16th Aug 2018

National Median House Price – What It Doesn’t Tell Us

It has become a familiar headline that the Australian property market, in general, is overvalued, however it’s important to understand that our market is made up of many distinct and often unique sub-markets which comprise states, capital cities, regions within capital cities, individual suburbs and so on.

The following Bloomberg table ‘From Boom to Burden’ provided an interesting starting point in looking at Country GDP versus Total Value of Housing Assets in each particular country.  In undertaking this analysis, I then incorporated the March 2018 ABS data to further breakdown housing market trends for the three states within Australia being New South Wales, Victoria and Western Australia.

Based on the Australian GDP being approximately $1.7 trillion and the total housing assets assessed at $6.91 trillion the state figures were calculated as follows:

 

State

GDP

Total Housing Value

New South Wales

$556.2 billion

$2.77 trillion

Victoria

$425.9 billion

$1.93 trillion

Western Australia

$200.2 billion

$0.577 trillion

The headline that falls out of the above first table is that Australia’s real estate nationally is just over four times the GDP, with the next closest being New Zealand and the UK, Canada and USA coming in at just over one times their GDP.

In further calculations, I then analysed the break down of figures into the key Australian states of Victoria and New South Wales and compared these numbers to Western Australia’s figures.  The results were significant with New South Wales showing a massive 4.98 times the GDP for that state.  Victoria was closely following with 4.53 times the GDP and Western Australia’s result was calculated at 2.88 times the GDP.  The result shows that New South Wales is 73% higher than Western Australia which is significant.

To build a stronger picture of this trend in data that affects real estate performance is in looking at the ratio of average income to the median house value.

Nationally, Australia has an average income of $81,530 per annum and the average Australian house value is $687,700.  This shows there is 8.43 times of income to the average house value.  When we again break down the numbers using ABS figures and state averages, there is further evidence of a firm pattern with the data from the three states we are looking at in the following table:

State

Income

Median House Value

New South Wales

$82,466

$895,000

Victoria

$79,266

$750,000

Western Australia

$90,652

$533,000

The above figures show that New South Wales is 10.8 times, Victoria 9.4 times and Western Australia is 5.8 times their average income to the average house value.

When we compare these results to other cities around the world, we can see that both Sydney and Melbourne are quite high however Perth is shown to be very affordable by comparison, as highlighted in the table below:

It is important to refrain from paying too much notice to headline-grabbing figures that tend to be sensationalised by the media as property markets perform in many sectors and sub-markets.  It is in understanding how to interpret this data and the various market trends that provides the key to successfully understanding the property market.  This will then help in the decision-making process to identifying the right property in the right area and buying at the right time, a smart buying decision will deliver a healthy financial real estate asset over time.

In looking at the above figures, I believe that the Perth property market is poised for growth and provides an enticing buying opportunity for savvy investors.  It is considerably more affordable than Australia’s east coast markets of New South Wales and Victoria and on the back of improving economic and housing data, it is likely to out-perform many of the other Australian markets over the next few years.  

Historically, the last property boom experienced in Perth started in 2005 following the slowing of the Sydney market which saw their boom end in 2003.  Sydney values plateaued for almost a decade after.  Perth’s market then showed solid growth from 2005 to 2007, this was on the back of no mining boom however housing was cheap and development had slowed for the previous 5 to 7 yeas which had left some residual pent-up demand.  During this time, investors also arrived from the eastern states with money shifting between borders.  If history repeats, the Perth market could experience some solid growth over the next 2 to 3 years, not in the extremes of a boom but I would expect to see some solid gains particularly within select areas of the Perth housing market.

LMW can assist you with your property decisions.  To discuss your individual requirements or the property services offered by LMW, please contact Rod Davidson, Director LMW on 0414 906 810 or email rod.davidson@lmw.com.au for a no-obligation discussion.

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Rod Davidson

Director
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