The future of Australian property prices

[jank]

There are though plenty of other countries that offer what you describe above and don't have property prices near Oz prices. Pretty much anywhere in Europe, outside the major capitals. And of course the US does too, albeit with much more restricted free health care.

I've lived in a few places around the world, Sydney is extremely expensive, not just for property but for everything. Based on my own anecdotal evidence, I'd say that rents in New York would be slighty ahead of Sydney but NY is ridicuously cheap for everything else compared to Sydney (I'm talking 30-40% cheaper). Wages are roughly the same. Take housing in that context, afterall you still need to buy food, pay utilities, get to and from work, and Australia (or at least Sydney) looks very expensive.

Agreed, Sydney is expensive for everything. Then of course you get retailers complaining about loss of trade to the internet and so on. People cannot afford to be paying double for the same product locally as you can get it online for much cheaper. The only thing keeping property stable at the moment is low interest rates and high employment. Take one of them away and you get falling house prices. I dont think the most ardinant property bull can argue that property is going to double in value again like it has in the past within the next 8 years or so. Best they can hope for it 3-4% increase year on year and again that is with low unemployment and record low interest rates......
Something will give at some stage and property at the moment is over valued. Maybe we are in for a long period of price adjustments like Japan and Finland rather than a short sharp crash like Ireland

 

[Tyler Durden]

Interesting perspective:

Here’s Why Mortgage Money is Dead Money

Just a month after Mr Koukoulas trumpeted the Australian housing recovery (he wasn’t the only one, even former housing bears are starting to get bullish), RP Data released its October data:


‘Dwelling values across all of Australia’s capital city housing markets, except Perth and Darwin, fell over October, interrupting a four month recovery.

‘The RP Data-Rismark Home Value Index result for October recorded the first month-on-month decline since May 2012, with the eight capital city aggregate index falling by -1.0 per cent over the month.’

So much for a recovery. In fact, according to RP Data, since the start of the year, Australian house prices in the five major Aussie capitals are down 0.2%, and down 1.2% since the same time last year.

That doesn’t sound like a big deal, but for homebuyers who expected 7-10% annual growth, and that Australian house prices would double every seven years, it is a big deal.

Because not only have Australian house prices not matched these gains…they’ve fallen. That has compounded the loss. And for each year prices don’t go up it means more interest payments down the drain.

The housing spruikers used to say that ‘rent money is dead money’. It turns out that in a falling housing market, ‘mortgage money is dead money’ too.

But look, we can’t really blame the housing spruikers. It’s the nature of markets. The market raises your hopes and then disappoints you.

You only have to look at a chart of the Aussie stock market over the past three years to see more false hopes than you can shake a stick at.

How Homebuyers Lost $65,000 Last Year

But the stock market is different to the housing market. The average Aussie has a much bigger exposure to Australian housing than they do to shares. And what’s most frightening is that whereas loans to buy shares have fallen off a cliff since 2008, the amount of mortgage debt has gone up.

But that’s not all. As Mr Koukoulas states in his article:


‘Let’s go back to early 2011. There was a $500,000 house that you wanted to buy and your annual household income of $100,000, but the house was just out of reach. Fast forward to the middle of this year and in that 18 month period, the house price has dropped to $465,000 while your income has risen to $106,000. Clearly, it is increasingly attractive for people to dive in and buy that house and that is happening now.’

We’ll make two comments on this lame attempt to talk up Aussie housing.

First, we don’t know a single person who would buy $465,000-worth of shares on credit in this market…especially not on a household income of $106,000 (we assume this is before tax income).

And yet that’s exactly what the housing spruikers want the average Aussie to do. Take out a half-a-million dollar loan to buy an asset that in all likelihood will be worth less in one year than it is today.

This brings us to the second point. Mr Koukoulos imagines the homebuyer who missed out on buying the $500,000 home. But what about the homebuyer who did buy the home?

One year later, the home is now only worth $465,000…plus they’ve paid interest on the mortgage (say a $450,000 mortgage) of about $30,000. So in the space of one year, the homebuyer has busted $65,000, wiping out the deposit money that may have taken them 10 years to save!

