House prices to keep falling for years

[gfresh]

January ABS Building approvals out..

http://www.ausstats.abs.gov.au/auss...FD32CA25756F0012E01C/$File/87310_jan 2009.pdf

Continued negativity here, not good for the economy in general either..

JANUARY KEY POINTS


TOTAL DWELLING UNITS

* The trend estimate for total dwelling units approved fell 4.3% in January 2009 and has fallen for 14 months.
* The seasonally adjusted estimate for total dwelling units approved fell 3.7%.


PRIVATE SECTOR HOUSES

* The trend estimate for private sector houses approved fell 2.0% in January.
* The seasonally adjusted estimate for private sector houses approved rose 1.1%.


PRIVATE SECTOR OTHER DWELLING UNITS

* The trend estimate for private sector other dwellings approved fell 11.0% in January.
* The seasonally adjusted estimate for private sector other dwellings approved fell 15.4%.


VALUE OF BUILDING APPROVED

* The trend estimate for the value of total building approved fell 7.6% in January. The trend estimate for the value of new residential building approved fell 5.6%, while the value of alterations and additions fell 1.8%. The trend estimate for the value of non-residential building approved fell 11.8%.

* The seasonally adjusted estimate for the value of total building approved fell 3.4% in January. The seasonally adjusted estimate for the value of new residential building approved fell 4.3%, while the value of alterations and additions rose 0.7% and the value of non-residential building fell 3.2%.

Another economist again not factoring in enough downside...

http://www.businessspectator.com.au/bs.nsf/Article/SCOREBOARD-$pd20090305-PTSDY?OpenDocument&src=sph

I talked about this in November – the fourth quarter of 2008 and the first quarter of 2009 were always going to be the weak points for the Australian economy. Policy can’t work that quickly, but now what we need to see in order to stave off a recession is a demand pick-up, particularly in housing construction. In the absence of that, then we are indeed in trouble as it will show the ineffectiveness of policy. I still think the best bet is to put a bit of faith in the policy working sufficiently such that we eke out small positive growth outcomes for the duration of the year. We’ve got plenty of houses we need to build and much needed social infrastructure that needs to be done. We get January building approvals in Australia today so that may offer some relief – here’s hoping! I’m looking for a 3 per cent rebound today, the high is 7 per cent but as usual there is a good spread with the low at -4 per cent (median +0.5 per cent).

^^^
But instead was -3.7%, closest to the very lowest expectation.

 

[Beej]

you forgot to deduct the initial 205k from the homeowners 'costs'
at the end of the 30 years the homeowner has his/her asset and the renter has nothing.

using this guys calculations,
if you assume ZERO capital growth over 30 years, at end of 30 years,

costs:
homeowner: 584000 - 205000 = 379000
renter: 389000

asset:
homeowner: house
renter: whatever they have saved.

will depend entirely on how well the renter saves money as to whether one option is better than the other

It's even worse - that article posted is the thing that is complete bunk!

* Assumes mortgage holder pays mortgage for 30 years - crap. Most people, and certainly anyone astute enough to have a chance at saving any difference between mortgage/rent, will pay their mortgage off in much less time, thus saving bucket loads of interest and living rent free for large periods of time. I've paid off 2 PPOR mortgages completely - first in 7 years, second in 5 years (and that included funding a major $100k renovation). Lived completely interest/rent free for the other 8 years over that 20 year period.

* Ignores house value in final account as already pointed out, plus presume ZERO capital growth over 30 years - pigs might fly! 30 years ago (1979) the median house in Sydney cost what? About $20k? They now cost $500k+. No matter what your view of house prices, economics etc, I would bet my left nut that in 30 years median house prices will be significantly higher than they are now!

So - if you account for even those 2 fiscal points above, the owner ends up WAY WAY WAY ahead of the renter after 30 years. Remember also where is even the savvy/astute investor/renter going to park all their "extra" money? With the volatility evident in stock markets etc, there's a very real chance that anyone trying this strategy over the past 10-15 years years will have been burned by both the DOUBLING of house prices, and the HALVING of their share market investments - so they are now completely screwed......

