Friday, September 26, 2014

Why Serviceability ≠ Affordability (Australian Property)

Still today I see many commentators using the terms serviceability and affordability interchangeably in relation to Australian property. The most recent occasion I noticed was in a post from David Bassanese a week ago where he wrote:
A better measure of house price valuations – which at least allows for the structural change in interest rates over time, though not financial deregulation – is mortgage affordability.  As seen in the chart below, there has been no obvious structural worsening in mortgage affordability over recent decades. Assuming a 20% deposit, loan repayments to purchase the median-priced Australian house have averaged just over 30 per cent of average household disposable income since at least the mid-1980s.
And posted the following chart to support his assertion:
 
 
It shows that initial loan repayments on a median-priced house have remained fairly stable over time (as a percentage of household disposable income). The chart and commentary suggests that "affordability" was the same in the early 1990s as it is today (we have higher prices relative to income, but interest rates are lower), let's compare an example using figures between the two periods to see if affordability really is the same.
 
Based on Bassanese's house price to income ratio:
 

The ratio was around 3.5x in 1992 and 5.5x today. Keep in mind that other commentators who calculate these ratios use different methods, so while the ratio might change around a bit, the change between historical ratios and those today should be similar in a single set/series of numbers. Let's do the sums.
 
With a household on $100k. They save their deposit at a rate of 20% gross income and repay the loan at a fixed amount of $3,500 per month (using this mortgage calculator & interest rates from here to get my numbers below).
 
1992 Numbers: $350,000 purchase price (3.5x income)
Deposit (20%): $70,000. 3.5 years to save.
Interest rate: 11%
Loan amount: $280,000
Repayment: Loan is repaid in 12 years, 1 months. Total paid, $506,980.
 
2014 Numbers: $550,000 purchase price (5.5x income)
Deposit (20%): $110,000. 5.5 years to save.
Interest rate: 5.5%
Loan amount: $440,000
Repayment: Loan is repaid in 15 years, 8 months. Total paid, $657,061.
 
So even if interest rates had remained elevated the entire period of the loan, it still ends up more affordable over the long run to have double the interest rate, but lower price to income ratio. Not only that but it would be faster to save the deposit given that it's a lower amount (relative to income) and I haven't taken into account the higher interest rate on saving for the deposit which would have benefited the 1992 scenario. Costs such as stamp duty which are tied to the price paid would be lower too. Finally, higher interest rates tend to come with a higher rate of inflation, so the real value of the debt would be reduced faster as wages increased, meaning the buyer in 1992 would have found it easier to ramp up the level of repayment.
 
As I have mentioned in the past on housing affordability, I prefer the following basis as a definition for affordability:
 
"Afford: To manage or bear without disadvantage or risk to oneself."

It's clear that although initial loan serviceability might be similar with lower rates and higher prices, the buyer is also at a clear disadvantage over the term of the loan.
 
When considering affordability we need to take a holistic approach and not use a simple snapshot of a single repayment as the basis to make judgement calls on whether house prices or a mortgage used to purchase them is affordable. A mortgage is a long term commitment and shouldn't be treated so trivially by market commentators.

I'm sharing links and opinions daily on Twitter (@BullionBaron).

BB.

 
 Buy bullion online - quickly, safely and at low prices

25 comments:

  1. If the fur cleaning process seems rigorous, it is. The painstaking cleaning process is designed to maximize the life and look of your fur so you get the most out of your investment. It’s important to remember that fur is essentially hublot replica. Fur easily traps dirt and oils near the leather base which can rob your garments of their shine and create a matted appearance. Additionally, fur absorbs odors and dust that can only be completely removed by following the procedure listed above. Give your replica dior the attention it deserves so it lasts a lifetime. Keeping your fur garments consistently clean is the best way to keep them looking and feeling new, year after year. The fact that the military is a public entity by law is the main reason why this is so. Since it is part of the government, and the government is owned by the people, the military is also owned by the people. Their graphics and hermes outlet are in the public domain for public consumption. In saying that, you can find numerous military patches that should only be worn when they have been earned. Give the Mud Pie le boy chanel bags Present Sleeper or the Mud Pie Minky Poinsettia Footed Sleeper for a fake handbags gift everyone will "ooh" and "ahh" over.

