Australian homes now cost 500 per cent more than they did 25 years ago, according to data from the Real Estate Institute of Australia.
To put that into perspective, a home that cost $160,000 in 1996 – the median house price at the time – would cost $825,000 in 2020.
REIA President Adrian Kelly says in the past five years alone, median house prices rose by 25 per cent, adding more than $140,000 to the cost of buying a home.
Units and apartments have seen similar, although not quite as a dramatic, value increases. The median price of a unit is now $600,000 – an increase of 10 per cent over the last five years, and more than 400 per cent over the past 25 years.
This might sound like good news for vendors and investors, but it’s not all rosy. While property values have increased, their earning potential has fallen to an all-time low.
Adrian says its now property value rather than rental yields that investors should be looking for.
“Over the 25-year period, Australian housing yields tightened from 5.1 per cent to 2.9 per cent, while other dwellings recorded a drop in yields from 5.2 per cent to 3.7 per cent,” he says. “Houses in Darwin have the highest return averaging 4.2 per cent, down from 6.4 per cent in 1996.
“Melbourne and Sydney have always had the lowest yields, both falling from around 4 per cent in 1996 to just 1.8 per cent in 2020.”
While investors have been few and far between during the pandemic, they are slowly returning to a market already flooded with private buyers.
The oversaturated market will likely drive prices even higher, with the weighted average capital city median price increasing by 6 per cent for houses in the last quarter alone.
“Despite rising vacancies and the low yields, we are starting to see investors reemerge as they respond to a rising market with further growth expectations and low borrowing costs,” Adrian says.
“Over the quarter, the median house price increased in all capital cities, with a median average of $825,205,” he says. “Sydney’s median house price continues to be the highest amongst the capital cities at $1,211,488, 46.8 per cent higher than the national average.”
Perth remains the cheapest capital city to buy in, with homes averaging $490,000 – 40.6 per cent lower than the national average.