Call that an investment? Give us a break. We make no apologies for saying that is a rotten, rotten, rotten investment.

http://www.moneymorning.com.au/20121122/dont-be-fooled-by-australian-housings-death-fart.html111

 

[moXJO]

Interesting perspective:



Call that an investment? Give us a break. We make no apologies for saying that is a rotten, rotten, rotten investment.

http://www.moneymorning.com.au/20121122/dont-be-fooled-by-australian-housings-death-fart.html111

Hmmm must not be hard becoming a financial writer. Here is some advice that saves the paragraphs of waffle:
Do your research before parting with the cash

 

[moXJO]

We're in the same situation as the yanks from 04 to about 06. The economy is slowly eating itself away and getting ready for a big implosion that everyone says cannot happen.

Wages not growing.
Consumptions going to fall off the cliff.
Jobs going to be lost.
Consumption will fall even further.

Tax revenues going to plummet.
Government will lay EVERYONE off.
Feedback cycle.

Huge recession.

Lack of disposable income due to inhibitive housing costs won't help either.

I agree that this is a possibility in the future. But still a good amount of money to be made between now and when it happens imo. Also hinges on what happens in next years election.

 

[Tyler Durden]

Hmmm must not be hard becoming a financial writer. Here is some advice that saves the paragraphs of waffle:
Do your research before parting with the cash

I do wonder though how much research the average first home buyer does before parting with their cash. It seems from the people I talk to, they buy a property once they have saved up enough money - with no regard to timing of the market, the state of the economy or the future value of the property.

 

[young-gun]

I do wonder though how much research the average first home buyer does before parting with their cash. It seems from the people I talk to, they buy a property once they have saved up enough money - with no regard to timing of the market, the state of the economy or the future value of the property.

I would say about 90% of people do this. I would also think that there is also alot of investors that don't do the necessary research before purchasing a property either. A couple of guys at work have started negative gearing a property each in the past 12 months. did no research of area whatsoever, didn't explore opportunities outside of brisbanes south, one took the advice of his financial advisor out of pocket $60 a week. Good idea.

Terrible investment in this market imo. with prices depressed you should at least be cashflow positive even if it's by $20 a week. You may have to step out of your comfort zone(ie buy interstate or somewhere not around the corner) but it's more than possible.

 

[Mrmagoo]

I do wonder though how much research the average first home buyer does before parting with their cash. It seems from the people I talk to, they buy a property once they have saved up enough money - with no regard to timing of the market, the state of the economy or the future value of the property.

As I said for the vast majority of people, housing is not really an investment, they buy to have somewhere to live. The price going up is just something to talk about and does them no real benefit other than to push others out of the market. The price change just doesn't matter. If you sell, you still need to buy somewhere else...

 

[Struzball]

If you sell, you still need to buy somewhere else...

And generally when you do by somewhere else, you upgrade. So if the value of your 400k first home drops 10% or $40k, the value of your 800k house will have dropped by $80k. So in reality, assuming a fhb is buying a house for somewhere to live, they are arguably better off with falling house prices.

But having bought a house 3 years ago, falling house prices are the least of my "losses", once you take into account all the improvements and maintenance to keep up with your lifestyle, home ownership, if you could even call it an investment, is a terrible investment, however I wouldn't have it any other way.

 

[Mrmagoo]

And generally when you do by somewhere else, you upgrade. So if the value of your 400k first home drops 10% or $40k, the value of your 800k house will have dropped by $80k. So in reality, assuming a fhb is buying a house for somewhere to live, they are arguably better off with falling house prices.

But having bought a house 3 years ago, falling house prices are the least of my "losses", once you take into account all the improvements and maintenance to keep up with your lifestyle, home ownership, if you could even call it an investment, is a terrible investment, however I wouldn't have it any other way.

300*1.1 = 330

330-300= 30

500*1.1 = 550

550 - 30 = 520

So a year later, you're still out of pocket 20k on the 500k home.

All that was probably happening was they were getting some equity to borrow more off.