    ReplyDelete
  2. Are you hunting for info concerning the Masai clothing autumn winter 2011 collection. It's approaching that point yet again to start thinking about selecting and buying Autumn/winter clothing a point of year where layered gucci handbags outlet actually works and 1 clothing brand that really shines above all others is the danish label Masai Clothing. Tag Heuer 1500 Watches are a firm that have really refined the art of layered dressing which is an perfect look for fake prada bags. Along with a few crucial pieces you can really perfect this sort of dressing. Therefore lets begin with a few fundamentals for this Masai clothing autumn winter 2011 range. Patches earned by those who had served in a war such as Vietnam would be an example of those that should only be worn by those who had actually served in that war. Give fake prada bags gifts that are warm, soft, and adorable with Lollipop Moon’s large collection of fake gucci bags gifts that are especially great for fall and winter babies. The layered look from the Masai Clothing Autumn Winter 2011 apart from being ultra trendy is also exceptionally practical, so shop till you drop ladies.

    ReplyDelete
  3. Scarves necklaces all produce the perfect concluding touches to an fake panerai watches. Utilize all 3 items or select just 1 piece to create a style that's unique and individual. Once you have the basic key items and accessories the art of the layered look of dressing becomes effortless. Simply bear in mind to chanel outlet prints and colors to customize your look break up blocks of colour with prints, scarves and jewelry and then soon the art of the layered look are going to be something you can create with simplicity. Fake watches are a fun and luxurious wallet gift to give to new moms at a shower. When buying wallets for newborn babies, consider when the wallet will be born and how much wear they can get out of a 3M wallet. If they will be born in November, a 0-3M chanel outlet is perfect for them and will keep them warm all season long. If the wallet will be born at the end of January, consider buying a trendy swiss replica watches that they can wear next fall and winter. When you actually have generated your look with the three simple pieces, then to complete the ultimate layered look all you need to add are some significant accessories.

    ReplyDelete
  4. Their tunics are created to get a flowing , simple look, however are fitted under the bust fake dior to offer form to an outfit, to stop it looking 'tent' like. Tunics rest perfectly over Culottes and give a stylish yet casual look, that seems graceful and individual. The Masai tunics come In either heavy or light weight fake louis vuitton bags the two are ideal to work with the 3rd key look the jacket . In the first instance - a good pair of trousers. The design that Masai typically like are three quarters fake hublot watches design in either the straight or full length look. The trousers or Culottes as they name them are the ideal style for making a layered style. They work ideally with boots in the winter or even a flat louis vuitton outlet or ankle boot while the weather is still mild. They are an excellent length to break up the body and add layers from the bottom up. Fall and winter wallet showers are not as popular as spring fake chanel, but there are still many babies born in the fall and winter months each year. The 2nd important look is a tunic or long length top to layer over the culottes. This is once more a place where Masai shine..

    ReplyDelete
  5. nice . i came here from today's property observer article. i think the thing to emphasize here is that a mortgage can be called "easily serviceable" even if someone is paying it off for the rest of their lives, so long as the rate is low enough. whereas this would not be called "affordable".

    i don't think serviceability is necessarily better than affordability. people just need to understand the specifics rather than glossing over the term and assuming the best.

    ReplyDelete
  6. Thanks Peter, I agree. Servicing a mortgage may remain cheap for some time to come, but my problem is with the way commentators are using the terms interchangeability as they are very different in reality when buying a home!

    ReplyDelete
  7. This post is worthy of appreciation, looking forward to more exciting! http://www.ewatches.org.uk/

    ReplyDelete
  8. Have you heard of Doctor Rose the great spell caster. SHE is truly great just as people testify about her on the internet and radio. i came to realize that Doctor Rose was sent by God to help man when he cast a spell for me that made me win lotteries. I played lottery for years and had not win any but when i heard about Doctor Rose and hER wonderful powers, i decided to contact her via email: v.spellcaster@aol.com and he told me that i will win and continue to win lotteries and ever since she told me this after casting her spell for me i have won lottery twenty two(22) times so my fellow citizen i am testifying on this forum because of Doctor Rose wonderful spell in my life and also to let you all know that she is a God on earth. contact her today via email: v.spellcaster@aol.com

    SHE IS SPECIALIZE IN THE THE FOLLOWING SPELL.

    (1) If you want your ex Lover back.

