In Housing Boom I touched on a price-to-income measure for the state of the housing boom. For those who missed it, I simply questioned the disconnect between property prices and household wages.
There is a flaw in my logic. Median priced homes are not bought by median income earners in every suburb. In Sydney’s eastern suburbs especially, many people say they could not afford to buy the home they are in today if they had to pay today’s prices.
This may mean the prices are unsustainable but it more likely means owners will stay in their current homes for at least another 7 years (the average first mortgage life). At 10% compound return, an investment doubles every 7.2 years. Coincidence? I don’t think so. Historically that is what Sydney has done.
Median incomes include all income earners. School-leavers and low income earners skew the figures lower. Home and investment property buyers are not in that demographic.