# Property to boom under Labor Government



## The Mint Man (10 December 2007)

Hey ASF peoples,
I read this article this morning and found it quite interesting.  I highlighted bits that I thought were good or interesting points.
Let me know what you think!


> By Michael Yardney
> December 2007
> 
> *Property will boom under our new Labor Government*​*Good news for property investors - property values in Australia's east coast capital cities will rise strongly over the next couple of years.  *
> ...




Cheers


----------



## Buster (10 December 2007)

> While many young families and some home owners who are struggling to pay their mortgages want to see housing affordability increase, property investors and many of the 70% of Australians who currently own their own homes are happy with the way most of our property markets are booming.




I find that stat extremely interesting.. 70% currently own outright!!  That sounds extremely high, and if so, why the supply and demand issue earlier in the piece, and the general populace complaining about interest rates.. Surely everyone isn't buying investment properties..  Would like to see anything that could back that up..

Hmmm.. Seen a great deal of Lib Govt bashing recently [read 'general whining' as it seems much easier in this day and age to complain, expecting evrything to be done for us, than to actually get on and do..] about property prices, afforability etc.. who will be to blame this time around if the scenario in this article plays out? Personally I think the article is pretty much spot on for the East coast. Disregarding of course the stat above.. 

Regards,

Buster


----------



## macca (10 December 2007)

I think it will fall, my reasons are :

Rate rise in February, possibly another in May.

Last half 2008 AWAs start to expire, as they will have been removed by then, a whole new round of wage conditions will need to be created.

The unions are in a VERY strong position to be involved in all negotiations.

Unemployment is virtually zero, as most people who are employable are already working. The employers are over a barrel and the unions will know that and demand vast upgrades in conditions.

Inflation in late 2008 and 2009 will be nasty, in 2009 I think we will see 10% housing loans.

Higher interest, higher wages equals higher unemployment,  for the first time in their adult life some people will experience a shrinking economy.

Loss of confidence, forced sales and down go the real estate prices.

Interest rates are higher than rental / real estate returns and the multiple investors will desert the RE market and go into cash / TDs.

If RE goes down people can't draw on equity to buy another, witness the USA right now.

The investment wheel has turned and it will be Cash time for a couple of years IMO.

I don't think the market will be that exciting in 2008 either.

Doom , Gloom, bah humbug !!!!!


----------



## explod (10 December 2007)

It all sounds like typical 'real estate industry' ramping to me.   A large portion of the property market boom, particularly here in Melbourne has been investment speculation.  Some agent here have been organising special trips from WA's cashed up mining boom investors for so called inner city boom specials.   

When interest rates rise (and they will soon a lot) this part of the market will fall away.   Many mum/dad investors who have brought that extra property over the last few years are feeling the pinch and will have to let these go too.  And on top of that, many first home buyers of the last few years are also feeling the pinch and starting to let them go too.

So yes the rocket is going up at a great pace.  The value of easy money has been the fuel.  Tank nearly empty.   Rockets fall very quickly


----------



## The Mint Man (10 December 2007)

I'm a first home buyer of 1 1/2 years... not feeling the pinch, in fact most people would tell you I've got more time on my hands then ever before. 
I only work part time ATM in an industry that will always need people. Point is that I could get more work and deal with higher interest rates if need be.
I suppose the difference between me and other gen Y's is that I don't *need* to live in the city, the latest gadgets, the most expensive cloths, the new car, the boat/jet ski, $5000 tattoos on my arm or to go out 3 days a week and piss my money up onto the wall.... I don't (heres that word again) need all that unless of course A) I really want it and B) I can afford it, not just now but into the future as well.
I had my fun in my late teens... 
I'm sick of people complaining about money when they treat theirs so badly!!! 


explod said:


> So yes the rocket is going up at a great pace.  The value of easy money has been the fuel.  Tank nearly empty.   Rockets fall very quickly



Does this just apply to the property market... because this sounds familiar

Cheers


----------



## explod (10 December 2007)

The Mint Man said:


