House prices to keep falling for years

[wayneL]

Dont get it---to deep for me.

OK I'll type this very slowly.

* You castigated those who are bearish on property as "can't pull the trigger"

* You went short on BHP and WPL because you believed that they would go down. You were beraish

* If you could not short BHP and WPL, I'm guessing you would be sitting on your hands with those two stocks.

You still with me?

* Therefore, you wouldn't be pulling any triggers.

* Someone bearish on property (as you cannot short property) would be sitting on their hands also. (doesn't matter whether they are wrong or right)

Logical, yes?

* Therefore you stand condemned by your own hand. Otherwise you would be long BHP and WPL as they have great prospects over the next 40 years as well.

Get it now?

"Pulling the trigger" at the wrong time may be financial suicide. Property in 40 years time will certainly be well in excess of today's price in nominal terms. But it's what happens in between that may be financial life or death for an individual.

Landlords are going bankrupt in their droves over here due to "pulling the trigger" at the wrong time. They "pulled the trigger" but they are not "enjoying the ride" - the two definitive positions in your post.

When you go hunting, you don't rush into the forest and start blasting away. You'll scare off the deer and probably shoot your mates in the @ss like Cheney.

You wait until you can pick off your quarry with one shot, then go home and have a festive meal with family and friends.

 

[dhukka]

I used to comment but there is no point. Which is obvious from the responses you see here and the comments I post up.

People including myself have their own views.
So be it.
Mine is simply one of Business.

Well that's unfortunate, whilst I don't expect you to be unbiased being a builder, I for one am interested in what you have to say.

 

[pepperoni]

"Pulling the trigger" at the wrong time may be financial suicide. Property in 40 years time will certainly be well in excess of today's price in nominal terms. But it's what happens in between that may be financial life or death for an individual.

And therein lies the nub of this thread.

Property has historically outperformed shares in the very long term on the numbers I have seen. My personal view is that it will continue to do so in the long term. But in the long term we will all be dead.

This thread is more about what wayne just explained which I wont try to rehash.

 

[dhukka]

Just posted details of the PCI report on another thread but thought some of it was relevant here as well..

■ The seasonally adjusted Australian Industry Group/ Housing Industry
Association Performance of Construction Index (Australian PCI ®)
registered 43.1 in August, to remain below the critical 50.0 points level
separating expansion from contraction for a sixth straight month.

■ The decline reflected the impact of weaker house building activity,
a further fall in the apartment sector (albeit at a slower rate) and
a reduction in work on engineering construction projects. This
outweighed an improvement in commercial activity, which expanded
for the first time in the past six months.


Activity by sector

■ House building activity contracted for a seventh consecutive month in
August, with the sub-index registering 34.5. This was down 3.1 points
on the reading in July, and signalled an increase in the rate of decline
in housing output.
■ While apartment construction sector also posted a seventh straight
month of falling activity, the pace of decline eased markedly, with
the sub-index lifting by 14.8 points in August to 43.3.


New orders by sector

■ The house building sector registered a decline in new orders for
a seventh consecutive month, although the pace of decline eased
slightly with the index rising by 0.4 points in August to 36.8.

■ In the apartment sector, new orders maintained the decline evident
since January 2008 with an index reading of 39.8. However, this was
6.3 points higher than the previous month, representing the least
marked rate of decline in the past seven months.

Read the full report here:

 

[tech/a]

OK I'll type this very slowly.

* You castigated those who are bearish on property as "can't pull the trigger"

More didnt than cant.

* You went short on BHP and WPL because you believed that they would go down. You were beraish

Err yeh thats why I went short.

* If you could not short BHP and WPL, I'm guessing you would be sitting on your hands with those two stocks.

Brilliant.

You still with me?

On every word.

* Therefore, you wouldn't be pulling any triggers.

On those stocks.

* Someone bearish on property (as you cannot short property) would be sitting on their hands also. (doesn't matter whether they are wrong or right)

Logical, yes?

Logical to you yes---to me no.
You dont discard ALL stocks because your bearish on 2

* Therefore you stand condemned by your own hand. Otherwise you would be long BHP and WPL as they have great prospects over the next 40 years as well.

