The future of Australian property prices

[moXJO]

My research tells me if you could buy for $40K (and that's a big if, don't know anywhere where you can even buy land for $40K) and spent $20k on renos, there is no way you would sell for $168K. If this was the case the peoperty spruikers would by telling us all about it Can you at least name the state?

-PM-

 

[MR.]

bite the bullet or wait and see for another 6 - 12 months

Interest rates vs House prices.

View attachment Investment loans Property Oct2012.pdf
View attachment Property Australia Oct2012.pdf
View attachment Property Brisbane Oct2012.pdf
View attachment Property Melbourne OCT2012.pdf
(would someone turn some of these into jpgs and re-post if you think they are of interest. So you don't need to log in to view)

http://www.abc.net.au/news/2012-10-02/home-prices-surge-in-september/4290780?section=business

Last month's home price rise across Australia's eight capital cities was the largest in two-and-a-half years and comes on the back of 125 basis points of rate cuts over the past year.

This chart also reflects lower interest rates causing price increases.



Now the interest rates have dropped a further 0.25%.

With the amount of movement we have left in interest rates these property prices may remain high for some time.

 

[MR.]

Mini housing Boom

http://www.youtube.com/watch?v=XOyceGDHVbI

Could be right........

 

[Tyler Durden]

I have had difficulties reconciling the rise in property prices versus the "white collar recession" I am hearing about:

AUSTRALIANS should brace for a "white-collar recession" by early next year with the unemployment rate tipped to rise to up to 6 per cent.

The rise in unemployment is fuelled by redundancies in the financial and IT sectors handed out over the past 18 months, which experts say have so far been hidden from official unemployment figures.

A recent report by Macquarie Bank also found middle-class white-collar suburbs in major capital cities were showing increasing unemployment strain.

The Invisible Unemployment II report showed both Northern Sydney and Inner Melbourne had noticeable rises in their unemployment rates (see graph below).

The eastern suburbs of Sydney, which has the highest proportion of people employed in the finance and professional services sectors (80 per cent), is also charting a decline in employment.

“Redundancy payouts… only last for so long. Thus we suspect this pressure is likely to emerge in the second half of 2012,” the report said.

http://www.news.com.au/business/wor...ion-experts-warn/story-e6frfm9r-1226486009556

The only explanation I can come up with is...voila, what I have said previously about the corrupt Chinese officials laundering their money by buying up property in Australia (and in other countries).

I mean, if so many people are losing jobs, and so many people are complaining about the unaffordability of properties, then who is buying them and increasing the prices?

 

[Bill M]

Just back from spending 4 Months overseas. During that time I received an email from my agent managing my property suggesting I raise the rent and offer a new lease to my tenant. I agreed and we raised the rent another $10 per week. My current tenant signed a new 12 Month lease, all good for us. In the 3 years of renting my property in Sydney it has been rented 99% of the time and the rent has been going up each year. There is no shortage of tenants.

I thought I'd get the Agents to do a formal appraisal of our apartment as well, the value has not dropped and in fact it is up slightly.

Interest rates have also dropped and so will home loan rates. I think the future of Australian property prices is that they will just keep going up. Strong rental demand (as my unit demonstrates), low interest rates, higher salaries can only mean prices are going to keep going up. (My opinion only and from my own experience)

At this stage of the game I am very happy with my investment, it is so simple, hands off and the rent just keeps coming in Month after Month. It may not give super stellar returns but I'm very happy with what I'm being paid for investing. Good luck all and happy investing.

 

[Tyler Durden]

Just back from spending 4 Months overseas. During that time I received an email from my agent managing my property suggesting I raise the rent and offer a new lease to my tenant. I agreed and we raised the rent another $10 per week. My current tenant signed a new 12 Month lease, all good for us. In the 3 years of renting my property in Sydney it has been rented 99% of the time and the rent has been going up each year. There is no shortage of tenants.

I thought I'd get the Agents to do a formal appraisal of our apartment as well, the value has not dropped and in fact it is up slightly.