> I'm a first home buyer of 1 1/2 years... not feeling the pinch, in fact most people would tell you I've got more time on my hands then ever before.
> I only work part time ATM in an industry that will always need people. Point is that I could get more work and deal with higher interest rates if need be.
> I suppose the difference between me and other gen Y's is that I don't *need* to live in the city, the latest gadgets, the most expensive cloths, the new car, the boat/jet ski, $5000 tattoos on my arm or to go out 3 days a week and piss my money up onto the wall.... I don't (heres that word again) need all that unless of course A) I really want it and B) I can afford it, not just now but into the future as well.
> I had my fun in my late teens...
> ...




You heard right.  Money is going to be a problem for those (not as yourself) who are not prepared.   Niece and her husband recently sold small house, bought bigger house, great deal, last year.  This year both working with two kids are very worried that they wont be able to keep up the payments.  Said they have many friends in the same boat.  They all voted for Rudd cause they think he can fix it.   They live in the Shire of Knox, east of Melbourne City.   Cost of fuel for travel to work a big problem too.  Poor public transport to such areas.

These places, unlike west of Sydney have not hit the news yet, but the bleeidng has begun.   I could cite many other examples for other areas but surely others have some stories to add.


----------



## ithatheekret (10 December 2007)

The land prices always seems to rise ...... and the block sizes always seem to shrink .

Is this land inflation ? Worst than a packet of crisps !


----------



## Flying Fish (10 December 2007)

explod said:


> You heard right.  Money is going to be a problem for those (not as yourself) who are not prepared.   Niece and her husband recently sold small house, bought bigger house, great deal, last year.  This year both working with two kids are very worried that they wont be able to keep up the payments.  Said they have many friends in the same boat.  They all voted for Rudd cause they think he can fix it.   They live in the Shire of Knox, east of Melbourne City.   Cost of fuel for travel to work a big problem too.  Poor public transport to such areas.
> 
> These places, unlike west of Sydney have not hit the news yet, but the bleeidng has begun.   I could cite many other examples for other areas but surely others have some stories to add.



Spare a though for those in narre warren. They get tolled to drive on the freeway. Perhaps they should re-open the electric rail that went to Warragul?


----------



## Mofra (10 December 2007)

Buster said:


> I find that stat extremely interesting.. 70% currently own outright!!



Buster,

I don't think that is what the article is saying, other articles I have read also mention 70% as the owner occupied portion of the market, certainly not owning outright.
Interesting even a few of the noted property bears have forecast 6-7% increases in Melb, Sydney & Brisbane, with Brisbane rents to rise faster than other major cities.


----------



## lakemac (5 January 2008)

As I often say - double check and cross reference your sources.

The original attribution of the 70% figure comes from the former governor of the Reserve Bank, Ian Macfarlane in a speech he gave to the Sydney Institute in April 2003:



> ...
> 6. Over 70 per cent of households either own their homes outright or are renting and therefore have no housing debt. Owner-occupied housing debt is concentrated in about 30 per cent of households, as it has been for decades, but that 30 per cent have considerably higher debt levels now.




What he did not say is of the 70% with no housing debt, how many are renters and how many have no mortgage?

As an aside in the same speech (point 3) 30% of mortgages were (in 2003) for investment purposes (previous long term value ~18%). Given the boom had not peaked until 2005 the figure of investment mortgages is likely to be higher (I do have the figure somewhere but it is not important right now for this discussion).

So we can say that 30% of households have a mortgage. of which approximately one third of those are investment related. That equates to approx 10% of households being real estate investors that would be affected by interest rates and/or credit lending practices.

The ABS figures (publication 4130.0.55.001) from 2004 show 7.7 million households, so lets approximate that to 8 million today.

In the same publication is says that only 35% of households own their house outright (a drop from 42% 10 years ago) with 21% renting privately. The main difference is the ABS claim 35% of people have a mortgage vs 30% from Ian's speech. Lets split the difference to 33% mortaged.

