Was housing affordability as big of an issue 25 years ago?

Have rising house prices really made it harder to get on the property ladder and maintain a mortgage?

06 Mar 2017 | Home finance & property | Share:
house on money tower

House prices in some parts of Australia have skyrocketed in recent years and now many homes are too expensive.

Despite this, many home buyers are still stretching themselves, and their bank accounts, by taking on debt in the pursuit of property ownership. And why wouldn’t they – some capital cities have seen double digit price growth in recent years.

Owning your own home has always been an achievement, and those that bought houses in the late 80s, or early 90s, will tell stories of 17 per cent interest rates which also made it tough.

So, is it getting harder, or was owning a home 25 years ago just as challenging as it is today?

Here are some key factors to consider.

House price growth vs wage growth

Data shows us that while house prices have increased significantly in the last 25 years, wage growth hasn’t increased to the same extent.

In 1990 the median price of a dwelling in Australia was $71,000. Since then average prices have surged to $631,000 – more than 700 per cent.

In comparison, wage growth has been much slower. Average wages have only grown 190 per cent – from $27,000 per annum to $79,000.

Debt to income ratios

Home buyers are taking on more debt these days compared to their income. In 1990 owner occupier housing debt-to-income was 56 per cent. Reserve Bank figures show the Australian household debt-to-income ratio for today is at a record 187 per cent.

Percentage of disposable income spent on repayments

Home owners are spending more of their disposable income on mortgage repayments. An article published recently in the Sydney Morning Herald pointed out that when interest rates were 17 per cent, the proportion of household disposable income that went on interest payments was 6.1 per cent.

However, when you look at current 2017 house prices, which are much higher, and the current 4 per cent interest rates, this figure goes up to 6.8 per cent. What this means is there’s less in home owners back pockets at the end of the month.

You still have options

Despite the data suggesting that home ownership is becoming harder, the good news is many home buyers are still achieving their property ownership dreams. And, once they are on the property ladder, many home owners are seeing their asset appreciate in value which gives them equity to use for other investments.

The key for home buyers is to know your options, which is why talking to a mortgage adviser about the different finance providers can be useful.

A mortgage adviser will be able to guide you towards a solution that works for your situation, and they may be able to get you onto the property ladder sooner.

You can find your local Liberty Adviser here.