The future of Australian property prices

[sptrawler]

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.

As lurker123 says it is all a gamble, no one knows which is the best assett class to be in.
However as SCM says property, in a lot of places, is overvalued and is probably going through a correction as we speak. The reserve bank and the banks seem to be handling it very well, despite Wayne Swan, I am sure the banks will have their house in order before Swan does.
So really if you can get a couple of houses payed for, have a few shares say $500,000 in steady divided paying companies and have a couple of million in term deposit staggered so they mature as a steady income. I think as long as your at preservation age you will be o.k.
So lets get into it, where is a good area to buy a house in your opinion, that has already taken a hit and is starting to look like reasonable value.
I know there is going to be a crash, but just incase there isn't lets put some ideas together on places posters know in their area. I will chuck in my thoughts around the areas of Perth I've been watching. Parkwood, Ferndale, Lynwood, St James. They are all within approx 10k's of the city and at present you can get in between $300k and $400k. As a rank outsider Mandurah, has electric train access to city and great amenity presently starting around $200k for free standing units.

 

[KurwaJegoMac]

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.

The Chinese Premier announced a target of 7.5%. A target =/= a forecast.

They have had a target of 8% for over 5 years, but have not been able to achieve it (posting double digit GDP growth up until 2010 (10.3%). 2011 saw them hit 9.2% so despite the GFC and ongoing troubles they still haven't hit anywhere near their 8% target.

Now they've cut their target to 7.5% - will they hit it? Highly doubt it. Better to aim extremely high and get part way, then aim really low and achieve it.

There is no denying that the rate of growth is slowing (you can see that from the two figures I provided above), its' the magnitude of that growth that's overlooked. E.g. If something increases 10% off a base of 100, it's a lot less than 5% off a base of 500.

So assuming their GDP is $6trillion US (sources vary between 6 and 10), if they were to hit their target of 7.5% (realistically it'll be higher), they will add $450 billion to their economy. To put it in context, that is just as much as Poland produces each year (~$460b) and is just under the market valuation of Apple ($500b). It's like adding a country like Poland or a company like Apple to the world economy every year.

That is huge. To think that it will not have any effect on asset prices and mining is, to use your own words, a bit of a 'blinkered' view.

 

[Starcraftmazter]

Regardless, the chart is deliberately misleading - it should be plotted with a log scale.

No it is not. House prices are meant to never change in real terms, it is unnecessary to plot them on a log scale. Regardless, the scale used makes no different the the data represented.

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?

My argument has little or nothing to do with immigration. Once our economy turns to depression there will be significant emigration from Australia.

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.

You completely miss the little - but very important fact of where I would be keeping my wealth. I would be holding gold - which no doubt would go up at least in line with inflation, and thereby my ability to buy a house would increase five-fold.

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.

So you actually advocate buying at the peak of the bubble? What total nonsense. Yes, let me just borrow up to my neck in debt so I can buy something which is rapidly going down in value.

Really??? you really think that?

Actually yes sorry I was mistaken in my haste. Wages influence construction costs - however it is only a very small influence. Absolutely nothing compared to the cost of land for instance.

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

I don't need to convince myself, it is proven by readily available data.



The slight increase in the last decade is merely the commodity bubble (not busting) and wage inflation - which happened itself as a result of the housing bubble. Pretty soon it will come back down to 100.

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

I didn't make the chart, so I can't. Either way, it's irrelevant - the chart has no influence on the amount by which house prices have risen.

 

[Knobby22]

The slight increase in the last decade is merely the commodity bubble (not busting) and wage inflation - which happened itself as a result of the housing bubble. Pretty soon it will come back down to 100.

I would have thought that since real household income have risen so much the best you could hope for would be 140, not 100.

 

[Starcraftmazter]

I would have thought that since real household income have risen so much the best you could hope for would be 140, not 100.

?? Income has nothing to do with construction costs - again except wages, but deflated by inflation it has the most insignificant affect of anything else.

 

[KurwaJegoMac]

Actually yes sorry I was mistaken in my haste. Wages influence construction costs - however it is only a very small influence. Absolutely nothing compared to the cost of land for instance.

?? Income has nothing to do with construction costs - again except wages, but deflated by inflation it has the most insignificant affect of anything else.

Wages have a small influence on costs?? So if I earn 50k and my wage increases to 100k you're saying it has no impact on costs? What about the fact, that I now have more income to spend and therefore more inclined to make a more expensive purchase (such as property). I've now increased the demand for housing by 1. Unless supply rises to meet the new demand, prices will go up. Have you been paying attention in your economics classes lately? Or did you fail your uni subjects last year?

