How well has your salary kept up with the rising cost of housing

You've certainly observed that in Australia, housing prices routinely outpace salary increases. But how much is it? And what can you do to ensure that you're not following the great Australian dream indefinitely?

Each generation is confronted with its own set of obstacles (and possibilities!).

Breaking into the housing market might be a major problem for the current crop. Particularly when you’re up against older generations who have had at least a decade (or two, or three) on the housing ladder.

That isn’t to imply that isn’t possible. Not at all. Sticking to a plan, however, needs strong preparation, discipline, and drive.

Because, historically, the longer you wait, the more difficult it is to stay up, as you’ll see below.

How much have house prices increased about salaries?

According to the Australian Bureau of Statistics, the Australian wage price index (WPI) increased by 2.2 percent last year, falling short of the decade’s average rise of 2.4 percent.

Meanwhile, house prices in Australia have increased by more than 20% in the last year.

But, well, it was just one year – and it was an utterly insane one at that.

To get a better idea, let’s look at the pattern over the last two decades.

According to this CoreLogic cumulative growth graph, earnings in Australia have climbed by 81.7 percent over the last 20 years, but property prices have soared by 193.1 percent.

Here’s a breakdown of the states. As you can see, Tasmania has the greatest income differential (79.6%) compared to home price rise (294%), followed by the ACT, Victoria, NSW, and Queensland.

What does this signify for your next real estate investment?

In summary? Saving for a down payment on a home is becoming more difficult.

According to CoreLogic, a 20% deposit on the typical Australian house value climbed by $25,417 to a total of $137,268 in the year to October.

“With earnings rising by just 2.2 percent in the year to September, household savings are struggling to keep up,” says CoreLogic’s Head of Research Eliza Owen.

During instances of fast property price increases, this tends to lead to lower demand among first-time purchasers.

“Another key consequence of high house prices compared to slow income growth is diminished buying power in terms of mortgage serviceability over time.”

So, what are your options?

Apart from requesting a large salary raise from your supervisor, there are a variety of choices available to you.

Most states provide subsidies and stamp duty concessions/exemptions to help first-time home purchasers get a leg up.

There are also several federal government choices, such as the famous First House Loan Deposit Scheme and New Home Guarantee schemes, which help first-time buyers buy a home 4 to 4.5 years sooner on average.

That’s correct, four years earlier!

Then there’s the First Home Super Saver plan, which lets you put money down for the first home in your superannuation fund, which allows you to save more quickly thanks to the tax concessions that super provides.

 

Those of you wanting to buy an investment property should know that there are methods to use the equity in your current home to help you expand your portfolio.

So, if you wish to invest in property instead of relying on your annual pay for wealth and retirement, contact us immediately.

We’d be delighted to sit down with you and assist you in developing a strategy that is tailored to your specific needs.

To learn more, contact Premium Finance Group Australia at (07) 4720 8888 or email us at finance@pfga.com.au


Disclaimer: The content of this article is general and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your situation and may not be relevant to circumstances. Before taking any action, consider your particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced, or republished without prior written consent.

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