So 35% outright + 33% mortgage + 21% private rent = 89%
Leaving 11% for public housing and statistical slop.

Thus we have 8 million households x 33% mortaged = approx 2.5 - 2.6 million (very vocal) households with a mortgage.

So much for the base figures and some cross reference checks.
What about the effects?

There are two (almost) orthogonal (ie independent) variables in real estate:
1. rental returns
2. captial appreciation (or loss in some cases)

What affects each one.
Rental returns: this is driven by scarcity - supply and demand. The more rental properties on the market the lower the rental return. The less rental properties on the market the higher the rental return. Rent is typically half the cost of a mortgage (principal + interest that is for home owners) and about 80% of interest only loans for investors (hence negative gearing being the norm in the industry). Renters are affected by wages and living costs. Renters tend to resist higher rents which tend to rise slower than inflation and investors fear of losing good tennants.

Capital returns: although scarcity plays some role in this (particularly desirable locations) the main (using the 80/20 rule) driver is credit creation. The more credit the banks create ie. lend the higher the capital cost of real estate is. Interest rates have little bearing on this at all (as an example I refer you to Japan. They have had near zero interest rates which some would say would create a boom in property values, yet that has not happened. Why? No credit creation. The banks in Japan have been told not to lend. Prices decline or stay stagnant). Credit creation/destruction is the primary driver of real estate prices.

Now to our current situation in 2008.
Where to house prices - down/stagnant. At best 5% growth. This assumes the credit creation process continues to slow ie. banks tighten lending criteria and/or stop lending. This is likely given the current plans of the banks in China to start converting communist owned land to private (think wealthy individual families type private) ownership. To do that you have to pump up the credit (last credit injection was to help the so called "sub-prime" market) then pull it away depressing prices and forcing sales (same thing happened in the Great Depression circa 1930's and in Japan circa 1990's but for different reasons - Great Depression: control of non-member banks; Japan: transfer of control of interest rates from government to central bank and China land grab).

Would I invest in real estate right now - yes and no. Let me explain.
(note I am talking investing here not buying for lifestyle/family choices).
Banks traditionally lend up to 80% of a property's "valuation". The do this as they know (because the control the system) that valuations will not drop more than 20%.  They are always protected. In fact typically 15% is the drop as they need 5% to cover recovery costs... So far we have only seen a drop of about 7-8%. Knowing that the "valuation" of real estate is controlled by the amount of credit creation is there an increase or decrease in lending - answer: decrease. Hence the "valuation" is likely to stagnate (people hold onto their existing house) or drop (investors bailing out or mortgagees unable to pay increasing interest rates).

The key is can you and/or your tennant afford to service the loan ie. pay the interest on the loan?

As an aside interest rates have nothing to do with inflation. Inflation is caused by the devaluation of a currency by the creation of more and more credit. More credit means more money in the system, more money means the amount of credit and/or money you need to have to buy the same item goes up. The intrinsic value of the item has not changed, but since there is more money around the "price" is likely to go up which people incorrectly call inflation. In reality it should be called currency devaluation.

Interest rates (if the central banks didn't artificially manipulate them) represent the cost of obtaining credit. Because rates are controlled and the media are told interest rates are important they give people incorrect signals as to the true cost of their credit they are trying to obtain. Interest rates have little impact on the (near constant) demand for more credit. Even with rates as high as 18-20% (cf credit cards at the moment or housing loans in the 1980's) people still spend the credit the banks give them. Interest rates are a way of the bank increasing their income streams.

Back to affordability: if you can afford to service the loan even in a high interest rate environment or by locking in long term fixed interest loans or by having a lower LVR (loan to valuation ratio ie. you put in more deposit) or by having more disposable income (businesses or job) or by all the above then yes I would invest in real estate (although see my note later about the stock market vs real estate returns). Why because there will be a lot that become financially stressed by increasing interest rates and have to sell. This is particuarly true of negatively geared investors. Also in a economic downturn job security becomes less and negative gearing relies on excess income to make it work.

