The future of Australian property prices

[sydboy007]

Maybe I've missed something, but I've always considered that having more than one job at the same time to be fairly unusual. Sure, there are some who will work 9 to 5 then a second job on weekends or of an evening, but certainly the vast majority of people I have ever known have only had one job at any given time.

That might be true if we're talking about full time employees, but with the increasing casualisation of the workforce it's quite common for people to have 2 or 3 jobs to pay the bills.

My old housemate had 1 primary and a couple of other jobs as they offered him weekend jobs if they were busy.

i think this will become a much bigger issue over the next few years as full time jobs are in the decline and hours worked is falling too.

 

[trainspotter]

Maybe I've missed something, but I've always considered that having more than one job at the same time to be fairly unusual. Sure, there are some who will work 9 to 5 then a second job on weekends or of an evening, but certainly the vast majority of people I have ever known have only had one job at any given time.

Obviously nobody expects to stay in the same job for life these days, but that's an entirely different issue. Likewise most won't stay in the same house and I don't think that anyone's suggesting that here.

Depends on your work ethic and how hungry you are to succeed I s'pose. Not necessarily in the RE world but life in general. There is the unionised workforce and then there is the entrepreneurs

It used to be that you left school and went to work in a job somewhere (usually an apprenticeship involved) and that is where you STAYED. You got married once and bought a house once. Society conformed. Now it is more fluid and rampant consumerism has taken over. Buy and sell, leave the job, Mummy and Daddy will support me or the government will give me a handout is the mentality.

WTF has this got to do with houses? Oh that's right ... affordability.

 

[trainspotter]

U.K. building stats highest in 6 years !

BRITISH house building starts rose 23 per cent in 2013 to reach a six-year high of 122,590, UK Government statistics showed this week.
The boost comes amid concerns that housing supply is not keeping pace with demand but the figure remains well off the peak of 183,000 in the 12 months to March 2006.
On a quarterly basis, starts in the final three months of 2013 were up 23% on the same period a year before, while completions were up 6%.
Communities Secretary Eric Pickles said: "This Government is fixing the broken housing market we inherited in 2010.
"Last year we built the most homes since 2007, and even the appalling weather conditions this winter have not stopped our hardy builders from getting the job done.
"That means an increase in small firms benefiting from the surge in construction orders, and more business confidence in the economy."
But Campbell Robb, chief executive of housing and homelessness charity Shelter, said: "What these figures really show is that we are building less than half of the 250,000 homes needed each year just to keep up with demand.
"With thousands of young people and families already beginning to give up hope that they will ever be able to afford a home of their own, this woeful gap between the homes we need and the homes we have spells disaster for future generations.
"Any uptick in house building is to be welcomed, but we're still nowhere near meeting our housing shortage.

http://www.news.com.au/world/breaki...s-up-23-per-cent/story-e6frfkui-1226833908139

But but but they went from a bubble to a housing crash and now they have a housing shortage ?

Look out Australia ... we are next according to the "economists"

 

[sydboy007]

U.K. building stats highest in 6 years !



http://www.news.com.au/world/breaki...s-up-23-per-cent/story-e6frfkui-1226833908139

But but but they went from a bubble to a housing crash and now they have a housing shortage ?

Look out Australia ... we are next according to the "economists"

* A large % of the current housing stock has spare bedrooms

* Housing "shortage" in Australia was (recently) predicated on the assumption there was 8.7M households, when the real figure was 7.8M.

* Economic theory would say if there was a housing shortage in Australia that rents would show strong growth. In general terms rents are not even keeping up with inflation.

 

[Smurf1976]

Depends on your work ethic and how hungry you are to succeed I s'pose. Not necessarily in the RE world but life in general. There is the unionised workforce and then there is the entrepreneurs

True although that has always been the case. But historically at least, working one full time job (or multiple part time jobs equivalent to a full time job) was sufficient to purchase a reasonable house to live in. Whilst the option was there to work longer, you could certainly buy a house without needing to do so.

If working 40 hours a week in 1980 was sufficient to buy (actually buy) a house with 25 year mortgage then working 40 hours a week in a similar job today ought to be sufficient to buy a similar house. If it's not then houses are less affordable now than they were a generation earlier.

 

[Smurf1976]

* A large % of the current housing stock has spare bedrooms

I'd be interested to know how they calculated that?

Eg a 4 bedroom house with 2 adults and 2 children doesn't necessarily have a "spare" bedroom if the one not being used for sleeping is instead being used as a home office, study, hobby room or whatever as is reasonably common.

 

[sydboy007]

I'd be interested to know how they calculated that?

Eg a 4 bedroom house with 2 adults and 2 children doesn't necessarily have a "spare" bedroom if the one not being used for sleeping is instead being used as a home office, study, hobby room or whatever as is reasonably common.

http://www.abs.gov.au/ausstats/abs@...ummary&prodno=4130.0&issue=2011-12&num=&view=

not sure if they explain their methodology though.

