A prolific r/AusFinance Reddit poster has just dropped another piece of video gold, this time showing the cost of servicing a mortgage in Australia from 1970-2020 in inflation-adjusted dollars.
This follows previous videos showing how far Australian house prices have risen since 1970 as well as a racing bar chart of property prices from 2003 to 2020.
"This chart shows average inflation-adjusted monthly mortgage repayments (principal & interest) from 1970-2020," the Reddit user explains. "The assumed loan term is 30 years, and the assumed deposit amount is 20%. So in other words, if the average house price is $1,000,000, this model assumes you have a $200,000 deposit and will pay the principal off over 30 years."
"What’s interesting to me is how, at least in Sydney, we’re close to the 1990 peak, but for different reasons. In 1990, interest rates peaked at 17% but the average house price was still relatively low. Now in 2020, despite record low-interest rates we’re seeing a similar repayment burden because of how much the principal (i.e. house price) component has increased."
https://www.youtube.com/watch?v=NOfmahWmVJI
The user claims the sources he used to create the graph are the RBA, Domain and a Macquarie University research paper.
In response to the findings there was much debate. While some of it was in jest ("'But we had huge interest rates! Stop eating avocado!' - some boomer probably") others were more reflective.
"In all seriousness this is kind of scary. To be in the same ball park of the infamous 17% rates when our interest rates are at 0.1%," one wrote.
Another, in response to that very "to be in the same ball park of the infamous 17% rates when our interest rates are at 0.1%" comment said, "Yeah wow, I'd never thought of it that way. Kind of crazy. I guess a positive way to look at it is that a larger proportion of the repayments are going to the principle and therefore capital. Assuming house prices don't fall, of course. But lowering interest rates are a signal of a deflationary environment, so I'm not sure I'd want to be paying a mortgage right now."
Another remarked, "What this doesn't show is that wage growth is higher than inflation and has been (apart from a blip here and there) since 'boomer time'. So if something in inflation dollars is the same cost now as in 17% days, as a proportion of real wages its a lower proportion of income. Because income has increased more than inflation."
"In other words – people paying the same in inflation adjusted dollars today are better off than people paying the same inflation adjusted dollar amount however many years ago."
One other user took a much simpler message away from the whole thing: "Note to self. Don't live in Sydney." Though we understand the sentiment, we'd encourage anyone feeling its siren call to read the following cautionary tales before relocating...
Read Next
- Sydney Man's 'Unbearable' Experience Reveals The Perils Of Moving Too Far Away From The City
- 'Super Cycle Of Debt': The Real Reason Sydney Property Continues To Defy All Logic
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The post ‘Intimidating’ Graph Reveals Truth About Servicing A Mortgage Right Now appeared first on DMARGE.
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