However don't expect your capital returns to be that great. Inflation (or more correctly currency devalution) will make your investment gain in capital value but how many buyers are out there. Much harder to sell in a high interest rate, tough lending criteria regime than what we have right now. Longer term an excellent chance to buy.

You will also get higher rental returns - why? scarcity of investement/rental places to let. However the increased returns may still not be enough to cover the higher interest rate costs unless you apply one of the above strategies.

On all this why invest in real estate at all? A properly structured buy and hold stock portfolio returns 10-15% better than real estate and no tennant hassles. That is another discussion to be had. The mathematics tell all.


----------



## Lucky_Country (5 January 2008)

Record household debt, rising interest rates, Jobs at full peak will only drop from here, Banks raising there own interest rates, Real estate agent having too spin the property sector just too get a sale
= Downward prices !


----------



## numbercruncher (5 January 2008)

Without big wage Inflation there is no logical reason for prices of average realestate to rise, only arguable thing is the supply spin.

Stars all coming into alignment for downward pressure in prices.

Labor will im sure push urban consolidation and high density projects.

Still select markets that will show capital appreciation, choose wisely if you must buy realestate, Debt and RE agents are your enemy in the current enviroment.

Imho


----------



## tech/a (5 January 2008)

Lakemac.

Nice thought out piece there.Good to see some intelligent input.

I'll just add a little from a prefessional investment view point in support of sections of your piece.
(1) Professional investors and they can be classified as people  with one IP,can use tax advantages well beyond those who only have their own home.These can be very lucrative.
(2) Even a 5% rise to an investor who has an LVR of 60% equates to 8% on his money.
Allocation of capital v return is very important and a buy and hold strategy may not be the best option at this point.
Particularly pertinent to those who own IP's and use capital through lines of credit for other purposes.
I use some of mine for development.

The 80/20 rule is one which should be visited 80% of the time.

Although I like the 50/50/90 rule.
If you have a 50/50 chance of being correct chances are that you'll be wrong 90% of the time.

I find this happens when at a "T" junction looking for a house number.Left/right-?? Yep wrong 90% of the time.



> Labor will im sure push urban consolidation and high density projects.
> 
> Still select markets that will show capital appreciation, choose wisely if you must buy realestate, Debt and RE agents are your enemy in the current enviroment.




Spot on.
Opportunity is always there in property AND the Stock Market.


----------



## tech/a (5 January 2008)

> Even a 5% rise to an investor who has an LVR of 60% equates to 8% on his money.




I'll correct my maths.
12.5%


----------



## finnsk (5 January 2008)

tech/a said:


> I'll correct my maths.
> 12.5%



How do you make your calculation????


----------



## numbercruncher (5 January 2008)

Using 100 as the base figure, investor in with 40, 5 the rise, 5 is 1/8th of 40 or 12.5pc.

But it doesn't show 8.5pc interest rates buying and selling costs or take into account deductions, rent etc, it only looks sexy after a few years of gains.


----------



## finnsk (5 January 2008)

numbercruncher said:


> Using 100 as the base figure, investor in with 40, 5 the rise, 5 is 1/8th of 40 or 12.5pc.
> 
> But it doesn't show 8.5pc interest rates buying and selling costs or take into account deductions, rent etc, it only looks sexy after a few years of gains.



Thanks for your reply.


----------



## lakemac (5 January 2008)

numbercruncher said:


> Without big wage Inflation there is no logical reason for prices of average realestate to rise, only arguable thing is the supply spin.



Numbercruncher wages have nothing to do with inflation or real estate prices. Credit creation/destruction (ie. loans) are the primary driver.

Explain how wage increases (which is what I assume you mean by wage Inflation) can increase the cost of real estate?

PS as an aside - please be careful with the terms you use. There is enough confusion as to what the term inflation really means without confusing it any further.

