House prices to keep falling for years

[Beej]

Interesting Beej, but not everyone agrees with you.

""Blue Chip" (ie rich) areas tend to do very well in terms of capital gains especially during economic boom times, but also can have rather large falls when the economy turns down."

source: http://travismorien.com/invest_FAQ/content/view/90/56/

Ah yes - if we are talking multi-million dollar blue chip property sure that is true, but believe me even when those blue chip prices have their "rather large falls" it is still very unlikely that most of us here could afford them! Therefore irrelevant to the general/middle class population. I think more are most interested in what might happen in the sub-$500k range and the $500k-$1M bracket. That's the market I'm talking about here. IMO, don't expect to see much more than a 10% pull back from the peak in those markets, followed by a flat period (in decent area's, especially in Sydney), otherwise you will end up like all my friends who sounded just like some of you guys back in 98/99, when they could have (and should have) bought for prices that now seem like peanuts - but they kept waiting for the inevitable market crash....

Cheers,

Beej

 

[CamKawa]

... otherwise you will end up like all my friends who sounded just like some of you guys back in 98/99, when they could have (and should have) bought for prices that now seem like peanuts - but they kept waiting for the inevitable market crash....

Call me crazy and I don't know this, but I suspect house prices now could be highest that I'll see in my lifetime. I've attached an old favourite chart of mine just to give some perspective on where we are now.

 

[theasxgorilla]

Remember thought that techs portofolio was commerial property which has a much higher risk profile than other areas,

I thought he held residential...but we can ask him, he's never far away.

 

[theasxgorilla]

Call me crazy and I don't know this, but I suspect house prices now could be highest that I'll see in my lifetime. I've attached an old favourite chart of mine just to give some perspective on where we are now.

Where is the "real median income" index so we understand if Joe Average can now also afford much more?

 

[pepperoni]

Well $2m wont get you even decent house/crap block or crap house/good block anywhere nice and central in syd. Market starts at 2.5 with no views ... and my original cond rental is still 4.5m with no real view.

And yes with inflation and no 5% rates the wholr thing is mission impossible.

In the 2-2.5m bracket in good north spots i reckon there are 5 houses each year tops ... dont need many buyers to keep it bubbling.

Wont fall much unless there are a few more forced sales ... but if there were even a few things would drop alot more than 20% guaranteed.

Not going to happen now ... economy is a bit sick but not dead. Will definitely happen in next 10-20 but whatever.

 

[Tysonboss1]

I thought he held residential...but we can ask him, he's never far away.

If you look back at his comment he said that his first property portfolio was commerial,.. But yes now he holds residenstial

 

[theasxgorilla]

Well $2m wont get you even decent house/crap block or crap house/good block anywhere nice and central in syd. Market starts at 2.5 with no views ... and my original cond rental is still 4.5m with no real view.

I can get a renovators delight for $425,000 AUD. From 1932 on 1367 sqm, with a 66 sqm self contained guest house from 1935 on the back, under 200 metres to beach, less than a kilometer to the smallboat harbour, excellent sea views, less then 20 minutes commute to work, and borrow the money at 5.5%. And I can claim 30% tax deduction on repayments even though it's a secondary place of residence.

Needs rendering, a new roof, and a rendered fence around the block and some work on the lawn/garden. Could split it and sell the rear property seperate (it has it's own driveway access).

The house over the road is listed for $1 mil AUD. I think Sweden's property boom has at least another leg left to run...but sssshhhh, please don't tell anyone.

 

[theasxgorilla]

If you look back at his comment he said that his first property portfolio was commerial,.. But yes now he holds residenstial

That was pre-87, right? I fail to see your point.

 

[Tysonboss1]

That was pre-87, right? I fail to see your point.

I was just pointing out that commerial property carries much more risk than residential property.

Tech was talking about how he was nearly bankrupted because he had a commerial property portfoilio that was over $1m at 80% LVR and when the economy went sour he nearly went under.

All I was saying was that this type of property portfolio with that much debt is exposed to much more risk than a low LVR resi portfolio

 

[wayneL]

I can get a renovators delight for $425,000 AUD. From 1932 on 1367 sqm, with a 66 sqm self contained guest house from 1935 on the back, under 200 metres to beach, less than a kilometer to the smallboat harbour, excellent sea views, less then 20 minutes commute to work, and borrow the money at 5.5%. And I can claim 30% tax deduction on repayments even though it's a secondary place of residence.

