The future of Australian property prices

[FlyingFox]

Unfortunately redundancy announcements don't seem to reflect anything. We had a period of 6 months there not long ago where you couldn't take 10 steps without seeing job cuts in the paper, on the news, or on the net.

With seemingly tens of thousands getting chopped, the unemployment rate remained steady. As I'm sure you're aware job numbers aren't worth the paper they are written on, although perhaps slightly more credible than the US.

Unemployment may be the catalyst to trigger the bust, but I think there is also a large number of other contributing factors ie loose credit, a love of RE investing, speculation etc. 2013 could very well be the year, but I'm not holding my breath, I thought 2012 was the year

Prices stagnant to down....at best.jmo

True. However we have had a lot of money flowing through the system from the mining expansions and GFC stimulus. This is starting to dry up.

 

[young-gun]

True. However we have had a lot of money flowing through the system from the mining expansions and GFC stimulus. This is starting to dry up.

nothing like a bit of government meddling to throw a spanner in the works. FHOG didnt help either. After speaking to a couple of mates in the mines they believe thigns are slowing, but not much. Last time I saw iron ore prices they were back up substantially(couple of weeks ago that was). Unless china goes belly up, there will still be a reasonable stream of cash flowing from that sector I would think, agree that it does appear to be slowing though(or was).

Has anyone got any links to articles on how long it takes for stimulus to run through the economy? or is it one of those how long is a piece of string gigs.

 

[sydboy007]

nothing like a bit of government meddling to throw a spanner in the works. FHOG didnt help either. After speaking to a couple of mates in the mines they believe thigns are slowing, but not much. Last time I saw iron ore prices they were back up substantially(couple of weeks ago that was). Unless china goes belly up, there will still be a reasonable stream of cash flowing from that sector I would think, agree that it does appear to be slowing though(or was).

Has anyone got any links to articles on how long it takes for stimulus to run through the economy? or is it one of those how long is a piece of string gigs.

The FHOG should be renamed to the Vendor grant since all it did was increase the sale price of most properties

 

[drsmith]

The FHOG should be renamed to the Vendor grant since all it did was increase the sale price of most properties

That's basically true and it should be removed, but like I have emphasised in other property tax/transfer discussions, it should be removed as part of a broader package of property tax reform.

 

[sydboy007]

That's basically true and it should be removed, but like I have emphasised in other property tax/transfer discussions, it should be removed as part of a broader package of property tax reform.

The ACT is leadign this. At least they have started the slow move away from inefficient stamp duties to a far more equitable annual land tax for all properties.

Michael Pascoe has a good article in the SMH today about how the states are currently spendign practically all the GST income on health care. They've hit their revenue brick wall and will do a tanty or two to try and get the Federal Govt to bail them out, but at the end of the day they need to tell the population why they need to make the changes and then get on with it before they've racked up too much more debt!

 

[Whiskers]

The FHOG should be renamed to the Vendor grant since all it did was increase the sale price of most properties

Here in Qld the former Bligh gov 'Building Boost Grant' on top of the FHOG certainly lifted the asking price substantially through the end of 2011, especially on vacant land... but 6 months after the Building Boost grant ended, ie mid 2012, those asking prices were coming off by about 30% or more to get a sale.

I can show you some properties that have been on the market for so long the signs have completely rotted away, 3, 4 years plus. While the Real Estate industry tries it's best to talk up the market at the first sign of good news, the next month continues to show flat or falling prices for most types of properties.

Many who invested in property for rental revenue in the last few years are facing capital losses atm. Even though vacancy rates are very low, they can't increase the rents any more in the current climate and are stuck with a long wait or take a loss.

From what I understand there have been some larger building companies move in on the fringe of the mining areas with relatively cheap building developments, but I also hear the smart builders/tradies saying they won't be lured into cutting prices to compete and are happy to pick up a few local jobs rather than get run their legs off and probably end up with little or nothing to show for it when the dust settles and a builder or two falls over.

 

[sydboy007]

Unless you can con people into increasing debt levels, there is no chance house properties can go to far from where they are.

Interesting article on macrobusiness yesterday that showed a lot of younger people see buying a property as too much of a risk in the current climate.

While renting costs half the price of buying there is little financial incentive to buy, especially when capital growth would barely be the same as rental yield at present.