The article also derides many of the joys/intrinsic values of home ownership, by suggesting that not being "nomadic" is somehow bad, and that caring about your home environment and wanting to make it what YOU want is somehow of no value either.... typical perma-renter attitude really, wouldn't want that guy as a tenant! Bottom line is there is a value judgment being made there that sounds like it comes from someone who is not yet old enough to have a family etc.

Anyway, there are clearly people who think long term renting is the way to go - good on you, do what you like! Me, I'm a home owner, always will be.

Cheers,

Beej

 

[kincella]

I think those articles are written to make the renters feel better....
if they diligently saved their money..had it in term deposits....they would need to keep adding capital above the rate of inflation each year just to stay ahead...
versus the house sits there....and with normal maintenance....its value at the end is usually in excess of the inflation.....
and in times like this....hardly any value in a term deposit.....but the opposite for home buyers with a mortgage
have been having this argument for over 20 years...and the home owners are still way out in front....

 

[CamKawa]

January ABS Building approvals out..

http://www.ausstats.abs.gov.au/ausstats/subscriber.nsf/0/E35BD3914D32FD32CA25756F0012E01C/$File/87310_jan%202009.pdf

From Jan 08 -> Jan 09 total dwelling units approved fell by a massive seasonally adjusted -33.5%. Suck it in and feel the pain.

 

[MrBurns]

On ABC last night , forget the show, said first home buyers enticed by the FHB double grant will be first to feel the pain as unemployment rises.

Negative equity will add to the pain for many when they try to sell.

Well done Rudd you useless meddling creep, even people in the street knew this was on the cards.

 

[UBIQUITOUS]

Despite the bad news in the media, having read the following article, I can see where those who are property investors are coming from.


Here is a link to the article. It provides an interesting insight into current investment in the property market.

Certainly, food for thought.

 

[Beej]

From Jan 08 -> Jan 09 total dwelling units approved fell by a massive seasonally adjusted -33.5%. Suck it in and feel the pain.

Yep - very bad for the economy (huge drop off on demand side for building/construction because of this, as seen in GDP figures), but not so good if you are a renter or even potential FHB; less dwellings being built + rising population = upwards pressure on rents, and/or upwards pressure on prices of established dwellings.... depending on net move from rent to owning or vice versa. Increased FHB activity suggesting weight is currently on the established dwelling price pressure side. This is being reflected in suburbs where house prices are under $600k in Sydney (and some other cities) where turnover is rapid and prices are actually increasing at the moment according to all the stats.

Cheers,

Beej

 

[UBIQUITOUS]

Yep - very bad for the economy (huge drop off on demand side for building/construction because of this, as seen in GDP figures), but not so good if you are a renter or even potential FHB; less dwellings being built + rising population = upwards pressure on rents, and/or upwards pressure on prices of established dwellings.... depending on net move from rent to owning or vice versa. Increased FHB activity suggesting weight is currently on the established dwelling price pressure side. This is being reflected in suburbs where house prices are under $600k in Sydney (and some other cities) where turnover is rapid and prices are actually increasing at the moment according to all the stats.

Cheers,

Beej

Beej, you really need to put a macroeconomic hat on, rather than living in a 'supply and demand' world.

 

[kincella]

they do not understand....building approvals down, new residents up....looks like we are going to have some fun in the next few years.....price hikes are on the cards....pffft... even if it is a year of more bad news....it will change...but who will be prepared for the changes....????
another couple of easy 100k's pa
and just a reminder...for those yearning for the good old days
5 years ago cost 150,000 at 8% interest = 12,000 pa or 7% = 10500
today 300,000 at 5% = 15,000 or 4% = 12,000
the difference is only beer money
............................................................................................
extract from Bernard Salts article today.....
population booms forces a rethink

THERE has been a fundamental change in thinking by demographers about the medium-term outlook for population growth in Australia.

In September, the Australian Bureau of Statistics published a medium projection that showed the nation adding 6.9 million residents over the 20 years to 2026.

