People said, ‘Rather than have a flatmate I will just have an office at home,’ so the average number of people living in each dwelling declined and that increased the demand as a result for the total number of dwellings”. “During the pandemic, the average number of people living in each household declined. While perhaps a controversial figure, former RBA Governor Phillip Lowe summed up recent changes astutely, saying: The Australian Bureau of Statistics (ABS) and Reserve Bank of Australia (RBA) have compiled the nation’s historic average household size and recent trends as shown below: In the most basic sense, the quantum of dwellings needed in Australia is related to the amount of people in each dwelling and the population of the country. In this context, a chart of long-term and more recent unemployment rates in Australia is presented below:Īs can be seen, unemployment rates are at multi-generational lows, serving to add to demand for housing at ever-increasing prices. When entering into a 30-year mortgage, someone’s view of their job security is also front of mind. This capacity is most commonly tied to a person’s income. To support ‘elevated’ house prices and increased mortgage servicing, there has to be a capacity to pay monthly costs. All Australians have demand for a place to live. The demand for housing should be simple to understand. How can we afford this?īasic economics states that in a market economy, the price of a good or service is a function of its supply and demand. That all has to be true, but house prices prove that at this stage we have not reached that breaking point. Surely at some point people can’t afford to service their mortgage anymore and surely even the ~25% of people who buy a home with cash won’t have enough cash to buy the home they want. Common sense suggests that this must have a limit. This has increased by more than 50% since December 2021, less than two years ago. A mortgage obtained on the median home in Sydney now costs more than $7,400 per month to service. The cost of servicing a mortgage has clearly risen dramatically. To show this, the chart below looks at the monthly cost of servicing a new mortgage (Loan to Value = 90%) on the median home in Sydney and how it has changed over the same period. Obviously, those making the purchase can only do so if they can service the payment on that mortgage. Approximately 75% of home purchases are supported by the use of a mortgage. Those concerned about the sustainability of current house prices will correctly point to just how much it costs to own a home.

But wait: what happens when interest rates go up, surely house prices will crash? Let’s zoom into the chart above and look at the effect of recent interest rate rises on the value of homes in Sydney:ĭespite interest rates on new home loans more than doubling off their lows, it is clear that house prices have been stunningly resilient, growing once more after marginally decreasing when rates began to increase. Looking at the chart above it almost does seem like house prices always go up.

With that, let’s look at the median house price in Sydney since 2002: Anyone with a basic understanding of maths and economics have told those people they cannot be correct. It seems all of us have heard comments like “house prices always go up”.

Australia housing bubble 2021