The future of Australian property prices

[McLovin]

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?

The greater fool theory, perhaps? There's plenty of people willing to get into extraordinary amounts of debt because apparently property doubles every 7-10 years, and leverage only works when things are going up.

That's been the trend for the last 30 years, seems pretty difficult to believe it will continue for the next 30 years, but old habits die hard.

I'd love to see a cost of living comparison between now and 25 years ago.

 

[KurwaJegoMac]

I agree with a lot of the points above - having what I have has shown me that housing is expensive and probably out of reach for many. It's very much possible if someone has the willpower, hard work ethic and discipline but are the prices reasonable? I dont think so. But on the flip side i dont think we'll be going much higher anytime soon - we'll have a typical flat period for a few more years.

The stockmarket is rocketing up and a lot of money is floating in, businesses cut staff recently and have been exposed to the high dollar for a while now. I think the economy is on the rebound (retail sales are still growing well despite the high aud). The market seems to think so and it's only a matter of time before it bleeds into RE. In the absence of any black swans i think a lot of people will be caught with their pants down when the inflation hits. Keep a tight reign on your debt levels and hold appreciating assets coz it's going to be a wild ride soon

 

[FlyingFox]

I agree with a lot of the points above - having what I have has shown me that housing is expensive and probably out of reach for many. It's very much possible if someone has the willpower, hard work ethic and discipline but are the prices reasonable? I dont think so. But on the flip side i dont think we'll be going much higher anytime soon - we'll have a typical flat period for a few more years.

The stockmarket is rocketing up and a lot of money is floating in, businesses cut staff recently and have been exposed to the high dollar for a while now. I think the economy is on the rebound (retail sales are still growing well despite the high aud). The market seems to think so and it's only a matter of time before it bleeds into RE. In the absence of any black swans i think a lot of people will be caught with their pants down when the inflation hits. Keep a tight reign on your debt levels and hold appreciating assets coz it's going to be a wild ride soon

I would think again if you think the economy is on the rebound.....the economy will not be going anywhere in a hurry unless:

1) The AUD is reined in. Think 80c to 1 US dollar.
2) There is significant stimulus spending by the rest of the world pushing up demand for our resources.

The stockmarket is rocketing up due mainly to investors chasing yield and trend following. I personally think we have a disconnect between fundamentals and the market for a time now since the GFC. The Big end of town has realized they can milk the market because governments will not let things fall apart. The overseas markets especially have been bullish on the back of stimulus spending and not necessarily market fundamentals.

I do agree with your assessment about a wild ride. However I am not certain yet which way it will pan out, inflation or deflation. While the US is going to print itself to the last printing press, I don't know who else will follow. Also if everyone loses faith in fiat currency, you can still have real deflation of certain asset classes. Anyways that's points for another thread.

 

[FlyingFox]

The greater fool theory, perhaps? There's plenty of people willing to get into extraordinary amounts of debt because apparently property doubles every 7-10 years, and leverage only works when things are going up.

That's been the trend for the last 30 years, seems pretty difficult to believe it will continue for the next 30 years, but old habits die hard.

I'd love to see a cost of living comparison between now and 25 years ago.

Or a ponzi scheme . For anyone interested in base fundamentals, have a look at population and population trends of the 30 years up to 2005 and what has happened since and is predicted to happen over the next 20 years. May not be an issue for Oz but we are a global economy these days.

 

[explod]

Or a ponzi scheme . For anyone interested in base fundamentals, have a look at population and population trends of the 30 years up to 2005 and what has happened since and is predicted to happen over the next 20 years. May not be an issue for Oz but we are a global economy these days.

Yep, have to agree, such exponential expansion cannot be maintained and the correction when it comes, across the board, could be very ugly indeed from here.

And against fundamentals, predictions are pretty meaningless really.

 

[prawn_86]

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.

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

We are similar, we could easily by a property i just don't see the value in it.

