The future of Australian property prices

[Glen48]

Here is some one who needs to be in a home, he must be pushing to keep the market afloat so he can get re elected:
IF IR goes down next month it will be a good indicator of where the market is going. start buying means confidence no buyers mean its game on.
From NSM.
More needs to be done to tackle the problem of housing affordability and housing shortage in Australia, the federal government says.

Housing Minister Brendan O'Connor was addressing a conference run by the Australian Council of Social Service (ACOSS).

"All Australians deserve an affordable, safe and sustainable home," Mr O'Connor told the gathering in Sydney on Thursday.

"(But) we know we're in a midst of a housing shortage.

"We know that housing affordability remains a real concern ...and we know that there are too many without a home."

Mr O'Connor said the government had made housing a high priority through programs like the Housing Affordability Fund and building 20,000 new social housing homes.

"We are addressing the roadblocks to supply of housing to make sure we have enough homes to meet the needs of our growing population," he said.

"We're doing this by through programs such as the $450 million Housing Affordability Fund."

However Mr O'Connor acknowledged that much more work was needed to address the national housing problem.

"All levels of government need to do more and work with community and business sectors to improve housing affordability and to ensure that we have the right types of housing for our population," he said.

"We know that there is much more work to be done by all levels of government to make the housing market more efficient and responsive."

 

[Starcraftmazter]

You know times are bad even when professional property spruikers aren't covering it up anymore:

Symond said the basic principles of supply and demand suggested the housing market was unlikely to recover anytime soon, pointing out that there were currently more than 300,000 houses listed for sale on the market, the highest in Australia’s history.

http://www.propertyobserver.com.au/...t-rates-or-borrowers-will-burst-like-tomatoes

Some "shortage" we have there isn't it?

 

[young-gun]

This is an economically bogus argument. One mans debt is another man's asset. One man's repayment is another man's income. The money does not just disappear you know! People paying off debt spend less but those they pay can then spend / invest more. It's just circulation and distribution of the same money.

are you sure about this? or did you mean to say one mans debt, pays another mans debt, who pays another mans debt, who pays the bank who owns the 'asset', which is depreciating, who then pays their debts, to another country who has to pay their debts(or in greeces' case not pay their debts). do tell me where greeces debt went if money does not just dissapear. please. Our dollar was completely shot against the greenback in the gfc. now i dont know for certain, but im fairly sure the only way the US$ could have surged like that was if its dollars were being destroyed, but i may be wrong.

and although the above may appear off topic it is quite relevant. what happens when unemployment goes up and people cant service their loans on propertys that are under water? the banks need bailouts, from who?

 

[young-gun]

LOL!!!
Almost fell out of chair reading that...

If l were selling a property and someone made an offer like that, l'd be like 'Yeah right'. I wouldn't take it seriously, that's for sure. House on the market for 200k, buyer offers 100k-120k (LOLOLOLOLOLOLOL)....

Hold on, with your theory SCM, if you keep using that method you'll eventually get that. By what? 2020 did you say?

and what if you were offered 120k today, but only received 100k in 2020? still laughing? in fact with inflation, 120k in 2020 wouldnt be too crash hot either.

 

[Beej]

Why did you link to Brisbane for Melbourne? Here is the graph for Melbourne, and it is at al all-time high:
http://www.sqmresearch.com.au/graph_stock_on_market.php?region=vic::Melbourne&type=c&t=1

Furthermore, I fail to see why you cherry pick two cities. I look exclusively at the national picture always.

The Brisbane / Melbourne thing was a typo on my part - apologies. What I was trying to demonstrate is that there really is no such thing as a "national" market. The fact that Melbourne currently has a surge of property for sale due to over-building and a 30% run-up in prices over 2009/2010, doesn't really impact Sydney (20% of the national market anyway), where rents are growing, there really is a housing shortage and massive constraints on supply etc etc, and where listings are nowhere near all-time highs. Likewise Brisbane has been affected by it's own issues such as the floods etc.

In terms of talking sensationally about "all time highs" etc, please also remember that there has never been more properties in existence in Australia than right now, and there has never been more people living in Australia than right now, so as the property market goes through it's various "normal" cycles, we are going to see new heights periodically in terms of listings etc etc. But that itself does not prove any impending doom as you make it out to.