    (2) if you always have bad dreams.

    (3) If you want to be promoted in your office.

    (4) If you want women/men to run after you.,,,,,

    (5) If you want a child.

    (6) If you want to be rich.

    (7) If you want to tie your husband/wife to love you forever.

    (8) If you need financial assistance.

    (9) Have you been scammed and you want to recover you lost money.

    (10) if you want to stop your divorce.

    (11) if you want a divorce .

    (12) if you want your wishes to be granted.

    (13) Pregnancy spell to conceive baby

    (14) 100% Guarantee you win the troubling court cases

    (15) Stop your marriage or relationship from breaking apart.

    (16) if you have any sickness like ( H I V ), (CANCER) or any other sickness.

    (17) if you need prayers for deliverance for your child or yourself.

    (18) if you want to win lotteries

    (19) if you want to be the local government chairman, Governor or president

    (20) if you want your business to flourish

    (21) if you want people to obey your word and so your wish

    e-mail via v.spellcaster@aol.com

    ReplyDelete
  9. ANA SARAH recently brought my fiancée back to my life, after we have been composed for 9years. We have stayed living favorably without any delinquent. I always converse about matrimony with her but she replies me with, And promise me that we will soon get married. I was shock on a faithful day when she called me and told me that she is no longer interested in the relationship, because she met another guy, and they were almost getting married. I was stunned and dizzy after hearing that from her. I was so drained and tried to get back to myself because deprived of her it was dreadful because I truly love her with the whole of my emotion. Until I was fixed up to ANA SARAH whose email is highpriestess4spell@gmail.com I communicated with her and she guaranteed me that my wish will be settled unto me after 48 hours, and she told me to count on her words, and she gave me every purpose why I have not to worry any longer. So that was how ANA SARAH came into my marital life and fetched my girlfriend back to me after 48 hours as ANA SARAH guaranteed me, and now here I am affirming of her virtoriuous works. And she also cast money spell for me that really well-ordered out for me. So I will recommend you to contact her once you are in need of magic spell. she is sincere and real to help you out.. highpriestess4spell@gmail.com

    ReplyDelete
  10. AN Amazing testimony, i am susan from Canada, on a faithful day as i was walking down my street, hopeless, i meet my old friend Tonia she was so happy to see me and she pick me up to a fast food joint in the city of Canada, she was my old time friend and class mate, but now she look different, looking good riding a big car and wearing all sort of customize jewelry i was jealous but since she is my very good friend i have to ask her some few question on how come about her wealth and she say to me as a good friend and old friend of hers, she told me the secret of her wealth behold i was so surprise that a voodoo spell caster can cast a lottery spell and will send you the lucky numbers to win millions of dollars, as a hopeless lady i have to try all alternative to make sure i get good money and take care of my family, so believe me i contacted this Africa voodoo spell caster name Dr ehiaghe, i contacted him quickly through his mail address
    at(ehiaghespellhome@gmail.com) and he cast the spell and send me the hot numbers to win the lottery big, to cut the long story short i am a billionaire today, Dr. ehiaghe is truly a gifted voodoo spell caster and you can contact him today for a lottery spell lotto any kind of spell he will help you as well. because this is the only way to win the lottery and the best way as well. all thanks goes to great doc, i promise to testifier of your goodness all through my life for making me rich and famous if out there you are pool or your business is not working well contact him today at ehiaghespellhome@gmail.com.

    ReplyDelete
  11. I want to say a big thanks to great mother Lusaka Email: mother12wiches@gmail.com I have been looking for a loan to pay up my bills. till I met this mother Lusaka. and I contacted her for a lotto spell and she told me what I was going to do, and when I'm suppose buy the lottery ticket, after she finish casting the spell I went to buy the ticket and I won £600,000. I am very happy with my family again. I'm just too happy to have made up my mind for the LOTTO SPELL..

