Sunday, February 12, 2012

Adelaide’s first billion dollar homes

gold-houseAdelaide’s Sunday Mail reports today that average house prices in the leafy inner-east suburb of College Park are about to hit $2m. The Mail discusses this with the President of the Real Estate Institute, who explains that he’s not surprised by the news.

"That's because real estate prices traditionally double every seven years," Mr Moulton said.

They double every seven years do they?

On this basis, some simple maths tells us that the current median house price of $395k will grow to – wait for it – one billion dollars by the year 2091.  Incomes will grow as well – allowing for an optimistic 5% growth rate over that period will see the average South Australian pay packet rise from $47k to a seemingly hefty $2.23 million p.a. However, with average house prices at a billion dollars, the would-be home owner will need a deposit of at least $50 million (22 years work!) in order to get a loan of $950 million.  That’s a loan to income ratio of 426, compared with a current maximum of around 5.

I’m glad that’s all clear.

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