Yep, 20 year lows. I think you ought to look at your own graph.

I think you should look at it again. mid 90s saw lower sale volumes, so that was 15 years ago, not 20. Regardless, the number of property sales nationally moves in a cycle anyway - that is clear from that graph! It rises for a few years then falls. Last years numbers whilst low and representative of a weak market, are not especially unusual in the historical context - the fact that prices only fell a few % points proves this as well. For serious price falls, or to demonstrate that there really is something different going on now as compared to at other times in the past 20 years, you would need to show something far more unprecedented than what we are seeing at the moment.

Additionally, I predict 2012 will see more property changing hands than 2011 anyway - that trend is already evident in stats for the first quarter of the year so far.

Also, as I mentioned in my previous post, previous periods of low sales volumes were followed by boom times for prices and volumes, not wholesale market crashes.

I am only concerned with the national average, thanks. And I thank you for continuing to provide evidence of my claims.

I don't know why you look at it this way - all markets are local; if you live in Sydney it's no use celebrating a 7% fall in Brisbane house prices is it if they have not moved where you live, or worse still actually gone up, as units have on average across Sydney throughout 2011?

Not really, in the last 15 years the only thing that comes close is the GFC, and the government needed to borrow massive amounts of money and throw it at the housing bubble to prop it up back then. Since then, prices have now fallen further than during all of the GFC, and the government is in no position to throw money at the bubble again.

That's rubbish! The government spent very little money on housing stimulus relative to the broad stimulus program. In fact the net tax take from housing due to stamp duties is still far more than anything that is or was given back in the form of stimulus! So to ever be truly stimulatory the government would need to pump more in than it takes out.

In terms of current capacity, if they wanted they would happily stimulate again - don't kid yourself about this! Australia has a sovereign currency - the government can borrow / create as much of it as they like. The only constraints on fiscal stimulus are political, not economic.

There are lots of good places, massive developments around Zetland/Waterloo - and plenty more coming, you'll have absolutely no problem.

LOL! You think a couple of thousands flats in Zetland due for completion over several years is enough to deal outright with the population pressures facing Sydney? 1000 net new people settle here every week! There is nowhere near enough new dwelling construction going on in Sydney to satisfy underlying demand.

You do realise Australians pay their interest to foreign creditors who lend us the money, right?

The bulk of funding is sourced locally. Where do you think your bank account interest comes from? Even foreign creditors get paid in $AU - so either have to deposit that in an AU bank, spend it in Australia, or sell it to someone in exchange for foreign currency, who then invests it somewhere in Australia anyway. $AU are only good for buying stuff here. It amazes me how few people see the big picture when it comes to monetary issues!

Why do you think we've had a massive current account deficit since the housing bubble started?

Australia has run a current account deficit for 100 years! There are complex, but sound economic reasons why this is the case - but it essentially boils down to us always, historically being dependent on foreign investment to grow our economy. It has nothing whatsoever to do with the housing market.

Well yes it really is that simple, there are more houses than people who want to buy them, and if artificial constaints are part of a decision to buy you should rethink that, there is plenty of room to build up, and out. What are governments just going to hold onto Land and not ever release it? Never build new homes?

I think you guys all mis-understand the concept of a shortage of housing relative to UNDERLYING demand. It's not about the micro-market and whether everything on the market for sale is being instantly snapped up or not. If people don't buy, or can't afford to buy, then they have to rent, or share, or live with family. The point is there are loads of people out there who are in these circumstances who might like to buy, or move out of their relatives home, or live in a bigger house than they currently due to a growing family or whatever - this is the underlying demand. We know it is there because of the pressure it is placing on both prices, which are high and being sustained - especially in the most afflicted areas like Sydney, and on rents, which have been rising above CPI for the last several years, nationally, but especially in the afore-mentioned most afflicted regions. See this Alan Kholer graph from the news the other night:

Got any other explanation for that???

PS: If you are in Melbourne, then your situation re housing supply is much better than many other parts. IN fact Melbourne is probably over-supplied right now. That's why it's rents and house prices are under-performing.

 

[Bill M]

LOL! You think a couple of thousands flats in Zetland due for completion over several years is enough to deal outright with the population pressures facing Sydney?

