By Jason Fittler
Recently I have had a lot of clients asking me about house prices. I have found that the below graphs best sum up the situation. Although I draw no strong conclusion as to whether house prices will drop sharply the evidence points to at best house prices staying flat for some time.
The three graphs in regards to Sydney house prices show the following:
1. House prices have increased faster than wages. Houses are less affordable now than they were 10 years ago.
2. Interest rates were lower than they were 10 years ago.
3. Mortgage payments are a higher percentage of take home pay then they were 10 years ago.
These graphs highlight the relationship that mortgage rates and house hold income has on housing prices. For house prices to increase you need house hold income to increase and for mortgage rates to fall.
Given our current record low interest rates I do not expect to see any further rate cuts, however if there are cuts I doubt that this will have a big impact on housing prices given the lower the interest rates are the less impact further rate cuts have.
With unemployment running so high at present, inflation low and the economy not expect to see any growth for some time I do not expect to see take home income increase much in the coming years.
At best I expect house prices to stay the same at worst we will see a correction especially if unemployment moves up.