Lets do some preliminary figures to see if your hypothesis even holds water:
- cost of average house in sydney say $500k (Residex and REIA figures)
- average mortgage $250k (ABS and RBA figures)
- average wage in Sydney $50k (ABS figures)

So the ratio of wages to house prices is 10:1 - not a good start for something likely to influence house prices.

Variability of bank LVR (loan to valuation ratio) 20-30% (LVR range is 80 - 110% at the moment). So the banks have the capacity to alter your loan amount by say 25% of 500k ie a 4:1 ratio. Much more likely driver than wages you would think.

But not all is lost for wages - banks look at your ability to repay the loan in order to determine how much they will lend you. What they calculate is based on:
1. servicability (ie surplus cash available to pay back the loan) which is your income minus expenses.
2. security - how much deposit you are stumping up
3. credit history - how good are you at performing item 1.

Since your hypothesis is based on wages growth item 1 is the variable to determine. Lenders first work out their benchmark rates which is the std variable rate (P+I) plus what they think the interest rate will climb BEFORE you are likely to get a wage rise. Typically this additional figure is 1.5% above the std rate. It is on this figure they determine the amount you can borrow.

Now average wage increases over the past 10 years have been 3-5% max. So we have $50k + 5% = $52.5k that is an additional $2,500 per year in interest that the banks could extract from you. Working backwards using the benchmark rate of say 7.5 + 1.5 = 9% the bank would lend you an additional $20-25k. This is a ratio of 20:1 relative to house prices.

Somehow unless my maths and data I have collected say otherwise it is not wage increases that affect inflation or affect house prices.

In defence of my own hypothesis I give you the following composite graph (click on image to show lager image - image is rather large in order to show detail correlation):




Since the introduction of fractional reserve banking credit will always be the primary driver of asset prices. Scarcity plays a secondary role.

Which leads to one of the best definitions of inflation (or what should be more correctly called currency devaluation):

TOO MUCH MONEY CHASING TOO FEW GOODS.


----------



## YChromozome (5 January 2008)

lakemac said:


> In the same publication is says that only 35% of households own their house outright (a drop from 42% 10 years ago) with 21% renting privately. The main difference is the ABS claim 35% of people have a mortgage vs 30% from Ian's speech. Lets split the difference to 33% mortaged.
> 
> So 35% outright + 33% mortgage + 21% private rent = 89%
> Leaving 11% for public housing and statistical slop.




The AFR has this graph today : (Source ABS/Comsec)

Interesting it also reports in another article that Household debt is no longer at record levels - Household Debt is now at 159.6% of disposable income, down 1 percentage point from last qtr. Amazing.


----------



## lakemac (5 January 2008)

Since we have digressed a bit into the realm of calculations, I find it very misleading the way that the press present their investment calculations.

Often they neglect taxation, inflation (currency devalution), sell/buy fees, holding costs etc etc. And rarely do they present like with like when evaluating investment choices.

I subscribe to several newsletters and magazines (property and share based) all of them are guilty of the same sleight of hand.

If I get a chance I will go through a calculation showing all the various issues and prove why shares have always outperformed real estate on several fronts.


----------



## lakemac (5 January 2008)

YChromozome said:


> The AFR has this graph today : (Source ABS/Comsec)
> 
> Interesting it also reports in another article that Household debt is no longer at record levels - Household Debt is now at 159.6% of disposable income, down 1 percentage point from last qtr. Amazing.



Oh my gosh! Quick send a press release. Tell someone. The Rudd government has achieved greatness.

We are not worthy to be in your presence oh great Kevin... 

Good to see some quality cross referencing going on.
Base your arguments on facts not emotion, that's what I like to see


----------



## numbercruncher (5 January 2008)

lakemac said:


> Explain how wage increases (which is what I assume you mean by wage Inflation) can increase the cost of real estate?.





Yes I understand credit is the absolute ultimate fundamental.

But people reach peak debt, they reach a level where the can borrow no more , and with Australias realestate market the most unaffordable on the planet in relation to wages/prices - big wage increases to me seems the only ingredient to drive price growth.

This is currently running at double whammy with rising Interest rates, perhaps slashing Interest rates could spur some more growth.


