House Prices and Life Stages

Young couples are interested in wage increases staying ahead of house prices so that by the time they are ready to purchase a house their incomes will allow them to meet expectations. Over the 7 years to September 2003, REIA median house prices for Australia increased at 12%pa while Wages increased at only 4.5%pa.

Older couples are interested in their house prices staying ahead of living cost inflation so that the equity they hold in their home (usually fully owned by then) will help cover retirement living contingencies if savings are not sufficient. Over the 7 years to September 1973, house prices increased at only 5%pa while living costs increased at 12.5%pa. This type of problem is of particular concern to retirees planning reverse mortgage access to home equity. The FinDem simulator allows you to study the effect of different rates of increase in house price and reverse mortgage interest.

A problem with published data on house prices is that the numbers include increases from extensions and refurbishments. They also include increases in the floor area. In other words, a house which had no improvements would not have increased in price by as much as reported price increases. The effect of these components in comparing the REIA median house price numbers over longer periods of time is estimated to be between 1% and 2% per annum. FinDem is currently carrying out research for a Factsheet on housing, which will include examination of long-term trends of prices adjusted for these components. We have added some of the data being studied for this research under the new section for Housing in Links. Also added is some interesting research on this topic from researchers at Macquarie University which has been added to Research Papers in Resources.

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