Just two years earlier, the official outlook for this period was net growth of 3.7 million.

The extra 3.2 million residents materialised out of new trends and data flowing from the 2006 census and changes to migration policy that upped the net migration assumption.

The bottom line is that the birth rate was lifted and the assumption regarding overseas migration was also lifted from 110,000 to 180,000 per year.

What this effectively meant was that strategic plans that had been developed for capital cities between 2002 and 2005 (and based on 2001 census results), including documents like Melbourne 2030 and Sydney's City of Cities, had to be rethought.

And that is precisely what's happening right now.

New plans are being developed for raised expectations of growth.

But the problem has always been that the ABS develops this national view about population growth and it is then left up to the states to work out how and where growth is to be accommodated.

And the states are doing exactly that: new population forecasts are being prepared which allocate growth, based on preferred planning principles, at the local government area level.

another extract
The projections show that Hervey Bay will double within 20 years. It is already this nation's 29th largest city; by 2026 "the Bay" will rank 24th.

Other rocket towns include Bunbury, projected to grow by 74 per cent over the 20 years to 2026, followed by Gladstone (up 68 per cent), the Gold Coast (up 65 per cent), Mandurah (up 64 per cent), Busselton (up 62 per cent) and Cairns and the Sunshine Coast (both up 61 per cent).

The common denominator of these places is their sea-change lifestyle, although Bunbury and Gladstone have local manufacturing and port-handling capacities.

But the projections aren't all about rapid growth.

Some towns are expected to grow slowly over 20 years, with population increases under 10 per cent, such as Burnie-Devonport, Orange, Griffith, Grafton, Whyalla, Armidale and Innisfail

http://www.theaustralian.news.com.au/business/story/0,28124,25139471-25658,00.html

 

[nomore4s]

Despite the bad news in the media, having read the following article, I can see where those who are property investors are coming from.


Here is a link to the article. It provides an interesting insight into current investment in the property market.

Certainly, food for thought.

rotflmao

Beej, you really need to put a macroeconomic hat on, rather than living in a 'supply and demand' world.

I agree, more to think about then just supply and demand, although some macroeconomic problems are going to affect supply & demand. We are still at the early stages of this cycle imo.

and just a reminder...for those yearning for the good old days
5 years ago cost 150,000 at 8% interest = 12,000 pa or 7% = 10500
today 300,000 at 5% = 15,000 or 4% = 12,000
the difference is only beer money

That's fine as long as rates stay that low for the next 5 years. What happens if/when they go back to 8%?

 

[kincella]

HOUSEHOLDS pocketed tax cuts, lower interest payments and cash handouts in the December quarter while cutting back on cars, eating out, alcohol and cigarettes.

Figures released by the Australian Bureau of Statistics show gross disposable income soared by $11 billion - a 5.9 per cent increase - thanks to plunging interest payments on mortgages and credit cards, declining fuel prices, tax cuts and government handouts.

http://www.news.com.au/business/money/story/0,28323,25141537-5017313,00.html

normore4s......you lock in for 5 years...or 10 years if you expect to stay that long....then expect to pay around 7-8% again....but you should be earning more by then, and the loan has decreased....in a low rate environment...its easier to pay more off the loan.....

 

[Beej]

Beej, you really need to put a macroeconomic hat on, rather than living in a 'supply and demand' world.

Macro-economic factors can matter, but macro level supply and demand (which you want to ignore completely) is the MAJOR factor that will influence house prices in the long term, as will be the case for any open market for any other commodity.

You really need to look at what is actually happening in the market and explain to me how your macroeconomic factors fit in with this? Eg: How come median prices AND turnover of property in dozens of Sydney and Melbourne suburbs (where medians are under $600k) have gone up in the past 3/6 months?

Eg: parramatta in Western Sydney: Up 13% http://www.homepriceguide.com.au/snapshot/price/index.cfm?action=view&source=apm

There are dozens of others.

Beej

 

[singlefished]

On ABC last night , forget the show, said first home buyers enticed by the FHB double grant will be first to feel the pain as unemployment rises.