----------



## Lucky_Country (5 January 2008)

Rising wages help too contribute towards rising interest rates thefore while wages are rising so do interest rates.
The mining industry is close too having a wages "breakout" and as it is such a big employer it will increase the potential for futher wage rises.
Oil is the other obvious that helps inflation as it contributes too about everything we buy.
Obvious stuff I know but dont forget the basics !


----------



## lakemac (5 January 2008)

numbercruncher said:


> Yes I understand credit is the absolute ultimate fundamental.
> 
> But people reach peak debt, they reach a level where the can borrow no more , and with Australias realestate market the most unaffordable on the planet in relation to wages/prices - big wage increases to me seems the only ingredient to drive price growth.
> 
> This is currently running at double whammy with rising Interest rates, perhaps slashing Interest rates could spur some more growth.



Correct - which is why the credit creation cycle is about to contract.

You may have noticed that lenders have tried all sorts of way to get people to borrow credit. No-doc, low-doc, take-it-we-don't-want-the-money, first-born-refunded kind of loans have proliferated. They have about exhausted it all including all the corporate side with mergers and aquisitions. Now the chickens are coming home to roost. Witness the CDO (collateralised debt obligations) or so called sub-prime credit issue. There was a fascinating article in the Australian newspaper about "hurricane norma" which went into details about how these CDO and SIV thingies came into play.

Of course my prediction is the real credit crunch is post Beijing Olympics (probably after the Para Olympics in Sept 08). Perfect timing for the October crash of 2008 (give the Chinese something to worry about as 8 is regarded as a special number to them - hence the games start 8-8-2008). Drop the credit convert the land from communist to private ownership. How clever are these super bankers...

So credit is extended to max, tighten up the interest rate screws then withdraw the liquidity and watch asset prices drop at least 20% (30% for stocks) whilst the world's population squirms.

2009 is not looking happy...


----------



## lakemac (5 January 2008)

By the way forum readers, I really do hope my analysis of all this is wrong.

I don't want to see my portfolio take a 30% dive for the next couple of years.
I want it to go up in value. 

If anyone can refute or present a well reasoned argument backed by fundamental and technical data stretching back 300 years I am open to having my analysis altered or totally consumed by flamers LOL...

Seriously anyone have an alternative model that paints a less gloomy outcome.


----------



## lakemac (5 January 2008)

Lucky_Country said:


> Rising wages help too contribute towards rising interest rates thefore while wages are rising so do interest rates.
> The mining industry is close too having a wages "breakout" and as it is such a big employer it will increase the potential for futher wage rises.
> Oil is the other obvious that helps inflation as it contributes too about everything we buy.
> Obvious stuff I know but dont forget the basics !



On what basis do you state that rising wages contribute to rising interest rates?
(I assume you meant to say interest rates and not inflation rates).

Do you have any historical data that correleates wages and interest rates? If so what is the mathematical relationship between the two. Are there any known ratios between them? Is one lagging and one leading? Figures Lucky_Country. Give us figures.

Also what causes a wages breakout? My research indicates that when the demand for services (such as workers) exceeds the available supply then you have such pressure. However pressure is one thing - the ability to pay is another. Mining has surplus cash right now. Good profits. The companies actually pay above wages - and will continue to do so - market signal is telling people mining right now is where its at. But lets take another supply demand situation but with no capacity to pay - hospitals. To say hospitals are in demand is an understatement. But are nurses having a wages breakout. I am sure they would love to get a pay increase but their industry (controlled by government no less) restricts the increase.

Wages tend not to break out evenly - they break out as you put it in those industries already in demand situations. Mining has to pay a premium in order to attract the workers it needs. But that does not fuel inflation. Why? The money they have is not credit - it is earnt in the purest form of digging it out of the ground. Someone is paying for productive outcomes. Bank credit creation on the other hand does the exact opposite - it devalues the production of goods by issuing more "fake" money thus meaning you have more money chasing the same productive output. That is inflation (currency devaluation) right there.

