Tony Rindfleisch
June 24, 2007 12:00am
HOME owners - and those looking to buy - have been warned to strap themselves in for the ride of their lives as property prices head into a new stratosphere.
Melbourne's median house price juggernaut is gaining speed and is set to crash through the $1 million barrier over the next decade.
Home affordability, already at its toughest level in 50 years, is expected to become worse as prices jump by an average of 150 per cent over the next 10 years.
These predictions are based on an assumption that price trends of the past 40 years will be repeated over the next decade.
If the rate of growth experienced in Melbourne since 1967 continues until 2017, the median house price will hit seven figures late that year.
Data from the Real Estate Institute of Victoria show house prices have increased an average of 9.6 per cent a year over the past 40 years.
The Melbourne median price has climbed from $9700 in March 1967 to $380,000 in March this year.
Based on past growth, the median is tipped to top $400,000 next year and $500,000 in 2010.
From 2013, median-priced houses will increase in value by more than average adult wage.
In Toorak, median-priced properties, now at $2.9 million, will hit $7.25 million after 10 years -- and increase by almost $700,000 the following year.
In Brighton, average houses are tipped to jump from $1.6 million to $4 million over the next decade.
In Melton, today's $185,000 house will cost $462,000 in 10 years and in Cranbourne, houses that now cost $225,000 will fetch $562,000.
In Doncaster, prices are set to jump from $530,000 to $1.32 million; in Reservoir from $328,000 to $820,000; and in Footscray from $370,000 to $925,000.
And these are only median prices. Many houses in every suburb will increase by far more than the average.
Property analyst Michael Matusik said it was generally accepted that housing was affordable when costs were less than 30 per cent of household income.
"The percentage of income needed to service a typical mortgage is now 35 per cent in Victoria," he said.
Median Melbourne houses cost about 6.5 times average annual income, up from between three and four times income over the past 50 years, he said. In the next 10 years, Melbourne houses could cost 10 times average wages.
Mr Matusik said unless Australia's tax and land supply systems were changed, low-income families would be forced to rent for life.
A senior consultant at property industry research firm BIS Shrapnel, Angie Zigomanis, said in the present low-inflation environment, house prices were unlikely to increase 9.6 per cent every year for a decade, as they had done on average over the past 40 years.
A more realistic growth rate would be about 6 per cent, which would be 3 to 3.5 per cent ahead of inflation, Mr Zigomanis said.
REIV president Adrian Jones said he had seen three property booms during his 40 years in real estate -- and inner city properties were experiencing similar conditions now.
In the past year, land prices in Balwyn had jumped by up to 50 per cent, he said.
Mr Jones said people who thought house prices would eventually reach a ceiling should think again.
"When inflation stops, house prices will stop going up," he said.
In Singapore, home owners took mortgages for 50 years and retired before paying them off, he said.
In Japan, owners committed their descendants to pay off their homes on 150-year mortgages because affordability within a lifetime went beyond the reach of most people decades ago.
"Most international real estate agents believe property is still under-priced in Australia," Mr Jones said.
Asked how today's children would be able to buy a house, Mr Jones said they would have to lower their expectations and buy a humble flat to build their equity.
Independent property adviser Monique Wakelin said it would not become easier for people to buy.
Nevertheless, 75 per cent of Australians enjoyed the luxury of home ownership, a statistic comparable with few other countries.
"Who owns an actual house in New York? Or in London or Paris?" Ms Wakelin said.
Barry Plant Group director Barry Plant said buyers should purchase what they could afford to get on the property ladder.
"It doesn't matter where you buy, as long as you get a foothold in the market and you're not renting, even if you borrow 90 per cent of the price," Mr Plant said.
Monday, June 25, 2007
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment