Property News, Insights & Education

    Is Australian Housing Really Unaffordable? Debunking the Media Hype

    There’s no doubt about it.

     

    Australian house prices are high. 

     

    In fact, they’re so high …

     

    … we’ve been told we have some of the most unaffordable real estate in the world. 

    But is that really true?

     

    And if other countries are ahead of us in these statistics, then it stands to reason we could see house prices rise too. 

     

    Let’s take a look at house price affordability in other advanced economies. 

     

    lower-price-17-10-23

     

    While Australia is certainly high, we’re not as high as the UK, USA or Canada. 

    I’m sure most people wouldn’t expect to hear that. 

     

    And according to Fitch Ratings, the growth in Australian real estate is below many other countries, including the USA, Canada, China and Spain. 

     

    They’re actually predicting Australian real estate to grow faster than any of them from next year as well. 

     

    So it’s certainly not all doom and gloom. 

     

    Still, you might be thinking about those numbers you read about in the media. 

     

    Numbers like Price-to-Income ratios which are basically how many times higher house prices are than your income.

     

    And so here’s a great surprise for you. 

     

    Even though the media have insisted Australia’s house prices are out of control on this measure, they’re not. 

     

    They’re much lower than Canada and the USA. 

     

    In fact …

     

    … the Price-to-income ratio in Australia is below the OECD average. 

     

    income-ratio-17-10-23

     

    Again, that’s something that isn’t in the media. 

     

    Then there’s our higher savings rate. 

     

     

    forcasted-usa-canada-17-10-23

     

    What happened during COVID-19 is the government handed out money hand over fist with Job Seeker, Job Keeper and rock bottom interest rates. 

     

    Then, people stayed at home during lockdown without needing to pay to travel to work. 

    And because everything was closed, there wasn’t much to spend their money on (apart from new kittens and puppies), and our savings shot up. 

     

    household-stats-17-10-23

     

    The average Australian had 22% of their annual consumer spend … saved up in the bank.

    And while this is being drawn down now, there’s still money in the bank to keep our mortgages paid up to date. 

     

    So much so that while US households are expected to exhaust their savings by March 2024, Australian households are expected to last much longer until the end of the year. 

     

    It’s no surprise then that, while mortgage arrears are still a hot topic in the media, late-stage mortgage arrears are still low in Australia and not expected to rise. 

     

    lower-rate-mortage-area-17-10-23

     

    Sure, it’s tough out there. But we’re expected to get through. Fitch revised down their predictions for late-stage arrears in Australia due to the resilience of Australian borrowers, supported by accumulated savings. This suggests that the chances for default on mortgages are expected to reduce even after higher interest rates. 

     

    Looks optimistic, right? 

     

    But what about interest rates?

     

    Interest rates are definitely going to help Australians who are finding it tough going. 

    While the OECD data shows our interest rates are about middle of the road, they’re much lower than in the USA, Canada, and the UK. 

     

    And the good news is the forecast across the OECD is for falling interest rates as well, which I’ve written about in the past. 

     

    interest-rates-17-10-23

     

    Any time rates fall, borrowers can get more money which means house prices go up. Plus, each fall eases the pressure on borrowers. 

     

    Here’s one more unusual economic number for you.

     

    It’s the Property Bubble risk. 

     

    Now, normally I wouldn’t pay attention to something like this; however, it’s from the UBS Global Real Estate Bubble Index, and UBS is a company that is worth listening to. 

     

    And they have just reduced Sydney’s risk from 1.2 to just 0.67.

     

    So, while the media might be drumming up the idea that Australian real estate is dangerously overpriced compared to the rest of the world, the reality is it isn’t. 

     

    This is why it’s important not to panic, and to trust sources like us to go deep into the numbers and give you the truth.