Above is a video interview on Yahoo Finance with Canstar’s Steve Mickenbecker discussing Australian housing affordability.
In the video, Mickenbecker argues that Australians are devoting a much larger proportion of their budget towards meeting their home loan repayments than they were 10 years ago.
Over the past decade, wages nationally rose by 54% and inflation by 31%, whereas repayments have “gone up massively”, increasing by 105% over the same period. Therefore, Australia’s are “paying double what they were 10 years ago to get into the market”, yet wages have “only risen by half that”. Mickenbecker also notes that most people don’t want to see property values decline, making it very difficult to bridge the affordability gap.
Mickenbecker states that property prices have “doubled every 8 to 10 years” and expects capital appreciation to continue into the future (but doesn’t state whether it would be at the same pace as the past.
My own view is that home values will ultimately decline to around 2.0 times GDP from a peak of around 3.2 times GDP in 2010 – the so-called “slow melt” scenario (see below chart).
This ‘deflation’ will be brought about by the ageing of the population (reducing the employment-to-population ratio) and the unwinding of the mining boom, which has to date supported income and jobs growth, but will turn into stiff economic headwinds as both mining investment and commodity prices decline.
