As mortgage brokers, it is our responsibility to keep a close eye on both home loan interest and home prices. Our primary markets, Rockingham, Kwinana and Baldivis, have been in “boom” status for most of the year. While there are still plenty of bargains to be had, it is becoming tougher and tougher to buy at low enough prices to record worthwhile capital gains in the short term, even with record low interest rates.
A recent report from RP Data indicates that Australian home prices went up 1.3% in October for a total rise of 7.9% so far in 2013. Auction clearance rates are on the rise and lenders have been more motivated to lend money. With the record low interest rates, prices should be going through the roof but they aren’t—yet.
So, why aren’t prices rising even faster?
House Price to Income Ratio
The house price to income ratio is an index that started at 100 in the year 2000 and is currently nearing 140. We won’t go too deep into the math, but 140 is the highest number that can sustain itself for any period of time. It will take further housing price growth of 7.5% for the ratio to return to 100.
Those who want to understand it further are welcome to research it further, but for our purposes here, what you need to know is that those looking for immediate capital gains from buying a house don’t have a lot of time left to enter the market.
Complicating the matter is the current state of the average income. Income is projected to see slow and steady growth at best and could remain stagnant for a few years. Unfortunately, income is roughly the same as it was in 2006. Credit growth is another factor that drives property prices, but currently people seem to be less willing to take a risk because of their income.
What It All Means
If you want to get in on the very end of the house market bandwagon, you need to get in now and be very patient. Even moderate short-term growth can provide you the means to take advantage of long-term growth.
Call (08) 9527 1800 to learn more.