The future of Australian property prices

[CanOz]

And the rest? US and Japan?

Do you notice a pattern here? Housing bubbles destroy economies, and the countries can't do anything thereafter because they are economically stuffed. Same thing will happen here and in Canada.

Ironically China is the only country smart enough to put a stop to the madness - so they have a fighting chance.



I didn't say there were, but their bubble popped and prices are still heading down.

China has a problem which Canada and Australia do not have......empty houses/factories/offices on a scale that boggles the mind.

China housing is a true asset bubble. The only difference is most of the residential buildings that are empty have been paid for, in savings/cash attained by whatever means.

Prices will stay inflated here until someone decides its time to sell an they find there is no liquidity in the market. Prices will start to fall dramatically if the owners decide to they need the cash to pay other debts....like bad loans for poor performing businesses as a result of a global contraction...this is the 'hard' landing that everyone is worrying about....but they can always re-inflate. I think this is going to end in tears soon though...as in the next ten years or so.

The biggest thing that still separates countries like Canada, China and Australia from the 2008 global crisis is the level of securitization, correct me if i have the wrong spelling.

In Canada and China at least, the loans are not bundled up and sold off as a leveraged instruments laced with toxic but 'creative' mortgages with little or no credit worthiness behind them.

Bad debt is just bad debt...not bad debt x 1000

CanOz

 

[lenny]

It's pretty much impossible to not make money in trading, I fail to see why everyone doesn't do it. It's not even hard. The real challenge is getting something like 1000% pa returns. Fortunately there is leverage

Thats a cracker!

 

[Starcraftmazter]

China has a problem which Canada and Australia do not have......empty houses/factories/offices on a scale that boggles the mind.

China housing is a true asset bubble. The only difference is most of the residential buildings that are empty have been paid for, in savings/cash attained by whatever means.

Two things there which are not correct. Firstly Australia has many empty houses too. There are tens of thousands of them sitting in Sydney, bought by foreign speculators who haven't even bothered renting them out.

Second is that Chinese property need not be paid for at all. People do have to front a deposit - but the rest can be and is leveraged.

A lot of the money for the ghost cities was raised from the shadow banking system, and countless developers in China are now insolvent.

. I think this is going to end in tears soon though...as in the next ten years or so.

Agreed.

The biggest thing that still separates countries like Canada, China and Australia from the 2008 global crisis is the level of securitization, correct me if i have the wrong spelling.

Sure, but this is not really relevant. A bubble is a bubble. Australia has the unique problem of not having enough money to fund it's great big bubble - so our banks have had to borrow about half of it from foreign banks.

Imagine what happens if our government fails to please the rating agencies which have just warned it, with it's coming budget. 2012 is the biggest year for debt roll-over by the big 4 banks. Their margins on foreign debt are already non-existent. If the slightest thing goes wrong....poof.

 

[Glen48]

USA banks are reluctant to lend against the property as equity as the property is close to going under or is under , so you have some thing that is not worth a plug nickel.

 

[trainspotter]

I doffs me cap to the gents making it in commercial.

But I would have thought this thread was more about resi by implication ....

...and the more SCM pontificates the more bullish I am getting on resi prop. :

Property is property WayneL, whether it be resi or commercial or strata unit development and come to think of it ........ vacant land.

The more SCM sermonizes to the bourgeoisie the more of a gluteus maximus he appears.

 

[CanOz]

Two things there which are not correct. Firstly Australia has many empty houses too. There are tens of thousands of them sitting in Sydney, bought by foreign speculators who haven't even bothered renting them out.

Second is that Chinese property need not be paid for at all. People do have to front a deposit - but the rest can be and is leveraged.

A lot of the money for the ghost cities was raised from the shadow banking system, and countless developers in China are now insolvent.

I think the big difference here (Canada/Australia/China) is scale. Sure there are loans for a high percentage of the residential properties but the deposit required here is much higher than western countries at the moment....but there are literally as you mention, ghost suburbs or cities with no inhabitants. I can see many structures from my window now, and i am west of Shanghai. Many developers are either insolvent or reluctant to pay their suppliers and subby's until they move the inventory. My wife's father owns a construction company and he has not been paid in full for the last project either....and if there is one there is a thousand......

