House prices to keep falling for years

[hotbmw]

i still think there is several years of slow downward adjustment for property.....

its still a bit too expensive for it to be interesting to invest.

2009 will be a bad year for all

 

[Ageo]

I think what the property bulls dont understand is that if growth continues like it has in the past then what happens in 50-100yrs? will house prices be 30 times more the average wage? sometimes i like to believe we live in lala land

 

[Beej]

I think what the property bulls dont understand is that if growth continues like it has in the past then what happens in 50-100yrs? will house prices be 30 times more the average wage? sometimes i like to believe we live in lala land

That's also a bogus argument. New property is being created all the time - the median price will long term only grow essentially in line with wages (or more accurately, in line with average disposable income less housing costs). Over long periods of time, as established houses become too out of reach, more affordable housing will end up getting built (maybe more high density, maybe cheaper construction/materials, maybe cheaper location), bringing the MEDIAN back in line, but that doesn't stop the value of an existing asset increasing at a faster rate than the median - it just becomes more "exclusive".


Beej

 

[Ageo]

That's also a bogus argument. New property is being created all the time - the median price will long term only grow essentially in line with wages (or more accurately, in line with average disposable income less housing costs).

Beej

So what your saying Beej is that property growth cannot be sustainable as it has been in the past?

 

[gfresh]

The main issue is probably not affordability, but what the rest of the economy is doing, and how many other commitments everybody else has, and how many jobs are lost. Of course this could be better than expected as well. Economic indicators are probably more useful at the moment to decide this rather than arbitary affordability measures...

Latest building approvals out today. FHG brought in start of October, no signs of anything changing in that first month whatsoever for QLD. Next 3 months should be interesting with respect to this..

 

[hotbmw]

but beej, there cannot be decent growth in property prices in major cities over the next 2 to 3 yrs. there will be pockets of opportunities of course but with bad economic news on the horizon, an increase in job loses in 2009 and wages to not increase dramatically in the near future, its just not sustainable for 5 to 10% growth p.a. over the next few years. there needs to be a few years of either stagnation or a few years of slight negative growth each year.

dont u agree?

or do u see the next 2 to 3 years of continued growth in most major cities?

im a believer of slight negative growth for the next 2 years at least.

 

[Beej]

So what your saying Beej is that property growth cannot be sustainable as it has been in the past?

There's no question that the last 10-15 years has seen a period of un-repeatable growth yes, demographic shifts (1 -> 2 incomes per household), shift from high inflation/high interest rate economy to low inflation/low interest rate one etc. These factors are one-offs.

However, that doesn't stop property continuing to increase in price into the future (long term), the question is by how much? Certainly less than in the last 10 years in my view, but also no great crash coming in my view

dont u agree?

or do u see the next 2 to 3 years of continued growth in most major cities?

im a believer of slight negative growth for the next 2 years at least.

Yes I agree essentially with your outlook (I've stated a similar view a few times in this thread). What I am arguing against is the "great house price crash" scenario.

Remember, even in the "flat to mildly negative growth for the next 2-3 years" outlook, the numbers for owning your own PPOR vs renting still stack up extremely well. And for investment, if you get a cash-flow positive from day one thing going, it looks pretty good as well. Property is for the long term remember!

Cheers,

Beej

 

[gfresh]

Dwelling approvals for everybody's favourite state NSW :evilburn:

Those figures are amazing, lowest approvals in 25 years. If you are in the bullish camp, that's one heck of supply falling off a cliff, which is good for future prospects.

Accompanying article: http://business.theage.com.au/business/building-approvals-slump-20081204-6r46.html

New home building approvals tumbled in October to their lowest level since March 2001 as the Government's stimulus package and rate cuts failed to ease fears about the future of the economy.

 

[hotbmw]

beej, im looking at this from the point of view where do i want my $ invested in the next 3 to 4 years.
im half in cash now and half in property which is on the market to sell.

when its 100% cash in 3 to 4 months i want my $ in shares.

the outlook in shares for the next 3 to 4 yrs is better than property in my opinion. there will be a spike up for a great return at 1 point and then maybe 10% p.a.

in 2 years or so i will buy an investment property again closer to the bottom and then expect a 5% capital growth p.a., ill lock in a 5 year low interest rate and sell it the next time i feel it is just way overpriced 10-20 yrs from now.

 

[Aussiejeff]

Dwelling approvals for everybody's favourite state NSW :evilburn:

Those figures are amazing, lowest approvals in 25 years. If you are in the bullish camp, that's one heck of supply falling off a cliff, which is good for future prospects.

Why is everyone here obsessed with New Homes Approvals as a measure of RE performance?

Many appear to have forgotten entirely about all those "existing houses" for sale that are starting to flood the market.

I believe they aren't selling in big enough numbers, folks. Not via auctions, nor private sales nor whatever means possible. AFAIK the sales rates for existing homes have plummeted and when combined with the falling supply of new homes may even help generate a combined excess supply of housing in the coming months.

