Australian finance blog “MacroBusiness” have done some analysis of the Australian property market compared with other English-speaking countries, and here’s what they’ve come up with:
- “The ratio of housing assets to GDP confirms the view that Australian housing is relatively expensive by international standards …”
- “As you can see, Australia’s national Median Multiples [comparing median house prices as a multiple of median wages] at the capital city and rest-of-state levels are 6.6 and 6.1 respectively …
No major Australian housing market could be considered affordable under this measure. Each market’s Median Multiple is well in excess of 3.0 times, which is commonly considered the benchmark for an affordable housing market and represents the level of house prices relative to incomes that was commonplace in Australia in previous generations.” - “At the national level, the growth of Australian house prices has far exceeded the growth of rents, suggesting that the housing market is significantly overvalued.”
- “What should be apparent from the above analysis is that Australian housing is relatively expensive. And without continued solid capital growth – an unlikely prospect given the already high levels of household debt and the deteriorating global economic environment – the investment fundamentals currently do not stack-up for Australian housing.“
Summary: Australian real estate IS overvalued … but that doesn’t mean prices are coming crashing down anytime soon
Based on this data, if you want to buy a house or unit to live in, then that’s fine right now (provided you can meet repayments). However, short term property investment may not be such a good idea. Generally speaking (and there are always exceptions – some towns and areas in Australia may still be performing very well), you should currently only invest in the property market if you’re prepared to wait for a very long time and hope that the property market increases in value over time at 5% or more per year (which is a minimum for what you could achieve if you invested that $400,000 in the bank instead of in bricks and mortar).