The future of Australian property prices

[white_goodman]

Julia you just dont get it young-gun is gonna make the smartest of all his moves and wait for the crash then he will be able to purchase his dream house as a four bdr in popular suburb for the todays price of a cheapy this way he will also save on transaction cost of upgrading. dont you see how smart he is. with all the money he is saving he can afford to splash out on his other smart move (getting married)


Looks like the block achieved 100% auction clearance rate and all selling well above reserve, doesnt exactly follow the picture the melbournians are trying to paint. great results considering the poor results of the lat few shows the block might be a little leading indicator. loved how they turned the roofs into usable entertaining space and views every house thats positioned correctly should be doing that i know i will be from now on.

Lots of green shoots around my best guess is the daily index never prints lows lower than it already has if i was waiting for price deflation before entering it woud be now to 12 months ago might be stagnant wont be falling further but my guess is slow growth on par with inflation. wait to see strong gains in the figures and youve already missed your chance. my guess and actually what ive noticed of late is things will creep away unnoticed.

no matter how bullish or how much trumpeting you do, if housing finance doesnt pick up the fuel for the fire is simply not there,

I am in a similar situation to young gun, I can afford a home but why would I? I travel twice a year, bank interest pays 70% of my rent, and if i was to buy id have to use all that for a deposit and then pay more in interest for the first few years for a similar property... Older generation might have to come to a realisation that the demographics arent there, the financing isnt there, and this little thing called the internet doesnt allow the masses to be duped into dumb decisions (as much as past).. also the freedom of not worrying about job security nearly as much.

Good luck in all your housing dreams this year.

 

[prawn_86]

I am in a similar situation to young gun, I can afford a home but why would I? I travel twice a year, bank interest pays 70% of my rent, and if i was to buy id have to use all that for a deposit and then pay more in interest for the first few years for a similar property... Older generation might have to come to a realisation that the demographics arent there, the financing isnt there, and this little thing called the internet doesnt allow the masses to be duped into dumb decisions (as much as past).. also the freedom of not worrying about job security nearly as much.

I'm the same. It just doesnt stack up for me and my wife personally. Both early-mid 20's, earning well over 6 figures between us, have just got married and spent three months travelling, so a lot of major life goals and expenses out of the way, yet still dont see buying as suiting us just yet. Currently save more pa than many people earn, and live in a nice area, and dont have to worry about when we next want to move or change jobs.

If we were to buy were we live now, it would take about 15yrs (excluding costs/body corp etc) to pay off, putting all our savings and equivilant rent into it. Admittedly it is an inner city location.

Currently our interest only pays 25% of our rent though. Do you live by yourself WG?

 

[im sparticus]

I don't understand much in that post. Very hard to read.

Why would anyone buy a business that is losing money unless they think there is a potential for a quick turnaround? Hence why things should be valued (basically) on a multiple of earnings.

My point is you are not pricing growth why different assets have different value and pes the lowest pe does not represent best value

dont you ever wonder why different companies trade at greatly different pe's?

It is very rare indeed to find an asset with projected growth that is priced to pay a net credit after expenses initally with 100% finance. Moreso the greater the probability of said growth.

Anywho with that response from a relatively high profile member i really must bid the forum fairwell all the best.

 

[prawn_86]

My point is you are not pricing growth why different assets have different value and pes the lowest pe does not represent best value

dont you ever wonder why different companies trade at different pe's?

There is no growth in your example, only inflation, unless i mis-read it.

Of course different valuations are affected by past and future potential growth, but your example only cites inflation, so in my mind, if i was buying an asset that only grows with inflation i would pay no more than 10x earnings. Government bonds are currently priced at a PE of 33, which is news to me, as they seem way over-priced based on that basic measure also, unless the market is anticipating a LOT of deflation

 

[white_goodman]

I'm the same. It just doesnt stack up for me and my wife personally. Both early-mid 20's, earning well over 6 figures between us, have just got married and spent three months travelling, so a lot of major life goals and expenses out of the way, yet still dont see buying as suiting us just yet. Currently save more pa than many people earn, and live in a nice area, and dont have to worry about when we next want to move or change jobs.

