Joe Hockey - Out of touch

Ahh Joe, you just can't help yourself can you.




"Get a good job and then the bank will lend you money" (paraphrase). This is exactly the problem. People Mortgaging to the hilt.


But what gets me a bit is this idea that it is that simple. Lets see what you need (minimum to buy the average house these days)




As mentioned, average 3 bedroom house in Sydney is around $1.2million.


Ok, on to that add 5% for buying costs (stamp duty/inspections etc.)


So that takes us to $1.26 million total cost.




For the bank to give you a loan these days, you need between 10-20% equity (we will say 20% so we don't have to pay for mortgage insurance) So we need savings of $252,000 (not easy to obtain really....)


Then, you need a loan of the rest ($948,000).




Even at the average rate of 4.8% over 30 years...that's around $4965 a month mortgage repayment, or close to $60,000 a year. And that's assuming interest rates stay low. If they get to the long term average of 7% again, its $6307 a month, or $75,600 a year. And that's provided the bank will give you a loan of that size




How is that sustainable when the average yearly household income in NSW = $99112 (2012 figures from ABS)?. It basically means that even at these low rates, Mortgage repayments will make up over 50% of your income.
Even if you are in the 4th quintile (average yearly household income of $118716, mortgage repayments are still over 50%). It's only when you get to the top 20% of households, where incomes are at $235912 a year, where it starts looking manageable.




You can rent a 3 bedroom house in Sydney in a nice area for around ($700-$800) a week, or up to $3500 a month. So buying is way more expensive than renting at the moment.




But this is the dirty little secret of house prices. No one wants them to drop. So much of Australian wealth is tied up in them that any drop will cause economic damage. And so people like Hockey and Abbott will occaisionally stuff up and blurt out the true feelings.