Needs rendering, a new roof, and a rendered fence around the block and some work on the lawn/garden. Could split it and sell the rear property seperate (it has it's own driveway access).

The house over the road is listed for $1 mil AUD. I think Sweden's property boom has at least another leg left to run...but sssshhhh, please don't tell anyone.

That's what I call a spread. You don't need a boom, just reasonable liquidity.

Finns det utrymme för en andra två australier där

 

[gfresh]

Ahhh, thank you camkawa for bringing this thread back to reality

This time it is different! Well at least compared to any small slowdowns in the the last decade... more people are in over their eyeballs in debt than ever before, more massive corporations are losing billions than ever before, and this time there is very very little room for the public to move in case of even minor disruption, and boy there is still a lot of it still to filter through from o/s!

Europe hasn't even entered recession yet, but it's getting damn close.. and how long has it taken for the full effects of the US to kick in after it started, what 12-18 months ago? and soon we'll get the Europe kicker, which will probably be worse for Australia (in terms of where our exports go) than the US one.

Most it seems couldn't even cope with 9.6% interest rates.. never mind 12-17% like the old days. The goals of where stress occurs have been shifted.

We've got more other outstanding debt than ever before - credit cards, personal loans, new cars, holiday houses, geared investments, 24 month mobile phone contracts, internet contracts, foxtel contracts, "interest free" finance, the list goes on and on. None of which were so prevalent even 10 years ago. And that is what has stuffed people so much with interest rates and fuel rises - they have so little room to move as these small costs are fixed, but add up to a large amount for many families at the end of each week.

Unemployment may have been 10% in the past, and people got by, but property values were not 7 times avg. income, but rather 3-4 times. Many have geared themselves into property expecting 7% interest rates forever, 4.5% unemployment forever, and no bad times, with very little buffer. After all, why not when houses have been rising 10-20% a year. It's going to continue forever, endless demand, endless population, rental shortages, everybody needs somewhere to live, endless credit handed out like candy.

Veda came out the other day and said bankruptcies are higher than the early 1990's. Surely than indicates something of the magnitude of this thing. Even take a short stroll across to NZ and it's quite a deflated story compared to Australia. Ahh, little old Australia, the island in the middle of nowhere, gently oblivious to the rest of the world until it smacks us in the face!

This is probably the calm which may lull some into a sense of false security, before the worst is felt. Interest rates are going to fall next year, maybe 1%, it's all over the news, will make things easier. House prices haven't really hit anybody too hard, seem fairly stable right now. Unemployment is still low, banks are reporting big profits. Where is the problem? I hear gloom, but I see no doom.. but when it comes down to it, all those charts of real house prices, household price v income, household debt v GDP, are still saying something that will sort itself out - just as the sharemarket charts 18 months ago said something was up in terms of deviation from the norm, except very few chose to believe it would ever correct.

 

[theasxgorilla]

That's what I call a spread. You don't need a boom, just reasonable liquidity.

Finns det rum för en andra två australier där?

Jajamensan

Mindre en 10 procent av landet är kultiverad. Det finns mycket utrymme kvar

There are also quite a few of these opportunities around.

 

[theasxgorilla]

That's what I call a spread. You don't need a boom, just reasonable liquidity.

Finns det utrymme för en andra två australier där

I see you corrected your own Swedish, vad bra!

 

[wayneL]

I see you corrected your own Swedish, vad bra!

Naturligtvis fuskade har haft jag med programvara, men att erfara av roliga översättningar för med den engelska homonymen. Och jag misstänker starkt denna skulle översättning roar högt till en infödd svensk, om den är sannerligen även begriplig.

Grammatiken skitas vanligt.

 

[theasxgorilla]

Naturligtvis fuskade har haft jag med programvara, men att erfara av roliga översättningar för med den engelska homonymen. Och jag misstänker starkt denna skulle översättning roar högt till en infödd svensk, om den är sannerligen även begriplig.

Grammatiken skitas vanligt.