CanOz

 

[Klogg]

Sure, but this is not really relevant. A bubble is a bubble. Australia has the unique problem of not having enough money to fund it's great big bubble - so our banks have had to borrow about half of it from foreign banks.

The level of securitization is very relevant. It's these securitization deals in the US that caused the US housing crash.

I'm not arguing whether it was a bubble, to each their own on that point, but given the cause of the 'pop' is not there, I can't see the Australian housing market crashing.

SCM - a question for you. If the Australian market is in a bubble, does it mean it has to crash now? What is stopping it from inflating some more? Would like to hear your thoughts.

 

[CanOz]

SCM - a question for you. If the Australian market is in a bubble, does it mean it has to crash now? What is stopping it from inflating some more? Would like to hear your thoughts.

My on this, as long as the economy is awash in money there will be no crash...take away the punch bowl and look out...

CanOz

 

[Starcraftmazter]

The level of securitization is very relevant. It's these securitization deals in the US that caused the US housing crash.

It doesn't matter what causes the crash, the point is there is always a crash where there is a bubble.

I'm not arguing whether it was a bubble, to each their own on that point, but given the cause of the 'pop' is not there, I can't see the Australian housing market crashing.

Every country will have a different cause - there is no requirement whatsoever for them to be the same.

SCM - a question for you. If the Australian market is in a bubble, does it mean it has to crash now? What is stopping it from inflating some more? Would like to hear your thoughts.

Many reasons.

First of all, credit growth in Australia is completely flat. That means prices are not going to rise. And this is with extremely low interest rates.

Second of all, baby boomers are past their peak spending ages and are moving into retirement as of last year - so the big demographical cycle which caused the bubble in the first place is now going to cause it to pop.

Third of all, Australia's household debt is over $1Trn, over 100% of GDP - and much of that is mortgage debt. There is only so much mortgage debt people can service. It is impossible for it to go any higher.

Fourth of all, there is significant over-supply across the country which will force prices down. On that note, the quantity of properties on sale is at record heighs. This means prices must fall.

Fifth, tens of not hundreds of thousands of foreign speculators - highly leveraged have bought into our bubble and many of them did so at the peak. They are seeing their "investment" go down in value, and our currency is now dropping as well. They will run for the exists.

Due to bubble mechanics, once a bubble has finished going up, it must crash straight away. There are countless domestic negatively geared "investors" who are not going to put up with losses, and will also head for the exits. This is especially true of the aforementioned baby boomers who are moving into retirement. There is no tax benefit in housing if you have no income.

Next, the bubble has completely destroyed our economy. By hyper-inflating house prices, wages also suffered extreme inflation and now we are extremely uncompetitive with the rest of the world. This has brought about a depression which is only going to get worse, as hundreds of thousands will lose their jobs in the coming years.

The other way in which the bubble has destroyed our economy is through the wealth effect. As people used their houses like ATMs during the bubble phase, the retail sector expanded too rapidly and now there is a significant oversupply of retail outlets. This will only compound problems as businesses shut down and more jobs are lost, and more commercial property is put on the market.

Now days households - freaked out by the global financial problems are saving and paying down debt instead of taking equity out of their properties. It is a double wammy for the economy. Households are now deleveraging - and that will take over a decade due to the enormous size of the debt.

As properties drop in price faster and faster people will begin to panic. Hordes of speculators will head for the exists. No - there is no returning back to the "good old days" up double prices every 7 years. Do not forget that it took all of the following to prevent a complete meltdown during the GFC:

-1.2 million or 5.7% increase in population
- $270 billion increase in housing debt
- $42 billion in government stimulus
- 300 basis point (3%) reduction in cash rate (total 400 points peak to trough)

We do not have the fiscal nor the monetary room to do that again - not to mention all it did was bring forward lots of demand and speculation. This can not be done more than once. Ironically we have also been getting immigrants coming from the countries where house prices crashed. Once ours do, we will probably experience population decline as people go abroad for better opportunities.

