Does Your Home Earn More Than You Do?
Many eastern suburbs homes earned more than their owners did in 2021, thanks to a record-breaking year in the property market.
With property price increases outstripping wages growth, what does that mean for home buyers and vendors in the eastern suburbs?
New figures from Domain show that last year house price growth exceeded incomes in more than four out of five NSW suburbs, including here in Sydney’s east. We take a look at the relationship between house prices and wages growth and how it impacts home buyers and vendors here in the eastern suburbs.
Homes making more than their owners in the eastern suburbs
Property value growth outstripped incomes in many NSW suburbs last year. And, while you have to take these figures for the averages and medians that they are, some of the largest gaps between home prices and incomes were found here in the eastern suburbs.
Nine of the top 19 NSW suburbs with the largest gap between median house price gains and incomes were in our city’s east. Vaucluse was number two on the list, with a $1,591,025 difference between median household income ($158,975) and annual house price growth ($1,750,000). Dover Heights, Bronte and Bellevue Hill rounded out the top five, and North Bondi, Rose Bay, Woollahra, Clovelly and Coogee all appeared in the top 19.
The eastern suburbs were well represented in the top 20 NSW suburbs with the biggest gap between median unit price gains and incomes, too. Darling Point took out second place, with a $370,475 difference between median household income ($172,025) and annual unit price growth ($542,500). Unit price gains in Double Bay, Bondi Beach and Paddington all exceeded incomes by six-figure sums, too, while in Vaucluse, there was a $76,375 difference between unit price increases and incomes.
What’s been happening with wages growth and property prices?
These huge differences between what properties and their owners are earning are the result of a year of skyrocketing home prices (up about 33 per cent in Sydney in 2021 and even more in some suburbs) alongside slower wages growth.
But the gap between home prices and income has been widening for longer than that. According to CoreLogic, Australian property values grew by 193.1% between September 2001 and September 2021. Australian wages, on the other hand, rose by 81.7% over the same two decades. Here in NSW, the gap was slightly larger, with property prices increasing by 198.3% while wages grew by 83.5%.
How does the gap between incomes and property prices impact household budgets?
In the September 2021 quarter, the average Australian household had to allocate 36.2% of their income to meet their home loan repayments, according to the Real Estate Institute of Australia (REIA). That’s an increase of 0.9% since the June 2021 quarter and 3.9% more than twelve months earlier. Twenty years ago, in 2001, it was 27.2%.
Given our real estate is the most expensive in the country, it stands to reason that here in NSW, the proportion of income required to meet loan repayments is even higher. In the September 2021 quarter, it was 44.7% – the highest of any state or territory. That figure is 1.2% higher than the previous quarter and a huge 6.2% higher than in September 2020.
What does the relationship between wages growth and property prices mean for eastern suburbs buyers and sellers?
Given that mortgage stress is generally defined as when your mortgage repayments are greater than 30% of your gross income, these figures would indicate that many NSW households are experiencing it. And because the more you borrow, the more at risk you are of experiencing mortgage stress, it affects anyone, in any area, including well-off areas like the eastern suburbs. Also known as affluent stress, figures from 9News from September 2021 list Dover Heights, Bellevue Hill, Darling Point, Woollahra and Rose Bay among the top ten Sydney suburbs most at risk of mortgage default. If you’re having trouble meeting your loan repayments, it’s important to get in touch with your lender to discuss your options as soon as you can.
The sharp growth in property prices at a time of low wages growth also makes it very difficult for first home buyers to get their foot on the property ladder. Saving for a deposit in such conditions isn’t easy. But first home buyers do have record low-interest rates on their side.
On the upside, the 50% of eastern suburbs households who own their own home are benefitting from a significant increase in the value of their asset.
What can we expect next?
In good news for home buyers, wages are looking like they may be on the rise, thanks to low unemployment and rising inflation. Wages growth hit a low of 1.4% in September 2020, but by September 2021, it had lifted to 2.2%, inching closer to the decade average of 2.4%. Higher wages could well mitigate the possible dampening effect of an interest rate rise on home values, should a rate rise take place this year.
Meanwhile, home prices are predicted to increase further in 2022, with ANZ senior economist Felicity Emmett tipping a 9% rise for Sydney real estate. AMP Capital chief economist Shane Oliver is among the experts forecasting property prices to peak this year, but he notes that they may only retreat to mid-2021 levels, meaning homeowners will retain much of the gain made over the last twelve months.
Whether you’re looking to buy, sell or invest in Sydney’s eastern suburbs, we are here to help. Get in touch with our team today.