Property prices have risen seven times faster than wages in a year. Can it continue?

PHOTO: Australian house prices. FILE

Housing values have risen at almost seven times the pace of wages growth over the past year, even though the property market is starting to weaken and pay packets are picking up.

By later this year or next, first home buyers could find property prices falling and wages improving, which would be some help in saving a deposit but would be offset by higher interest rates on their mortgage.

Wages rose by 2.4 per cent over the year to March, Australian Bureau of Statistics figures released on Wednesday showed — slightly less than economists expected.

Meanwhile, the latest property data shows Australian dwelling values rose 16.7 per cent over the year to April — nearly seven times as fast, according to CoreLogic.

A property price boom over the past two years sparked by ultra-low interest rates, has left many potential first time buyers struggling to save a deposit and earning stagnant wages.

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The tide has started to shift more recently. Over the past three months, national property values are up only 1.9 per cent. Home values have even fallen slightly in Sydney and Melbourne, while workers’ pay packets rose 0.7 per cent in the three months to March, although pay rises are being eaten up by the rising cost of living.

“Wages growth has picked up, but it’s certainly not — as measured by the Wage Price Index — particularly strong, although it is directionally moving up and that’s a good thing, and that’s what you’d expect given how tight the labour market is.”

Australia’s unemployment rate was at a 48-year low of 3.9 per cent in April, ABS figures released on Thursday show.

Aird expects it to take time for wages to rise further as many employees are covered by multi-year agreements. The participation rate is also at record highs, he added, compared to in the US where some workers got sick with COVID and dropped out of the workforce, so the smaller pool of workers helped employees push for higher pay.

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He expects that later this year and next, property values more broadly will be falling and wages growth improving.

“It sounds counterintuitive to think that as people’s wages go up, the amount of money they’re willing to pay for a home is less,” he said.

“The interest rate is going up — that’s going to weigh on how much someone can borrow — and their mortgage repayments are going to be higher for a given level of debt.”