Oz house prices easily outstripping income growth

A British bank has stated that Australian house prices relative to income are close to historic highs.

According to Barclays, the Australian house price to income ratio is nearing record rates set in 2003 and 2010. And with the Reserve Bank of Australia continuing to cut interest rates – instead of raising them as it had in previous years – Barclays is warning that the metrics will be driven even higher and really start to stretch borrowing limits.

“In both 2003 and 2010, the ratio of prices to incomes peaked not long after the Reserve Bank had started raising interest rates,” said Barclays. “This time the bank is cutting rates. This suggests to us that valuations are likely to enter unchartered territory on the back of lower interest rates.”

According to Barclays, the national average house price in Australia is currently 4.8 times higher than annual income. “We estimate that national home prices have reached AUS$586,000 compared with annual income per household of AUS$122,000,” the report stated.

However, in Australia’s two most popular states for immigrants, New South Wales and Victoria, the rate is said to be far higher.

Residential property prices in New South Wales are currently worth an average 5.7 times annual household income, compared with 6.3  in 2003, while in Victoria prices are 5.3 times higher than annual household income, compared with a previous high of 5.5, in 2010.

The next two popular immigrant states, Western Australia and Queensland, are much cheaper at 4.1 and 3.9 times annual income respectively, but the Sunshine State (Queensland) is also edging towards its all-time high of around 4.4.

“While we are not surprised at the dispersion of price-to-income ratios across the country, house prices are expensive relative to incomes in almost every state,” added the Barclays report.