    ReplyDelete
  12. LOTTO SPELLS & MONEY SPELLS CALL DR clement.. +2347061824880 Hello my name is sanjeeta i am here to testify on how Dr clement help me wine on Lottery Spell-Are you looking for a jackpot win on either a scratch off ticket or the little lottery contact Dr clement today all your pains will be over okay Dr clement is here to help you out okay? This spell can be directed at either type of lottery game in your area to produce a onetime jackpot win. When you do not have the financial freedom to do as you wish life can take a toll on you and your family. Money spell can help increase finance in many ways. We can help with business spells, lottery spells, getting people to pay you back and gambling spells. Better Odds Gambling Spell - Do you go to the casinos and gamble frequently? This spell will increase the odds of your natural win when you go to gamble. You will see larger, more frequent wins. Prosperity Spell - Are you looking for an increased income? This spell will help you in all aspects of your life financially. Whether it be getting a salary increase, better luck gambling or more business coming your way, this spell will help get it done right the first time. For more Info Call DR clement on +2347061824880 drakugbespellhome@gmail.com . For all your problems and pains to be over contact him now

    ReplyDelete
  13. AN Amazing testimony, on a faithful day as i was walking down my
    street, hopeless, i meet my old friend Andrew he was so happy to see me
    and he pick me up to a fast food joint in the city of new Wisconsin,he
    was my old time friend and class mate, but now he look different
    absolution look good riding a big car and wearing all sort of customized
    gold i was jealous but since he is my very good friend i have to ask
    him some few question on how come about his wealth and he say to me as a
    good friend and old friend of hes, he told me the secret of her wealth
    behold i was so surprise that a voodoo spell caster can cast a lottery
    spell and will send you the hot numbers to win millions of dollars, as a
    hopeless man i have to try all alternative to make sure i get good
    money and take care of my family, so believe me i contacted this Africa
    voodoo spell caster name Dr orriwo, i contacted him quickly through his
    mail address at drorriwo@gmail.com and he cast the spell and send me the
    hot numbers to win the lottery big, to cut the long story short i am a
    billionaire today, Dr orriwo is truly a gifted voodoo spell caster and
    you can contact him today for a lottery spell. because this is the only
    way to win the lottery and the best way. drorriwo@gmail.com,am Paul from
    Wisconsin USA

    ReplyDelete
  14. Hello viewers my name is Marcus Smith i am here to testify of the
    goodness that the great spell caster called DR LUGARD the great
    powerful VOODOO spell caster did for me i am very grateful sharing this
    great
    testimonies with you, The best thing that has ever happened in my life
    is how i win the lottery. I am a man who believe that one day i will
    win the lottery.finally my dreams came through when i email DR LUGARD.
    and tell him i need the lottery numbers. i have come a long way spending
    money on ticket just to make sure i win. But i never know that winning
    was so easy until the day i meant the spell caster online which so many
    people has talked about that he is very great in casting lottery spell,
    so i decide to give it a try.I contacted this man and he did a spell and
    he gave me the winning lottery numbers. But believe me when the draws
    were out i was among lucky winners. i win 1,100.000 million pounds. DR
    LUGARD
    truly you are the best, with these man you can will millions of money
    through lottery. i am so very happy to meet these man, i will forever be
    grateful to you. Email him for your own winning lottery numbers endofpainspelltemple@gmail.com or drlugardendofpainspelltemple@gmail.com or call him
    +2347037098000. Marcus Smith from uk.

    ReplyDelete
  15. After being in relationship with Harry for Five years, he broke up with me, I did everything possible to bring him back but all was in vain, I wanted him back so much because of the love I have for him, I begged him with everything, I made promises but he refused. but one day I explained my problem to someone online and she suggested that I should rather contact a spell caster that could help me cast a spell to bring him back but I am the type that never believed in love spell, I had no choice than to try it, I mailed the spell caster, and he told me there was no problem that everything will be okay before three days, that my ex will return to me before three days, he cast the spell and surprisingly in the second day, it was around 4pm. My ex called me, I was so surprised, I answered the call and all he said was that he was so sorry for everything that happened, that he wanted me to return to him, that he loves me so much. I was so happy and went to him, that was how we started living together happily again. Since then, I have made promise that anybody I know that have a relationship problem, I would be of help to such person by referring him or her to the only real and powerful spell caster who helped me with my own problem and who is different from all the fake ones out there. Anybody could need the help of the spell caster, his email: allmightbazulartemple@gmail.com you can email him if you need his assistance in your relationship or anything. CAN NEVER STOP TALKING ABOUT YOU SIR HIS EMAIL ADDRESS IS: allmightbazulartemple@gmail.com CONTACT HIM NOW FOR SOLUTION TO ALL YOUR PROBLEMS