Interest rates have also dropped and so will home loan rates. I think the future of Australian property prices is that they will just keep going up. Strong rental demand (as my unit demonstrates), low interest rates, higher salaries can only mean prices are going to keep going up. (My opinion only and from my own experience)

At this stage of the game I am very happy with my investment, it is so simple, hands off and the rent just keeps coming in Month after Month. It may not give super stellar returns but I'm very happy with what I'm being paid for investing. Good luck all and happy investing.

Just wondering about how it works - does your agent get a cut from getting the higher rent?

 

[Bill M]

Just wondering about how it works - does your agent get a cut from getting the higher rent?

Yes, the agent gets 6.6% commission on all rents. In addition they also get $33 for signing up a new lease for me, cheers.

 

[damien275x]

Has anyone read the kind of articles coming out lately regarding property and a recovery? Some economist at The Age was going on about how a 66% clearance rate was high and a sign of a strong rebound. That isn't very high at all, but as soon as there is a tiniest uptick they cheer to try and inflate its importance.

News.com.au/The Age come out on an almost daily basis, and then in the 200+ comments section they skew the comments. There are always bulls and bears, but it's as though they only approve comments that are in agreement with their position. Or worse still, they approve one bear comment and then release another 10 attacking that one comment. It's skewing and distorting the true picture. Same with the online polls. They manipulate them.

I've noticed this repeatedly. They posted a link to an external video/economist on Youtube, I replied in disagreement- and my response received 200 replies. A day later they'd deleted it all and disabled comments. There was no swearing, there was no foul language, it was just pure censorship. These people blow. I am so glad we have the Internet, online forums and communities. Without the Internet we would all be lapping their **** up.

As for my position, still in the wait and see basket, and I have zero confidence in borrowing right now.

 

[rooster6]

Just back from spending 4 Months overseas. During that time I received an email from my agent managing my property suggesting I raise the rent and offer a new lease to my tenant. I agreed and we raised the rent another $10 per week. My current tenant signed a new 12 Month lease, all good for us. In the 3 years of renting my property in Sydney it has been rented 99% of the time and the rent has been going up each year. There is no shortage of tenants.

I thought I'd get the Agents to do a formal appraisal of our apartment as well, the value has not dropped and in fact it is up slightly.

Interest rates have also dropped and so will home loan rates. I think the future of Australian property prices is that they will just keep going up. Strong rental demand (as my unit demonstrates), low interest rates, higher salaries can only mean prices are going to keep going up. (My opinion only and from my own experience)

At this stage of the game I am very happy with my investment, it is so simple, hands off and the rent just keeps coming in Month after Month. It may not give super stellar returns but I'm very happy with what I'm being paid for investing. Good luck all and happy investing.

Wow.. The agents appraisal showed an increase. Who would have thought? No vested interests there of course.

 

[Julia]

Just back from spending 4 Months overseas. During that time I received an email from my agent managing my property suggesting I raise the rent and offer a new lease to my tenant. I agreed and we raised the rent another $10 per week. My current tenant signed a new 12 Month lease, all good for us. In the 3 years of renting my property in Sydney it has been rented 99% of the time and the rent has been going up each year. There is no shortage of tenants.

I thought I'd get the Agents to do a formal appraisal of our apartment as well, the value has not dropped and in fact it is up slightly.

Interest rates have also dropped and so will home loan rates. I think the future of Australian property prices is that they will just keep going up. Strong rental demand (as my unit demonstrates), low interest rates, higher salaries can only mean prices are going to keep going up. (My opinion only and from my own experience)

At this stage of the game I am very happy with my investment, it is so simple, hands off and the rent just keeps coming in Month after Month. It may not give super stellar returns but I'm very happy with what I'm being paid for investing. Good luck all and happy investing.

I'm happy for you Bill. But it's probably not valid to take your one personal anecdote and deduce that all property, as a rental investment, is necessarily profitable. You seem to have chosen a good position where rental demand exists.
Your suggestion that property prices will keep going up is somewhat contrary to observations in some places.
I live in regional Qld, an attractive 55,000 pop coastal centre, and I can tell you that if I were to try to sell at present I would get about 25% less than three years ago.

You say you are not receiving 'stellar returns'. No obligation of course, but would you like to tell us the %pa return on your capital?

Wow.. The agents appraisal showed an increase. Who would have thought? No vested interests there of course.

Valid comment.

