The HP bubble will not be done deflating until, generally speaking, people can buy houses at around 4x their (joint) income. Simple as that IMO.
So, to get a reasonable valuation on a home, simply put it into one of 3 broad categories based on location: working class, middle class, high earner, then do the sums based on average incomes for each of those groups of people and bingo, there’s the value of the house. Using these criteria, almost every property you see will be in the region of 30% overpriced. That figure jumps up significantly for apartments (esp. 1 beds) which should be in the reach of single salary people.
its not that there is some regulator rule, its that the ‘stress tests’ are done on variable rates which were recently bumped up by banks, so that makes it harder to borrow more.
the regulator should indeed get involved, but more in the are of price fixing than anything!
I’d agree that houses will fall to an income multiple, but…
I remain to be convinced that the 2-income model of the last decade is remotely sustainable. The social consequences are pretty dire, especially cos those 2-income couples, especially those that bought since around 2003/4, simply cannot afford to have children…
I don’t want to derail the thread into WTTR’s favourite territory, but I seriously doubt that FTBs currently in their teens and early 20s will be at all interested in emulating the lifestyle of their elders in the current 30-45 bracket.
It might take another 10 years, but IMO lending limits will end up back, at the very most, at 4X main income + 2X second income.
People want lives. It was fine when property was rising and they could tap the equity for the life. Now they can’t; it has to come from current account earnings. That means that the attraction of pushing all the income onto the mortgage is waning. Not only that but frankly I was in home store and more looking for voile panels today - just don’t ask why - and they didn’t have any. I think the attraction of interior decorating is waning as well. Argos only had one set and they were the wrong colour.
Who’s going to spend 4000 on a new sofa when they can go to Bali for the same money?
Fair point Chomp. A lot of couples are totally dependent on both of them maintaining work. How are they supposed to raise children when they are both slaving to meet the mortgage payments? I do personally know of couples who both work and still cannot meet the mortgage payment so they need a tenant (in Adamstown).