Monday, May 24, 2010

Brisbane house are over priced

How on earth can a real estate agent advertise a AU$500 000+ home as "perfect for first home buyers"?????? (one example but there are more)

The real estate industry is so out of kilter that these agents think half a million dollars is a perfectly acceptable price to pay for a 3 bedroom weatherboard house on a postcard patch of lawn. And somehow they think that people buying their first home can afford something like that.

Let's do some sums kiddies:

"Average" wages in australia in february 2010 are about $1 200 a week.

So average annual income is approx $62 400*

Now let's assume that we have a two parent family, with a couple of kids. One parent working fulltime and one working part time**, so we have $62 400, plus about half to two thirds, or about $36000, before tax.
So total income for the family is $98 400.
minus $17 000 for tax, $81000
Lets put these figures through a mortgage calculator:
The maximum this fictional couple can borrow is $467000.
If they can comply with all the terms and conditions and come up with the deposit, which for most loans is 10%.

So if my fictional average income couple have saved up 50 grand, they can buy what the industry considers an "entry level" property. And then pay $1000 a week, which is two thirds their combined income and hope to god interest rates don't go up, ever. I hope the kids don't eat much, or wear clothes, or go to school.

I'm not really convinced that average families are earn
ing nearly $100 000 a year. I can't find a statistic for family incomes.

Btw There are plenty of nice properties out there for less than $500 000, my problem is with real estate agents who seem to think that First Home Buyers are looking for something in that price range.

I can remember my mother buying her first house for $42000 in th 80s. Her second house was less than $100 000 in the early 90s and sold for more than double that ten years later. That's just ridiculous! The same house, rose over 100% in ten years? Wages have not risen enough to compensate... House Prices are seriously over inflated and unaffordable.
I can remember the gossip when a friend built a house in the early 90s and spent around $450k. Everyone was positive they had over capitilised. I shudder to think what that property would be worth today. I shudder mainly because the house is not my taste, actually it's a hideous cliche of a McMansion. Not to mention a vast waste of resources.

Will house prices ever deflate back to their "real" worth?
Let's say house values rose at the same (ish) rate as everything else, between about
3% and 5% a year. A particular postwar 3 Bedroom house in Brisbane, purchased in 1990, was $100 000. 10 years later that house rising in value 5% a year should have cost about $162 000. instead it sold for $50 000 more than that. 20 years later it should cost around $265 000, yet houses in that area now sell for a median price of $557k. Let's say that house is worth a lot less than it's neighbours and give it a conservative value of $440k. (it was actually advertised for this amount in 2007, lol) By my reasoning, (most likely flawed/naive) this house is over valued by nearly $200 000.

This problem will most likely not go away. The GFC (which is not over despite media consensus, schmucks), will create rises in the real cost of living, wages will stagnate, inflation will rise and even if the real estate bubble bursts, the price of houses will remain unaffordable.

*imo this amount could be skewed by including mega earners in these calculations. For example, the highest 20% of earners earn 39.4% of all income and the middle 20% earn 17.4% of all income.
**if the second earner has a casual job, which is more likely, considering the 2 kids, then the bank will not regard the income as reliable, reducing the amount the family can borrow.

Friday, May 14, 2010

Pacific Garbage Patch, Albatross Chicks

Hungry Beast: The Great Garbage Patch

"Simply allow yourself to feel whatever it is that you feel about this, without jumping to the way to solve it, because I think we really need to feel these things and if we can feel them deeply, even if the feelings aren't comfortable then those are the feelings that will turn into the fuel that can drive passionate action." -Chris Jordan

Midway: Message from the Gyre