Of course should wages and assets stay the same in real term, the net change is 0 (despite an increase in price). However as Knobby22 pointed out, according to your chart wages rose in real terms - there is therefore more money in real terms to spend on assets, which is quite significant. To suggest that this would not have an impact on prices is absurd.

 

[Julia]

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.

"On average", I wouldn't dispute that at all. But markets are cyclical. I am simply speaking from my own experience in the late 70's and early 80's in NZ when inflation was high, and house prices - and rents - as well as interest rates were also high.
It was absolutely possible - if you bought sensibly - to make around 100% capital gain in about a year.

Reporting that experience from that time does not logically translate into my being 'a property bull'. I would absolutely not be buying property as an investment at present because capital gains are far from assured and the yield is pathetic, at least in the area where I live.

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.

Did I say house prices would go either up or down? No. I have no idea what they will do at this stage.

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.

What? Where have I advocated going into property and/or getting into debt?
I have done nothing of the sort. Perhaps you could explain the source of your conclusion about what I am advocating?

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.

I completely agree and have never told anyone to buy or sell either a house or a share.

 

[robots]

hello,

that was the case with me as well ^above, I just reported the auction results which therefore meant i was a real estate agent, developer. perma bull, slumlord, specuvestor, DH and all the others

even had death threats, just for putting up the clearance results, oh well life goes on

i notice in an above post that someone wrote property has only returned 2.6% above inflation? amazing, is that a bubble

thankyou
professor robots

 

[young-gun]

hello,

that was the case with me as well ^above, I just reported the auction results which therefore meant i was a real estate agent, developer. perma bull, slumlord, specuvestor, DH and all the others

even had death threats, just for putting up the clearance results, oh well life goes on

i notice in an above post that someone wrote property has only returned 2.6% above inflation? amazing, is that a bubble

thankyou
professor robots

it is simply ignorant to believe australian housing is not in a bubble. perhaps it wont burst this year, or next, or the next, but the fact remains, it is in a bubble.

 

[young-gun]

Can i get some users gameplan on the following scenario.

You DON'T own any property. There is an entire nation(less a few %) saying property is gonna be ok and it wont go down much more. Would you be rushing out to buy now? What would you do if you were in this situation? please do your best to put aside the fact you own one, two, three or however many houses, and reply unbiased.

 

[Gerkin]

Can i get some users gameplan on the following scenario.

You DON'T own any property. There is an entire nation(less a few %) saying property is gonna be ok and it wont go down much more. Would you be rushing out to buy now? What would you do if you were in this situation? please do your best to put aside the fact you own one, two, three or however many houses, and reply unbiased.

I dont listen to a whole nation.

I will do my sums and buy something that
a) I can live in
b) can be subdivided, greater than 700sqm

I'm looking at the moment for the above. If prices fall say 20%, my subdivision plan still works, simple.



Im actually going through this at the moment. The area im looking at prices have fallen 10-20% on simiarlar properties

 

[sptrawler]

it is simply ignorant to believe australian housing is not in a bubble. perhaps it wont burst this year, or next, or the next, but the fact remains, it is in a bubble.

There is no doubt housing is in a bubble. However the RBA and banks are trying to deflate it in an orderly manner.IMO
What has to be appreciated is we are not in the same situation as the U.S, U.K, Europe etc.
We are a relatively young economy that is fortunately endowed with raw material assets that are easily mined as they are close to the surface and logistcally close to the market.
Combine this with a small population results in low unemployment.
As long as the unemployment stays low so will mortgage delinquencies, meanwhile prices are sliding and wages are rising.

 

[sptrawler]

Can i get some users gameplan on the following scenario.

You DON'T own any property. There is an entire nation(less a few %) saying property is gonna be ok and it wont go down much more. Would you be rushing out to buy now? What would you do if you were in this situation? please do your best to put aside the fact you own one, two, three or however many houses, and reply unbiased.

Work out what you think you can afford to borrow without stressing yourself, it's different for everyone.
IMO there are two ways to approach house investment, capital gain and capital gain.
1. If you are going to rent the place you want minimum maintenance, close to public transport, close as possible to the city with future rezoning potential( in fill housing will be the way of the future). If there is no capital gain potential you are just supplying housing for the poor and paying c.g.t on any profit, sad but true.
2. If you are going live in it, the old saying of buying the worst house in the best suburb you can afford is still true. Fix the house up and tax free gain, then move up the ladder.

I have done both and for me the second option worked better, because if worse comes to worse, you end up being stuck with a house you want.

