Boom or bust?

There is plenty of data around to be considered when looking at which way house prices will head in next. Interest rates, land supply, immigration levels, employment levels and economic growth all have an impact.

One important figure which doesn’t get much attention is the ratio of average incomes to average house prices. Historically in Australia, over the long term, this figure has been between 3 and 4 (meaning the average house is is 3-4 times the average income). Currently it’s around 7.5!

At what point would you say “I simply can’t afford to buy that house”? And what do you reckon happens when people, on mass, say the same thing? I don’t know when the downturn in house prices will occur, but average prices simply can’t continue to rise if wages can’t keep up. In reality, a fall in house prices is much more likely than a massive increase in people’s income.

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