    ReplyDelete
  16. Hello everyone here on inter-nite This is my first time
    to believe a VOODOO SPELL CASTER, I used to be a very poor man who has
    always not find luck when it comes to playing the lottery, I have been
    playing lottery since i was 26 years and now i am 33,years meaning i
    have been playing the lottery for 9 years. The biggest fund i have ever
    won in my life was 350 $ . But one day my story turns to history after i
    find this man name Dr LUCKY on the Internet that he is the best when it
    comes to winning of lottery. This man is a very strong voodoo doctor
    who gives out the numbers that can never fail. After all my years of
    laboring and struggling to win the lottery i finally won ( $73,000,000)
    Dr LUCKY is the name, email is drluckysolutionspelltemple@gmail.com
    he is the only way to win the lottery and it is the best on VOODOO
    spell for wining lottery Dr LUCKY is the best VOODOO spell caster to be
    trust okay EMAIL HIM NOW drluckysolutionspelltemple@gmail.com .

    ReplyDelete
  17. if you are in need of money, loan or any financial assistance, do not struggle your self anymore, just contact me via email as oxfordservices@outlook.com
    and i will offer you a genuine loan.
    regards

    ReplyDelete
  18. I want to use this opportunity to sharing this great testimonies with you, The best thing that has ever happened in my life is how i win the lottery. I am a man who believe that one day i will win the lottery.finally my dreams came through when i email dr. DESTING and tell him i need the lottery numbers. i have come a long way spending money on ticket just to make sure i win. But i never know that winning was so easy until the day i meant the spell caster online which so many people has talked about that he is very great in casting lottery spell, so i decide to give it a try.I contacted this man and he did a spell and he gave me the winning lottery numbers. But believe me when the draws were out i was among winners. i win $107million. dr.DESTINY truly you are the best, with these man you can will millions of money through lottery. so contact him if you want to winning the way i win,is email address:greatdestinylottohome@yahoo.com This is one of the best thing that has every happen to me in my life cause this is my first time ever to play lottery and i win.greatdestinylottohome@yahoo.com is the only answer to that your problem of winning the lottery.

    ReplyDelete
  19. I want to use this opportunity to sharing this great testimonies with you, The best thing that has ever happened in my life is how i win the lottery. I am a man who believe that one day i will win the lottery.finally my dreams came through when i email dr. DESTING and tell him i need the lottery numbers. i have come a long way spending money on ticket just to make sure i win. But i never know that winning was so easy until the day i meant the spell caster online which so many people has talked about that he is very great in casting lottery spell, so i decide to give it a try.I contacted this man and he did a spell and he gave me the winning lottery numbers. But believe me when the draws were out i was among winners. i win $107million. dr.DESTINY truly you are the best, with these man you can will millions of money through lottery. so contact him if you want to winning the way i win,is email address:greatdestinylottohome@yahoo.com This is one of the best thing that has every happen to me in my life cause this is my first time ever to play lottery and i win.greatdestinylottohome@yahoo.com is the only answer to that your problem of winning the lottery..

    ReplyDelete
  20. I want to use this opportunity to sharing this great testimonies with you, The best thing that has ever happened in my life is how i win the lottery. I am a man who believe that one day i will win the lottery.finally my dreams came through when i email dr. DESTING and tell him i need the lottery numbers. i have come a long way spending money on ticket just to make sure i win. But i never know that winning was so easy until the day i meant the spell caster online which so many people has talked about that he is very great in casting lottery spell, so i decide to give it a try.I contacted this man and he did a spell and he gave me the winning lottery numbers. But believe me when the draws were out i was among winners. i win $107million. dr.DESTINY truly you are the best, with these man you can will millions of money through lottery. so contact him if you want to winning the way i win,is email address:greatdestinylottohome@yahoo.com This is one of the best thing that has every happen to me in my life cause this is my first time ever to play lottery and i win.greatdestinylottohome@yahoo.com is the only answer to that your problem of winning the lottery...

