Housing Market Trends

Prior to the late 1980s, housing demand was largely accounted for by owner occupiers. However, the rapid escalation of prices in the early 1990s, combined with structural tax changes and improved access to credit, saw residential real estate become a highly desirable form of investment. First home buyers and owner-occupiers are now not only competing with domestic investors, but also foreign investors.

Trends in house prices

Between 1995 and 2005, real house prices in Australia increased by more than 6 per cent annually, with an average annual increase of almost 15 per cent from 2001 to 2003. This was well above the average annual increase in the 20 years to 1995 of just 1.1 per cent. Prices in most capital cities stabilised toward the end of the late 2000s but record low interest rates have contributed to strong growth in housing prices over the last 12 months.

Since the mid-1990s, real house prices have increased at a significantly higher rate than real wages and income (see below). Between 1995 and 2010, real GDP per capita and average weekly earnings increased by an average annual rate of 2 and 3.9 per cent respectively. This would suggest that there are key affordability issues resulting from this rapid price growth.

Housing affordability continues to deteriorate

Australia, specially its five major metropolitan areas, remains “severely unaffordable” in 2015. Among the nine developed nations covered by the 12th Annual Demographia International Housing Affordability Survey, Australia was ranked third most unaffordable major housing market in 2015.

The survey uses the Median Multiple to assess housing affordability in 367 metropolitan markets in Australia, Canada, China (Hong Kong), Ireland, Japan, Singapore, New Zealand, the United Kingdom, and the United States. The Median Multiple follows this formula: Median Multiple = median house prices / median household income.

Aside from Sydney, Australia’s least affordable housing markets in 2015 included Melbourne with a Median Multiple of 9.7, followed by Perth (6.6), Adelaide (6.4), and Brisbane (6.1).

Of the 51 Australian markets surveyed in 2015, 33 were rated “severely unaffordable” (Median Multiple of 5.1 and above), 12 were “seriously unaffordable” (Median Multiple between 4.1 and 5.0), 4 was rated moderately affordable (3.1-4.0), and 2 markets evaluated as affordable (3.0 & under).

Among the 367 major markets, Sydney was ranked second most unaffordable. In fact, housing affordability in Sydney deteriorated by about 24% in 2015 from the previous year, the largest change ever recorded in the historu of the Demographia Survey. Outside the major markets, the Tweed Heads (Queensland), is the most severely unaffordable market, with a Median Multiple of 9.3.

This was supported by the UBS Global Real Estate Bubble Index, ranking Sydney as the third most vulnerable market in th world to real estate bubble risk.

The severe housing unaffordability in the country, especially in Sydney, was mainly due to the urban consolidation in Australia during the period, which severely limit or even prohibit new housing construction on or beyond the urban fringe

What does all this mean ?

it means affordability and understanding what you can afford is paramount if you can determine this and have the opportunity to enter the market then time is of the essence as housing is become less and less affordable .

Start the Calculator