The future of Australian property prices

[FlyingFox]

......

If we can stick to the topic:

I think housing is less affordable in Australia now, than it was 30 or 40 years ago - in terms of ave income vs ave house prices. If average income levels start to rapidly increase for some reason then obviously that would not remain the case.

I think the younger generation, apart from above-average income earners, will increasingly find they're either priced out of the market, or unwilling to make the type of sacrifices necessary to service the large debt they'd need to take on. In short, I think the % of home ownership will reduce and renting will increase.

I think that the current price of housing in Australia, combined with our cost-of-living, will result in less high-income professionals wanting to make Australia their home, and may indeed see some of our home grown talent move offshore.

I think all of these factors combined give weight to the likelihood of house prices remaining flat. I don't see how we could expect to see the rapid rises in capital values that were seen over the recent past.

I think it is possible to provide for a comfortable retirement without necessarily owning your own home. I am not making a statement on whether I think it is advisable, desirable or not, just saying I think it is possible.

I think I'll now leave this thread - it's a little too contentious for me.

+1 . Also sometimes it is not possible to make the sacrifices that are necessary. If I am working in the city, adding an hours compute just so I can own my own place is not an easy sacrifice to make.

Also the high-income professionals are either getting higher incomes or cheaper housing elsewhere. Actually it might surprise some as to how average some of the professional pay rates are, especially for starting salaries.

The dual income theory is also being brought up a few times. However if you have a family, it is very hard to maintain dual incomes at the levels prior to starting a family. If you need a dual income for 30 years to pay of a mortgage, you be in trouble when you have kids. Some of this is contributing to declining birth rates etc.

 

[FlyingFox]

My opinion is that in 5 years you will be paying 20% more for a home/unit in busy, popular, trendy, handy and want to live suburbs. And by that I mean not in an over supplied area like the Gold Coast where there are thousands of high rise units on the market. Pick your areas/towns and you will do ok, pick a bad suburb and you could well lose. I wouldn't be investing where I am if I thought I would be losing, that's for sure, cheers.

I currently rent in SE Melbourne. Some very nice suburbs in the area with attributes you described. The trouble is that any nice house is over $1M and we have seen a few. Now say you have 20% deposit and take out a $800K loan. You will be paying ~$45K in interest alone. That's close to 70% of the average disposable household income.

Now you might say that it is over ambitious to do so as a first home buyer. My question to you is, why is it so unaffordable to buy a house where you want (and I am not talking about brighton or toorak) with an above average income and a very healthy deposit? Something wrong with the picture?

See DocK comments re: professionals leaving, I'm certainly considering it.

 

[prawn_86]

Now you might say that it is over ambitious to do so as a first home buyer. My question to you is, why is it so unaffordable to buy a house where you want (and I am not talking about brighton or toorak) with an above average income and a very healthy deposit? Something wrong with the picture?

See DocK comments re: professionals leaving, I'm certainly considering it.

Yep i agree with both points. As i have said previously the average wage no longer buys the average house, and if you are in the top 10% of incomes you certainly can't afford the top 10% of houses

I looked for overseas jobs online for the first time today now i have the experience i need under my sleeve

 

[Bill M]

Now you might say that it is over ambitious to do so as a first home buyer. My question to you is, why is it so unaffordable to buy a house where you want (and I am not talking about brighton or toorak) with an above average income and a very healthy deposit? Something wrong with the picture?

See DocK comments re: professionals leaving, I'm certainly considering it.

You just answered your own question. "Where you want". This is what I have talked about all along. Do you think you are alone in wanting to live there? That's exactly it, there are only so many properties available and many more people that want to live there. This is not unusual really, however I don't know your area but I know mine well.

A very wise real estate investor once told me, "Bill you are better off buying a 1br unit for 400k in Bondi or Manly than buying a 3br house out in the western suburbs." Why is that I asked? "Everybody wants to live there, money talks and everybody else goes west". Guess where my unit is? I really must stress, pick your suburbs and for everybody that's going overseas because it's too expensive here, don't worry there is 3 more coming in to take your place, just something to consider.

