Home buyers will be pleased to hear that Australia’s average property price to income ratio has fallen back to 2003 levels.
New research conducted by Rismark found Australia’s average dwelling price-to-average disposable household income ratio has fallen to just 4.2 times in March 2011 from its recent peak of 4.7 times in December 2009.
“The RBA would be encouraged by these developments since it is hoping that the retail and housing sectors will make room for the enormous capex boom that is currently underway. While we expect property investors will benefit from robust rental growth, it is unlikely that dwelling prices will rise materially in the near term as long as the RBA wages its war against inflation,” Rismark joint managing director Christopher Joye said.
“At the same time, wages growth of more than 4 per cent per annum in contrast with the income flowing from the capex boom should produce solid growth in disposable household earnings. We therefore project a continued improvement in the housing market’s valuation fundamentals for at least another 12 months. This is also being supported by a highly inelastic ‘supply-side’, with construction of new homes running well below the Treasury’s estimates of underlying demand.”
Contrary to popular hyperbole, Mr Joye said Australia’s house prices have actually grown more slowly than household incomes since the end of the last boom in 2003.
According to the ABS’s National Accounts data, disposable incomes on a per household basis realised a compound annual growth rate of 6.3 per cent since March 2003. In contrast, RP Data-Rismark’s hedonic index suggests capital city dwelling values have risen by a more modest 5.7 per cent per annum. On this basis, disposable incomes in Australia have risen 7.5 per cent further than capital city dwelling prices over the last eight years.