UPSIDE DOWN – THE MARKET – 28 NOVEMBER 2012

You just have to laugh at the Sydney Morning Herald (SMH) this morning with their article headlined Sydney housing most affordable since 2009

It quotes the “Housing Industry Association-Commonwealth Bank housing affordability index” as revealing “…the city’s housing is now more reasonably priced, relative to incomes, than at any time in the past decade.”

Where this report really drops itself in the can is with the following statement…”A year ago it took two average full-time wages to affordably service a mortgage for a median priced Sydney house, but that has dipped to 1.84 average full-time wages.”  What on earth does “affordably service” mean?  After you’ve paid the mortgage you can have an overseas holiday every year, send two kids to private school and go out to posh restaurants twice a week or, its baked beans, no holidays and we can’t afford to have kids?  What a load of rubbish…

Governments everywhere keep telling us the average mortgage is ONLY eating up 30% of one person’s income and yet here we have The SMH telling us that Sydney is now more affordable than ever because it ONLY takes 1.84 average full time wages to support the mortgage payment.

Trouble is, with all statistics, what exactly is the average, or median wage for your “average” Sydney-sider?  Who would know?  If I quoted some sources it’s as high as $75,000.00, others as low as $42,000.00 a year.  Take the low side of two people earning $42,000.00 each per year.  Take off tax and Medicare of about $5,700.00 a year each and that leaves a nett for the household of about $72,600.00.

The SMH goes on to say the average mortgage repayment in Sydney is $3,453.00 a month!

Mmmm – $72,600.00 nett minus $3,453.00 every month leaves about $600.00 a week for 2 cars, rates, insurance, petrol, food, kids, clothes, savings, holidays, gifts and so on.  It doesn’t work, won’t work and never will.  Does the phrase “Mortgage Stress” ring a faint yet scary little bell?

Back to the mortgage repayment… That’s $800.00 a week.  $800.00 only covers a principal and interest loan of about $500,000 at Bank rates over 25 years.  Assuming the hard working and penny pinching couple has saved a 10 percent deposit and stamp duty, that’s a $550,000 property.  Not much of a family home in Sydney methinks! (PS – don’t forget mortgage insurance that few people understand anyway)

The last little kicker is the final statement, which really did make me chuckle, but on reflection, angry, as so many out there who are just plain liars…

“Nationally, housing affordability has improved for seven consecutive quarters.”  Apart from the one percent drop in interest rates, what that really means is that over the last SEVEN (7) read SEVEN quarters, house prices have fallen.  7 quarters is 21 months or nearly two years and yet we keep reading ridiculous, twisted, misquoted and out of context stats telling us that prices are actually rising!

An example back on home turf.  I received this flyer in my letterbox.

“Listed price $695,000.00” So what? Tell me what it sold for…

The Agency and other details have been removed.  I called the Agent and asked if he had permission to reveal the Contract price. He did and it was a mere $652,000.00.  This suggests a number of things.  Either the agent “bought” the listing and the seller “bought” the spin and listed at the high end 600’s or buyers are no longer afraid to go in hard with low ball offers.

For a price to end up at $652,000.00 from an asking price of $695,000.00 (and I’m not privy to the details of the negotiations) it normally follows that the parties met half way.  It looks like our buyers may have started out at $600,000.00 or even less.

But there’s more to this story.  With stamp duty (and who knows what they may have spent on repairs and maintenance) , the property owed our sellers at least $770,000.00 as they bought for $740,000.00 in July last year.  Taking into account advertising and agents fees, they’ve been left nursing a real loss of around $140,000.00 in just 16 months. The house was also sold in January 2009 for $665,000.00. My how times are changing.

Here is the reality, case by case, property by property and I can quote you thousands of them.  Whether they’re cruel, heartbreaking losses like this one, or crap returns way less than Bank interest over the last ten years, it’s all there in black and ink!

More later as I dig into another nasty scam here on the Gold Coast…

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