The future of Australian property prices

[McLovin]

Just an observation, but there seems to be more houses in my area these days that are advertised as 'Price on Application'. Now I used to interpret this as 'You can't afford it so don't bother with this one', but I am seeing this on properties that I know would be in the lower end of the market (e.g. 2 bed villa units) so I am wondering if agents are doing this so as not to advertise that the market has dropped a bit? Just a thought...

I've noticed that too. I'm in the Eastern Suburbs of Sydney and POA/EOI used to be only for $10m+ properties but I'm noticing it for a lot of properties in the $2-3m mark. I've also noticed a massive increase in the number of for sale v auction.

 

[lurker123]

After thinking about it some more I've come to realize that your 1st point is half correct Beej. My equation cannot account for the property rising with inflation. Since a property is so expensive in $$$ terms, the inflation amount will also be big in $$$ terms and that just because i had inflation in:
(yearly interest amount you make from your deposit as cash in bank after subtracting inflation)
doesn't mean i can equate that to house prices going up with inflation and make house prices going up with inflation disappear.

Therefore the equation cannot account for house prices going up with inflation and only works if the house price remains the same (it doesn't rise or fall).

In order to account for inflation the equation would need to be revised:
[yearly rent + yearly amount calculated after applying the years inflation percent to property > or = (yearly interest amount you pay on theoretical mortgage) + (yearly interest amount you make from your deposit as cash in bank) - (yearly tax you pay for earning interest)]

Assuming house prices go up with inflation,
even a low 3.5% inflation such as evident in the past couple of years can favour buying a house, whereas a high 15% such as in the distant past will definately favour buying. Consequently if you think the government is happy to inflate all our debts away such as occurred in the distant past, then the case is definitely FOR buying. Need to get in now so the government can inflate all the debt away, the government did this in the past so they may do it again.

 

[Glen48]

Beej
You are correct I didn't expect the Feds to prop up the housing market by buying to OFM and putting taxpayers on the hook and now expect once the down turn is more evident another FHOB111 will be available in a higher figure maybe the 20's

 

[Starcraftmazter]

hello

yeah start a new thread, this one about AUS housing

how much is housing in Australia down since the GFC? anyone got a graph

The spike around 2010 was Rudd's FHOB bailout. Didn't last very long, and as has been pointed out GFC is far from over.

 

[Beej]

[misleading linear scaled 130 years chart snipped]

The spike around 2010 was Rudd's FHOB bailout. Didn't last very long, and as has been pointed out GFC is far from over.

You do know that using a linear scale on a chart like that over a 130 year period is just a "bearish" confidence trick to make you think there is something particularly abnormal about price change magnitudes in recent times?

For example, the chart suggests that CPI adjusted prices have doubled in 12 years since 2000, however, did you notice that from about 1948 - about 1950 CPI adjusted prices increased by an even greater amount? In 1/3 of the time? They then "corrected" slightly, and continued onwards and upwards for decades more - but on this chart that little episode of history looks far less dramatic than the last 12 years doesn't it?

The other problem with this often trotted out chart is that it really is pointless looking at CPI adjusted house prices anyway - what we pay are nominal prices! You cannot ignore the inflation when you have to stump up the cash, or better still when you sell and pocket the actual cash! Wages, income etc have grown far more than CPI over the past 130 years, and houses have changed a lot in that time as well - we have electricity, inside dunnies, A/C, and houses are generally far larger and accommodate less people on average now etc etc just to think of a few differences! Did you know that if you "deflated" current house prices to the CPI adjusted equivalent of 1920 prices that the average house price would be about $50k? Is that what an average house should cost nowadays? Is that a realistic expectation? Could you even build 1/3 of a modest modern house for $50k? Plus land cost of course!

 

[Starcraftmazter]

You do know that using a linear scale on a chart like that over a 130 year period is just a "bearish" confidence trick to make you think there is something particularly abnormal about price change magnitudes in recent times?

There is not a thing misleading about that chart - you only think so as you disagree with the proven thesis of a housing bubble.

For example, the chart suggests that CPI adjusted prices have doubled in 12 years since 2000, however, did you notice that from about 1948 - about 1950 CPI adjusted prices increased by an even greater amount? In 1/3 of the time? They then "corrected" slightly, and continued onwards and upwards for decades more - but on this chart that little episode of history looks far less dramatic than the last 12 years doesn't it?

No, I think it's very dramatic. Australia underwent many changes after WW2. Public opinion changed. It was decided that in order to protect such a vast continent, we would require mass immigration.

The other problem with this often trotted out chart is that it really is pointless looking at CPI adjusted house prices anyway - what we pay are nominal prices!

I just cannot comprehend how stupid that is. Someone with less patience would stop reading right here and never respond to you again.

If there is inflation of 100% in a year and house prices go up by 20%, I suppose you'd be jumping on the street claiming to be rich.