 

[McLovin]

Your suggestion that property prices will keep going up is somewhat contrary to observations in some places.
I live in regional Qld, an attractive 55,000 pop coastal centre, and I can tell you that if I were to try to sell at present I would get about 25% less than three years ago.

Therein lies the rub; as long as unemployment stays low and people can continue to make the payments they, and their lenders, are happy to sit on the paper loss rather than crystalise it.

Low interest rates, low unemployment and wages that have been rising for the past decade in the absence of productivity gains has created the indebtedness households are in. Assuming, and it's a big assumption, that trend does not reverse but merely flatlines then property will just move sideways for a long time, as I think it will.

There's no money left in the tank, the government cannot afford to rescue the property market again either.

 

[young-gun]

I'm happy for you Bill. But it's probably not valid to take your one personal anecdote and deduce that all property, as a rental investment, is necessarily profitable. You seem to have chosen a good position where rental demand exists.
Your suggestion that property prices will keep going up is somewhat contrary to observations in some places.
I live in regional Qld, an attractive 55,000 pop coastal centre, and I can tell you that if I were to try to sell at present I would get about 25% less than three years ago.

You say you are not receiving 'stellar returns'. No obligation of course, but would you like to tell us the %pa return on your capital?


Valid comment.

+1. There is no point in even arguing it anymore IMO. It's a debt fueled bubble, and debt bubbles burst...eventually(not too much longer). Alot seem to believe there needs to be a catalyst, the end of the mining boom may be seen as one.

 

[McLovin]

Interest rates vs House prices.

View attachment 49236
View attachment 49237
View attachment 49238
View attachment 49239
(would someone turn some of these into jpgs and re-post if you think they are of interest. So you don't need to log in to view)

http://www.abc.net.au/news/2012-10-02/home-prices-surge-in-september/4290780?section=business


This chart also reflects lower interest rates causing price increases.

View attachment 49240

Now the interest rates have dropped a further 0.25%.

With the amount of movement we have left in interest rates these property prices may remain high for some time.

Your chart goes to 2010. I wonder how much is really because of interest rates falling and how much was because the government started doling out more home owner welfare at the same time.

 

[Bill M]

You say you are not receiving 'stellar returns'. No obligation of course, but would you like to tell us the %pa return on your capital?

My gross return on capital outlay is 6.1%, that is for rent alone and not including any of the capital gains. From that 6.1% gross return you must deduct the agents fees, levies, council rates, water rates, repairs and depreciation. My estimation is a net return of around 4%. Any capital gains over the years will increase that p/a return.

 

[MR.]

Your chart goes to 2010. .

My charts go to Sept 2012 and are in PDF..... You are looking at the chart "over a longer time span" I re-produced because it shows the apparent common occurance, when interest rates drop (as a result indirectly or not) property prices seem to rise.

+1. There is no point in even arguing it anymore IMO. It's a debt fueled bubble, and debt bubbles burst...eventually(not too much longer). Alot seem to believe there needs to be a catalyst, the end of the mining boom may be seen as one.

If property prices are debt fueled, as we all would agree, the interest rate associated is a major factor. It's not un-comprehendible that interest rates and debt or debt fueled are so closely linked, I for one are paying more attention to this........ it should not be dismissed. I paid a factory off when interest rates were 19% and we all realize, "what if interest rates rose back to the 90's". My point is your "not too much longer" maybe a little longer than we might have thought.

Even at a 3.25% cash rate (6.8% mortgage) the RBA has a good way down if it ever needed to go to zero. Sure, any mining reduction with job losses will reduce interest rates further but the lower the interest rate the easier the re-payments will become on property. The US has mortgage rates of 3%. What would our property prices look like at 3% mortgage rates or what about in the 5's.

The last Youtube link MrZ put up (in the first few minutes) talks about "when interest rates can't drop any further" Stop….., we can drop interest rates and will drop rates further if required. It's a double edged sword for anyone wanting property in the near future and for a little less. I think even regional coastal Queensland towns will now experience some property rises again.

The following is interesting regarding the Bank of Qld losses.
http://www.theaustralian.com.au/bus...-loss-since-1992/story-fn91vch7-1226489239560

The regional lender has been struggling with rising bad loans as property prices have plunged as much as 30 per cent in parts of Queensland and the state's economy has slowed.