How do you go renting with a young family? We will be starting one in 4 - 5 yrs probably and while it would be nice to have a house for them to grow up in, there are other issues to consider as i do not want to be stuck in a 30yr mortgage when that money would probably be better spent on their education and travel

 

[McLovin]

I personally think we have a disconnect between fundamentals and the market for a time now since the GFC. The Big end of town has realized they can milk the market because governments will not let things fall apart. The overseas markets especially have been bullish on the back of stimulus spending and not necessarily market fundamentals.

Based on what? If you exclude resource stocks we're still 40-45% below where we were in 2008. Maybe that reason applies to the US but it's hard to say there has been a disconnect here.

 

[againsthegrain]

We are similar, we could easily by a property i just don't see the value in it.

How do you go renting with a young family? We will be starting one in 4 - 5 yrs probably and while it would be nice to have a house for them to grow up in, there are other issues to consider as i do not want to be stuck in a 30yr mortgage when that money would probably be better spent on their education and travel

Life goes on, don't think renting or owning with a young family at the stage where we are is any different. We take it one year at a time as thats how we get our contract. Suprisingly this year the rent has not been raised which is a nice bonus but nothing to brag or worry about.

One upside of renting with a young family is you learn alot with your first child. local playgrounds, childrens shops, small things that make a big difference when you have a baby+ so when we do buy our house we will have so many more things to consider and have experience in. Not to mention doing building inspections and a 1001 details during house hunting that you learn from your friends that bought and now complain about.

But like I said its totally psychological at the stage where I am, when I was straight out of uni owning a house, picturing a new car parked in the garage or driveway somehow made the grass greener. I guess being 29 and experiencing and doing it all in my younger days (not regretting any of it) taught me not to fall in love with phyisical posessions.

Back on track, ofcourse nobody plans to rent all their life, while I am young strong and full of energy it is good timing that things have slowed down now, possibly slide a bit so it only gives time to build up strong capital base.

As Kurwa said eventually inflation will start to chip in, so relating to the original topic in my opinion I do not see prices jumping out of control and reason to panic just yet. The demand/supply argument always for a brief moment raises a emotive thought but then as said before even in strongest demand there is only so much the average person can afford.

 

[psailagroup]

I would think again if you think the economy is on the rebound.....the economy will not be going anywhere in a hurry unless:

1) The AUD is reined in. Think 80c to 1 US dollar.
2) There is significant stimulus spending by the rest of the world pushing up demand for our resources.

The stockmarket is rocketing up due mainly to investors chasing yield and trend following. I personally think we have a disconnect between fundamentals and the market for a time now since the GFC. The Big end of town has realized they can milk the market because governments will not let things fall apart. The overseas markets especially have been bullish on the back of stimulus spending and not necessarily market fundamentals.

I do agree with your assessment about a wild ride. However I am not certain yet which way it will pan out, inflation or deflation. While the US is going to print itself to the last printing press, I don't know who else will follow. Also if everyone loses faith in fiat currency, you can still have real deflation of certain asset classes. Anyways that's points for another thread.

Hi Flying Fox

Interesting "thoughts", I am doing a part time leadership course at night. Last night was very interesting, My lecture is on the board of a BIG 4 Bank and I can’t name him or bank for certain reasons, But I asked him last night, from the point of view OF THE BANK how does the Australian economy look from a domestic and international point of view.

He basically said this, He has been working for the bank for 20 + years and the Australian property market will remain very steady for the next 5 years, He said “maybe” on average 5% growth over the next two years for property.
His biggest concern is this, Lending has shrunk to alarming levels, They were writing more loans in the GFC then they are now.
His other concern is this, he said “its true” Australia might have a undersupply of homes, but at the moment not much people are actually borrowing.

I then said this, HEY the share market is a bit bullish lately, before I could even say anything else he has warned me that the market “could turn” in any second because money is drying up from overseas. He also advised that the RBA will be making some drastic reductions in interest rates and the figures that the bank are predicting are pretty dam low.

