We travel back in time to 1984.
In a recent finder.com.au study, we compared various home ownership factors of 1984 - the average mortgage size in relation to income, mortgage repayments, interest rates, and property prices- with the same factors today to discover that despite the higher costs of living that we currently face, Australians are still taking out mortgages to pursue homeownership.
1. Mortgage Sizes
The average mortgage size for Baby Boomers in 1984 was twice the amount of their average income, whereas today our mortgage size is quadruple the amount that we earn.
The average mortgage size in 1984 was $37 542 with an average annual salary of about $19 000. Whereas today, the average mortgage size is $334 000 with an average annual income of $79 000.
In 1984, 23% of your income would have gone towards your home loan, whereas now 29% of your income will go towards your home loan.
The average mortgage has increased by 790% but the average income has only increased by 316% over 30 years.
This trend has given rise to many borrowers experiencing mortgage stress, which occurs when your mortgage repayments constitute 30% or more of your total annual income.
2. Mortgage Repayments
Monthly mortgage repayments are four times higher than what they were 30 years ago- rising from $372 to $1 896.
3. Interest Rates & Property Prices
In 1984, you would have seen a higher interest rate. Today, on the other hand, the Reserve Bank has continued to ease monetary policy by lowering rates, making home finance cheaper, which has played a part in fueling demand and higher housing prices.
finder.com.au money expert, Michelle Hutchison says: "The concerning part is that interest rates are half of what they were 30 years ago, with the average standard variable rate currently about 5.5 percent compared to 11.5 percent in 1984."
The average Australian property value currently sits at $580 000 compared to $66,042 30 years ago. With the Reserve Bank’s easing of monetary budget, lower interest rates have contributed to the fuelling of Australian property prices.
4. Rent VS Buy
In 1984, 8% of the population rented and now 10% of the population rent. On the contrary, there has been a more significant change in the number of Australians taking out a mortgage, from 4% to 12% over 30 years.
Despite the tough conditions for Australian homeowners, such as increased mortgage sizes in relation to annual income, and escalating property prices, we have still seen a rise in the number of people taking out a mortgage. Four times more households today are taking out a mortgage when compared to 1984.
Michelle Hutchison points out that property is still a worthwhile investment: “If this trend continues, homeowners can expect the average property of $580 000 to be worth $4.6 million in 30 years time.”
“Even if it takes you another five years to save for a deposit, it’s worth getting into the property market when you can if you compare it to the past 30 years of returns.”
Scanning over the past 30 years of returns and with historically low interest rates, property is still a valuable investment in Australia’s market.
*This research is based on projected estimates and actual figures from Australian Bureau of Statistics, Australian Taxation Office, Reserve Bank of Australia and analysed by finder.com.au.