Ok lets look at oil as an inflationary driver. Yes it is a cost input to almost everything we consume. But is it inflationary? If banks never lent money and the only money was say gold dug out of the ground, would oil cause inflation?
The intrinsic value of oil would go up as it becomes more scarce. Simple supply and demand - thus relative to other goods it would become more valuable. And since the other goods rely on it their intrinsic value would also go up. But hang on how can both go up as we have a fixed amount of "money" - it can't there is no currency devaluation or inflation in our model. What happens is that other items relative to oil become cheaper and cheaper relative to oil even if they rely on oil to make and/or transport them. The difference here is that those products not reliant on oil will devalue faster than those that do. Oil producers will accumulate more money but because there is only a finite amount of money in the model all other goods will devalue. But this is not reality. Banks do create (lots) more fake (sometimes called fiat) money ie. credit. Now we are back to the inflation model again but it is not oil that creates it. It is fiat money.


----------



## noirua (3 April 2008)

Will the subprime crunch arrive in Australia as it appears to have made it across the pond to the U.K.
Northern Rock Bank is now trying to dump half its mortgage book and hopes to chase away the loans to other lenders and get their money back.
Meanwhile the UK online Bank, First Direct, has abruptly stopped giving out any more new mortgages. Royal Bank of Scotland, as well as other banks, are raising interest rates on some loans.  New mortgages approved in February fell 40%.
Can Australia ride out the storm from a distance, I doubt it.  As this one is a giant and on its way.


----------



## xoa (3 April 2008)

This is what the "experts" were saying about the American market, in 2006:







Bulls are predicting that the median Australian home will cost $630k within 3 years. The most expensive in the entire world. That means the interest on the typical new home loan would be more than $50k pa, more than most people earn. I suspect hundreds of thousands of people would emigrate to greener pastures if that scenario panned out.


----------



## tech/a (3 April 2008)

xoa said:


> This is what the "experts" were saying about the American market, in 2006:
> 
> 
> 
> ...





Havent heard that.Have however heard 20-40% in the next 5 yrs.

Being in the Building Industry I think this is highly likely.
Those expecting a cross the board falls will be bitterly disappointed.

WHY?

*Inflation*
Building costs are going balistik.
I import Steel
our indent orders are July +15%
Sept a further 10%
Nov a further 15%

Thats 35% in structural steel in the next 6 mths.
Labour/Concrete/Material costs all flying.

This alone will ensure prices dont fail. (Read Crash)

Bull? Dont think so.


----------



## refined silver (3 April 2008)

tech/a said:


> Havent heard that.Have however heard 20-40% in the next 5 yrs.
> 
> Being in the Building Industry I think this is highly likely.
> Those expecting a cross the board falls will be bitterly disappointed.
> ...




They had the same in the US - huge inflation in all building costs. 

However the drop in demand due to tightening credit and unaffordability (homes can only reach a certain multiple of average wages before it can't go any higher) meant the result was broke home builders. 

US Home builders such as Toll Brothers were some of the biggest losers on the share market in the last 18 months.


----------



## tech/a (3 April 2008)

refined silver said:


> They had the same in the US - huge inflation in all building costs.
> 
> However the drop in demand due to tightening credit and unaffordability (homes can only reach a certain multiple of average wages before it can't go any higher) meant the result was broke home builders.
> 
> US Home builders such as Toll Brothers were some of the biggest losers on the share market in the last 18 months.




Ive spent sometime in the states having a look.Have friends in the US in the industry.

Firstly the housing rise in price wasnt due to inflation.
It was as it was here an in balance in supply and demand and low interest rates coupled with established housing being way way cheaper than replacements if building. You could positively gear anything.

The large builders operate very differently to Aussi builders.
Over there they will develope a community at onetime then open it for sale.
500 homes at once all completed,you choose cream,blue or white.
All similar price all similar build specs.

Demand drops,cashflow stops,builders go broke.
Less likely here---not impossible.


----------

