The future of Australian property prices

[Tink]

A lot of discussion out there about renting or buying so I thought I'd share a true story. 23 years ago a good mate of mine said "Bill it's so expensive here in Manly, I will never be able to afford a house here." I said, take it easy start cheap, right now you can buy a bedsitter for 130k, buy it, pay it off and then move on to something bigger. He ignored me as they usually do, guess what? 23 years later he is still renting and is now paying $700 per week for a crappy house in a bad location. Had he have bought back then he would own that property by now. Buying will always pay off eventually. Paying rent when you are an old man is a mugs game.

Very true, Bill, how many of these stories have we heard and still hear.

Struggles with mortgages have happened through the years, regardless.
I know a few that have bought the last few years and are doing fine, just like when we bought that many years ago.
Agree with your posts, Tysonboss.

If you look at this thread, its that long through the years, but seems to be the same thing.
Waiting...

Just my opinion.

 

[Mrmagoo]

Yes it does, but only in the same sense that your calculation assumes that the house price decline of 25% remains as a permanent feature and the is never a recovery or any inflation.

In one very real aspect, the interest rate decline is producing real bankable savings, that will make permanent reductions in the loan amount.

The decline of prices may quite well be shorterm in nature and produce no long term change in situation.



And a 5.7%interest rate is not really an emergency low, when compared to say the Usa home loan rates of 2%.

I earn ~80k a year with a hecs debt is take home of about $2200 a fortnight. I've done the sums over and over again and I can't afford to purchase what they call an affordable home.

House prices were high in 05, but instead of waiting for wages to catch up, they went even higher.

There is just no way I can service 6-700 a week for either a terrible 2 bedroom unit or a house which is 40-50kms away from the CBD.

The government really is against us on both sides so there is no way of winning.

If those prices continue to rise then that is a net loss to society.

 

[Mrmagoo]

Low income earners paying the majority of their income on a mortgage 7 years ago is different to today where people on reasonable incomes will do the same.

Mark my words : this will all correct itself soon.

 

[Mrmagoo]

A lot of discussion out there about renting or buying so I thought I'd share a true story. 23 years ago a good mate of mine said "Bill it's so expensive here in Manly, I will never be able to afford a house here." I said, take it easy start cheap, right now you can buy a bedsitter for 130k, buy it, pay it off and then move on to something bigger. He ignored me as they usually do, guess what? 23 years later he is still renting and is now paying $700 per week for a crappy house in a bad location. Had he have bought back then he would own that property by now. Buying will always pay off eventually. Paying rent when you are an old man is a mugs game.

So I gather then that you are from the future ? (so they did invent time travel !)

 

[Tysonboss1]

I earn ~80k a year with a hecs debt is take home of about $2200 a fortnight

.

Don't you have savings, if not, Why not?

I've done the sums over and over again and I can't afford to purchase what they call an affordable home.

It is always hard in the beginning, Saving the deposit and paying off the first couple of years always takes a bit of sacrifice, But it gets easier, Way way esaier.

There is just no way I can service 6-700 a week for either a terrible 2 bedroom unit or a house which is 40-50kms away from the CBD

.

So rent for life then, But trust me, that will be more expensive

there is no way of winning

.

not with that attitude

 

[craft]

This chart probably belongs here. Gives a good long term perspective.

Most people's opinion are based on the limited observed history.







For me, I can't see much justification (or mathmatical possibility) for house prices to continue as they are for ever. Aus house pricing trend for the last 60 years has been a friend to many but the bigger the trend the bigger the bend at the end.

How and when it unwinds are my question - As I don't have those answers my exposure to Aus Real estate is limited to meeting housing needs. Equities offer a far better risk/reward for investment purposes.

 

[McLovin]

A lot of discussion out there about renting or buying so I thought I'd share a true story. 23 years ago a good mate of mine said "Bill it's so expensive here in Manly, I will never be able to afford a house here." I said, take it easy start cheap, right now you can buy a bedsitter for 130k, buy it, pay it off and then move on to something bigger. He ignored me as they usually do, guess what? 23 years later he is still renting and is now paying $700 per week for a crappy house in a bad location. Had he have bought back then he would own that property by now. Buying will always pay off eventually. Paying rent when you are an old man is a mugs game.

