Australian house prices will keep rising and it’s truly depressing for those hoping to get into the market

·4-min read
<span>Photograph: Bloomberg/Getty Images</span>
Photograph: Bloomberg/Getty Images

In news that unfortunately will shock no one who has thought about buying a house at any point in the past year or so, the latest residential property price figures from the bureau of statistics show that in the past 12 months prices have risen by record levels.

The ABS has been tracking property prices since 2003 and from then till the first quarter of this year, prices across the country had risen by more than 5% in a quarter just once. But in the first three quarters of this year, prices rose by more than 5% every time:

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In the 12 months to September this year, property prices across Australia’s capital cities grew on average by a record 22%.

The surge was led by house prices more so than for apartments. House prices were up 25% on average across the capital cities and 32% in Sydney:

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The record increase is of course no surprise for regular readers given three months ago I noted that the massive explosion in home loans meant prices would keep rising faster for some time yet:

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The recent slowing in the amount of mortgages being taken out does suggest the peak growth of house prices should be occurring now; but even still by March next year we should expect that prices will be some 15% above where they were earlier this year:

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While Melbourne house prices are unlikely to grow by the 40% the huge spike in home loans occurring earlier this year suggested, even the more recent home loan data implies prices in that city will continue to grow even faster than they are now:

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It truly is a depressing story for those hoping to get into the housing market or have hopes that their kids might one day be able to afford a place of their own.

In Sydney the median house price is now above $1.2m, and in Melbourne half of the houses bought in July, August and September cost more than $900,000:

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I guess you could consider buying an apartment or townhouse. But in Sydney the median price for one of those is now at a record $790,000 – higher than the median price for a standalone house in all other capital cities except Melbourne and Canberra:

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Sydney house prices are now completely divorced from wages. In the past two years, wages in New South Wales increased 3.5% while at the same time apartment prices grew 17% and house prices a stunning 40%:

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And if that sounds absurd, it is. Consider that in the 10 years from September 2003 to September 2013, Sydney house prices grew 31% while wages went up 41%, but since then house prices have soared 105% while wages have risen just 18%.

Now sure, paying a mortgage is better now than in the past (especially if you took out a loan in the past) because interest rates are at record lows. But the deposit hurdle has risen to pole vault heights.

Related: In middle Australia, rosy wealth data can hide a world of pain | Greg Jericho

Earlier this week the latest Household, Income and Labour Dynamics in Australia survey allowed us to calculate that in 2019 the median household pre-tax income for a family of two adults and one child was around $113,400.

That figure is close to the combination of an average male full-time earnings in NSW in May 2019 plus a third of the average women’s earnings at that time.

Using that calculation as a proxy median income for a family of three allows us to track over time the amount of months a 20% deposit on a house in Sydney is worth.

Back in 2002, the deposit of a median-priced house in Sydney was equivalent to 14 months of a median household’s pre-tax income. Now it is equivalent to 24 months:

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That of course does not mean it would take you two years to save the required $242,000 but just how long it would take a median household to earn that much.

Housing affordability has been utterly destroyed in the past two years, and while house prices are expected to not rise as fast as they have in the first nine months of this year, they look set to continue to grow for many more months to come – and certainly at a rate faster than do wages.

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