More importantly who would want to live there? Not my kind of place, for where I like (on the Northern Beaches) you still have to pay serious $$$$ for anything and not much new stuff going up.

 

[Dowdy]

Beej, can't believe you're still trying to play the housing shortage myth.

I've been saying for years there was never a shortage of houses, just an oversupply of speculators...

AS early as January (this year) they were still saying that Melbourne had a housing shortage so now you're telling me that in three months we suddenly build tens of thousands of homes to deal with the allegedly shortage of homes?

The market has already gone down and that was mainly due to regular people (couples, familys etc) choosing to stay out of the market.
What do you think would happen when the speculators want to get out of the market, mainly the chinese

 

[So_Cynical]

Sydney (20% of the national market anyway), where rents are growing, there really is a housing shortage and massive constraints on supply etc etc, and where listings are nowhere near all-time highs.

Shortage? if so how come prices have stagnated? and how come Stockland, Mirvac and Australand, 3 of Sydney biggest listed builders are reporting that demand for new residential apartments is falling? if there is a shortage how come houses can and do sit on the market for months and months? and why are prices falling and not going up???

When a stock is in demand sellers are exhausted and the price goes up not down.

 

[Beej]

Beej, can't believe you're still trying to play the housing shortage myth.

I've been saying for years there was never a shortage of houses, just an oversupply of speculators...

As early as January (this year) they were still saying that Melbourne had a housing shortage so now you're telling me that in three months we suddenly build tens of thousands of homes to deal with the allegedly shortage of homes?

Two points in response to this:

1) I don't know what you read, but I have been reading of potential over-building / over-supply of housing in Melbourne for a couple of years now? So no news in that for me, and certainly no "sudden" change in 3 months? It was a classic response to the 30% increase in prices over 18 months that occurred just after the last time everyone here was predicting the inevitable big crash!

2) Re the general housing shortage - there is absolutely no doubt that there are areas with acute under-building and lack of new supply relative to population growth and under-lying demand - Sydney is the prime example. Fundamentally, if you don't buy this - how do you explain the estimate under-supply vs rent/CPI chart I posted? Got anything to say about that?

The market has already gone down and that was mainly due to regular people (couples, familys etc) choosing to stay out of the market. What do you think would happen when the speculators want to get out of the market, mainly the chinese

What makes you think the Chinese would want to exit our market??

Current property price corrections last year are just a part of the normal property cycle, with the largest falls happening in those areas that have had the most recent run-up of prices. I expect there to be more frequent periods of falling prices vs rising prices in the future compared to the past 15 years, as the big structural market changes in response to low inflation / low interest rates are done and dusted now. Average price growth over time when you smooth out the volatility will roughly track income growth.

Shortage? if so how come prices have stagnated? and how come Stockland, Mirvac and Australand, 3 of Sydney biggest listed builders are reporting that demand for new residential apartments is falling? if there is a shortage how come houses can and do sit on the market for months and months? and why are prices falling and not going up???

When a stock is in demand sellers are exhausted and the price goes up not down.

Dude - are RENTS in Sydney falling? Or rising?? You don't think this is giving you a hint as to what is going on? I tried to explain earlier, you have to look at the whole picture. As for prices - the fact they are holding on to the ("stimulus driven"??) 20% gains of 2009/2010 despite all the economic doom and gloom, poor consumer confidence etc is a testament to how deep the underlying demand actually is, even at Sydney prices!

PS: Hint; here's a chart from Residex up to Feb '12 that shows what's been going on with rents over the past 12 months:

 

[Starcraftmazter]

The Brisbane / Melbourne thing was a typo on my part - apologies. What I was trying to demonstrate is that there really is no such thing as a "national" market.

There is. We are one country, if prices differ significantly in one city to another, then people will relocate there, thus lowering the prices from where they came, and equilibrium will be reached.

The fact that Melbourne currently has a surge of property for sale due to over-building and a 30% run-up in prices over 2009/2010, doesn't really impact Sydney (20% of the national market anyway), where rents are growing, there really is a housing shortage and massive constraints on supply etc etc, and where listings are nowhere near all-time highs. Likewise Brisbane has been affected by it's own issues such as the floods etc.

