The future of Australian property prices

[Agentm]

Coming from another perspective:

You say past performance is not an indicator of future returns - so by that logic one could argue that you cant call this a bubble yet as the main argument for the bubble is high median house price relative to median income relative to what it's been in the past. Rental yields are still the same as decades passed, as is capital growth. Still getting the same returns albeit at a greater capital outlay.

This bubble talk is ridiculous - heres a tip: house prices rise exponentially. Throughout your entire life you will see higher and higher prices. Our inflation is exponential too and ideally should be in line with the pace of housing. Have a peek at a graph trainspotter (i think) posted a few pages back showing the annual growth rate of property. Shock, horror it's been roughly the same for the last50 years. Exponential growth makes the situation appear more ominous then it really is.

Now i want to make this clear - i am not suggesting prices will always rise - they wont. We will hit some point of stagnation for a few years sometime in the future as wages catch up to property prices (they are expensive now no doubt about that). Property has been going through the same cycle for decades and will continue to do so (its the same cycle as most assets).

Too many people are pinning their hopes on a crash so that they can jump into the market. We have media, most ASF posters, most economists and most average joes spouting the 'bubble' line for the past 10 years - the market is still going against what the majority thinks. Get out on the ground and see what it's really like - it'll open your eyes.

Personally i see us at or near the top of the standard property cyclical phases. Expecting at some point soon a mild pullback in prices 5-10% from peak before a period of stagnation. But still buying another IP anyway - positive cashflow and dont give a fluff about the end price, already factored in to risk analysis.

i recognise a bubble and wont buy into it.. if the RE values were growing to a correct 3 -4 X income then it wouldnt be a bubble.. to be at 7 - 9 X income is. simple..


"This bubble talk is ridiculous - heres a tip: house prices rise exponentially. Throughout your entire life you will see higher and higher prices."

lol .. every day every type of analyst, journo, government and reserve bank departments have spoken openly of the bubble..


but to be deluded into thinking RE prices "rise exponentially"... pure fantasy.. just a quick glance globally to many of the burst RE bubbles tells me this is not the case..

we all need bulls to tell us that this one is different, this one is not a bubble.. i posted a link to a 100 or 200 page californian realestate appraisal paper a while back, issued about 2 months before the market went kaboom!! i suggest you look back at that document and you will see it says everything the bulls here are saying..

whether it will be a decades long pull back or a 2 years collapse is unknown.. but there is strong evidence the banks and the government are perplexed now in knowing how to drive the bubble up further, it seems to have reached a peak but i think there is a hope that through some clever policy shake ups, they could fire up the bubble some more..

imho more sunshine and lollipops to come still for the bulls in melbourne..

the chinese can easily absorb more of the current house and land packages then the current 50% they are soaking up now.. we need more chinese retirees and their extended families in melbourne i guess..

all good..

but remember.. past performance is not an indication of future returns.. ever!!

 

[Agentm]

It's funny how for property u say past performance is not an indicator of the future, yet for shares it seems like that theory is being push out alot.

that would be a mad thing to do

ignoring the fact that the performance is overheated, ie: 7 - 9 X income is very unwise imho

performance directly attributed to income at 3 - 5 would be far more practical.

since 2000 the RE values have driven into a massive bubble through the credit practices and grants and the desire to sell so much of the new house and land packages into overseas markets to drive the scarcity in land further and further..

its been a great ride, and i think it will be fired up some more.. i will buy into it when its all back to where it should be..

my share investments outperform many many times anything that i could achieve in R/E

even the share bubbles will not perform exponentially..

 

[moXJO]

its been a great ride, and i think it will be fired up some more.. i will buy into it when its all back to where it should be..

..

You and every other guy in the room.
I agree that it is expensive but people are still out there making money despite what people think. My family has just sold two houses (Jan, March) both at record levels for the street and surrounding area.
My area just won't go down and just when I thought the bum areas were heading south, we get a second wave of buying, damnit.

The US situation was a bit different. I mean why not speculate like mad when you can just walk away from the loan if you get caught holding the bag. I think people overlook that. You go bankrupt here. Most investors I know have already sold down to manageable levels anyway, where as the US just went pop without as much warning.

