down and look at individual cities and regions of Australia clear differences start to emerge.

     

    Perth has been the star property performer in recent years, largely because of a chronic housing shortage and strong population growth.

     

    It’s clocked up 16.7% annual growth in median dwelling prices but has seen an astounding 23.5% price growth for properties at the bottom of the market.

     

    If you had bought an “entry-level” house in February last year, it is now worth, on average, about one-quarter more - in just a year!

     

    Adelaide has also seen much stronger price growth at the bottom end of the market.

     

    While the median home price in the South Australian capital is 10.3%, homes at the 20th percentile have grown in value by 15.4%.  

     

    Brisbane has grown strongly over the past year, with a 14.8% increase in the median dwelling price.

     

    Again, entry-level homes have grown more strongly at 15.7% and unit growth in this percentile is even stronger at 16.3% - probably because of a current undersupply of apartments in the Queensland capital. 

     

    It’s a mixed picture in Sydney.

     

    The median home price ($1,122,430) is 11.4% higher than it was at the start of February 2023, but entry-level dwelling growth has been lower at 8.4%, weighed down by more muted unit growth of 5.9%.

     

    Homes at Melbourne’s 20th percentile are a relative bargain, growing by only 1.5% over the last year, less than half the city’s 3.9% median dwelling growth.

     

    This could be partly explained by more supply at the lower end of the market, with investors in cheaper properties exiting the Melbourne market because of new Victorian government property taxes.

      

    But it also demonstrates why several analysts have indicated that cheaper homes in Melbourne are currently undervalued, particularly at a time of very high population growth and a rental shortage.     

     

    So, in summary, if you are an aspiring first homeowner in Perth, Adelaide or Brisbane or you want to buy a house in Sydney, you will almost certainly have to give up eating avocado on toast at trendy cafes if you want to outbid rival buyers.

     

    In Melbourne, Darwin, Hobart and Canberra, where price growth at the bottom end of the market is more muted or has actually gone backwards, maybe would-be buyers can treat themselves to the occasional smashed avo at a cafe, without feeling too guilty.