 

[white_goodman]

i think its worth remembering when talking about drivers of asset prices its real rates/credit growth not jsut the nominal figure.. theres more riggle room then simply 325 bp's

 

[Mr Z]

If property prices are debt fueled, as we all would agree, the interest rate associated is a major factor. It's not un-comprehendible that interest rates and debt or debt fueled are so closely linked, I for one are paying more attention to this........ it should not be dismissed. I paid a factory off when interest rates were 19% and we all realize, "what if interest rates rose back to the 90's". My point is your "not too much longer" maybe a little longer than we might have thought.

Even at a 3.25% cash rate (6.8% mortgage) the RBA has a good way down if it ever needed to go to zero. Sure, any mining reduction with job losses will reduce interest rates further but the lower the interest rate the easier the re-payments will become on property. The US has mortgage rates of 3%. What would our property prices look like at 3% mortgage rates or what about in the 5's.

The last Youtube link MrZ put up (in the first few minutes) talks about "when interest rates can't drop any further" Stop….., we can drop interest rates and will drop rates further if required. It's a double edged sword for anyone wanting property in the near future and for a little less. I think even regional coastal Queensland towns will now experience some property rises again.

With respect the RBA can do what it likes BUT the market is not compelled to support it. We have already seen that with the cost of funding rising against RBA cuts. Typically the RBA follows the 90 day bill rate and practically it cannot stray too far for too long from where the market wants to be.

 

[banco]

If the RBA keeps dropping rates the civil war between the baby boomers who rely predominantly on property for their retirement income versus baby boomers who rely on bank deposits and bonds will be amusing.

 

[young-gun]

If property prices are debt fueled, as we all would agree, the interest rate associated is a major factor. It's not un-comprehendible that interest rates and debt or debt fueled are so closely linked, I for one are paying more attention to this........ it should not be dismissed. I paid a factory off when interest rates were 19% and we all realize, "what if interest rates rose back to the 90's". My point is your "not too much longer" maybe a little longer than we might have thought.

When such a massive shift or event takes place, traditional monetary policy has little effect on preventing the true course of events. This much is evident in the credit bust of the states. I honestly don't think they could pay people to take on loans for new houses at the moment. No matter how much cash they print, or how low rates go, or are promised to stay low for ears, they are still stagnant at best.

I do however agree that it may take a little longer than expected. This is due to the lowering of interest rates having a VERY short lived, and minor impact on the housing market, before it heads where it wants to. They have already squeezed the FHO out with grants and a few grand, I cant imagine there would be many more to be squeezed out with the temptation of low interest rates. I would expect the low interest rates to sustain prices, if not increase prices in the tiniest of amounts, and not in any real volume in the near term, and then fall. Coming back to what you said, it is very hard to put a time line on how long it will take to run it's course, and I am afraid you are probably right that it may get drawn out a while longer.

Even at a 3.25% cash rate (6.8% mortgage) the RBA has a good way down if it ever needed to go to zero. Sure, any mining reduction with job losses will reduce interest rates further but the lower the interest rate the easier the re-payments will become on property. The US has mortgage rates of 3%. What would our property prices look like at 3% mortgage rates or what about in the 5's.

They have alot of wiggle room, but if the boomers dont want or need to spend, then the boomers dont want to spend.

The following is interesting regarding the Bank of Qld losses.
http://www.theaustralian.com.au/bus...-loss-since-1992/story-fn91vch7-1226489239560

I skimmed over this the other day, will give it a read. All in all, I won't be buying soon.

 

[prawn_86]

All in all, I won't be buying soon.

I posted this in another thread:

Is it a bubble or is it stagnation? As far as i am concerned, if i can buy an asset with debt that pays itself off then that is a good deal providing:
1. The asset maintains or gains value
2. The income the asset produces is going to increase in time

So one then has to look at the asset and if conditions 1 and 2 are going to be met.

Positive gearing means that it now becomes like any other asset/business purchase as opposed to having to negative gear and hope for capital appreciation

Many people with income are buying positive geared properties in the US also. I think a big problem over there is that the minimum wage is so low, hence when people lose jobs and have to take new ones, the pay can be massively lower. So obviously you need to know the market you are buying in, and the liklihood of rental being maintained