Home News House prices in capital cities almost seven times the average salary

House prices in capital cities almost seven times the average salary

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Price growth may have slowed down across all Australian capitals, but the current median house price is already 6.96 times an Australian household’s average earnings. This is according to ‘Dwelling Prices: What’s the current state of play?” the latest report released by HIA Economics.

House prices rose by 6.1 per cent in the year to July 2016 while unit prices increased by 6 per cent. Since its low point in 2012, capital city house prices have surged by 40 per cent in aggregate while unit prices increased by 29.8 per cent.

The biggest uplift has been in Sydney at 61.3 percent, followed by Melbourne at 42 per cent. Meanwhile, both Perth and Darwin’s house prices have fallen substantially at -8.3 and -12.7 per cent, respectively.

Over the past two decades, the ratio of the median dwelling price to average earnings has increased substantially due to a number of factors. First, the number of employees per household has risen significantly due to higher female labour force participation rates, as well as a trend towards late retirement. More young professionals are also into ‘share’ housing.

On the other hand, the constant reduction in interest rates has permitted dwelling prices to grow faster, as home buyers can now service much larger mortgages at current interest rates. Just this month, the Reserve Bank of Australia cut the official cash rate to a historic low of 1.5 per cent.

These figures indicate that future price growth is likely to be much more limited especially in the largest capital cities given the currently elevated valuations.

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