Anyone got the stats to show how many existing homes are for sale month on month, state by state etc?

I'm happy to be proved wrong.

 

[Beej]

Why is everyone here obsessed with New Homes Approvals as a measure of RE performance?

Many appear to have forgotten entirely about all those "existing houses" for sale that are starting to flood the market.

I believe they aren't selling in big enough numbers, folks. Not via auctions, nor private sales nor whatever means possible. AFAIK the sales rates for existing homes have plummeted and when combined with the falling supply of new homes may even help generate a combined excess supply of housing in the coming months.

Anyone got the stats to show how many existing homes are for sale month on month, state by state etc?

I'm happy to be proved wrong.

You are forgetting that most homes for sale already have people living in them = no extra/excess supply there at all!! Just the inability of people to move/upgrade if the market is slow. Soon a lot will just give up and wait the market out for a couple of years,

Beej

 

[onway8]

CREDIT BUBBLE BURSTS, EVERYTHING BURSTS !!! RESOURCE BOOM BURSTED, ENERGY BOOM BURSTED, WHAT ELSE DO WE PRODUCE IN AUS? THERE IS ONLY 1 WAY FOR THE HOUSING MARKET - TO GO DOWN SOUTH, IN A NASTY WAY!

Have a look, This credit bubble causes global slump in our trading partners, US, China & the rest of the Asian countries, the interest rates smashed down, the A$ smashed down, all commodities, oil, wheat prices, stock markets, banks, investment banks, even childcare centres etc. are all failing and crashing down hard. Everything in the western world is build on credits, now credit bubble bursts, everything bursts, Australian housing is not going to be an exception. Next year there will be a whole lot of resources companies closing down, there will be a whole lot of projects stopped due to lack of fund from investment banks and these investment banks have now gone under water and even survival is a question (have a look at B&B). Jobless rates will rocket thru the roof. All Finish now.

Today’s news says even states are having difficulty raising funds now….

0837 [Dow Jones] Australian Treasurer Wayne Swan concedes government may need to assist states struggling to raise funds for infrastructure projects amid global financial turmoil; "the states have been in communication with the Commonwealth government...about the difficulty they're having in raising funds in international financial markets." Says range of ideas put to government, but "we've not reached a conclusion on the direction we may take." Adds, not keen on idea of so-called infrastructure bank proposed by Queensland state Treasurer Andrew Fraser. Fact that AAA-rated states having trouble raising funds indicates seriousness of global financial crisis - in part heightened by government's bank guarantees, which siphoned off cash from real money funds that'd normally look to bonds as safehaven investment in volatile times. If federal government has to take on debt burden on behalf of states that'll further weaken its fiscal position, with budget already likely to slip into deficit in coming period. (RAP)

 

[gfresh]

Why is everyone here obsessed with New Homes Approvals as a measure of RE performance?

Of course they are not everything, but I think they are useful for a number of reasons. Economists also see them as quite a valuable indicator, it's not just ASF.

a) Indicate new housing activity which is a general indicator of how well the market is going in general. If the housing market is booming, then everybody also wants to build new houses to profit, there is the belief that the good times will continue, etc. You can clearly see the years of economic slowdown in the dips on the charts, which match other events, sharemarket falls, individual States boom periods (QLD+WA), etc.

b) As housing construction contributes directly to a large percentage to both GDP, and one of our other largest industry, the banking and finance industry it's a very valuble indicator on the Australian economy in general is traveling, or is likely to be traveling.

c) Dwelling approvals were falling well before the talk of falling prices, a slow market, etc. It's a valuable leading indicator of where the rest of the market is heading.

d) As above, in the UK and the US, building approvals starting falling heavily several months before prices also started falling heavily on existing property.

Would be great to have accurate sales data, number listed, days listed, on existing property but of course the only groups that provide, or release that information is the realestate industry, which unfortunately has a heavy vested interest.

 

[Aussiejeff]

You are forgetting that most homes for sale already have people living in them = no extra/excess supply there at all!! Just the inability of people to move/upgrade if the market is slow. Soon a lot will just give up and wait the market out for a couple of years,

Beej

Huh? I beg to differ Beej. The fact is that generally if you have a market populated by more SELLERS than BUYERS, (stocks, houses, commodities - whatever) then over time the pressure is there to lower the selling price rather than for prices to go up.

Whether someone is sitting in a house, in a car, on a boat or on a gold brick that they are wanting to sell is neither here nor there!

Cheers,

aj

 

[Beej]

Huh? I beg to differ Beej. The fact is that generally if you have a market populated by more SELLERS than BUYERS, (stocks, houses, commodities - whatever) then over time the pressure is there to lower the selling price rather than for prices to go up.

Whether someone is sitting in a house, in a car, on a boat or on a gold brick that they are wanting to sell is neither here nor there!

