AWOTE is probably only about 4 - 4.5%pa, so unsure where you get 15%-20% wage rises pa.
By the way, the measure on affordability we should be looking at is the % of salary/income required to cover repayments. This is at record highs as it just one of the reasons why defaults are at the highest level for a decade.
Given the % of salary required to pay the average homeloan is at its highest level, this goes to show that average salaries have lagged in this booming economy we have experienced. In fact it is fair to say that the economy cannot get any better than what we have experienced, so I actually believe we are at the tipping edge. As I mentioned, I'm in finance and looking at my colleagues, we are looking at bonuses being down at least 50-60% from prior years.
The fact that many are bringing lunch to work is another example of the concerns and just trying to cut costs anyway possible to ensure they can afford the mortgage. In speaking to mates also in finance with other companies, hey have noticed the same.
This is why I dont believe any sector of property is immune. Here, these guys own homes valued at a min of $1.5m.
ALso, heard something very interest from a commercial property lender. He believes we are going to see an almighty shock in the sector and the banks call on equity contributions from commercial property owners. Given the why bonds are moving, the banks will reassess the yield required from these properties. Let's say you are getting 5%, the bank can turn around and say this property needs to be earning 7%. Therefore, the value of the property is reduced to a level which equates to 7%. This means that the owner may be required to kick more fund in so the the loan ratio is maintained.
He sees this as a major issue as he has put together finance for people of multi million $ properties with the min equity, yielding 4-5%pa. It has started to happen to a couple of his clients who had to sell as they could not access cash to inject. This is all because of the speculators pushing property prices up.
Now, with equities getting hit, and the inability to know draw sufficient capital from portfolios to cover this scenario, well, it really does look ugly.
In fact, we may be back to the early 90s when the banks called in loans and sent many levarged property owners to the wall.
