Just stand up and say it: Terry Ryder

Commentary on the affordability issue has become so twisted that media is quoting Sydney’s median house price as a relevant topic.

We recently had the Australian Financial Review, which should know better, writing about the level of income needed by a first-home buyer to afford the median Sydney dwelling, as well as the median-priced dwelling in the other capital cities.

My question is: how is this in any way relevant to the issue of affordability?

First-home buyers don’t buy at the median price, not in Sydney, nor in Melbourne, nor anywhere else in Australia. First-home buyers buy below the median, indeed well below it. Always have done – and, I dare say, always will.

The median price for dwellings in the major cities at the moment are $750,000 in Sydney, $570,000 in Melbourne, $465,000 in Brisbane and $510,000 in Perth. According to CoreLogic RP Data, the median across the eight state and territory capital cities is $570,000.

But the average first-home-buyer loan at present is $334,800, according to the latest figures from the Australian Bureau of Statistics. Assuming the typical first-timer has a 10% deposit, this means the median dwelling price for a first-home buyer is around $370,000.

Given that 25% of all residential sales are being made to first-time buyers, there’s are a lot of novice buyers out there acquiring properties at the lower end of the market. In the past year, around 120,000 Australians have made a first-time purchase.

Those numbers are relevant to the discussion. The median price in our most expensive city is not.

The Real Estate Institute of Western Australia published some numbers this week that also have some relevance to the topic. Good to see those people putting out material that’s actually useful to a sensible debate, unlike some of their recent talk-down-the-market nonsense.

REIWA president David Airey said, quite rightly, that it was important not to use the median price as the guide for the costs of getting into the market for first-home buyers and others.

Airey said the median was the middle point in the market and that half of all sales were under it. This means buyers don’t need to be able to afford the median-priced dwelling to enter the market.

I think it’s sad that anyone needs to make this point, which is so obvious it should be a given in the debate. But the media coverage of the issue has become so irrational that industry people have to go back to kindergarten levels to try inject some balance.

“It’s also important to recognise that first-home buyers, in particular, usually purchase homes well under the median price, with Office of State Revenue data for May showing the median point for entry-level buyers being $450,000 in Perth and $366,000 in the WA regions,” Airey said.

“Even the median purchase price for first-home buyers means that half of all entry-level buyers are paying under these city and country median prices for their demographic.”

Airey said it was more useful for first-home buyers to look at the lower quartile, or bottom 25%, of the more affordable homes in an area to get a better perspective of what was available at more accessible prices.

REIWA data for the year to March shows that the south-east sub-region of Perth through Gosnells, Armadale and Serpentine-Jarrahdale had the most affordable lower quartile, with  houses selling around $370,000. 

Apartments and land were most affordable in the south-west sub-region through Cockburn, Kwinana and Rockingham.

Airey said even within the various sub-regions around Perth there were individual suburbs which were under the lower quartile for their local area.

“For example, the central sub-region has a lower quartile of $550,000, but it’s possible to find houses in Balga priced at around $385,000.

“Similarly, while the median price for units in the south-west sub-region is $277,000, you can find them in Orelia at around $196,000.”

Airey said that buyers should not be put off by the median price for a region or suburb, and look to the lower quartile for opportunities in areas they might initially think are out of their price range based on the overall median.

So true, so bleeding obvious and so sad that anyone needs to stand up and say it. 

TERRY RYDER is the founder of hotspotting.com.au. You can email him or follow him on Twitter. 

Terry was recently joined by Property Observer editor at large Jonathan Chancellor for a webinar on why research is the key to successful property investing in 2015. You can download slides and audio from the webinar here.