It's is a lot better than having tenant problems, in a house you don't want to live in and then when you do sell the tax man puts out his hand for a take of the profit.
Anyway that's just a brief take on how I see it a lot will disagree. Everyones different.

 

[Bill M]

Can i get some users gameplan on the following scenario.

You DON'T own any property. There is an entire nation(less a few %) saying property is gonna be ok and it wont go down much more. Would you be rushing out to buy now? What would you do if you were in this situation? please do your best to put aside the fact you own one, two, three or however many houses, and reply unbiased.

Thanks young-gun, it's a fair question. OK, my experience is now quarantined.

I wouldn't rush out to buy anything right now. What I would be doing is looking very closely at the suburb you are interested in living in. I would hit every open house (or unit) in the area. I would go to every auction I could and just observe the outcomes. I would do this for 3 Months or so. I would even talk to some of the other young-ones there and see what they are thinking. Then just for fun turn up to a open for "rental inspection" to see how many renters turn up. That is the best sign you will see if you can rent that property. Walk the walk, talk the talk but depart with none your cash. After 3 Months you will know the price, the real price. Then it is a matter of time before the right property comes along, it will then be the time to buy. That is how I would do it, good luck.

 

[Uncle Festivus]

There is no doubt housing is in a bubble. However the RBA and banks are trying to deflate it in an orderly manner.IMO
What has to be appreciated is we are not in the same situation as the U.S, U.K, Europe etc.
We are a relatively young economy that is fortunately endowed with raw material assets that are easily mined as they are close to the surface and logistcally close to the market.
Combine this with a small population results in low unemployment.
As long as the unemployment stays low so will mortgage delinquencies, meanwhile prices are sliding and wages are rising.

We are in exactly the same 'situation' as them ie too much debt.

As for unemployment......

2.21 MILLION AUSTRALIANS UNEMPLOYED OR UNDEREMPLOYED – HIGHEST EVER RECORDED. UNEMPLOYMENT AT 10.3% – A RECORD 1.28 MILLION AUSTRALIANS LOOKING FOR WORK

In January 2012 according to Roy Morgan:

• Unemployment was 10.3% (up 1.7% since December 2011) ”” an estimated 1,278,000 Australians were unemployed and looking for work. This is Australia’s highest ever number of unemployed as reported by Roy Morgan and is also Australia’s highest unemployment rate for a decade ”” since January 2002 (10.9% ”” 1,075,000).
  
  
• A further 7.5% of the workforce* were working part-time looking for more work (underemployed) ”” 934,000 Australians.
  
  
• In total a record 17.8% of the workforce, or 2.21 million Australians, were unemployed or underemployed.
  
  
• The Australian workforce* in January was at a record high 12,429,000, up 383,000 since January 2011 ”” comprising 7,681,000 full-time workers (up 106,000); 3,470,000 part-time workers (down 53,000) and 1,278,000 looking for work (up 330,000).
  
  
• The latest Roy Morgan unemployment estimate of 10.3% is now almost double the 5.2% currently quoted by the ABS for December 2011.

Roy Morgan

 

[Julia]

You DON'T own any property. There is an entire nation(less a few %) saying property is gonna be ok and it wont go down much more. Would you be rushing out to buy now? What would you do if you were in this situation? please do your best to put aside the fact you own one, two, three or however many houses, and reply unbiased.

Young-gun, for me it would depend entirely on whether I wanted to buy a home to live in or an investment property. If I needed to buy my own home and it was important to me to feel settled (which it always is) and if I intended to continue living in that property for 10+ years, I wouldn't be put off so doing because of a fear values will fall further. It depends entirely on one's personal circumstances which are going to vary immensely.

For an IP, no I wouldn't be even considering it.
For Lurker: the above sentence is purely a personal view and does not in any way constitute advice to anyone about anything.

We are in exactly the same 'situation' as them ie too much debt.

As for unemployment......

2.21 MILLION AUSTRALIANS UNEMPLOYED OR UNDEREMPLOYED – HIGHEST EVER RECORDED. UNEMPLOYMENT AT 10.3% – A RECORD 1.28 MILLION AUSTRALIANS LOOKING FOR WORK

In January 2012 according to Roy Morgan:

• Unemployment was 10.3% (up 1.7% since December 2011) — an estimated 1,278,000 Australians were unemployed and looking for work. This is Australia’s highest ever number of unemployed as reported by Roy Morgan and is also Australia’s highest unemployment rate for a decade — since January 2002 (10.9% — 1,075,000).
  
  
• A further 7.5% of the workforce* were working part-time looking for more work (underemployed) — 934,000 Australians.
  
  
• In total a record 17.8% of the workforce, or 2.21 million Australians, were unemployed or underemployed.
  