 

[KurwaJegoMac]

Is your issue with travelling? or over indulgent and unnecessary spending?

A trip to hawaii is actually quite affordable, and I'm assuming quite nice. Gotta see the world while your young, can't do it(properly) with kids, and a PPOR makes it more difficult. Also twice as expensive with kids.

I have no issue with travelling - in fact i encourage it. Everyone needs a break and you learn a lot about yourself (and can get some great perspectives too!). I think the more one experiences the wiser one becomes. I myself take an overseas holiday at least once a year to a new country.

I'm also not against spending on clothes per se; moreso about excessive spending. We all need to buy ourselves something nice once in a while. The example above was a personal experience with a friend who often complained about not having savings to invest. Not hard to see why

On a side note (not directed at you at all) I find it amusing that for the last 1000 pages there has been nothing but whining and complaining and that was accepted - then a couple of people took the opposing view and shared some personal experiences and were put down and mocked. Are you really that bitter? Why not change your mindset and learn from others rather than deriding their efforts. This thread used to be alive with healthy discussion but now it's filled with the same pessimistic people drowning in negativety.

There's a reason why only some people "make it" - how about everyone treat everyone with respe t - particularly the young, naive posters deriding those that have been successful before all those experienced people leave and we no longer have the opportunity to learn from them.

 

[psailagroup]

No we don't, a very common misconception...we are not all born equal into an equal society.

We are not all born but we can sure hunt for it
One child is handed fish by his father (has allot of fish) and one man decides to teach his child how to make a better rod to catchier fish.

I prefer to be taught or self taught and get what I want in life.
In life there will always be a person who is richer, happier , smarter "etc" but there are also people who are going
To have less money, less health "etc" to me the most important thing is what I do with my
Life.

Oppurtunties are every where and really if the biggest challenge we
Have in oz is buying a home I would rather have that, then live in a place where most people can't put food on the table

I also believe the definition of wealth will
Change and with the crazy times we are living in one of the most important factors
To grow wealth is buying simply having less expenses and more income comming
Through

 

[sydboy007]

Things are always getting harder. Simple math. inflation is quoted at 2-3%. Inflation actually runs probably at 5-6%+ easily. Unless wages increase by more than say 6%, then every generation is going to find it harder than the last. Unless there is a point in time where prices fall instead of rise (deflation, recession i guess?) Then it only gets harder for the financially retarded.

I'm not complaining. Ill get to where I want to be regardless of what house prices were, are, or will be, 300k, 500k, or 1.5 mill I'm not concerned. But to argue that it was just as difficult back in the good ol' day doesn't make sense to me. I;m not interested in the 18% rates story either. Rates are only higher if there is too much money flying around in everyones pocket.

House prices down, or across. Certainly not up. Unless they boost first home owners to 50k. Then up, shortly followed by down.

PS Im enjoying watching this thread.

Not sure how you can say this.

I remember in 1990 buying my first computer for $1200. A $100 tablet would have around 1000 times the processing capacity and well it has a 20MB HD - those were the good ol' days of DOS.

Clothes, shoes, electronics, holidays, flights, books are all considerably cheaper than a decade ago. Gosh I remember flying SYD BNE return for like $600 in 1999.

 

[young-gun]

Not sure how you can say this.

I remember in 1990 buying my first computer for $1200. A $100 tablet would have around 1000 times the processing capacity and well it has a 20MB HD - those were the good ol' days of DOS.

Clothes, shoes, electronics, holidays, flights, books are all considerably cheaper than a decade ago. Gosh I remember flying SYD BNE return for like $600 in 1999.

Sorry I thought I put in an exemption for electronics and white goods etc. Where innovation and strong competition exists naturally prices are able to come down. As for the plane trip, it's hardly an everyday expense affecting people. Clothes are sonetimes cheaper but their life-span reduces substantially.

 

[FlyingFox]

You just answered your own question. "Where you want". This is what I have talked about all along. Do you think you are alone in wanting to live there? That's exactly it, there are only so many properties available and many more people that want to live there. This is not unusual really, however I don't know your area but I know mine well.