I am hoping that prices have hit the ceiling. Interest rates will probably be the trigger, but didn't labor just install a labor member in the Fed Res. Maybe the boomers selling off assets will do it, who knows. But damn if I see them coming down just yet. These things tend to go on a lot longer then you would expect.

And yes what a ride I had a chance to buy houses at $20k, $50k, $120k that are now $280k, $300k, and $550k. That’s in 10 years. They actually flew up in 2003-2005. Woulda shoulda but was broke at the time.

 

[KurwaJegoMac]

all good..

but remember.. past performance is not an indication of future returns.. ever!!

You keep bringing this point up yet your main argument is:

i recognise a bubble and wont buy into it.. if the RE values were growing to a correct 3 -4 X income then it wouldnt be a bubble.. to be at 7 - 9 X income is. simple..

Why is 3-4 X income 'correct'? You're only basing this on past performance yet you say never to rely on past performance? Who's to say that we have seen a shift to 7-9 x income being 'correct'? Yes in the past 3-4 X income was the norm but as you say... past performance is not an indication of future returns

"This bubble talk is ridiculous - heres a tip: house prices rise exponentially. Throughout your entire life you will see higher and higher prices."

lol .. every day every type of analyst, journo, government and reserve bank departments have spoken openly of the bubble..

Agree with you there - everyone speaks openly of this bubble but what's been happening? Prices are still going ever higher... Just because a lot of people talk about it doesn't make it right. I wouldn't rely on the opinion of a journo or government personally. In fact, I wouldn't rely on 99% of the opinion out there. This machine is too complex for any one person to accurately forecast.

but to be deluded into thinking RE prices "rise exponentially"... pure fantasy.. just a quick glance globally to many of the burst RE bubbles tells me this is not the case..

I think you may have misinterpreted what I meant to say - I'm not saying that the % gain rises exponentially. The $ value of property rises exponentially. Look at a chart of house prices for most countries for the last 100 years. Exponential prices increases. It's the nature of capitalist societies - you have exponential increases in prices when yoy growth is a positive %. Same applies to commodities, consumption, population, etc. Anything with yoy will have its' size/cost/amount grow exponentially.

we all need bulls to tell us that this one is different, this one is not a bubble.. i posted a link to a 100 or 200 page californian realestate appraisal paper a while back, issued about 2 months before the market went kaboom!! i suggest you look back at that document and you will see it says everything the bulls here are saying..

And we also need the bears to single out one particular market or country to say the same applies to every single other country in the world. Also I am not bullish and I am not bearish. I even stated that I don't think we can sustain these prices increases forever. What I'm arguing for is a possible period of stagnation/low growth/decline. I just don't see a credible reason for a crash. High prices do not automatically constitute a crash. I think a lot of people have looked at America and gone 'jee whiz I wish the same thing happened here so I can get into property'. Personally, I wouldn't mind a bit of a crash - i'm pretty cashed up and would love to add an IP or two to the portfolio.

 

[white_goodman]

I think you may have misinterpreted what I meant to say - I'm not saying that the % gain rises exponentially. The $ value of property rises exponentially. Look at a chart of house prices for most countries for the last 100 years. Exponential prices increases. It's the nature of capitalist societies - you have exponential increases in prices when yoy growth is a positive %. Same applies to commodities, consumption, population, etc. Anything with yoy will have its' size/cost/amount grow exponentially

well say if 7-8 times ratio is the new normal and past normals wont reflect future ratios etc etc.. its is still a bubble when you look at GDP% growth and how far money supply has exceeded that growth, unless there is a way for money supply to continue on its exponential path without correction I cannot see how we dont have some meaningful correction, crash whatever.

we are unbelievably susceptible to a trigger event, and the old fallacy that our inelastic supply will hold it up is laughable..