So if these chain of events occur the postive thing is this:
1) If homes don’t go up in value, Then buying into your first home would be allot easier, more time save, when the boom was on before you could even saved the property went up more then people saved
2) Interest rates are going to be low for quite some time
3) I honestly think a recession is needed to put allot of things back into prospective
4) Prices are high for two reasons: Land: Land is very expensive in OZ but also building cost, we have so much red tape, licenses, unions, OH &S, high wages “etc” this drives up the price for building material, builders and tradesman.

 

[KurwaJegoMac]

ANZ said to the media that they anticipate that interest rates will fall by 100 bp this year. When's the last time you've heard a bank say that?

Tells you everything you need to know.

 

[damien275x]

Rates could be zero percent for all I care. I am 23 years old, and do not want any form of mortgage or debt. Most people in my age bracket have the same attitude towards a house. It's just a house, a pile of bricks and other material that deteriorates. It isn't fine wine, it doesn't get "better" with age, it only wears down. Why is hoarding now "investing"


I think people who want the big bucks for their houses will have to die before they get it, and they probably won't actually see their paper profits, why, because we can't and won't pay up. Also regarding the foreign investment argument, I know a lot of asian business- types, and they are tighter than a ducks ass. Much tighter than Aussies are, so don't think they'll be driving prices up, they'll be the ones attending auctions asking for massive reductions along with everyone else, they do not pay a cent more and if something is overpriced, they will go elsewhere. This country is not that special or that amazing. Especially with these socialists running it wealth from hard workers and giving it to lazy and uneducated scummers who have kids who do the same thing etc.

 

[explod]

Rates could be zero percent for all I care. I am 23 years old, and do not want any form of mortgage or debt. Most people in my age bracket have the same attitude towards a house. It's just a house, a pile of bricks and other material that deteriorates. It isn't fine wine, it doesn't get "better" with age, it only wears down. Why is hoarding now "investing"


I think people who want the big bucks for their houses will have to die before they get it, and they probably won't actually see their paper profits, why, because we can't and won't pay up. Also regarding the foreign investment argument, I know a lot of asian business- types, and they are tighter than a ducks ass. Much tighter than Aussies are, so don't think they'll be driving prices up, they'll be the ones attending auctions asking for massive reductions along with everyone else, they do not pay a cent more and if something is overpriced, they will go elsewhere. This country is not that special or that amazing. Especially with these socialists running it wealth from hard workers and giving it to lazy and uneducated scummers who have kids who do the same thing etc.

That is a very good and sensible post.

And with money printing, or if you like debauching of currency values, the actual value of houses have dropped more than people realise. A house at half a million two years ago, even though it may be half a million today that amount will no where near purchase what the half million did back then. For example the daily newspaper has gone from $1.20 back then to today $2.00, most food is even worse and fuel up on average 20 cents a litre.

And mark my words with interest rates so low they can really go no further and with banks concerned at values the next move will be a rise in interest rates.

So yes to all those younger ones waiting for a home, the longer you save and hold off the better in my view.

 

[tech/a]

That is a very good and sensible post.

And with money printing, or if you like debauching of currency values, the actual value of houses have dropped more than people realise. A house at half a million two years ago, even though it may be half a million today that amount will no where near purchase what the half million did back then. For example the daily newspaper has gone from $1.20 back then to today $2.00, most food is even worse and fuel up on average 20 cents a litre.

And mark my words with interest rates so low they can really go no further and with banks concerned at values the next move will be a rise in interest rates.

So yes to all those younger ones waiting for a home, the longer you save and hold off the better in my view.

And in twenty years time when wages are 150k plus a year and petrol $5.00 a llitre
The $500 k home we see now bought with a deposit of 80k
What do you think that will now be.
Do you think the guy who struggled 20 yrs ago will be struggling now.
The young guy then wanting to buy will he not be singing the same tune of desperation?