Oh and I almost forgot the mining boom. In many ways it has allowed us to leverage what little money we get from it, borrow money from overseas banks, and swap houses with each other, while paying interest to foreign countries who spend it on infrastructure and R&D as we pathetically try to compete with them.

Note that none of this money was saved, none has been invested on Australian infrastructure or R&D. Our economy is houses and holes. And now that the commodity bubble is over, China is going down - we won't even have holes.

No, our economy will be in ruin. Millions underwater on their mortgages, and countless jobs will be lost. Complete and utter devastation. Personally, I'm planning to move to Switzerland.

And right now you are witnessing the start of it. The rating agencies demand that our budget be so tight, that it will bring about a recession due to severe fiscal contraction. If we disobey them, they will cut our government's rating and our banks will not be able to roll over a record amount of debt owned to foreign banks this year. This is it, our economy is headed for a complete crash.


Our crash is looking no different from the US nor Japan at the onset. It will accelerate in the coming years just like the US and Japan. Just wait and see

 

[CanOz]

I agree with most of your opinions SCM, but i feel the trigger will be from a demand shock from China. There is no question that Australia would be at one of several bull market boom/bust peaks now or soon. Allot depends on China though, same goes for the other big resource economies. If they can re-inflate then it may delay more rate cuts from the RBA.

This is a very interesting topic, and although i am not an expert at anything, nor do i pretend to be, i do enjoy listening to opinions on this topic. Housing is normally at or close to the center of an economy, especially for employment. Unfortunately i now have a wife determined to buy a house in Australia....Got to find some value somewhere.

Thanks for the discussion.

CanOz

 

[moXJO]

Wow, don't forget everyone will get super aids and die SCM

 

[CanOz]

Wow, don't forget everyone will get super aids and die SCM

LOL @ moXJO.....yeah he is a little bearish today...

 

[trainspotter]

Due to bubble mechanics, once a bubble has finished going up, it must crash straight away.

This is just priceless ! All this from an engineer to boot ... LOLOL

 

[young-gun]

Methinks you have had one drink too many .......... you have disaproportioned yourself

you have the self proclaimed property elite talking about how much money they have made in RE in the past 20 years and you expect kincella not to announce(for perhaps the 5th time) her amazing RE accomplishments? please.

 

[young-gun]

Zackery ....... opportunity knows no bounds. When the blood runs in the street kinda stuff. It always amazes me the people who think in the negative cannot be swayed and have ZILCH experience but those in the positive camp are willing to look at both sides of the coin and make assumptions from there !

both sides of the coin? exactly where do you see RE heading? i hope not to new heights...

 

[CanOz]

This is just priceless ! All this from an engineer to boot ... LOLOL

couldn't resist ....
The Four Engineers:

One day, a Mechanical Engineer, Electrical Engineer, Chemical Engineer and Computer Engineer were driving down the street in the same car.

The car broke down.

The Mechanical Engineer said, “I think a rod broke.”

The Chemical Engineer said, “The way it sputtered at the end, I don’t think it’s getting gas.”

The Electrical Engineer said, “I think there was a spark and something is wrong with the electrical system.”

All three turned to the computer engineer and said, “What do you think?”

The Computer Engineer said, “I think we should all get out and get back in.”

Sorry.....:topic

 

[Ves]

I should also correct you that 250% over-valued is actually 350% of the original price (that being 100%).

Next, I never said that I will buy a property when prices drop by 40% or 60% or they are fair value - or any specific price point. I have said that I do not plan to buy a property anytime soon. If in the distant future house prices drop far enough that I feel they are affordable (measured by divergence from a price to income ratio of 3), and if I shall have a very significant need for a property, then that will present the most likely situation in which I will buy a property.

Ok thanks - my error. Not that it helps me understand the first part of the post the bit about not buying unless it had fallen at least 40%. Shouldn't this read as 71.4%?