So the argument that rent is dead money is a fallacy, when you factor in the much higher level of interest being paid to own the property, let alone all the other associated holding costs.

50% of properties are owned by the boomers. Considering they will be selling en mass over the next 20-30 years that means a considerable amount of supply ready to flood the market should prices start to rise.

 

[Julia]

50% of properties are owned by the boomers. Considering they will be selling en mass over the next 20-30 years that means a considerable amount of supply ready to flood the market should prices start to rise.

Why will they be selling en masse over the next few decades?

 

[Whiskers]

Agree there sydboy007.

I saw some figures relating to Sydney where the rental yield from smaller properties was about double that of larger properties. I expect that is happening Australia wide and is indicative of more people particularly in urban areas scaling down and renting.

However I'm thinking there are some bargains appearing in more outlying and rural areas.

 

[DB008]

Why will they be selling en masse over the next few decades?

And what about the number of immigrants who will also be seeking housing?

 

[Mr Z]

Why will they be selling en masse over the next few decades?

Because as a group they are underfunded into retirement and they have become accustom to a high standard of living. This will lead to assets being liquidated and spent over time to fund the life style, SKI, die broke etc Given that price moves at the margin, once enough of them make this move the pressure will be on the rest of them to follow as the asset price declines.

Frankly it makes more sense for boomers to own dividend paying stocks at this point, they can get a good return and liquidated them piece meal as required.

 

[Mr Z]

And what about the number of immigrants who will also be seeking housing?

The boomers are around 50% of our working population and around 25% of our total population, immigrants are well outnumbered!

 

[DB008]

The boomers are around 50% of our working population and around 25% of our total population, immigrants are well outnumbered!

Ok.

If they sell off their family home, they still have to live somewhere? Pressure on rental vacancy rates?

 

[Mr Z]

Ok.

If they sell off their family home, they still have to live somewhere? Pressure on rental vacancy rates?

It is not the PPOR that is the issue, the boomers own large amounts of investment property, it is the one investment that has become religion to that generation. They will divest the investment property and they will also downsize the PPOR as the financial pressure of retirement comes to bear.

 

[DB008]

Bit old, but still worthy.

ABS stats
http://www.abs.gov.au/ausstats/abs@.nsf/2f762f95845417aeca25706c00834efa/9352fb4d7f5cbd27ca2570ec007530a6!OpenDocument

 

[Mr Z]

93 was near the bottom of a cycle, we are near the top of the cycle that started then. Chalk and cheese in many ways.

 

[DB008]

Not as detailed.

Sometimes trying to find info on the ABS is such a pain....

View attachment 41020_housing_indicators_2012(1) December.xls

(bottom of the page - http://www.abs.gov.au/socialtrends)

Mr Z,
In your opinion, when do you think we will see this shift? In the next 5 or 10 years? Or further out?

 

[sydboy007]

Why will they be selling en masse over the next few decades?

* Depending on debt levels the cash flow is poor

* Lumpy asset - can't sell 10%, unlike shares which can be sold in 10-20K lots as required

* Downsizing to fund retirement

* Selling to move into assisted care

* Falling off their perch and family selling

 

[white_goodman]

* Depending on debt levels the cash flow is poor

* Lumpy asset - can't sell 10%, unlike shares which can be sold in 10-20K lots as required

* Downsizing to fund retirement

* Selling to move into assisted care

* Falling off their perch and family selling

the only thing i would say against your argument which i agree with largely is that for some more financial engineering in the reverse mortgage space

 

[McLovin]

Why will they be selling en masse over the next few decades?

Interesting article earlier this week about the unpreparedness of boomers and how the family home is now the nestegg.

A whopping 86% of Australia's 5.5 million baby boomers are, in varying degrees, financially under-prepared for retirement, according to research release by industry super heavyweight REST Industry Super today.

Dubbed The Journey Begins, the REST-commissioned white paper - based on the attitudes of 1,200 Australians approaching retirement - reveals a massive disconnect between what baby boomers expect their retirement to be like, and what reality has in store.

To Damian Hill REST CEO, the biggest surprise within the results is the proportion of baby boomers - around half - who don't expect to give up anything in retirement, especially given their expected reliance on the age pension.

The survey also reveals a growing reliance on the family home to help close the retirement savings gap, with almost half planning to move house once retired, and more than a quarter expecting to downsize.

http://www.financialstandard.com.au/news/view/24985805