It's an interesting snapshot.

 

[sydboy007]

http://ftalphaville.ft.com/2014/02/19/1776182/affordability-backwards/

But for someone who owned a house, they did get richer in the sense that their mortgage payment quickly shrinks as a proportion of their fast growing pay packet. This is where the analysis of affordability on the basis of initial mortgage payments, rather than over the life of a 25 year, is fundamentally flawed.

 

[Mrmagoo]

http://ftalphaville.ft.com/2014/02/19/1776182/affordability-backwards/

But for someone who owned a house, they did get richer in the sense that their mortgage payment quickly shrinks as a proportion of their fast growing pay packet. This is where the analysis of affordability on the basis of initial mortgage payments, rather than over the life of a 25 year, is fundamentally flawed.

If rent doesn't increase and there are not capital gains you still win owning a home, but after many years. And if you assume a rate of return on the money you would have otherwise spent on the mortgage, you never win.

Owning your own home is very important because as you said the interest payments decrease.

Which is why affordability is such an important social issue. If people are locked out (as they are now) then they will NEVER have that benefit of nothing giving up some large % of their income in "rent".

 

[Smurf1976]

Owning your own home is very important because as you said the interest payments decrease.

Which is why affordability is such an important social issue. If people are locked out (as they are now) then they will NEVER have that benefit

True as long as wages growth is at least as rapid as any increase in interest rates.

But looking at current interest rates and wages growth, anything more than a 0.2% rise in rates over 12 months sends the recent home buyer into reverse financially.

It comes down to leverage. A big debt at low rates leaves you drastically more exposed to risk than does a smaller debt at higher rates. When rates inevitably rise at some future time, that's when we'll see some rather interesting action in the property market.

 

[sydboy007]

True as long as wages growth is at least as rapid as any increase in interest rates.

But looking at current interest rates and wages growth, anything more than a 0.2% rise in rates over 12 months sends the recent home buyer into reverse financially.

It comes down to leverage. A big debt at low rates leaves you drastically more exposed to risk than does a smaller debt at higher rates. When rates inevitably rise at some future time, that's when we'll see some rather interesting action in the property market.

The issue is more so when combined with a low inflation environment and low wage growth. People remember the 70s and 80s and seem to think the experience of paying off the mortgage over that time frame is still relevant today, but with inflation low and likely to stay low that's not going to be the case.

When nominal interest rates averaged 10% with a real interest rate of 3% and wages growing at 12%, after just a few years the debt becomes quite easy to pay off.

In a world where mortgage rates are around 5.2%, with real rates still around 2.5-3%, but wages growth at or below the inflation rate, then there's no free kick from inflating the debt away. Those wage sapping mortgage payments when you start put will still be wage sapping after 20 years.

http://www.news.com.au/finance/real...uble-in-10-years/story-fndbarft-1226618600333

To the 2013 year some states saw a 152% increase in household income devoted to mortgage costs. Over the same period wages rose by 54.5 per cent and inflation has climbed by 31.4 per cent.

• In NSW the average loan size in 2002 was $212,400 but has risen to $341,800 resulting in the average monthly repayment increasing by 61 per cent to $2295.
• In Victoria the average loan rose from $175,900 to $306,500 and repayments increased by 74 per cent to $2058.
• In Queensland the loan size rose from $152,700 to $289,900 and the average repayments climbed by 90 per cent to $1946.
• In South Australia loans rose from $124,900 to $249,400 and repayments increased by 100 per cent to $1674.
• In Western Australia the average loan rose from $141,000 to $302,500 and repayments increased by 115 per cent to $2031.
• In Tasmania the average loan rose from $94,800 to $218,100 and repayments increased by 130 per cent to $1464.
• In the Northern Territory the average loan increased from $133,500 to $337,000 and repayments increased by 152 per cent to $2262.
• In the ACT the average loan rose by $160,500 to $350,700 and repayments increased by 119 per cent to $2354.

I know the top end tends to skew averages, but it's still a massive increase.

Sydney saw average home loans hit $505K last year. A decade ago a $500K home loan would have been considered way above average.

The question is for how much longer can the amount devoted to mortgages increase faster than wages growth??

 

[Mrmagoo]

Hopefully with the liberal government there will be some sanity re-introduced to workplace relations and those on the lower end of the pay scale can have their pay drastically reduced.

That should help ease rental prices somewhat.

 

[Value Collector]

Hopefully with the liberal government there will be some sanity re-introduced to workplace relations and those on the lower end of the pay scale can have their pay drastically reduced.

That should help ease rental prices somewhat.

Its not a matter of paying people less it a matter of increasing productivity,

In Australia, wages and benefits have increased faster than productivity, thats a problem.

 

[Mrmagoo]

Its not a matter of paying people less it a matter of increasing productivity,

In Australia, wages and benefits have increased faster than productivity, thats a problem.

No just cut the wages of the working class. Cut the wages of the unskilled. It will be a good social experiment.