A very wise real estate investor once told me, "Bill you are better off buying a 1br unit for 400k in Bondi or Manly than buying a 3br house out in the western suburbs." Why is that I asked? "Everybody wants to live there, money talks and everybody else goes west". Guess where my unit is? I really must stress, pick your suburbs and for everybody that's going overseas because it's too expensive here, don't worry there is 3 more coming in to take your place, just something to consider.

I for one don't want to live in Bondi ( I lived in Sydney for 6 yrs before so I know where and what Bondi is) nor the Melbourne equivalent of St Kilda or Brighton. The difference now is that people that bought houses in those suburbs many years ago could afford them even though they were higher then the outer suburb prices. Now only people who have bought property long ago and have built up equity can afford these suburbs. Having said that, I thought the topic of the tread was property prices not just the trendy suburb's.

As for the Gold Coast, there was a big shortage in properties there prior to the GFC and the AU dollar going up. Then all of a sudden there was a big over supply, just like that.

Your right about money talks but income does not unless your on a ridiculous one.

Just a couple of points to consider:

1) Australia is already has one of the highest wage/salary rates in the world. If the AU dollar stays up above $1 US then there is no hope in hell of wages going up.
2) Our personal debt ratio's are among the highest in the world.
3) When the mining boom subsides, we will have no new industries to fund future exports etc

I will also agree with you that you will get 3 more people for everyone that leaves but do you really want 9 taxi drivers or shelf packers for a lawyer, an engineer and a scientist? Do you want to be footing their welfare bill instead on them footing your pension (not yours personally Bill but I am sure there is a Bill out there on a pension)? Something else to consider.....

 

[FlyingFox]

I have no issue with travelling - in fact i encourage it. Everyone needs a break and you learn a lot about yourself (and can get some great perspectives too!). I think the more one experiences the wiser one becomes. I myself take an overseas holiday at least once a year to a new country.

I'm also not against spending on clothes per se; moreso about excessive spending. We all need to buy ourselves something nice once in a while. The example above was a personal experience with a friend who often complained about not having savings to invest. Not hard to see why

On a side note (not directed at you at all) I find it amusing that for the last 1000 pages there has been nothing but whining and complaining and that was accepted - then a couple of people took the opposing view and shared some personal experiences and were put down and mocked. Are you really that bitter? Why not change your mindset and learn from others rather than deriding their efforts. This thread used to be alive with healthy discussion but now it's filled with the same pessimistic people drowning in negativety.

There's a reason why only some people "make it" - how about everyone treat everyone with respe t - particularly the young, naive posters deriding those that have been successful before all those experienced people leave and we no longer have the opportunity to learn from them.

Firstly I agree with your points about extravagant spending. This really must stop if you want to save. Having said that it's great for the economy right?

Secondly, it's great you were able to save and get your own place. Go on you (and I am not being sarcastic).

Thirdly, I think we're having a great lively discussion. I don't think most people are drowning you out with negativity, we're just saying housing is expensive and all the stats agree with us. I thought that was the point of this thread otherwise it would be called "How you bought a prop - share your experiences". Many of the posters on the "negative" side can actually purchase their own props from what I have read in the threads, they just chose not to.

I think also that many of the "negative" poster's are quite intelligent and do know what it takes to make it and are willing to learn. Even MrMagoo (for all his nuances; no offence) has a comp sci degree/background. We also realize that there are some circumstances that lead to the current price situation (baby boom + credit inflation) that have been unprecedented in human history. At least one of these is not continuing....the other may or may not follow.

We're giving hard facts and figures as to why prices will not continue to rise, not opinion.

 

[FlyingFox]

I also believe the definition of wealth will
Change and with the crazy times we are living in one of the most important factors
To grow wealth is buying simply having less expenses and more income comming
Through

+ 1. Leverage as we currently know it may become a thing of the past.