Impossible
The scene you describe was 20 yrs ago
20 years before that the average weekly wage was $35 a week.
Rent $10 a house $12 k the same house worth a staggering 500k today.

Don't be complacent
Look for opportunity and take it.

 

[FlyingFox]

Based on what? If you exclude resource stocks we're still 40-45% below where we were in 2008. Maybe that reason applies to the US but it's hard to say there has been a disconnect here.

I was mainly referring to the US. We don't have a disconnect here but it could happen here too.

Edit: Investors are chasing yield here though. Case in point is the CBA. You would think that many investors would be scared given the exposure of the banks to local housing etc...

 

[Vixs]

Rates could be zero percent for all I care. I am 23 years old, and do not want any form of mortgage or debt. Most people in my age bracket have the same attitude towards a house. It's just a house, a pile of bricks and other material that deteriorates. It isn't fine wine, it doesn't get "better" with age, it only wears down. Why is hoarding now "investing"


I think people who want the big bucks for their houses will have to die before they get it, and they probably won't actually see their paper profits, why, because we can't and won't pay up. Also regarding the foreign investment argument, I know a lot of asian business- types, and they are tighter than a ducks ass. Much tighter than Aussies are, so don't think they'll be driving prices up, they'll be the ones attending auctions asking for massive reductions along with everyone else, they do not pay a cent more and if something is overpriced, they will go elsewhere. This country is not that special or that amazing. Especially with these socialists running it wealth from hard workers and giving it to lazy and uneducated scummers who have kids who do the same thing etc.

It's not the bricks that are worth anything in most cases. It's the land, the view, the time to walk to the train station, the time to drive kids to the school you want to send them to, how close you are to a medical centre, supermarket, service station, how loud the suburb is, how leafy the area is, how scummy the neighbours places look and how many places fly overhead or trains pass nearby in the middle of the night, is it flood prone, do you back onto a park, can you get high speed internet, where is the nearest childcare center that is on the way to work. How does living here change the way you live your life, work, relax and spend time with family?

Those are things that actually change the VALUE of LAND - at least to me. Those are the things you can't fix with a wrecking ball and a construction contract. That's what you pay for.

What colour are the bricks and does it have a pool? Who cares? You can always build again.

If the option was spend money on a house or don't, the choice would be tougher, but the choice is rent or buy.

I'm not looking for a roof and four walls that someone allows me to inhabit for an increasing sum each year, I want a home.

I agree completely that many houses at the top end of the market that the boomers are sitting on may never get sold at the price they see on paper before they die.

As far as appetite for debt is concerned? Varies person to person, impacted on by relationship status, job security, earnings growth potential, how expensive the rest of the things they like to do are etc.

 

[FlyingFox]

And in twenty years time when wages are 150k plus a year and petrol $5.00 a llitre
The $500 k home we see now bought with a deposit of 80k
What do you think that will now be.
Do you think the guy who struggled 20 yrs ago will be struggling now.
The young guy then wanting to buy will he not be singing the same tune of desperation?

Impossible
The scene you describe was 20 yrs ago
20 years before that the average weekly wage was $35 a week.
Rent $10 a house $12 k the same house worth a staggering 500k today.

Don't be complacent
Look for opportunity and take it.

This may happen if they continue to print money. However, the underlying demand will be on the way down. Why? The population of most developed countries is dropping. UN projections say that world pop will peak in 2100 at 10 B. We are currently at 7B, we were at 2.5 B in 1950. The contribution to that peak will mainly be from Africa and partly India. Most other countries are expected to have a smaller pop than their respective peaks. We have had exponential growth in pop that has fueled demand and under pinned economics and policies. The printing is happening to keep inflation up because naturally we're heading towards deflation.

For everyone that thinks that Japan is an exception, the alternative view is that they just have got to the party sooner than everyone else.

Agree about taking opportunities though.

 

[prawn_86]

And in twenty years time when wages are 150k plus a year and petrol $5.00 a llitre
The $500 k home we see now bought with a deposit of 80k
What do you think that will now be.
Do you think the guy who struggled 20 yrs ago will be struggling now.
The young guy then wanting to buy will he not be singing the same tune of desperation?