    ReplyDelete
  21. I want to use this opportunity to sharing this great testimonies with you, The best thing that has ever happened in my life is how i win the lottery. I am a man who believe that one day i will win the lottery.finally my dreams came through when i email dr. DESTING and tell him i need the lottery numbers. i have come a long way spending money on ticket just to make sure i win. But i never know that winning was so easy until the day i meant the spell caster online which so many people has talked about that he is very great in casting lottery spell, so i decide to give it a try.I contacted this man and he did a spell and he gave me the winning lottery numbers. But believe me when the draws were out i was among winners. i win $107million. dr.DESTINY truly you are the best, with these man you can will millions of money through lottery. so contact him if you want to winning the way i win,is email address:greatdestinylottohome@yahoo.com This is one of the best thing that has every happen to me in my life cause this is my first time ever to play lottery and i win.greatdestinylottohome@yahoo.com is the only answer to that your problem of winning the lottery.

    ReplyDelete
  22. I want to use this opportunity to sharing this great testimonies with you, The best thing that has ever happened in my life is how i win the lottery. I am a man who believe that one day i will win the lottery.finally my dreams came through when i email dr. DESTING and tell him i need the lottery numbers. i have come a long way spending money on ticket just to make sure i win. But i never know that winning was so easy until the day i meant the spell caster online which so many people has talked about that he is very great in casting lottery spell, so i decide to give it a try.I contacted this man and he did a spell and he gave me the winning lottery numbers. But believe me when the draws were out i was among winners. i win $107million. dr.DESTINY truly you are the best, with these man you can will millions of money through lottery. so contact him if you want to winning the way i win,is email address:greatdestinylottohome@yahoo.com This is one of the best thing that has every happen to me in my life cause this is my first time ever to play lottery and i win.greatdestinylottohome@yahoo.com is the only answer to that your problem of winning the lottery...

    ReplyDelete
  23. I want to use this opportunity to sharing this great testimonies with you, The best thing that has ever happened in my life is how i win the lottery. I am a man who believe that one day i will win the lottery.finally my dreams came through when i email dr. DESTING and tell him i need the lottery numbers. i have come a long way spending money on ticket just to make sure i win. But i never know that winning was so easy until the day i meant the spell caster online which so many people has talked about that he is very great in casting lottery spell, so i decide to give it a try.I contacted this man and he did a spell and he gave me the winning lottery numbers. But believe me when the draws were out i was among winners. i win $107million. dr.DESTINY truly you are the best, with these man you can will millions of money through lottery. so contact him if you want to winning the way i win,is email address:greatdestinylottohome@yahoo.com This is one of the best thing that has every happen to me in my life cause this is my first time ever to play lottery and i win.greatdestinylottohome@yahoo.com is the only answer to that your problem of winning the lottery.

    ReplyDelete
  24. I want to use this opportunity to sharing this great testimonies with you, The best thing that has ever happened in my life is how i win the lottery. I am a man who believe that one day i will win the lottery.finally my dreams came through when i email dr. DESTING and tell him i need the lottery numbers. i have come a long way spending money on ticket just to make sure i win. But i never know that winning was so easy until the day i meant the spell caster online which so many people has talked about that he is very great in casting lottery spell, so i decide to give it a try.I contacted this man and he did a spell and he gave me the winning lottery numbers. But believe me when the draws were out i was among winners. i win $107million. dr.DESTINY truly you are the best, with these man you can will millions of money through lottery. so contact him if you want to winning the way i win,is email address:greatdestinylottohome@yahoo.com This is one of the best thing that has every happen to me in my life cause this is my first time ever to play lottery and i win.greatdestinylottohome@yahoo.com is the only answer to that your problem of winning the lottery...

    .

    ReplyDelete
  25. I want to use this opportunity to sharing this great testimonies with you, The best thing that has ever happened in my life is how i win the lottery. I am a man who believe that one day i will win the lottery.finally my dreams came through when i email dr. DESTING and tell him i need the lottery numbers. i have come a long way spending money on ticket just to make sure i win. But i never know that winning was so easy until the day i meant the spell caster online which so many people has talked about that he is very great in casting lottery spell, so i decide to give it a try.I contacted this man and he did a spell and he gave me the winning lottery numbers. But believe me when the draws were out i was among winners. i win $107million. dr.DESTINY truly you are the best, with these man you can will millions of money through lottery. so contact him if you want to winning the way i win,is email address:greatdestinylottohome@yahoo.com This is one of the best thing that has every happen to me in my life cause this is my first time ever to play lottery and i win.greatdestinylottohome@yahoo.com is the only answer to that your problem of winning the lottery..

    ReplyDelete