 

[KurwaJegoMac]

well say if 7-8 times ratio is the new normal and past normals wont reflect future ratios etc etc.. its is still a bubble when you look at GDP% growth and how far money supply has exceeded that growth, unless there is a way for money supply to continue on its exponential path without correction I cannot see how we dont have some meaningful correction, crash whatever.

we are unbelievably susceptible to a trigger event, and the old fallacy that our inelastic supply will hold it up is laughable..

Completely fair - and that's why the only thing i'll be looking at are events that could serve as a trigger (rising unemployment, rising interest rates, slowdown in China, etc)

It's time to be cautious no doubt about that - if we get a large trigger event occuring the magnitude of any aftershock could be massive. But no point twiddling my thumbs and waiting for something to happen that might never happen - i've increased my required cash flow buffer but for now i'm still comfortable with the risk.

And if it does all crash well then i'll go on a spending spree :

 

[white_goodman]

Completely fair - and that's why the only thing i'll be looking at are events that could serve as a trigger (rising unemployment, rising interest rates, slowdown in China, etc)

It's time to be cautious no doubt about that - if we get a large trigger event occuring the magnitude of any aftershock could be massive. But no point twiddling my thumbs and waiting for something to happen that might never happen - i've increased my required cash flow buffer but for now i'm still comfortable with the risk.

And if it does all crash well then i'll go on a spending spree :

yeah im also making sure im cash heavy, dont wanna have the downturn and no $ on hand to capitalise, cos lending will be up to **** aswell no doubt

 

[trainspotter]

Silly me ....... I finally found the global map of Australia that everyone is talking about as to why our house prices will drop. We are smack bang in the middle of Europe.

 

[sinner]

Silly me ....... I finally found the global map of Australia that everyone is talking about as to why our house prices will drop. We are smack bang in the middle of Europe.

Yeah dude, everything is juuuust fine.

Where is robots to let us know just how much sunshine and lollipops it all is.

Real housing data continues to stink. MoM home loans, released earlier today:



Remember these levels? I included the historical chart going back 6 years so you can get a rough idea how screwed we are talking.

Don't bother calling for a buyers strike, the buyers strike is involuntarily in FULL EFFECT.

I am starting to expect we will see the "unexpected" failure of some overleveraged garbage firm which will trigger the big ugly before June.

 

[moXJO]

yeah im also making sure im cash heavy, dont wanna have the downturn and no $ on hand to capitalise, cos lending will be up to **** aswell no doubt

Everyone seems cashed up and waiting for the bargins. Hope the banks don't get in trouble and take everyones money

 

[KurwaJegoMac]

Silly me ....... I finally found the global map of Australia that everyone is talking about as to why our house prices will drop. We are smack bang in the middle of Europe.

View attachment 42273

Huh?? Are you sure? I think there's something wrong with that map...

I always thought we were wedged between California and Los Angeles??

 

[trainspotter]

Yeah dude, everything is juuuust fine.

Where is robots to let us know just how much sunshine and lollipops it all is.

Real housing data continues to stink. MoM home loans, released earlier today:

View attachment 42274

Remember these levels? I included the historical chart going back 6 years so you can get a rough idea how screwed we are talking.

Don't bother calling for a buyers strike, the buyers strike is involuntarily in FULL EFFECT.

I am starting to expect we will see the "unexpected" failure of some overleveraged garbage firm which will trigger the big ugly before June.

Me thinks robots is smarter than what you thinks.

As for the overleveraged garbage firm going the big ugly before June ...... is this 2011 you are talking about?

You are too late sinner ....... it started months ago.

 

[Agentm]

http://www.theage.com.au/business/home-loans-sink-to-decade-low-20110406-1d3n2.html





Home loans sink to decade low

Chris Zappone

April 6, 2011 - 2:10PM

Home loans dropped for a second consecutive month in February with New South Wales posting its biggest monthly decline in 14 years. The share of first-home buyers shrank further.


The number of home loans fell 5.6 per cent to 45,393 in February, following a revised 6.3 per cent fall in January, according to the Australian Bureau of Statistics. Economists polled by Bloomberg tipped a 2 per cent fall.


The total was lowest number of home loans approved in a month since February 2001.

