I’ve been wondering if price trends are sometimes a dodgy indicator, simply because of relativity to CPI and incomes.
Is there some sort of affordability index that measures housing prices relative to income levels? e.g. Median prices currently equal 7 (or whatever) years average annual household earnings. Is such information easily accessible and if so how far down can data be drilled (e.g. down to the suburb?)
More importantly, what does one do with this information? Is there some sort of magic level which tends to halt a rise in the market?Many thanks
Great question bmj…What exactly do you intend doing with the data if and when you do ever find / verify / assimilate and correlate it ??
How will that generalist data help you buy that great little 3×2 fibro house on 739 sqm in a great location at # 17 Particular Street Somecity ??
I don’t see the connection myself between the median normalised averaged cross referenced against some average wage earner across the other side of the country and official statistics on previous sales across “the market”…vs…that individual property on a title.
Have a chat to Foundation, he’s a whizz at stats and will definitely have some data that you can crunch and flip and sort and play with ’til the cows come home.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Dazzling
How would I use such an indicator? I imagine such a gauge would be a good indicator as to whether a market is due to run out of steam (or has run out).To me, housing prices often seem to me to be driven by emotion more than good sense, with folks putting themselves into debt up to their gills based on the promise that ‘you can’t lose in real estate’ and the fear of ‘missing the boat’.
I can’t help thinking that there is a limit to how much debt the market can carry. (The ‘tech boom’ of the turn of the century is a similar example). I’ve since found another thread on the subject (CRASH!!) which alludes to this as well. https://www.propertyinvesting.com/forum/topic/19178.html
An affordability index (income to property values) could be a way of judging the ‘real’ state of the market rather than taking an ‘overvalued’ market at face value.
To use your example above, if the fibro shack (on the market at $600,000) is sandwiched between two ‘castles’, both valued at $900,000, on the surface it might seem like a good deal.
Until you find out that the castles were each bought at auction by a ‘smart investor’ who is negatively gearing them because they are smart and bought them on 100% finance (using equity in another home), also because they are smart.
In my scenario I wonder if the castle owners will have any problems selling their property if they can no longer afford the negative gearing (job loss, interest rate rise, illness…) and there are no more ‘smart investors’ willing to pay a fortune and then pay $X a week for the privilege of enjoying a 4% ROI.
Next in line would be the non-investor, someone who wants to buy the castle to live in. There would be a theoretical limit that this person could afford, which is where the affordability index comes in.
My explanation is probably more long winded than it needs to be but the short answer is, I believe prices can only rise by so much and I’m looking for some sort of non-emotional indicator of where that might be.
Thanks again
bmj
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