 

[Struzball]

300*1.1 = 330

330-300= 30

500*1.1 = 550

550 - 30 = 520

So a year later, you're still out of pocket 20k on the 500k home.

All that was probably happening was they were getting some equity to borrow more off.

Ah, was a bit confused by your post, so you're saying first home buyers are worse off in a rising market when they go to upgrade.

Regarding equity, Yes but then if they manage to pay extra into their loan, offsetting interest and accumulating a 20% deposit of 100k, equity shouldn't really matter.

Personally I'd prefer house prices to stay put for another 10 years. Though I consider it unlikely and they will probably increase modestly (read: not double).

 

[Julia]

I would say about 90% of people do this. I would also think that there is also alot of investors that don't do the necessary research before purchasing a property either. A couple of guys at work have started negative gearing a property each in the past 12 months. did no research of area whatsoever, didn't explore opportunities outside of brisbanes south, one took the advice of his financial advisor out of pocket $60 a week. Good idea.

Agree. Many people, thinking about investments, are familiar only with housing and don't even consider anything else. They still assume 'property always goes up'.
This is the attitude that now sees many property owners in negative equity because they bought near the top of the cycle, and borrowed 100% of the cost.

A new entry to the local market is a four bedroom house, two bathroom, double garage, pool, excellent area, priced at $645,000. That's just a total joke. There are several similar, actually better, houses in a preferable position in that estate which have been on the market for about three years, at around $500,000. Market price now imo would be about $450,000 max. So any estate agent agreeing to market that house at almost $650,000 must be nuts.

 

[DB008]

This is the attitude that now sees many property owners in negative equity because they bought near the top of the cycle, and borrowed 100% of the cost.

Since the GFC, bank ratios (LVR) have tightened up a fair bit since then. I remember 105% and 107% loans from Wizard Home Loans back in the day.

20% deposit (or 10% with mortgage insurance) down is the norm now.

 

[moXJO]

I would say about 90% of people do this. I would also think that there is also alot of investors that don't do the necessary research before purchasing a property either. A couple of guys at work have started negative gearing a property each in the past 12 months. did no research of area whatsoever, didn't explore opportunities outside of brisbanes south, one took the advice of his financial advisor out of pocket $60 a week. Good idea.

Terrible investment in this market imo. with prices depressed you should at least be cashflow positive even if it's by $20 a week. You may have to step out of your comfort zone(ie buy interstate or somewhere not around the corner) but it's more than possible.

Its a bit like the sharemarket (or any market). A lot of people buy because they like the name or heard from a friend etc. Any investment bought this way is a gamble rather then an investment.

 

[Smurf1976]

I do wonder though how much research the average first home buyer does before parting with their cash. It seems from the people I talk to, they buy a property once they have saved up enough money - with no regard to timing of the market, the state of the economy or the future value of the property.

It's a bit like saying most people buy a car somewhere around the time they get a driver's license, commonly around the age of 18 (that is, practically as soon as they can). Whether or not it's going to make them a profit or whether it's the best time to buy a car isn't a consideration - they want it so they buy it.

From a purely financial perspective, a car is unlikely to be profitable unless it's the only way to get to work. And, of course, it'll also save a lot if you wait until age 25 before buying one. Practical reality however is that most people buy a car as soon as they have a license and can afford to.

Holidays are another one. It could be argued that anyone in Australia who went to the US (for example) a decade ago made a big mistake given the subsequent currency movements. But if you wanted a holiday in 2002 and could afford it at the time then you weren't likely to wait until 2012 to take it just to save some money.

Same goes for housing. Bought a house at age 31 because I wanted to and could afford it. Had the mortgage paid off at age 35 and from a purely personal perspective couldn't care less what happened to house prices after that.

For broader social and economic reasons I'd rather a fall than a rise from this point. In the absence of either a wages boom or a substantial house price slump, there's going to be a lot of economic pain and social tension ahead I expect. But a wages boom would kill Australian business which leaves a house price slump as the least bad outcome.