It's not bad, but as you say the grammar is ordinary...but then again at best so is mine, so I find it perfectly intelligible

 

[theasxgorilla]

Veda came out the other day and said bankruptcies are higher than the early 1990's. Surely than indicates something of the magnitude of this thing. Even take a short stroll across to NZ and it's quite a deflated story compared to Australia. Ahh, little old Australia, the island in the middle of nowhere, gently oblivious to the rest of the world until it smacks us in the face!

That would only be fair given the significance, or lack of, that Australian affairs play in other cultural centres of the world.

 

[Beej]

Ahhh, thank you camkawa for bringing this thread back to reality

A "reality" that has not ever happened before, one that doesn't make sense to those who have been around for a while, and that looks more like the "fantasy" of those who think they will be picking up a cheap quality house within 10km's of the Sydney CBD for peanuts soon, rather than having to actually save and work hard for it like all those have before them

This time it is different! Well at least compared to any small slowdowns in the the last decade... more people are in over their eyeballs in debt than ever before, more massive corporations are losing billions than ever before, and this time there is very very little room for the public to move in case of even minor disruption, and boy there is still a lot of it still to filter through from o/s!

Well I tell you what - this time it's NOT different from the slowdown (read REAL recessions - not phantom recessions like "this" one) that we had in 1981/82 and 1990/91. As for corporations losing billions - well I don't see it yet. Most corporations (in Australia) are still making bucket loads rights now - mainly the banks have taken a hit, but those are paper losses (asset write-downs, increased provisions) and even then they STILL turn a huge profit! I think you are mistaking FALLING profits for "billions in losses". In a REAL recession you will see real losses.... but it seems that has not yet happened, so people are getting WAY ahead of themselves here....

Europe hasn't even entered recession yet, but it's getting damn close.. and how long has it taken for the full effects of the US to kick in after it started, what 12-18 months ago? and soon we'll get the Europe kicker, which will probably be worse for Australia (in terms of where our exports go) than the US one.

Well actually NONE of those countries is yet actually in recession. Everyone keeps saying they are or will soon - it's been like that for up to 12 months now! But yet it still hasn't happened. There is a definite slowdown, and the POSSIBILITY of recession yes, but so far (thank goodness) things do not yet seem to have tipped over the brink. The longer this takes to play out, the better prepared individuals will be for it if it happens. It would seem most people in Oz are now focusing on saving/drawing down debt rather than taking on more - the longer that happens for, the more prepared individuals will be if the worse happens. On top of this, the interest rate cycle here is turning and rates are heading down from here on......

Also I think you will find most of our export $$$ come from Asia nowadays....

Most it seems couldn't even cope with 9.6% interest rates.. never mind 12-17% like the old days. The goals of where stress occurs have been shifted.

Sure - but that's exactly why the RBA hasn't needed to crank up passed 7.25% cash rate in order to get people to pull their belts in. It's also because inflation is far lower now (on average) than in the old days (when 10% was a typical number). There's no magic number with interest rates - during the cycle they go to where they need to to effect the required level of monetary policy tightening.

We've got more other outstanding debt than ever before - credit cards, personal loans, new cars, holiday houses, geared investments, 24 month mobile phone contracts, internet contracts, foxtel contracts, "interest free" finance, the list goes on and on. None of which were so prevalent even 10 years ago. And that is what has stuffed people so much with interest rates and fuel rises - they have so little room to move as these small costs are fixed, but add up to a large amount for many families at the end of each week.

Unemployment may have been 10% in the past, and people got by, but property values were not 7 times avg. income, but rather 3-4 times. Many have geared themselves into property expecting 7% interest rates forever, 4.5% unemployment forever, and no bad times, with very little buffer. After all, why not when houses have been rising 10-20% a year. It's going to continue forever, endless demand, endless population, rental shortages, everybody needs somewhere to live, endless credit handed out like candy.

As for personal debt - there has always been debt - it's the bloodstream of capitalism - people have always borrowed large amounts of money to buy their houses in particular - Aussies love their houses and their lifestyle - they love living in and raising their family in the best house in the best area for their lifestyle that they can afford. We have more "stuff" now because we can afford to.

