Australian Property Market – January 2009 Update

I intend to keep a close eye on Australian house prices as I build my retirement portfolio. This is because Australia is a very likely retirement possibility (if not sooner) for me.

The first chart shows the quarterly Real (adjusted for the Consumer Price Index) Brisbane and Real (again adjusted for CPI) Australian Eight Cities (Sydney, Melbourne, Brisbane, Adelaide, Perth, Hobart, Darwin & Canberra) House Price Index with data taken from the Australian Bureau of Statistics catalogue 6416.0 since 1991. This Index was reset in 2003/2004 and so I have “corrected” pre March 2002 data by taking the ratio’s of the pre and post September 2003 to June 2004 data as a multiplier. This chart carries data only until September 2009 and clearly shows a nice dip at the start of 2009. Could this be the Bull Trap phase of my second chart with us now nearing the Return to “Normal” phase?

My third chart shows Real Annual Changes in price from 1995 to present. In Real terms over this period Brisbane has seen average increases of 5.2% and the Australian Eight Cities has seen average increases of 4.8%. Unfortunately for me though the trend lines (particularly for Brisbane) continue to head upwards.

In non-inflation adjusted terms over the period Brisbane prices have seen average increases of 8.1% and the Australian Eight Cities prices have seen average increases of 7.6%. Unfortunately if you don’t already own a property (or three) you continue to be priced out when compared with average earnings. Using the Australian Bureau of Statistics catalogue 6302.0 which looks at average weekly earnings shows that Total Weekly Earnings has only increased by a yearly 3.8% and Total Full Time Adult Earnings by 4.3%.

My fourth chart shows what happens when house prices continue to rise at a rate greater than salaries. Over this period affordability of Brisbane houses when compared to Adult Full Time Weekly Earnings has gone from a low of 0.063 to 0.125 meaning affordability has halved and the Median Eight Cities houses have gone from a low of 0.064 to 0.113 which is a huge reduction. This type of shift is just not sustainable but when will the market turn? Will Australia raising interest rates and reducing first home buyer grants be the catalyst. Only time will tell...