So far as the actual costs of ownership are concerned, I've never found it to be a major issue. Replaced the seriously worn out oven when I bought the place. Replaced the water heater when it blew up. Painted the back doors. Fixed a few minor things here and there. If you look after things then repairs shouldn't cost much at all really since most things last for many, many years if used sensibly. For those people who abuse things and wear them out rapidly then it's a different story of course, but landlords don't like tenants like that anyway.

 

[medicowallet]

Good morning brothers,

Fantastic day this morning before the hot weather comes through to put a dampener on the pathetic attempt of a tomato bush I have planted this year.

I have just arrived back in the virtual world after a holiday into the real world.

I must say that the property developments are interesting, with some cancellations for off the plan builds, retail under immense pressure, and even banks now admitting their growth is pressured.

apparently there is a doubling of house prices every 7 years, guaranteed, rubber stamped, that you can take to the bank. I guess that the next 3 years will have to be a boom then.

Anyway, looking forward to the detailed analysis on this civilised and informative thread.

Sunshine, lollipops and fluffy bunnies,

MW
(Robot destroyer in retirement)

PS Where is Robots? Has he taken up a 4th job recently? Can he afford internet?

 

[medicowallet]

From a purely financial perspective, a car is unlikely to be profitable unless it's the only way to get to work. And, of course, it'll also save a lot if you wait until age 25 before buying one. Practical reality however is that most people buy a car as soon as they have a license and can afford to.

Holidays are another one. It could be argued that anyone in Australia who went to the US (for example) a decade ago made a big mistake given the subsequent currency movements. But if you wanted a holiday in 2002 and could afford it at the time then you weren't likely to wait until 2012 to take it just to save some money.

Your holiday analogy is interesting, but ultimately flawed. Housing has 2 options one is to purchase a property, the other is to rent.

Virtual holidays are not as good

Same goes for housing. Bought a house at age 31 because I wanted to and could afford it. Had the mortgage paid off at age 35 and from a purely personal perspective couldn't care less what happened to house prices after that.

For broader social and economic reasons I'd rather a fall than a rise from this point. In the absence of either a wages boom or a substantial house price slump, there's going to be a lot of economic pain and social tension ahead I expect. But a wages boom would kill Australian business which leaves a house price slump as the least bad outcome.

The thing is that price movements are determined by a smallish number of transactions, and hence can potentially move very fast (as they have in an upward direction)

The thing is that yes, you have equity in your house and that is great, and if it drops 25% then sure, you lost paper gains, or have made paper losses, and these don't matter to you.

But they DO matter to the banks.

When they start calling in their debts, the whole ponzi scheme could unravel, and bring down large sectors of the economy with it... the brain donor governments who allowed this to happen should be shot.

You may be indirectly affected by a house price decrease if we enter a recession and you lose your job, and if there is a recession, you will be penalised with higher taxes no doubt for the rest of your life as the government debt will skyrocket...


Has happened before in my lifetime, no doubt will happen again.

MW

PS Where is Robots?

 

[freebird54]

Does anyone watch "homes under the hammer " on ch 72 sunday nights?

Interesting to see first time renovators having a go -rental yields twice and often 3x ours so it may help but we will have to wait to see how they do as it was 2009 vintage

Property managers here now not allowing the tenant to do ANY minor repairs [even changing a light globe, tap washers] due to duty of care - wonder where this will take us [You will have to call in an expert to put chlorine in your pool?]

 

[Miss Hale]

Does anyone watch "homes under the hammer " on ch 72 sunday nights?

Interesting to see first time renovators having a go -rental yields twice and often 3x ours so it may help but we will have to wait to see how they do as it was 2009 vintage

Yes, I used to be positively addicted to it but after gorging myself on it I found I suddenly lost interest (probably because the stories are all basically the same). I made the same comment some time ago about the rental yields (you'd have to go back very many pages to see it though), the yields here are pathetic by comparison.

Property managers here now not allowing the tenant to do ANY minor repairs [even changing a light globe, tap washers] due to duty of care - wonder where this will take us [You will have to call in an expert to put chlorine in your pool?]