 

[FlyingFox]

Yep i agree with both points. As i have said previously the average wage no longer buys the average house, and if you are in the top 10% of incomes you certainly can't afford the top 10% of houses

I looked for overseas jobs online for the first time today now i have the experience i need under my sleeve

I would be surprised if the top 10% of incomes could get the top 20-30% of houses comfortably. Question to Bill. If everyone wants a nice place, in a nice suburb but your earning (significantly? ) more then them, then why can't you still afford to buy that place? Something to consider....

 

[MR.]

Where is the mean on a long term trend line i wonder?

and how do you gauge it?



I'd guess at 3-4 x income...... Is there a better way of measuring it? There's always an argument or fifty million on how things are different now!

So 3-4 x income..... 1997 pricing + wage growth!

Must be close to the same pricing as properties sold (on average) in the year 2000 - 2001........
It's hard to picture a return to those levels on an average, although some properties are getting close with regards to the year.

 

[Bill M]

Having said that, I thought the topic of the tread was property prices not just the trendy suburb's.

All suburbs, trendy or otherwise fall into the topic of property prices don't they? You asked why certain suburbs are far more expensive than others and I clearly explained it is because people want to live there and there is less supply than the numbers of people who want to live there. That drives prices up. You can deal with that anyway you like, I would start small, build up equity, sell and upgrade and eventually you will have that house. It won't happen quick and has always been a challenge, that is where the hard work and sacrifices come in.

I will also agree with you that you will get 3 more people for everyone that leaves but do you really want 9 taxi drivers or shelf packers for a lawyer, an engineer and a scientist? Do you want to be footing their welfare bill instead on them footing your pension (not yours personally Bill but I am sure there is a Bill out there on a pension)? Something else to consider

That is just plain pigeon holing immigrants, putting labels on them, I thought you were above that. Last year I had to do several weeks of physiotherapy due to a back injury. I got to know my physio very well. He told me he can not recruit any Physio's in Australia to come and work in his practice. He told me he had to sponsor 2 Physio's from South Africa to come and work for him due to the shortage. I met them and they were nice people and happy to be working in Australia, most immigrants are not shelf packers or taxi drivers.

 

[Bill M]

I would be surprised if the top 10% of incomes could get the top 20-30% of houses comfortably. Question to Bill. If everyone wants a nice place, in a nice suburb but your earning (significantly? ) more then them, then why can't you still afford to buy that place? Something to consider....

You simply haven't saved enough money, that's all. Just keep on working and saving or move to a cheaper suburb where it may be within your budget. Or you could buy a small place to get your foot in the door, build equity and then upgrade later.

Everyone has choices, I would like to live in a 2 bedroom Penthouse in Manly with panoramic ocean views. It could cost $1.5 million for that. If I bought that then I would have work another 30 years to pay it off and build up retirement money. As I can't afford it I chose to live in a cheaper suburb. I bought a 3 br brick home for 340K and I am fully retired and spend 5 Months a year travelling the globe. I have made my choice to live in a cheaper suburb and be retired and live rent and mortgage free. It's all choice, what choices will you make?

 

[FlyingFox]

All suburbs, trendy or otherwise fall into the topic of property prices don't they? You asked why certain suburbs are far more expensive than others and I clearly explained it is because people want to live there and there is less supply than the numbers of people who want to live there. That drives prices up. You can deal with that anyway you like, I would start small, build up equity, sell and upgrade and eventually you will have that house. It won't happen quick and has always been a challenge, that is where the hard work and sacrifices come in.

My question was why does someone on a relatively high income (see prawn_86's example) not be able to afford a house in a nice suburb. I do realize it has to do with supply and demand but this is another statistic that shows how distorted our housing prices are.

Building equity is good but in current conditions you can be in negative equity especially if like you said, you picked the wrong suburb. Just was talking to a friend at a wedding on the weekend. They bought in North Lakes (Brisbane) a few yrs back when they moved from NZ. We warned them not to do that. Now they want to move to the south side of brisbane but are on negative equity and can't sell. This will eventually have flow on effects as the upgraders will not be able to push prices of the nicer suburbs up. Some people don't want to start small because they are planning families etc (and subjectively speaking houses are cheaper than townhouses / apartments when you factor in land etc).