I really don't understand why you said that you would wait until 2020 (before you leave the country out of frustration) when you have predicted continued falls until 2030 in this latest post. You clearly don't think there is any point buying a house here until the later date - so why even bother staying?

I know your position, but your targets never seem consistent to me.

Just as aside; if the mining industry is going to slow down, and construction projects and housing and all that jazz are also in major trouble - where does an "engineer" find work?

 

[young-gun]

what i dont understand about this thread is that it is really quite clear that the cons outweigh the pros in the current housing market. it simply isnt the best time to be buying your PPOR. there is negative news coming out from every corner or the globe on a daily basis, and yet majority of people are trying to cram this "there is always an opportunity no matter what" crap down everyones throats. with so much uncertainty in global financial and housing markets it would be insane to take an unnecessary leap into the depths of property AT THIS CURRENT POINT IN TIME.

anyone who is concerned about the value of their 'asset' falling and does take the leap is making a un-educated unnecessary, and very poorly thought out move IMO

please note i am largely referring to those renting and considering buying, or perhaps those that think now is a good time to become a developer of any kind. or even those looking at buying investment properties.

 

[DB008]

Ok thanks - my error. Not that it helps me understand the first part of the post the bit about not buying unless it had fallen at least 40%. Shouldn't this read as 71.4%?

I really don't understand why you said that you would wait until 2020 (before you leave the country out of frustration) when you have predicted continued falls until 2030 in this latest post. You clearly don't think there is any point buying a house here until the later date - so why even bother staying?

I know your position, but your targets never seem consistent to me.

Just as aside; if the mining industry is going to slow down, and construction projects and housing and all that jazz are also in major trouble - where does an "engineer" find work?

We'll all be living in cardboard boxes by 2020, wait until 2030 and we'll all be hobo's on the street...

(Good for SCM for his outlook, but l'm looking the other way. China still has an appetite for our resources, India hasn't even started...)

 

[Starcraftmazter]

Wow, don't forget everyone will get super aids and die SCM

This is just priceless ! All this from an engineer to boot ... LOLOL

Nice counter-arguments....not! Complete lack of substance from you two indicating a lack of knowledge of the subject matter.

I expect nothing more.

Ok thanks - my error. Not that it helps me understand the first part of the post the bit about not buying unless it had fallen at least 40%. Shouldn't this read as 71.4%?

I believe you are equating "not buying until it falls at least 40%" to "buy once it falls to 40%". Those are not the same.

I really don't understand why you said that you would wait until 2020 (before you leave the country out of frustration) when you have predicted continued falls until 2030 in this latest post. You clearly don't think there is any point buying a house here until the later date - so why even bother staying?

I am not suggesting that I am eager to buy and cannot hold off longer than by 2020 - which is what you seem to understand I have written. The point is rather that if it doesn't fall by at least 40% by 2020, then I would deem the progress of the crash insufficient for my taste, and would leave the country as there would be something seriously wrong with it.

I know your position, but your targets never seem consistent to me.

I think it's quite the opposite.

Just as aside; if the mining industry is going to slow down, and construction projects and housing and all that jazz are also in major trouble - where does an "engineer" find work?

Lots of places buddy, I am not predicting 100% unemployment. Even during the depression it would not have been more than 30%. That means at least 70% of people still had work.

Now I don't know about you, but I am quite confident that I am better than at least 30% of other engineers in my field. Hell, I'd even say 99%

what i dont understand about this thread is that it is really quite clear that the cons outweigh the pros in the current housing market. it simply isnt the best time to be buying your PPOR. there is negative news coming out from every corner or the globe on a daily basis, and yet majority of people are trying to cram this "there is always an opportunity no matter what" crap down everyones throats. with so much uncertainty in global financial and housing markets it would be insane to take a leap an unnecessary leap into property AT THIS CURRENT POINT IN TIME.

They are all either exposed to property already or are wishing for easy profits just like during this last credit bubble. Delusional.