You cannot ignore the inflation when you have to stump up the cash, or better still when you sell and pocket the actual cash! Wages, income etc have grown far more than CPI over the past 130 years, and houses have changed a lot in that time as well - we have electricity, inside dunnies, A/C, and houses are generally far larger and accommodate less people on average now etc etc just to think of a few differences! Did you know that if you "deflated" current house prices to the CPI adjusted equivalent of 1920 prices that the average house price would be about $50k? Is that what an average house should cost nowadays? Is that a realistic expectation? Could you even build 1/3 of a modest modern house for $50k? Plus land cost of course!

First of all, wages have zero to do with house prices. Second of all, the cost of construction has barely moved compared to the cost of land in real terms - and only so because of the commodity bubble in the recent decade and wage inflation caused by the housing bubble itself. The size and nature of the houses reflects the time we live in, and it has no impact on price whatsoever.

 

[ROE]

If there is inflation of 100% in a year and house prices go up by 20%, I suppose you'd be jumping on the street claiming to be rich.

That never going to happen, with inflation paper money lose value not hard asset
so 100% inflation, your money in the bank disappear fast where as hard asset will just
sell for 100% more ...

so high inflation is renter worse nightmare ... but not as angry as these American with comments

http://www.bloomberg.com/news/2012-...ulators-to-get-foreclosure-aid-mortgages.html

 

[Starcraftmazter]

That never going to happen

It doesn't actually matter whether it will happen - I was merely demonstrating the stupidity of your logic.

with inflation paper money lose value not hard asset
so 100% inflation, your money in the bank disappear fast where as hard asset will just
sell for 100% more ...

If that hard asset is gold then I would agree. Not property though.

so high inflation is renter worse nightmare ...

It's a nightmare for pretty much everyone....

 

[explod]

so high inflation is renter worse nightmare ... but not as angry as these American with comments

The renters will then be in the street as they are in America now.

 

[Starcraftmazter]

The renters will then be in the street as they are in America now.

Actually the people in the street in USA are the ones who borrowed up to their necks to buy overpriced property.

Nobody would be out on the street because they rent. That makes no sense at all.

Maybe try and find out the facts before talking about them

 

[Beej]

There is not a thing misleading about that chart - you only think so as you disagree with the proven thesis of a housing bubble.

PROVEN thesis?? I don't think so - a bubble is proven if it spectacularly busts, and as much as you might wish it so, that has not happened in Australia. Regardless, the chart is deliberately misleading - it should be plotted with a log scale.

No, I think it's very dramatic. Australia underwent many changes after WW2. Public opinion changed. It was decided that in order to protect such a vast continent, we would require mass immigration.

We still have one of the highest immigration rates of any country in the world - right now. So is your argument then that high immigration can cause a sustainable more than doubling of "real" house prices?

I just cannot comprehend how stupid that is. Someone with less patience would stop reading right here and never respond to you again.

If there is inflation of 100% in a year and house prices go up by 20%, I suppose you'd be jumping on the street claiming to be rich.

The only one looking foolish right now is you. Try thinking a little harder, and you might actually get it. It's like this - even in your 100% inflation / 20% house price appreciation scenario, are you better off to have bought sooner or later? If a house today costs $500k and next year it costs $600k, should you have bought when it cost $500k or would you rather pay that + $100k a year later? It really doesn't matter if the price of banana's doubles - or even if your income doubled over that period! You would still have to find (or borrow) and pay an extra $100k a year later. Plus you will probably pay rent in the meantime that went up by 100% over that time period as well.

I'm old enough to have actually lived (and worked / supported myself etc) in relatively high inflation times from the mid 80s through mid 90s when your "real house price chart" shows a falling line. I can tell you that for most of this period it was a no brainer decision to use your cash or to borrow money to buy a house if you could. The sooner you did it the better off you ended up. Inflation erodes the value of your cash savings (ie you lose), while it also deflates away the value of any debt you are carrying (ie you win). The higher the inflation the bigger the lose / win margin in each scenario.

First of all, wages have zero to do with house prices.

Really??? you really think that?

Second of all, the cost of construction has barely moved compared to the cost of land in real terms - and only so because of the commodity bubble in the recent decade and wage inflation caused by the housing bubble itself. The size and nature of the houses reflects the time we live in, and it has no impact on price whatsoever.

Yea right - you go ahead and convince yourself that is true.

 

[ROE]

I better stop and not follow this stuff, a bit of waste of time.

but looking at credential and track record I would back Beej any day just like picking good fundamental stocks...

it like looking through a business like Westfield (Beej) vs Starcraftmazter (Centro)

Beej : own his own home, has shares and a few more properties on the side

vs

Starcraftmazter: who rent, doesn't own a home and keep warning people house price will crash, discard other people point of view and call it stupid, discard properties as hard asset.

this will go one for another decades, Beej own a few more properties and house price may crash by then and Starcraftmazter may own a home at last ...