If we were to buy were we live now, it would take about 15yrs (excluding costs/body corp etc) to pay off, putting all our savings and equivilant rent into it. Admittedly it is an inner city location.

Currently our interest only pays 25% of our rent though. Do you live by yourself WG?

yeh by myself but in a townhouse just over the bridge with 2 mates, id rather by a house then get married

 

[white_goodman]

There is no growth in your example, only inflation, unless i mis-read it.

Of course different valuations are affected by past and future potential growth, but your example only cites inflation, so in my mind, if i was buying an asset that only grows with inflation i would pay no more than 10x earnings. Government bonds are currently priced at a PE of 33, which is news to me, as they seem way over-priced based on that basic measure also, unless the market is anticipating a LOT of deflation

dont worry your answer was generally right, ive done property val (work and uni) before and its was a less than descriptive example

 

[young-gun]

How can one possibabily produce valid argument when every instrament of measurement to you is inaccurate a sham or conspiracy against you especially when it does not conform to your logic.

I didn't write the articles claiming that they weren't any good. I simply read, and asses. No need to get yourself all worked up because there is people out there debunking your index. I didn't say the index was flawed until I read about it.

I did however say that the methods used to calculate unemployment are flawed before I read the article. Turns out that assumption was correct, as I previously posted an article in which the ABS was quoted in saying that they were miles off the mark.

You know even scm believed the rpdata daily index was one of the best and most accurate weve had!

He quotes macro business alot, I'm sure he has read the same article, and I am also sure that when he returns(from wherever he is) He will be of the same opinion that I am.

No I wouldnt say its a stupid idea young gun, that is up to you, only you know your financial situation, though, I would be going for a bigger block rather than a bigger house, thats my view.
I think while you are young, both working, no kids is a good time but this - I am young, you want to live it up saga - gets that look from me.

I'm not sure that choosing to take a different route to that of yourself really deserves 'a look' from anyone.

What do you mean, out with the old, in with the new?
People have to live somewhere, you either rent or pay mortgage, thats it.
Not everyone wants their own home and thats fine, but when I hear people whingeing they cant pay the rent, well, we didnt travel and throw money up on the wall, we made sacrifices.

I mean out with old investment strategies and approaches, and in with the new. We live in a different economic world now, and that requires a very different approach to that used in the past in my opinion. I would never whinge about my rent. It is but a small portion of my wage, and is so much better than owning a home right now.

In a sense am I not making sacrifices also? By travelling I am reducing the amount of money I will have as deposit for a home, which will mean I have to atke a bit longer to pay it off? Sounds like a sacrifice to me.

no matter how bullish or how much trumpeting you do, if housing finance doesnt pick up the fuel for the fire is simply not there,

I am in a similar situation to young gun, I can afford a home but why would I? I travel twice a year, bank interest pays 70% of my rent, and if i was to buy id have to use all that for a deposit and then pay more in interest for the first few years for a similar property... Older generation might have to come to a realisation that the demographics arent there, the financing isnt there, and this little thing called the internet doesnt allow the masses to be duped into dumb decisions (as much as past).. also the freedom of not worrying about job security nearly as much.

Good luck in all your housing dreams this year.

Unfortunately the interest I am earning doesn't come close to covering my rent No one on here appears interested in demographics or credit growth either.

Bottom line is, even if prices do climb, they most certainly won't be climbing fast. If I'm wrong about a crash, I pay a little extra for a house. If an investor is wrong about a crash not being able to happen, and it crashes, well.......

 

[damien275x]

. Look at those figures, they're terrible. Well only terrible to gamblers who purchaced a bunch of houses on credit and hope they will magically be worth more in the future. Right now prices are sliding and I would say most property investors are still holding on. Once it sinks in that they're going to remain at the same levels for a prolonged period (5-10 years) .. those negative gearing will start nail biting and they will probably get out and cut their losses, pushing prices down more, and more, and more. There's also too much bearish news abroad that's going to knock on over to us, Europe is stuffed, and America are even worse off, but nobody's caught onto that yet, that will blow up soon too

Also I have been contacting RE agents ads to properties I see on Domain flat out asking for <20% of what they've posted and they seem absolutely desperate. One left me 3 voice mail messages. So if you need to buy this year for family reasons or other personal reasons I think you can be really pushy and they can't do jack. Put in one really low offer, if it's not accepted, walk away.. and watch them come running. This is Melbourne, and Sydney

 

[white_goodman]

Unfortunately the interest I am earning doesn't come close to covering my rent No one on here appears interested in demographics or credit growth either.