What is different now is real wages are higher by a large margin than they have ever been, and of course money has been cheap. Additionally, incomes of professionals and business owners have in real terms multiplied by even higher factors over the past 20 years than the average wage - there is a LOT more income out there than there ever has been! So people have borrowed a lot more than in the past. This can still correct itself without the sort of housing disaster some are predicting. Sure there are a minority of people who are over-committed, but I think the majority will work things out without inviting personal disaster, just as the majority of people have managed to do in the past when hard times have hit.

Re house price values - That 3-4 times average wage is nation-wide right? But in Sydney that has not been the case since the 50s. In 1992 for example, the median house price was around $180k (I remember because I bought my first home then). At that time the average wage was something like $20-$25k pa. That's gives us a multiple of 7-8x for a median house in Sydney. Gee - it's NOT THAT DIFFERENT from right now is it??? And interest rates then were 10%. Believe me, buying a first home then was just has hard as it is now. Just as it was for my parents when they bought their first home in 1960.

I think what has happened is that prices in the rest of Australia have gone up a lot more than in the past, so that Australia-wide "wage multiple" figure has gone up. Why has that happened? Well in the 80s jobs/ opportunity/ earnings in Sydney were far higher than the rest of the country - but I think that has now changed. Australia has grown up and there are lot's of good paying jobs and business opportunity all over the country now (plus the mining boom). As a result the other major cities like Brizvegas, Perth etc started to play catch-up with Sydney socio-economically speaking, and that includes rising house prices, but also improving housing stock. Remember our average house now is FAR BETTER than the average house even 20 years ago, let alone 50 years ago.

So personally I think that wage multiple statistic is a reflection of Australia's overall increase in prosperity and living standards/incomes etc rather than some dire indication of an imminent housing market collapse.

Veda came out the other day and said bankruptcies are higher than the early 1990's. Surely than indicates something of the magnitude of this thing. Even take a short stroll across to NZ and it's quite a deflated story compared to Australia. Ahh, little old Australia, the island in the middle of nowhere, gently oblivious to the rest of the world until it smacks us in the face!

This is probably the calm which may lull some into a sense of false security, before the worst is felt. Interest rates are going to fall next year, maybe 1%, it's all over the news, will make things easier. House prices haven't really hit anybody too hard, seem fairly stable right now. Unemployment is still low, banks are reporting big profits. Where is the problem? I hear gloom, but I see no doom.. but when it comes down to it, all those charts of real house prices, household price v income, household debt v GDP, are still saying something that will sort itself out - just as the sharemarket charts 18 months ago said something was up in terms of deviation from the norm, except very few chose to believe it would ever correct.

Or the current situation may just be things playing out as many people have predicted (and still do). Time will tell, but the question is do you want to "bet your house" on one outcome or the other? I guess the reality is that wherever you sit you actually have!

Cheers,

Beej

 

[pepperoni]

I remember the 90s recession, and we currently have an outrageous boom by comparison.

There are not going to be big falls, just stagnation, which in reality we have seen in all markets for almost 3 years now either through actual stagnation or volatility tending back to 3 years ago. People just get excited about all the false starts and odd strong quarter offset by the next.

Seriously cash has fared way better than an asx index fund or property during this period.

Staganation will continue as any slack, and then some, has been taken up in all asset prices. But short of another 9/11 we are well and truly at the bottom.

So if bank rates stay at 8% is it a good time to save ... yes ... and much more so than any time in the last 10 years.

 

[Beej]

I remember the 90s recession, and we currently have an outrageous boom by comparison.

There are not going to be big falls, just stagnation, which in reality we have seen in all markets for almost 3 years now either through actual stagnation or volatility tending back to 3 years ago. People just get excited about all the false starts and odd strong quarter offset by the next.

Seriously cash has fared way better than an asx index fund or property during this period.

Staganation will continue as any slack, and then some, has been taken up in all asset prices. But short of another 9/11 we are well and truly at the bottom.

So if bank rates stay at 8% is it a good time to save ... yes ... and much more so than any time in the last 10 years.

Yes, I agree pretty much with that outlook.

Cheers,

Beej

 

[explod]

I

But short of another 9/11 we are well and truly at the bottom.

.

There are some big issues both here and offshore so would be interested in what is the subject/content of your bottom. r/e or financial market.