Property and Deflation

by Jason Fittler

The seventh annual Demographia International Housing Affordability Survey 2011 has been released.

The big concern on this report is that Australia now ranks as a severely unaffordable for housing.

Townsville ranks in the top 58 cities in the world in regards to unaffordable housing.

The cost of an average house in Australia now is $490,000 keeping in mind it was only $245,000 in 2001. 

This is average return of 7% which good for investors. But families own most property.

We are just now coming out of a 10 year period of low interest rates and loose bank lending practices.

On top of this, we are seeing pressure on unemployment, which is only going to get worse in the coming years.

These factors are going to affect the average Australian budget and disposal income, the banks will not be able to lend large amount of money to first home owners or families looking to upgrade their house. Interest rates will push up repayments to make large loans unaffordable for the average Australian.

Like or not, it is the average Australian family who controls property prices.

I expect what you will see in the coming years is a tightening of the discretionary spending of Australian households, brought about by high interest rates and inflation. This will lead to property prices slowly deflating over the coming 10 years. I expect that households will look to renovate as opposed to trade up.

What about the Y generations buying their first home? There is another name for the Y generation, NINJA, (No Income No Job or Assets) the lack of saving discipline in the Y generation will mean unless their parents are going to give them deposits they will not have a big impact on the housing industry in the coming years.

We have seen the Stock Market bottom. We are going to see the economy bottom in the next couple of years.

Until then I would hold property you have and defer any decision to buy property for investment purposes for the time being.

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