Bottom line is, even if prices do climb, they most certainly won't be climbing fast. If I'm wrong about a crash, I pay a little extra for a house. If an investor is wrong about a crash not being able to happen, and it crashes, well.......

I just did a model for my econom masters on house prices, the major explanatory variables I had were real credit growth (housing finance excl refi's) real IR's, and per capita real GDP growth... housing finance being the king, to take a view on housing is to take a view on whether housing finance growth will increase or subside.

So it would be nice if perma bulls argue on why they think lending will increase, not just increase but growth rates increase, rather than make ridiculous comments on the clearing rates of The Block or the amount of people at Bunnings on a Sunday or whatever desperate measures that can possibly be grasped..

Owning a house has terribly fat tails ATM, if house prices fall which leads to unemployment, how secure are first home buyers (middle management types) going to be in making those loan repayments, the upside is heavily outweighed by the downside at this moment in time.

 

[Tink]

Oh well, you had better hope those investers all dont pull out, otherwise where are you going to live?

Thats fine, while you keep banging how good renting is, investors can keep banging on how good their income generating asset is, giving you a roof over your heads.
If their investment is in a positive, they dont care.

This is a housing thread and people are free to say whatever they like, be it bulls or bears.

 

[young-gun]

Oh well, you had better hope those investers all dont pull out, otherwise where are you going to live?

Thats fine, while you keep banging how good renting is, investors can keep banging on how good their income generating asset is, giving you a roof over your heads.
If their investment is in a positive, they dont care.

This is a housing thread and people are free to say whatever they like, be it bulls or bears.

Oh well? If RE investors didn't inflate prices by purchasing multiple IP's I wouldn't be renting as housing wouldn't be so over-priced. I am aware this is not the only factor that has pushed housing to current levels. But Please don't make out like they are the good guys putting up a home for us.

Yes there is a definite need for some rental properties, the only reason we need as many as we currently have is because there is families out there that genuinely can't afford to buy.

If things get bad enough you will see family moving in with one another. Not all, but some. Rental prices will also increase as investors sell up, as you pointed out, jmo though.

It's currently happening in America with vacancies at 30 year lows and rents on the up and up. Funny thing is, all the young people over there would rather pay more for the freedom of rental, and do away with the risk of owning a home, than be tempted by a mortgage which would actually come out cheaper per week in a lot of cases, purely because they have seen what a mess RE is. Prices will keep going down.

The key words in your last sentence are 'in a positive'. They will most certainly care when it isn't.

 

[Miss Hale]

Oh well, you had better hope those investers all dont pull out, otherwise where are you going to live?

Well if that were to happen, housing prices would fall and some of us who are renting will be happy/able to buy those former rental properties. I'm in favour of renting not because I see renting as better than buying per se it's just that it's better at this point in time (IMO). At other points in time I have been both a home owner and a landlord. It's less about bull and bears and more about horses for courses.

 

[Tink]

Alot of confused messages on here
- one minute its affordable but I dont want to buy, the next is its unaffordable and you have priced us out.

 

[young-gun]

Alot of confused messages on here
- one minute its affordable but I dont want to buy, the next is its unaffordable and you have priced us out.

I'm afraid you are confused. Allow me to clarify. At no point on that previous post did I state the words un-affordable. I stated that they were 'over-priced'. There is a big difference between the two. Also, what is affordable for one does not make it affordable for another. If a millionaire can afford a 3 story beachfront property because he can afford it, does that make it affordable? For very few perhaps. But that does not mean that the mansion is not over-priced.