  
• The Australian workforce* in January was at a record high 12,429,000, up 383,000 since January 2011 — comprising 7,681,000 full-time workers (up 106,000); 3,470,000 part-time workers (down 53,000) and 1,278,000 looking for work (up 330,000).
  
  
• The latest Roy Morgan unemployment estimate of 10.3% is now almost double the 5.2% currently quoted by the ABS for December 2011.

Roy Morgan

That's a pretty remarkable difference between Morgan's figure and the ABS.
I know whom I'd be more likely to believe!

 

[McLovin]

That's a pretty remarkable difference between Morgan's figure and the ABS.
I know whom I'd be more likely to believe!

The thing with government statistics is the change in the number is often the more important data point than the number itself.

Having said that, the current unemployment rate would seem quite inaccurate. Perhaps, because of the decade long labour shortage, a lot of companies are worried if they sack workers they will struggle to replace them when the economy picks up again. As a consequence, they are cutting back on hours (the latest ABS figures highlighted the plunge in hours worked) rather than cutting back on headcount.

 

[medicowallet]

Thanks young-gun, it's a fair question. OK, my experience is now quarantined.

I wouldn't rush out to buy anything right now. What I would be doing is looking very closely at the suburb you are interested in living in. I would hit every open house (or unit) in the area. I would go to every auction I could and just observe the outcomes. I would do this for 3 Months or so. I would even talk to some of the other young-ones there and see what they are thinking. Then just for fun turn up to a open for "rental inspection" to see how many renters turn up. That is the best sign you will see if you can rent that property. Walk the walk, talk the talk but depart with none your cash. After 3 Months you will know the price, the real price. Then it is a matter of time before the right property comes along, it will then be the time to buy. That is how I would do it, good luck.

For too long sensible investing principles such as the one above have been ignored due to panic buying and passioniate delirium.

Once more people start doing their homework (and the above example is excellent), they will realise that the bubble is real, or they will find the gem amongst the rubble, and will end up with a decent investment.

 

[Bill M]

As for unemployment......

2.21 MILLION AUSTRALIANS UNEMPLOYED OR UNDEREMPLOYED – HIGHEST EVER RECORDED. UNEMPLOYMENT AT 10.3% – A RECORD 1.28 MILLION AUSTRALIANS LOOKING FOR WORK

Seeing you and I are only an hours drive from Sydney I thought I'd do a quick search for government jobs in the Sydney area. I found heaps of jobs going begging, no shortages there. I didn't know a lollipop man can get $24 p/h. That's good money for doing a bit of community work.

Here's the link, I got my eyes on the Mosman job:http://mycareer.com.au/jobs/sydney/defence-essential-services/state-government/

 

[sptrawler]

We are in exactly the same 'situation' as them ie too much debt.

As for unemployment......

2.21 MILLION AUSTRALIANS UNEMPLOYED OR UNDEREMPLOYED – HIGHEST EVER RECORDED. UNEMPLOYMENT AT 10.3% – A RECORD 1.28 MILLION AUSTRALIANS LOOKING FOR WORK

In January 2012 according to Roy Morgan:

• Unemployment was 10.3% (up 1.7% since December 2011) ”” an estimated 1,278,000 Australians were unemployed and looking for work. This is Australia’s highest ever number of unemployed as reported by Roy Morgan and is also Australia’s highest unemployment rate for a decade ”” since January 2002 (10.9% ”” 1,075,000).
  
  
• A further 7.5% of the workforce* were working part-time looking for more work (underemployed) ”” 934,000 Australians.
  
  
• In total a record 17.8% of the workforce, or 2.21 million Australians, were unemployed or underemployed.
  
  
• The Australian workforce* in January was at a record high 12,429,000, up 383,000 since January 2011 ”” comprising 7,681,000 full-time workers (up 106,000); 3,470,000 part-time workers (down 53,000) and 1,278,000 looking for work (up 330,000).
  
  
• The latest Roy Morgan unemployment estimate of 10.3% is now almost double the 5.2% currently quoted by the ABS for December 2011.

Roy Morgan

The difference between us and them is we have a chance to pay ours off.

We are one of the only western countries with a growing population and a growing G.D.P.
Take the U.K. 59 million people, no manufacturing left to speak of, no raw materials to sell, minimal fuel reserves. They are dependent on the financial services sector and overseas investments. This has to support a massive social welfare system that is falling apart at the seams.
The U.K though is in great shape compared to Greece who have nothing to sell.

But in my opinion, to think that we are going to go the same way as the above mentioned countries, just doesn't add up. Like I said IMO