Have fun and I do hope house price decline one day so you can own one cheap

 

[McLovin]

Starcraft, what's your end game in this? I mean, are you hanging out for lower house prices so that you can buy or is this just a discussion based in theory?

 

[Ves]

There is not a thing misleading about that chart - you only think so as you disagree with the proven thesis of a housing bubble.

Just post the chart in logrithmic scale, it's not that hard. Not like the data changes.

 

[Glen48]

It doesn't matter what a house is worth now or in 10 yrs time if you don't have job you are not going to buy even if it is a a bargain.

Would buying a Lamborghini for $1,000K when fuel is $20 a liter.
This time it is different we are on the ropes.

 

[Julia]

The only one looking foolish right now is you. Try thinking a little harder, and you might actually get it. It's like this - even in your 100% inflation / 20% house price appreciation scenario, are you better off to have bought sooner or later? If a house today costs $500k and next year it costs $600k, should you have bought when it cost $500k or would you rather pay that + $100k a year later? It really doesn't matter if the price of banana's doubles - or even if your income doubled over that period! You would still have to find (or borrow) and pay an extra $100k a year later.

Exactly. This is a point too often overlooked when considering inflation.

 

[lurker123]

Exactly. This is a point too often overlooked when considering inflation.

This assumes house prices go up with inflation, the fact of the matter is that they don't. Over the last 50 years house prices have appreciated on average 2.7% over and above inflation. There is no reason to believe house prices will continue to go up, whether with inflation or above it, just as there is no reason to believe house prices will go down.

Considering the current economic and political climate, deflation is the more likely scenario when the Abbott government gets into power and decides to follow the lead of the UK and practice austerity instead of printing money like the US is doing. Inflation occurs when there is too much money around, which also means it occurs when there is too much debt around. When the government stops borrowing money, businesses stop borrowing money, and the everyday Australian stops borrowing money because they look at the current economic climate and are afraid of the future, inflation is not the issue, deflation becomes the issue.

Then again considering Abbott supports a paid parental leave scheme, its hard to predict what he will do once he gets into power. Will he continue spending money or will he practice austerity.

No matter how much you bulls try to deny it, property is like shares, some people will buy a share thinking it will go up in price while others will sell it believing it will go down. Property is the same, only time will tell who is right and who is wrong.

Given your stance of getting out of the share market due to the current economic situation, your stance on property is contrary and you seem to advocate going into property and getting into debt despite current economic conditions.

No one knows the future, if you did you could become wealthy guaranteed. We can only try to predict the future and those who predict well can make money, while those who predict badly will lose money. Telling someone to buy a house rather than rent or to sell a house and rent is like giving advice on whether to buy or sell a share.

Then you may say, no your wrong, property is a hard asset, shares aren't. Oil is a hard asset yet its price fluctuates dramatically. A commodity trader in some respects is similar to a share trader.

 

[Uncle Festivus]

Good stuff lurker123. Blinkered property bulls just don't get it - yet. Until it's too late, but at least we tried to warn them

Is that regarding price or the fact of all those empty new houses they have?

Chinese investors actually wont move anyone into the house to keep the 'new' tag. Once someone lives in it the price drops. Which is why you get suburbs of empty houses.

Both. The Chinese economic crash has started - even the top man(ipulater) has forewarned the world that China will slow, so assuming that all Chinese data is manipulated to be far more positive than it actually is then we can expect an even lower Chinese GDP from now on.

It obviously affects AU in many ways and property will be hit hard, both indirectly (the so called mining boom Mk2 ending) and directly from Chinese investors having to sell.

The GFC is a continuing process - it's just entered phase 2 today.

Australia is not a financial island - we are all connected now......AU property prices will fall faster & harder from now.....both property and interest rates will be lower this time next year......

 

[Knobby22]

.....both property and interest rates will be lower this time next year......

There is such a divergence on this - in both directions especially on interest rates.
The problem is we don't really know where China is going.

 

[maffu]

I've noticed that too. I'm in the Eastern Suburbs of Sydney and POA/EOI used to be only for $10m+ properties but I'm noticing it for a lot of properties in the $2-3m mark. I've also noticed a massive increase in the number of for sale v auction.

Same here. I'm in Clovelly in Sydney's East. I just did a search on real estate.com out of the 23 properties listed, only 3 or 4 had a price. The rest are auction or ask for the price.

In other news they just had an interview with a bulldozer driver in Ohio on ABC. They are bulldozing whole blocks of houses as they are all foreclosed, and the maintenance is to high.
I can't quite get my head around the fact that perfectly good houses are being bulldozed as the best priced option. Absolutely crazy...
Apparently happening in Ireland and Spain. Imagine buying an investment property and having to bulldoze it because you can't sell it at all.