Housing bubble mechanics 101 pal:

There is an initial shortage of land, this causes house prices to bubble, the overpriced valuations send incorrect signals to the market which produces oversupply - but at this stage, everyone is speculating on property for capital gains and fundamentals no longer matter - all while overbuilding continues due to ridiculous price valuations.

This happens everyone in Australia - in all cities, not just Melbourne. It has happened more in Melbourne than Sydney sure, but it absolutely happens in Sydney.

Rents in Sydney are not going up - nor are they anywhere else.

In terms of talking sensationally about "all time highs" etc, please also remember that there has never been more properties in existence in Australia than right now, and there has never been more people living in Australia than right now, so as the property market goes through it's various "normal" cycles, we are going to see new heights periodically in terms of listings etc etc. But that itself does not prove any impending doom as you make it out to.

Not by itself no - but as part of a 1000 pieces of evidence puzzle, it certainly does.

I think you should look at it again. mid 90s saw lower sale volumes, so that was 15 years ago, not 20. Regardless, the number of property sales nationally moves in a cycle anyway - that is clear from that graph! It rises for a few years then falls. Last years numbers whilst low and representative of a weak market, are not especially unusual in the historical context - the fact that prices only fell a few % points proves this as well. For serious price falls, or to demonstrate that there really is something different going on now as compared to at other times in the past 20 years, you would need to show something far more unprecedented than what we are seeing at the moment.

Only ONCE have sales volumes moved so low on that graph - in 1994, only ONCE - apart from the GFC. And as you already pointed out, we have had quite a lot of population growth since then!

Also, as I mentioned in my previous post, previous periods of low sales volumes were followed by boom times for prices and volumes, not wholesale market crashes.

Past performance is not an indication of future performance... You need to understand all factorors which led to those results - which you clearly do not, you just stick your head in the sand yelling "lalalala" and claim that because it happened once before it must happen now.

I don't know why you look at it this way - all markets are local; if you live in Sydney it's no use celebrating a 7% fall in Brisbane house prices is it if they have not moved where you live, or worse still actually gone up, as units have on average across Sydney throughout 2011?

Because we are one country, the the housing markets in our states are more or less identical, they work in an identical way and are regulated the same. This is in sharp contrast to somewhere like USA where you can indeed look at states as separate markets since there are such vast differences between their markets and regulations.

And secondly for the point which you allouded to - because it is possible for me to move from one city to another which has cheaper property, thereby balancing the situation out.

That's rubbish! The government spent very little money on housing stimulus relative to the broad stimulus program. In fact the net tax take from housing due to stamp duties is still far more than anything that is or was given back in the form of stimulus! So to ever be truly stimulatory the government would need to pump more in than it takes out.

Stamp duties are state revenue, FHOB was a federal program. Also it is an incorrect statement to make as you cannot know exactly how many more sales were generated as a result, so you cannot know what proportion of that money wound back up in state government coffers.

You are also missing the point entirely.

 

[Starcraftmazter]

In terms of current capacity, if they wanted they would happily stimulate again - don't kid yourself about this! Australia has a sovereign currency - the government can borrow / create as much of it as they like. The only constraints on fiscal stimulus are political, not economic.

Can you cite me any example since the RBA was created, when it monetised debt? Are you aware that our federal government has spoken openly critisisng such behaviour?

LOL! You think a couple of thousands flats in Zetland due for completion over several years is enough to deal outright with the population pressures facing Sydney? 1000 net new people settle here every week! There is nowhere near enough new dwelling construction going on in Sydney to satisfy underlying demand.

It is not a couple of thousand, the develops there are easily good for tens of thousnads of units a year. And not everyone wants to live close to the CBD - not to mention not everyone needs to.

Seriously, you ought to put down our housing shortage cool-aid.

The bulk of funding is sourced locally. Where do you think your bank account interest comes from? Even foreign creditors get paid in $AU - so either have to deposit that in an AU bank, spend it in Australia, or sell it to someone in exchange for foreign currency, who then invests it somewhere in Australia anyway. $AU are only good for buying stuff here. It amazes me how few people see the big picture when it comes to monetary issues!

No it isn't, and no they don't. I suggest you learn about our banking system.

Australia has run a current account deficit for 100 years! There are complex, but sound economic reasons why this is the case - but it essentially boils down to us always, historically being dependent on foreign investment to grow our economy. It has nothing whatsoever to do with the housing market.