It has some advantages. Our gutters were badly blocked and cleaning out gutters is not on my list of fun things to do but because it involves ladders it's now the responsbility of the landlord so a call to the agent and we now have clean gutters .

 

[kincella]

I just popped in to have a peep, to see if anyone was still here posting.
I see this forum is still alive, but only just.

I note the bears are still posting, nothing has changed.

Property has performed exceptionally well, interest rates at their lowest ever, and it is all roses and lolly pops.

Unfortunately the stockmarket has deteriorated, and taken a load of players, and gamblers with it.

I have discovered a novel way to beat the low deposit rates, using an offset account against a couple of the mortgages. You effectively earn 6% on your deposit, or the same rates as the mortgage. So by cutting the interest bill on the mortgage in half, it is easier to pay down the capital off the mortgage so much faster. It produces an almost magical result.
The offset accounts have become more popular, so that most banks offer them today. Of course it works both ways whether rates are high or low. But the ability to reduce the capital off the loan is magnified when the rates are low.
Super has also taken a huge hit, due to most funds being invested in the gambling den, or cash only. Unbelievable bad management by fund managers, without exposure to the property market.

Wonder how many people are still pouring their money into super, and salary sacrificing under these adverse conditions. I am also surprised so many people still think only of the lower tax rates, as their reason for putting more of their hard earned into super.
They have not kept up to date with the lower income tax rates. I think the average tax rate for income around $35,000 is now just under 10%, and around 20% for $50,000. Yet they will pay up for a contribution, paying 15% tax up front before the contribution earns any income, and they are stuck in the super funds until retirement age.

The same people, who have a choice, would be better off to not contribute to super, but save and invest it outside of super. A difference of 5% tax, and the ability to do whatever they choose, is in my view a far better option. But then again, there are many people who really cannot save, invest or manage their money very wisely at all.
That is one of the secrets that many first home buyers learn, if they follow their parents advice to buy their home rather than renting. This method provides a forced saving plan, with life benefits.
That path is not for everyone.
I came across just 2 clients in all my years as a tax accountant, who were not mentally fit for the exercise.
Both had become drawn into the buying property, but only because they felt everyone was doing it. Both were middle aged and were rent for lifers. Interesting that both had parents who were also renters for life.

One woman had bought a great little property, it was renting with a great return, never vacant, but she could not handle the stress,of what if something went wrong in the future. Luckily for her the market was still going strong, so when she sold the excess or profits covered her stamp duty and capital costs of purchase and sale.

The other client had a spouse on a very high income, and it was her choice to put her funds into property. It was a majestic property in one of the best locations. But she let her husband manage it, to give him something to do.
He was so out of his depth, and was stuffing it up big time. And boy, as a former life renter he was stressed.
He wanted to sell up and cash out the $50,000 profit. Luckily I advised the wife, to hang onto it, and employ professionals to manage the property. She was a financial professional, actually a guru, and the spouse was not, he was in IT. Last time I spoke to her, the property had exceeded one million in value over the purchase price, plus returning an enormous rental income.

ps
A friend just sold a house last month, it sold the first day on the market, at the asking price. Kidding there is not pent up demand out there. There is a load of money going into property, at the lower and middle end of the market. It has been taken out of the stocks, and cash is woeful.
Have a merry xmas, and a prosperous new year.
cheers

 

[medicowallet]

I just popped in to have a peep, to see if anyone was still here posting.
I see this forum is still alive, but only just.

I note the bears are still posting, nothing has changed.

Property has performed exceptionally well, interest rates at their lowest ever, and it is all roses and lolly pops.

Unfortunately the stockmarket has deteriorated, and taken a load of players, and gamblers with it.

I read up until here are realised that you were just trolling for a response so I will give you an example of the stockmarket over the last 12 months.

ASX 200 at Dec 2011 approx 4050

Currently 4583

I guess that property pretty much flat taking into account maintenance you were just posting for a response, or is it that you are truly not aware that the stockmarket drastically outperformed residential property in 2012.

MW

PS Where is Robots?