Cheers,

aj

Well I thought you are arguing that somehow a glut of existing houses for sale would somehow make up for a housing supply short-fall brought about by a lack of new building? That's what it read like anyway.

Regardless, of course there are more sellers than buyers, when what you have currently is clearly a buyers market in many area's. But there are many more POTENTIAL buyers sitting on the side-lines. So in terms of the over-all housing picture less buyers + slowing new building means more and more renters competing for a proportionally smaller set of available homes = rising rents. Which is exactly what we are seeing.

Cheers,

Beej

 

[Aussiejeff]

Of course they are not everything, but I think they are useful for a number of reasons. Economists also see them as quite a valuable indicator, it's not just ASF.

a) Indicate new housing activity which is a general indicator of how well the market is going in general. If the housing market is booming, then everybody also wants to build new houses to profit, there is the belief that the good times will continue, etc. You can clearly see the years of economic slowdown in the dips on the charts, which match other events, sharemarket falls, individual States boom periods (QLD+WA), etc.

b) As housing construction contributes directly to a large percentage to both GDP, and one of our other largest industry, the banking and finance industry it's a very valuble indicator on the Australian economy in general is traveling, or is likely to be traveling.

c) Dwelling approvals were falling well before the talk of falling prices, a slow market, etc. It's a valuable leading indicator of where the rest of the market is heading.

d) As above, in the UK and the US, building approvals starting falling heavily several months before prices also started falling heavily on existing property.

Would be great to have accurate sales data, number listed, days listed, on existing property but of course the only groups that provide, or release that information is the realestate industry, which unfortunately has a heavy vested interest.

Hi gfresh. I don't have a problem with the indicator per-se.

My main beef is that the effect of a significant oversupply of existing homes on the market seems to be discounted almost entirely when arguing whether house prices (not RENTS) might go up or down.

I still maintain that more factors are also at play and if the likely oversupply of existing homes for sale gets big enough, it HAS to eventually put pressure downwards on average home prices. Isn't that what we are talking about in this thread? Not RENTS!

You only have to look at the RE sections in newspapers or on the net - theres a darn sight more EXISTING properties for sale than new land or homes!

Maybe the GuvMint should better regulate the RE industry so that more accurate sales figures can be ensured. Or maybe the GuvMint is happy for the RE industry to hype it up to the max? Suits their purposes I suppose.

 

[ROE]

beej, im looking at this from the point of view where do i want my $ invested in the next 3 to 4 years.
im half in cash now and half in property which is on the market to sell.

when its 100% cash in 3 to 4 months i want my $ in shares.

the outlook in shares for the next 3 to 4 yrs is better than property in my opinion. there will be a spike up for a great return at 1 point and then maybe 10% p.a.

in 2 years or so i will buy an investment property again closer to the bottom and then expect a 5% capital growth p.a., ill lock in a 5 year low interest rate and sell it the next time i feel it is just way overpriced 10-20 yrs from now.

There is no money in shares man keep it all in properties ..when you buy shares, don't talk you want other people to buy other stuff so there is less competition and more for your bargain

 

[explod]

Hi hotbmw

The best thing to change my investment approach was to learn about trends. There are plenty of books on the subject.

For example, if we find that the property chart is sideways for awhile then say goes down 5% it is time to get out. When it hits the bottom, and we do not know that for some time, probably takes 12 months from hitting the low and then sideways we watch for a rise. When we get a rise of 10% we can begin to speculate and think about going back in.

The same goes for shares, paintings, gold, silver, cows, goats and sheep.

My best book was called "Trend Following" about 2003, cant' remember the author. I lent it to my accountant last year and must get it back. Anyway there are some very good principles and fundamentals with many options on evaluating trends. Should be able to get a second hand copy online now. Not sure if ASF book section can help but worth considering before you get too clouded with equipment and complicated instructions.

 

[2BAD4U]

For example, if we find that the property chart is sideways for awhile then say goes down 5% it is time to get out. When it hits the bottom, and we do not know that for some time, probably takes 12 months from hitting the low and then sideways we watch for a rise. When we get a rise of 10% we can begin to speculate and think about going back in.

Sorry but you don't trade property the same way you do shares. With this strategy the CGT would kill you. You would be better off sitting on the POTENTIAL loss and having rent coming in offsetting any REAL loss.

 

[2BAD4U]

but beej, there cannot be decent growth in property prices in major cities over the next 2 to 3 yrs. there will be pockets of opportunities of course but with bad economic news on the horizon, an increase in job loses in 2009 and wages to not increase dramatically in the near future, its just not sustainable for 5 to 10% growth p.a. over the next few years. there needs to be a few years of either stagnation or a few years of slight negative growth each year.

dont u agree?

or do u see the next 2 to 3 years of continued growth in most major cities?

im a believer of slight negative growth for the next 2 years at least.

I don't deny property prices will (have) come back but the title of this thread is "House prices to keep falling for years" and people on here paint the picture that its the end for property investors. This is what I have a problem with.