First of all, not it has not. Second of all, the point is that it has gotten much much larger since the housing bubble began. And most of all, you fail to understand how bad of a thing that is.

I think you guys all mis-understand the concept of a shortage of housing relative to UNDERLYING demand.

We have no shortages.

Got any other explanation for that???

Yes - it's called a housing bubble.

What makes you think the Chinese would want to exit our market??

Because they are leveraged, their houses are sitting empty (speculating on capital gains), and house prices have been falling for over a year. Not to mention our currency is dropping.

PS: Hint; here's a chart from Residex up to Feb '12 that shows what's been going on with rents over the past 12 months:

Residex is well-known to be very unreliable and false. RP Data-Rismark is the only reputable housing data provider in Australia.

Debunking the shortage Myth

They said Los Angeles had a shortage. Nevada's population over the last 25 years grew in orders of magnitude faster than Australia's.



Their construction per capita was lower than Australia's




And guess what happened to the house prices? A bubble followed by a crash.




No such thing as a shortage. That's just a meme spewed out by property spruikers.

By all accounts, Australia has a massive housing surplus - a problem that will only get much worse as baby boomers retire.

 

[Dowdy]

Two points in response to this:

1) I don't know what you read, but I have been reading of potential over-building / over-supply of housing in Melbourne for a couple of years now?

Yeah, we (bears) were showing you those links and you choose to dismiss them!

I was talking about a property spruiker still claiming that Melbourne has a housing shortage. So your saying you're now a property bear?

What makes you think the Chinese would want to exit our market??

Things are slowing down in China so they're going to need capital and where have they stored alot of their capital.....in our RE market!

 

[MrBurns]

The Chinese are still around but a bit more careful about what they pay, prices are going down.
When the slump is well and truly in motion people will become fully aware of it.

 

[moXJO]

Been ten years since this crash was suppose to happen good luck waiting on the next ten. GFC was suppose to bring it and still nothing to write home about, in fact they went up some more.

For prices to crash their needs to be a trigger that hits wages imo.
Rents are still sky high as well.

 

[MrBurns]

Been ten years since this crash was suppose to happen good luck waiting on the next ten. GFC was suppose to bring it and still nothing to write home about, in fact they went up some more.

For prices to crash their needs to be a trigger that hits wages imo.
Rents are still sky high as well.

Was told by a large Melbourne rental firm that it's already in steep decline with thousands of places empty.

That crash you're waiting for is happening right now.

 

[wayneL]

Been ten years since this crash was suppose to happen good luck waiting on the next ten. GFC was suppose to bring it and still nothing to write home about, in fact they went up some more.

For prices to crash their needs to be a trigger that hits wages imo.
Rents are still sky high as well.

2002?

I don't think so.

Probably 2005 were the early property bears.

 

[damien275x]

Also I am contacting real estate agents by emails indicating I am looking to pay <20-30% of advertised price and they still phone me. Shows they're desperate!

 

[Glen48]

House prices don't crash over night just like USA they start to go down over a period of many years USA started about 2007 and still going down then they will over shoot the bottom stay flat and start to pick up again BUT you will never see the prices we did have again in your life time.

 

[Ves]

House prices don't crash over night just like USA they start to go down over a period of many years USA started about 2007 and still going down then they will over shoot the bottom stay flat and start to pick up again BUT you will never see the prices we did have again in your life time.

I remember reading that house prices spend two thirds or more of the seven to ten year property cycle close to being flat and only one third is "boom" time.

I have not looked for evidence of this over a long-term time frame but I would be curious if someone could validate or deny it.

I think that this poses an interesting question particularly as the majority of people in our times are impatient by nature and think that something always has to be happening (whether boom or bust).

 

[moXJO]

2002?

I don't think so.

Probably 2005 were the early property bears.

No the early bears were calling a crash in NSW and QLD (brissy) 2002 after a massive run up in property, I remember arguing with them. I was living in both states (alt months) at the time. I was bearish a few years back 2007-9 but have seen houses come off the boil with some cheaper blocks around (Been waiting ten fricken years).
Can't comment on VIC don't know the market

Some guys on here seem to think we will be living on the hills with a can of baked beans.

Unless wages drop I'm not that worried, and considering Unions were pushing for wage rises I might just jack up the rent.