23 years ago a bedsit in Manly cost $130k?

 

[Tysonboss1]

For me, I can't see much justification (or mathmatical possibility) for house prices to continue as they are for ever. Aus house pricing trend for the last 60 years has been a friend to many but the bigger the trend the bigger the bend at the end.

How and when it unwinds are my question - As I don't have those answers my exposure to Aus Real estate is limited to meeting housing needs. Equities offer a far better risk/reward for investment purposes.

Just so I can understand that chart a bit better,

Is it saying that excluding inflation, over the 70years or so since 1942 property values have become 9 times higher.

If that is what it is saying I think most of that growth would be actual fair growth in value, I mean look at the difference in population of the cities between those times, Obviously population growth can be expected to cause a significant upward presure on land values.

Also look at the difference in what was considered a medium home in 1900, flushing toilets were a luxuary, running hot water wouldn't have been a feature. forget about 90% of the plumbing, electrical wiring, landscaping, bathrooms, appliances etc that are common place today,

And the size of homes on average was much smaller.

So if we allow for the change due to population growth and changes in what your getting for your money, How much exactly of the price is froth, Do you expect we will hit parity with 1900 prices again.

 

[McLovin]

Just so I can understand that chart a bit better,

Is it saying that excluding inflation, over the 70years or so since 1942 property values have become 9 times higher.

If that is what it is saying I think most of that growth would be actual fair growth in value, I mean look at the difference in population of the cities between those times, Obviously population growth can be expected to cause a significant upward presure on land values.

Also look at the difference in what was considered a medium home in 1900, flushing toilets were a luxuary, running hot water wouldn't have been a feature. forget about 90% of the plumbing, electrical wiring, landscaping, bathrooms, appliances etc that are common place today,

And the size of homes on average was much smaller.

So if we allow for the change due to population growth and changes in what your getting for your money, How much exactly of the price is froth, Do you expect we will hit parity with 1900 prices again.

The US has had a similar rise in population (and flushing toilets) and yet their prices are 10% higher than they were in real terms, while ours are 827% higher. Also we have finished up with house prices more than double the next nearest country.

 

[orr]

This Article made sense to me 12 months ago

http://smh.domain.com.au/real-estat...adow-over-property-market-20111026-1mizf.html

The link to the full report at the bottom of the article is no longer viable... Though it doesn't take to long a look at the coastal holiday home market to see validation of some central themes raised
a link to the article doesn't appear to have been posted earlier, not around when published.

 

[craft]

Just so I can understand that chart a bit better,

Is it saying that excluding inflation, over the 70years or so since 1942 property values have become 9 times higher.

If that is what it is saying I think most of that growth would be actual fair growth in value, I mean look at the difference in population of the cities between those times, Obviously population growth can be expected to cause a significant upward presure on land values.

Also look at the difference in what was considered a medium home in 1900, flushing toilets were a luxuary, running hot water wouldn't have been a feature. forget about 90% of the plumbing, electrical wiring, landscaping, bathrooms, appliances etc that are common place today,

And the size of homes on average was much smaller.

So if we allow for the change due to population growth and changes in what your getting for your money, How much exactly of the price is froth, Do you expect we will hit parity with 1900 prices again.

The thing I don’t like about the chart is that it uses CPI as the deflator to get to real prices. I think that measure is dubious.

If the deflator was wage growth or GDP per capta – than any move above 100 signifies potential risk. As a non-productive asset, there is no justification or mathematical possibility for housing to outperform real economic growth long term.

Despite the short coming of the graph – it still paints the same picture. The last 60 years has led us to a risky elevation of prices on a historical basis and against peers.

 

[finnsk]

23 years ago a bedsit in Manly cost $130k?

Today it is about $325.000 cheapest I could find
http://www.domain.com.au/Property/For-Sale/Apartment-Unit-Flat/NSW/Manly/?adid=2009958702

 

[Julia]

I earn ~80k a year with a hecs debt is take home of about $2200 a fortnight. I've done the sums over and over again and I can't afford to purchase what they call an affordable home.