Home loans in New South Wales plummeted 10.1 per cent in seasonally adjusted terms, the most since February 1997, the ABS reported. Victoria did better than the national average but still saw a drop.


"What’s a little worrying is that there are such big drops in the early part of this year," said RBC Capital markets senior economist Su-Lin Ong. The drop ''has more than wiped the out gains in the second half of last year when we saw a string of modest increases and what looked to be a little bit of resilience in households and housing in general", she said.

............


Broad declines

Among the other states, Victoria registered a 4.6 per cent drop in new home loans, while in Queensland, they edged down 0.5 per cent.


In Western Australia the number of home loans slid 2.1 per cent, while in South Australia, home loans sank 5 per cent.


Tasmania experienced a 13.7 per cent drop while in the Northern Territory they sank 11.4 per cent. In the ACT, loans fell 4.5 per cent, the ABS said.



i am sure the bulls will find the news exactly according to plan

they will of course think that that this "exponential" decline is like the old saying..

you know the one...

past performance is not an indication of future returns

so this decline will of course not continue!!

lol

 

[sinner]

Me thinks robots is smarter than what you thinks.

As for the overleveraged garbage firm going the big ugly before June ...... is this 2011 you are talking about?

You are too late sinner ....... it started months ago.

Dude I have seen a dying fish that flipflops less than you.

Firstly, I made no comment on how smart robots is, or even how smart I think he is.

Secondly, what is the point of being cryptic? Just spit it out. Too late? I have been talking about this **** for years now, with people like you accusing me of being a doomer or afraid, or just waiting for a crash so I can get in myself or any of the other crap you guys spit for even considering the possibility that all is not well in fairyland.

3 consectuvie MoM declines in home loans, with levels seen only in recent memory during the GFC and after FHOG was disbanded.

Good luck on your "stagnation" theory.

Waiting for you to once again run amok because you were "right" and everyone but especially me was "wrong".

 

[moXJO]

Any charts on rent prices?

 

[sinner]

Any charts on rent prices?

Nice collation of contemporary data here,

http://macrobusiness.com.au/2011/01/rental-yields-and-vacancy-rates/



Gross yields on units and houses (from RPdata), pays less than gross yield on a Commonwealth Bank account.

 

[white_goodman]

Nice collation of contemporary data here,

http://macrobusiness.com.au/2011/01/rental-yields-and-vacancy-rates/



Gross yields on units and houses (from RPdata), pays less than gross yield on a Commonwealth Bank account.

doesnt really show rent prices though..

 

[SBH]

And I suspect you'll be doing the same for the next 22 months, 3100 posts and over 251 pages :



Trigger, trigger, trigger... As i've said before - you need a trigger for a crash, not just people perceiving an asset to be overvalued. You need forced selling!

We have:
Low unemployment
Low interest rates
Mining boom
Tax Advantages for property investment
Relatively tight rental market

You need one or more of the above to fail in a spectacular fashion in order for a large crash to occur. Otherwise people will just sit on the asset and wait. People will not sell property unless they have to...

...trigger trigger trigger

Sentiment is the trigger. Even the bulls are expecting a flat market

Property in oz is goooone (bar the inner city i will admit), because noone needs to buy immediately, but enough people need to sell. 90% of people will hang on and not sell but I dont care I only need to buy 1 house! Without overwhelming belief in rising prices, I, you, everyone else will buy from those willing to drop their price. It wont be a high volume crash, but so what? If property was priced on rental returns then prices would stay stable through this period.. but there is no way thats the case in this country ; )

 

[sinner]

doesnt really show rent prices though..

No it doesn't because prices viewed without some basis are extremely misleading way to view rent.

IMHO if you want to view rent as a price, you need to look at it on the cost of living basis.

 

[sinner]

If property was priced on rental returns then prices would stay stable through this period.. but there is no way thats the case in this country ; )

Actually it's the other way around!

Just like the US stock market, which is yielding <2% right now, yields will go up only if companies start increasing dividends en masse OR prices come down dramatically.

Yields are low, they will go up. I doubt they will go up in any scenario except prices coming down.