Overvalued or Undervalued Market Analysis

In this month’s white paper, InvestorKit reviews and provides a deep-dive into the housing affordability of the 8 Capital Cities and 25 most populated non capital regions by comparing each city’s median house price in line with local incomes. Housing affordability can be looked at in many ways; debt to income, income to repayments, time to save a deposit and more. For the purpose of this analysis debt serviceability through the use of mortgage payments at various interest rates vs incomes were the key focus. A dual income household was considered, with 30% of their net incomes being the affordable benchmark. We then compared this to median house prices with an 80% loan to value ratio, on P&I repayments at both 3.5% and 4.5% home loan interest rates over 30 year loan terms. Using this comparison we could then say, median house prices would need to grow by (undervalued) or fall by (overvalued) X% amount to have the repayments (at 3.5% or 4.5% interest rates) match the 30% of net income affordable benchmark. Following this over/under valued assessment, we introduced more layers to this review by completing a deep dive into each locations market pressure (supply/demand analysis), recent 10 year performance (market cycle positioning), yields, and commentary for what we feel 2022 holds for each of these locations.

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