Just because I can afford a property, does not make it a good price. It's like a someone in jb hifi tryign to flog off a 50 inch plasma for 10 grand. Can i afford it, yes, does that make it a good buy? no.

I also never said anyone priced me out, I have chosen to sit out. Well I guess in a sense yes you are correct, I have been priced out. Being that I won't pay the current prices as 1. I think they are too high, and more importantly 2. I believe we are looking at the potential for a crash. I said that if prices weren't inflated by boomers, I wouldn't be renting, as houses to me would be alot closer to their true value, or a 'good buy'.

If you like I can pull the figures as to how many rental properties there are in Australia, I have them in another post. To flood the market with every investment property would lead to total destruction of the housing market as we know it. Prices would hit levels of which I can't even begin to imagine.

I am not looking to make any money, I am simply looking to not lose money. I don't think property will see the returns that it has in the past for a very very long time.

There are houses that I can afford, yes, but there are houses/units/places to live that almost anyone can afford. They are simply in places that are so impractical and far away(remote) that I would find it hard to make a living in what I do. I think someone posted units on here in somewhere like port douglas going for about 70k-100k? I may be wrong with the area, just a guess.

 

[white_goodman]

Oh well, you had better hope those investers all dont pull out, otherwise where are you going to live?

Thats fine, while you keep banging how good renting is, investors can keep banging on how good their income generating asset is, giving you a roof over your heads.
If their investment is in a positive, they dont care.

This is a housing thread and people are free to say whatever they like, be it bulls or bears.

what do you think happens to price when all the investors pull out? Gotta think past stage 1...

95% of 'investment' is in second hand property, its not generating any new stock, how many 'investors' are in positive cash flow? I have no problem with speculation just dont call it investment when the only profit is in the capital appreciation

 

[young-gun]

the upside is heavily outweighed by the downside at this moment in time.

Nail on the head. Australia is one of the last nations remaining on its feet(not just in housing but as an economy), and we too will soon be in a very similar place to everyone else. It's no co-incidence, it is the boom/bust cycle of an economy, we haven't done anything different or special, we've just had a few things in the ground to keep us ticking over for a bit, and our demographic shift has arrived a few years later than other nations.

Head down **** up and save, as I am currently taking home baby boomer wages, without the boomer expenses

 

[So_Cynical]

I stumbled onto a Florida (US) real estate site today wow is our real estate over priced, i mean OMG have a look at what you can buy around Miami.

http://www.opendoormiami.idxco.com/idx/4211/details.php?idxID=001&listingID=A1533174

Map: http://maps.google.com/maps?q=25.693903960928104,+-80.44805471049371

• Two story, 4 Bedrooms, 2 Bathrooms,1 Partial Baths - 2351 Square Ft, Year Built: 1992
• Price: $345,900 USD
• 11 Kilometres to the beach, 30 clicks by road to the centre of Miami

Or how about a 2 bedroom ocean view Apartment in Key Biscayne.

http://www.opendoormiami.idxco.com/idx/4211/details.php?idxID=001&listingID=A1621518

Map: http://maps.google.com/maps?q=25.6836070,+-80.1570300

• Ocean View, 2 Bedrooms, 2 Bathrooms - 1782 Square Ft
• Price: $899,000 USD
• Property adjoins ocean and nature reserve.

 

[medicowallet]

http://www.theage.com.au/victoria/housing-glut-hits-suburbs-20120707-21o6k.html

"record 55,290 unsold homes in Melbourne in June - the highest number of any capital city in Australia "

This can't be true, there is an UNDERSUPPLY of houses.


Very interesting REIV reporting today = so few auctions reported.. I can see in the next six months or so they might have to report a negative amount to keep their clearance rates for the year over 50%.

Sunshine and lollipops

MW

PS Where is Robots?

 

[trillionaire#1]

So-cynical, i'll take the key biscayne apartment ,but wait until next year when its 599000.
Just need to scrape together enough change for a ferrari testarossa and a white sports jacket.:car:

 

[Tink]

I wasnt talking specifically to you, young gun, quite a few had said the same thing.

Fair enough, good luck.