I completely agree with you about the hard work etc, no substitute for that. My dad is a self-funded, (semi?)-retired (at 55) businessman. He started out collecting empty glass bottles when he was young to help out.

P.S Personally I can get the (town-)house I want, I chose not too.

That is just plain pigeon holing immigrants, putting labels on them, I thought you were above that. Last year I had to do several weeks of physiotherapy due to a back injury. I got to know my physio very well. He told me he can not recruit any Physio's in Australia to come and work in his practice. He told me he had to sponsor 2 Physio's from South Africa to come and work for him due to the shortage. I met them and they were nice people and happy to be working in Australia, most immigrants are not shelf packers or taxi drivers.

Yes I did. My sincere apologies for that. Seemed to have gotten out of the wrong side of bed this morning. However I think you will agree that the truth is somewhere between what you and I said and it is in part to the policies of the current and past governments of the last decade.

 

[prawn_86]

You simply haven't saved enough money, that's all. Just keep on working and saving or move to a cheaper suburb where it may be within your budget. Or you could buy a small place to get your foot in the door, build equity and then upgrade later.

Everyone has choices, I would like to live in a 2 bedroom Penthouse in Manly with panoramic ocean views. It could cost $1.5 million for that. If I bought that then I would have work another 30 years to pay it off and build up retirement money. As I can't afford it I chose to live in a cheaper suburb. I bought a 3 br brick home for 340K and I am fully retired and spend 5 Months a year travelling the globe. I have made my choice to live in a cheaper suburb and be retired and live rent and mortgage free. It's all choice, what choices will you make?

I think the counter argument would be show me a 3br brick home anywhere in Sydney for under 400k nowadays. They just dont exist through a combination of factors such as population and previous credit growth.

Why should someone earning in the top 10% of wages have to buy in the bottom half of suburbs and then hope for capital gains in order to move up the property ladder? Of course sacrifices will need to be made when you purchase a property, but as DocK has said, it is possible that less people are going to be willing to commute for 10+ hours a week, just to own a house way out in the suburbs.

To me something just doesnt seem right to me someone earning 3x the average wage cannot afford (without paying >30% gross income) a house 2 - 3x the average house price

 

[FlyingFox]

You simply haven't saved enough money, that's all. Just keep on working and saving or move to a cheaper suburb where it may be within your budget. Or you could buy a small place to get your foot in the door, build equity and then upgrade later.

Everyone has choices, I would like to live in a 2 bedroom Penthouse in Manly with panoramic ocean views. It could cost $1.5 million for that. If I bought that then I would have work another 30 years to pay it off and build up retirement money. As I can't afford it I chose to live in a cheaper suburb. I bought a 3 br brick home for 340K and I am fully retired and spend 5 Months a year travelling the globe. I have made my choice to live in a cheaper suburb and be retired and live rent and mortgage free. It's all choice, what choices will you make?

I am not talking about my own situation. I have saved a decent deposit in the short period of time both myself and my wife have been working. Between "the fish we caught and the fish we are handed" we can definitely buy at least a townhouse where we want.

I was talking in general. Moving to a cheaper "suburb" is ok if your retired but not when your working. Due to our work commitments, it makes the most sense for us to be in SE Melbourne. Likewise it makes sense for many others to stay closer to the city. Similarly moving to a "cheaper" country makes sense for some. I agree, all choices.

 

[againsthegrain]

I am not talking about my own situation. I have saved a decent deposit in the short period of time both myself and my wife have been working. Between "the fish we caught and the fish we are handed" we can definitely buy at least a townhouse where we want.

I was talking in general. Moving to a cheaper "suburb" is ok if your retired but not when your working. Due to our work commitments, it makes the most sense for us to be in SE Melbourne. Likewise it makes sense for many others to stay closer to the city. Similarly moving to a "cheaper" country makes sense for some. I agree, all choices.

I have said this before, me and my wife know many couples that bought 2 or 3 bedroom houses/units in melb south east. very overpriced suburbs considering the distance from the city. Seaford, Chelsea even Cranbourne. Within the 3 -5 years since they bought their dream houses they have probably both aged 10 years and have only been paying off interest. Thats right they haven't yet or just barely started to pay off the actual loan.