Impossible
The scene you describe was 20 yrs ago
20 years before that the average weekly wage was $35 a week.
Rent $10 a house $12 k the same house worth a staggering 500k today.

Don't be complacent
Look for opportunity and take it.

Do you honestly think without credit growth that prices will continue like this? I personally cant see it happening but would love your opinion as to how it could.

Japan has been stuck in a deflationary era for 20 yrs and Shinzo is now trying to print his way out of it, but i understand that has been tried before unsuccessfully.

 

[KurwaJegoMac]

Comparing three very different countries on the one chart doesn't work (especially since the other two were used to paint a very specific picture by the author).

Imagine if you applied the same logic to comparing fruit prices and you picked apples, oranges and bananas. They're grown in different climates and areas of the world (generally) and are affected differently by different seasons. They're also shaped differently, weigh differently and taste differently. It would be silly to compare them in the same way. Maybe there's a global fad for bananas and we've reached peak banana production? Etc etc

All 3 countries have vastly different economies, vastly different population sizes, different sizes of habitable land, etc etc. have a good think about why those other two countries were selected. They paint a very specific picture albeit a very distorted one. Why isn't canada in there? Hong Kong? Singapore?

I think that there's also a fundamental misunderstanding by some about how inflation works and what it actually means. Suggest those posters learn a bit about it outside of mainstream media and then you'll see what Tech/a says isn't so far-fetched after all

 

[KurwaJegoMac]

Having said that, a good point by Prawn regarding credit growth driving prices. Credit growth is abysmal at the moment in Australia. It will translate to lower prices in the near term so completely agree with you there.

But i wouldnt want to be in non-appreciating assets with all the printing going on. The trick is to get those assets in time for the inevitable surge in inflation but to reduce your debt once interest rates rise to curb the soaring inflation. Tight window but one of great opportunity

 

[FlyingFox]

Comparing three very different countries on the one chart doesn't work (especially since the other two were used to paint a very specific picture by the author).

Imagine if you applied the same logic to comparing fruit prices and you picked apples, oranges and bananas. They're grown in different climates and areas of the world (generally) and are affected differently by different seasons. They're also shaped differently, weigh differently and taste differently. It would be silly to compare them in the same way. Maybe there's a global fad for bananas and we've reached peak banana production? Etc etc

All 3 countries have vastly different economies, vastly different population sizes, different sizes of habitable land, etc etc. have a good think about why those other two countries were selected. They paint a very specific picture albeit a very distorted one. Why isn't canada in there? Hong Kong? Singapore?

Agree with you about comparing different economies and countries. However we do live in a global economy these days and money of all things flows a lot more easily than it used to. While a direct one-to-one comparison is ill advised, relative comparisons will teach us a lot. Why are those economies behaving differently? How are they different to us?

Hong Kong and Singapore are actually outliers because they are one of the few countries where land currently is a finite and restrictive resource.

I think that there's also a fundamental misunderstanding by some about how inflation works and what it actually means. Suggest those posters learn a bit about it outside of mainstream media and then you'll see what Tech/a says isn't so far-fetched after all

Inflation works due to two reasons:

1) Fundamental demand: People want to buy something for whatever reason e.g I really really want that house. More people, more demand.
2) Oversupply of money/ cheap money/printing: The cheaper money is spent and or "invested". e.g Buy houses, their price will double in 7 years.

I argue that inflation built into our economic system so that public and private debt can be grown much higher than would be allowed otherwise. Buy controlling the money, governments control inflation and combined with pop increase this has been positive for much of last century and and a half. The money supply was used to iron out ripples in the inflation curve.

If the fundamental demand falls (due to whatever reasons), then you have to print much more. The problem is that if you continue to print money, people will lose faith in it. It has happened in the past.

P.S I hope this wasn't directed at prawn_86.