I suspect it will also cause rents to fall and house prices to fall.

There is little to no need to pretend like we care about each other in this country anymore. So why do we persist with this ancient socialist IR system ?

Especially one which reduces housing affordability ?

 

[Smurf1976]

Ultimately, land prices are just another way in which Australia has become a structurally high cost country.

We have more land than most and yet it costs a fortune.

We have unemployed workers and yet skilled labour is scarce because we stupidly messed about with TAFE etc.

We've got plenty of agricultural land and yet a substantial portion of food sold in supermarkets is imported.

And so on. We've simply become a high cost country in every way. From the perspective of the housing market, to a significant extent it's depending on Australia's high costs going even higher in the future. Meanwhile we've moved away from protectionism and now have to compete against much lower costs overseas. How's it going to work?

 

[sptrawler]

Its not a matter of paying people less it a matter of increasing productivity,

In Australia, wages and benefits have increased faster than productivity, thats a problem.

That is it in a nutshell.

In mining there is a small labour content but a huge material output.
Therefore labour per unit/cost is minimal.
When you get down to the consumer level, the local shop, they pay someone to stand there even if they sell nothing.
But there is a massive difference in ability to pay wages.

- - - Updated - - -

Ultimately, land prices are just another way in which Australia has become a structurally high cost country.

We have more land than most and yet it costs a fortune.

We have unemployed workers and yet skilled labour is scarce because we stupidly messed about with TAFE etc.

We've got plenty of agricultural land and yet a substantial portion of food sold in supermarkets is imported.

And so on. We've simply become a high cost country in every way. From the perspective of the housing market, to a significant extent it's depending on Australia's high costs going even higher in the future. Meanwhile we've moved away from protectionism and now have to compete against much lower costs overseas. How's it going to work?

Another hole in one smurph.

 

[sptrawler]

Interesting article, apparently Canada is clamping down on foriegn ownership, of housing.


http://www.smh.com.au/business/chin...-from-canada-to-australia-20140224-33ca8.html

 

[sptrawler]

Yes smurph, it either ends in a bust or a devaluation of the $Aus to about $0.40cU.S, which is as good as a bust. IMO

that post was mid Feb.

Well I wonder if the later will become true.

http://www.watoday.com.au/business/...g-benign-collapse-to-us66-20140224-33cfl.html

Now if that happens, and there is a cap on wages, it will make for an interesting period.

I personaly, being self funded, would find it most unfortunate.lol

Thems the breaks.
It would certainly make a $1m nest egg in super look pretty average.
All of a sudden, all the SMSF's that Labor made out to be super rich, would be on a pension within 10 years.lol
With regard property, all the SMSF's that have bought residential property recently, will have to make a bigger drawdown.
As the capital value has increased, but the rental yield may not have moved and in all probability will fall.

 

[trainspotter]

A portion of these will be sold off the plan to "investors". By the time they are finished they will have increased in value and then "flipped" to the suckers ... ooops I meant FHB Brigade.

FIVE new multi-storey towers, up to nearly 200 metres tall, are set to added to the Melbourne skyline.
The towers, approved on Tuesday, will generate more than $550 million in private investment and 4000 jobs, and drive a construction boom in central Melbourne, the state government says.
The tallest of the towers will be built in A'Beckett Street and reach to 196m and 63 storeys.
It will contain 632 apartments and is worth $164 million.
The approval of the five towers is the largest number of residential permits approved on one day, Planning Minister Matthew Guy said.
"With the release of these five towers in Melbourne, new home buyers and others can once again have confidence that the state government is aggressively tackling the housing affordability issue in outer as well as inner-city markets," he said.
Mr Guy said Melburnians had made it clear they did not want high rises in the suburbs and to achieve this towers would be built in the CBD and Docklands area.

http://www.news.com.au/national/bre...entral-melbourne/story-e6frfku9-1226836706133

Anyhoooo .... 4000 jobs in the construction industry can't be a bad thing for the economy now can it? And what about the manufacturing industry who will have to construct the structural steel or the building supply companies who employ people?

My concern is the density and turning the CBD into a ghetto housing project. Also by the time these are finished being constructed the market would have turned and demand would not be there IMO

 

[trainspotter]

What would Warren Buffet know about RE?

The billionaire uses two personal real estate investments he made to demonstrate some of his key principles: focus on what an investment will produce, not its price; stick to what you know; and don't try to predict what the economy or stock market will do.
“You don't need to be an expert in order to achieve satisfactory investment returns. But if you aren't, you must recognise your limitations and follow a course certain to work reasonably well,” Buffett wrote. “Keep things simple and don't swing for the fences. When promised quick profits, respond with a quick 'no."'
The examples Buffett cited were his 1986 purchase of a 400-acre Nebraska farm and his 1993 purchase of a retail property near New York University's campus. Both purchases were made after prices collapsed.

http://www.news.com.au/finance/mone...way-shareholders/story-e6frfmdr-1226836794534