They are living in the exact scenario Julia and Bill have mentioned, taking up extra hours, working weekends but there is NO CHANCE those properties which have now dropped 10 - 15% in value will be paid off in the next 10 - 15 years.

The ones who bought new houses off the plan have been hit the worst, always something wrong going on and the warranties are not worth the paper they are written on. Personal loans need to be taken out for emergency maintenance further increasing debt.

Meanwhile I have been happily renting with my wife for the last 5 years, have a 2 year old toddler by now and planning a second one. Never stress about maintenance since its our landlord who looks after it. He looks after us very well and we do exactly the same back. It is a great arrangement for us since we have a plan.

Since everybody is bragging ill also mention we currently hold about 1/3 deposit in cash for a house but since life is good and we don't have to wake up to smell of oily rags why not continue and save for 1/2 cash deposit? Not like prices are going anywhere but down.

Since people are saying how you need to get the foot in the door by going into terrible debt or cramming into 1 bedroom apts in ghettos I thought I will present the flip side of the coin.

I am in no way against buying and owning, but times are different, sure if you worked since you were 14 and had no childhood saved up and bought at the right time then you are not the average aussie who is looking to buy now, not 5 10 or 20 years ago.


We need to adjust to the times and realise with current wage/price ratio it is a totally different playing ground now.

p.s most of the ones that bought have no chance starting a family yet

 

[robz7777]

I have said this before, me and my wife know many couples that bought 2 or 3 bedroom houses/units in melb south east. very overpriced suburbs considering the distance from the city. Seaford, Chelsea even Cranbourne. Within the 3 -5 years since they bought their dream houses they have probably both aged 10 years and have only been paying off interest. Thats right they haven't yet or just barely started to pay off the actual loan.

They are living in the exact scenario Julia and Bill have mentioned, taking up extra hours, working weekends but there is NO CHANCE those properties which have now dropped 10 - 15% in value will be paid off in the next 10 - 15 years.

The ones who bought new houses off the plan have been hit the worst, always something wrong going on and the warranties are not worth the paper they are written on. Personal loans need to be taken out for emergency maintenance further increasing debt.

Meanwhile I have been happily renting with my wife for the last 5 years, have a 2 year old toddler by now and planning a second one. Never stress about maintenance since its our landlord who looks after it. He looks after us very well and we do exactly the same back. It is a great arrangement for us since we have a plan.

Since everybody is bragging ill also mention we currently hold about 1/3 deposit in cash for a house but since life is good and we don't have to wake up to smell of oily rags why not continue and save for 1/2 cash deposit? Not like prices are going anywhere but down.

Since people are saying how you need to get the foot in the door by going into terrible debt or cramming into 1 bedroom apts in ghettos I thought I will present the flip side of the coin.

I am in no way against buying and owning, but times are different, sure if you worked since you were 14 and had no childhood saved up and bought at the right time then you are not the average aussie who is looking to buy now, not 5 10 or 20 years ago.

We need to adjust to the times and realise with current wage/price ratio it is a totally different playing ground now.

p.s most of the ones that bought have no chance starting a family yet

Good points againstthegrain.

From my own experience we are looking at places which would be affordable for us as first-home buyers, the partner is keen to buy asap but I am a lot more reluctant until we have a much healthier deposit and/or we have moved up a couple of rungs on the pay ladder. While neither of us work in the city we would still need to commute a fair distance from the affordable Frankston, Cranbourne, Seaford area to get to our current jobs. The alternative buying option would be to get a small unit closer to our workplaces; this however leads to problems in that the cost will be fairly similar to a home further from work, any capital appreciation is going to be lower as there is no land attached to the property, and at some stage we would like to start a family so there will be additional stamp-duty and other costs to pay if we want to upgrade to a bigger place.

For us the best option may be to rent for a few years and save a decent deposit before buying which will allow us to start a family when we want to. I think it would be an unfortunate situation if we had to choose between starting a family and both continuing to work just to pay the mortgage.