House prices were high in 05, but instead of waiting for wages to catch up, they went even higher.

There is just no way I can service 6-700 a week for either a terrible 2 bedroom unit or a house which is 40-50kms away from the CBD.

The government really is against us on both sides so there is no way of winning.

If those prices continue to rise then that is a net loss to society.

Do you have to live in a capital city?

 

[Miss Hale]

This chart probably belongs here. Gives a good long term perspective.

Most people's opinion are based on the limited observed history.




View attachment 49364


For me, I can't see much justification (or mathmatical possibility) for house prices to continue as they are for ever. Aus house pricing trend for the last 60 years has been a friend to many but the bigger the trend the bigger the bend at the end.

How and when it unwinds are my question - As I don't have those answers my exposure to Aus Real estate is limited to meeting housing needs. Equities offer a far better risk/reward for investment purposes.

The thing I find interesting about that chart is that except for a small period around 1950 our houses prices since then have always been high relative to other places and yet Australia has always been known for high home ownership rates where the average person could afford to own their own home. Why would this be if our house prices have been higher than elsewhere? Why were not people in other countires buying houses too? I always thought it was because our houses were cheaper than in other places (or am I misinterpreting the graph somehow )

 

[McLovin]

The thing I find interesting about that chart is that except for a small period around 1950 our houses prices since then have always been high relative to other places and yet Australia has always been known for high home ownership rates where the average person could afford to own their own home. Why would this be if our house prices have been higher than elsewhere? Why were not people in other countires buying houses too? I always thought it was because our houses were cheaper than in other places (or am I misinterpreting the graph somehow )

As craft said, the graph is CPI adjusted, not wage adjusted. You'd need to know what real wages did over the period to get the full picture...

 

[Miss Hale]

As craft said, the graph is CPI adjusted, not wage adjusted. You'd need to know what real wages did over the period to get the full picture...

OK, yes, that is important. Thanks (note to self, read posts more carefully)

 

[Bill M]

So I gather then that you are from the future ? (so they did invent time travel !)

What are you talking about? What happened 23 years ago is fact, real estate prices have been going up steadily. I am sure the next 23 years will be seeing real estate prices going up too, nothing to do with time travel.

 

[MACCA350]

As craft said, the graph is CPI adjusted, not wage adjusted. You'd need to know what real wages did over the period to get the full picture...

Can't recall the name but there is a company that compares house prices to local population income and gives an affordability rating which can be compared to many other countries.

It also showed most Australian capital cities being in the most unaffordable range when compared to other countries.

cheers

 

[Bill M]

23 years ago a bedsit in Manly cost $130k?

Today it is about $325.000 cheapest I could find
http://www.domain.com.au/Property/For-Sale/Apartment-Unit-Flat/NSW/Manly/?adid=2009958702

Thanks for bringing that up McLovin and finnsk. That was the block of bedsitters that were for sale all of them years ago. It use to be the Sydney County Council building. They flogged it off and sold them as bedsitters and 1 br units. The link that I post next doesn't go back to 23 years ago however it does go back to the previous 2 sales.

You will note that this bedsitter was sold on 27/10/2008 and fetched 245K. Then on 09/07/2010 it was sold again and fetched 295K. Now of course they are asking 325K for it. So throughout the whole GFC this little bedsitter has just been going up all the time. Now if only my mate had bought this when I told him too he would have 325K in his kick to put down on his house, but then again he chose to rent.

LINK HERE: http://www.onthehouse.com.au/buy/property/47402588?PageNr=1

 

[CanOz]

Regarding investment properties:

If you're not leveraging more than 50% and buying an investment property in the center of a major city, especially Sydney (the center of finance in Australia) i just cannot fathom what can go wrong. Your getting someone to pay off the loan and its just as good or better than money in the bank. I'm not advocating that property is the best answer, or the only answer, just an option. We are not using any of our existing property as collateral, so no risk there.

In addition to domestic buyers, there are plenty of Asian buyers looking for foreign investment opportunities. My boss is one of them, a ton of money sitting and waiting for a few bargains.

Most of the previous arguments are on home ownership...versus renting.

Has anyone got any arguments against owning investment properties in the CBD?

Cheers,


CanOz