Negative equity will add to the pain for many when they try to sell.

Well done Rudd you useless meddling creep, even people in the street knew this was on the cards.

I saw it too MrBurns....

RICHARD LINDELL: And human nature maybe pushing a whole new generation of first home buyers to the brink.

MARTIN NORTH, FUJITSU CONSULTING: We model mortgage stress based on what's happened to unemployment.

If unemployment goes up to 7 per cent or more that will pretty much double the number of people in the first time sector of the market who will be in severe difficulty and may have to sell or get foreclosed.

RICHARD LINDELL: Martin North argues that low interest rates and governments grants are creating the conditions for a deeper and more protracted recession.

Under this scenario house prices are likely to fall and for new home owners that could mean negative equity.

MARTIN NORTH: Property prices need to move down that much, you know, five to 10 per cent will be sufficient to create considerable issues for many people and depress the market and therefore the economy for quite some time.

RICHARD LINDELL: Recent house figures suggest price also fall. Turnover collapsed by a third in the second half of last year; that's the biggest drop since the last recession.

http://www.abc.net.au/lateline/business/items/200903/s2507660.htm

 

[singlefished]

You really need to look at what is actually happening in the market and explain to me how your macroeconomic factors fit in with this? Eg: How come median prices AND turnover of property in dozens of Sydney and Melbourne suburbs (where medians are under $600k) have gone up in the past 3/6 months?

DOZENS

 

[kincella]

nsw approvals were down a whopping 19%....out of 33% for aus wide for the year.....just a few more months for those interest rates to flop.....then we can lock in....and take the big chunk out of those little mortgage babies....who is excited now ? well I am...
here's the extract
......................................

CommSec chief economist Craig James said it would be a couple more months before the big interest rate cuts and the boost to the first home owner grant came through in the data.

"At some point in time we are going to see an almighty rise because we just can't continue to under build here in Australia," Mr James said.

Housing Industry Association chief economist Harley Dale said it would take more than the revival in the first home buyer market to generate a recovery in residential construction.

"A further decline in building approvals in January is a very weak update on the short-term prospects for new home building activity," Mr Dale said in a statement.

The worst performing state was New South Wales, where building approvals fell a massive 19.1 per cent in January. Approvals were also down in Queensland and Western Australia.

Building approvals rose in South Australia, Victoria and Tasmania.
Building approvals have sunk 33.5 per cent in the 12 months to January.

http://www.thebull.com.au/articles_detail.php?id=771

 

[robots]

hello,

"house prices to keep falling"

still no clear evidence to support the title

Craigieburn up
Deer Park up
Ferntree Gully up
Boronia up
St Albans up
Thomastown up
Airport West up
Windsor up
Werribee up (245k median there too, hey hey 3 or 4x average earner there, must me an anomaly)

a small handful of the +ve results, well done those living it large top effort brothers the hardwork paying off

thankyou
robots

hello,

a few for the list singlefished, didnt even go through the entire list

oh well, "house prices to keep falling for years" not looking too good

fantastic news with building approvals down again,

anybody know how Tanya Pilbarasek is going with the subsidized rental scheme?

thankyou
robots

 

[prawn_86]

Robots, there are probably an equal number of suburbs that have fallen in value...

 

[Glen48]

Mr. Burns another thing about FHO they get sucked in by the low rates etc so instead of being a victim and paying rent to the banks for 400K they think they can now buy a 500K mill stone.
The are no PDS's buying RE when it could be the worst thing you do in your life beside getting Married.

 

[robots]

Robots, there are probably an equal number of suburbs that have fallen in value...

hello,

probably are Prawn86, just like there was 2yrs ago, 5yrs ago, 20 yrs ago, 30 yrs ago etc etc

and through those time scales plenty of suburbs that went up as well just like today,

haven't done question time for a while (actually since Chops A must was still with us) so lets kick it off tonite, fire away

thankyou
robots

 

[robots]

hi,

are gidday robots, tonite on abc news Alan Kohler said building approvals down again and this wont be good for rents

does this mean rents will rise?

cheers
peter from Preston