Get it now?

Get it sure---from your attempt to "box" my comments.
This attempt (example) is as dumb as anyone who discards property by placing a blanket opinion on ALL property without regard to opportunity which abounds---all you need do is find it and take advantage of it---sure its not available to everyone but it sure is there.

"Pulling the trigger" at the wrong time may be financial suicide. Property in 40 years time will certainly be well in excess of today's price in nominal terms. But it's what happens in between that may be financial life or death for an individual.

More to the point is that triggers WOULDNT be pulled if people playing with loaded guns knew how to evaluate the risk involved in their use.
In property if the numbers work then do it.

Landlords are going bankrupt in their droves over here due to "pulling the trigger" at the wrong time. They "pulled the trigger" but they are not "enjoying the ride" - the two definitive positions in your post.

Every landlord? Of course not only those who didnt get their numbers right.

When you go hunting, you don't rush into the forest and start blasting away. You'll scare off the deer and probably shoot your mates in the @ss like Cheney.

True but you dont avoid the forest completely---there are deer in there!

You wait until you can pick off your quarry with one shot, then go home and have a festive meal with family and friends.

Yep no different than picking off a nice succulent property deal or JV (Joint Venture).

Anyway time for me to catch up with the other village idiots and have a beer.

 

[dhukka]

Interesting interview with Robert Shiller of Case-Shiller fame. The most interesting quote for mine was this doozy;

"There's a lot of misconceptions about home prices, people think that there is a strong historical uptrend to them. In fact by my data there is not. In fact home prices in the United Sates if you correct for inflation, in 1990 were about the same as they were in 1890."

And before the delicate flowers leap all over me, no I'm not trying to say the OZ market is the same or that the historical pattern is the same. Just thought it was interesting. Well worth a watch.

 

[KIWIKARLOS]

I understand the difference between the terms of trade and the balance of trade, however those higher prices weren't enough to push trade into positive territory for GDP in the latest quarter. Next quarter will probably be a different story though.

I agree that relative to the rest of the developed world that we are doing OK. However the mantra about the resources sector saving the day may be wishful thinking given that roughly 90% of the economy relates to the service sector and that sector has been in contraction for 5 straight months.

Its actually about 75% and imports usually drop during periods of low growth. We'll see but i see of the balnce of trade improving in the next 6 months

 

[KIWIKARLOS]

Kiwi,

You really need to check your facts before you make claims like that. On the Household Consumption expenditures graph there are 5 quarters showing negative growth excluding the current quarter just completed. They were;

3Q90 -0.1%, 4Q90 -0.3%, 1Q91 -0.4%, 1Q93 -0.6%, 3Q93 -0.3%.

Here are the corresponding quarters of GDP growth;

3Q90 -0.5%, 4Q90 0.0%, 1Q91 -0.7%, 1Q93 1.2%, 3Q93 -0.1%,

3 of the 5 quarters showed negative GDP growth, one was flat and one positive so your statement is completely wrong. How about that list of OECD countries with 2 consecutive quarters of negative growth? Or did you make that up as well?

I said overall positive mate you just quoted 9 quarters of ofabout 80 in 17 years thats about 15% still very ovrall positive

 

[dhukka]

Its actually about 75% and imports usually drop during periods of low growth. We'll see but i see of the balnce of trade improving in the next 6 months

Yes I should have said 90% of Australians are employed in the service sector. I agree the balance of trade will be a positive contributor to GDP in the coming quarters, just don't think it is our saviour.

 

[dhukka]

I said overall positive mate you just quoted 9 quarters of ofabout 80 in 17 years thats about 15% still very ovrall positive

If that's what you meant then that's an even dumber statement than the original.

 

[wayneL]

......

Straight in the "too hard basket".

Have a nice evening.

 

[tech/a]

Straight in the "too hard basket".

Have a nice evening.

Yes most find that to be the case.

 

[theasxgorilla]

And before the delicate flowers leap all over me, no I'm not trying to say the OZ market is the same or that the historical pattern is the same. Just thought it was interesting. Well worth a watch.

The doozy for me is if someone can then answer the question: were houses expensive back in 1890? And where were 1990 prices relative to recent levels before and after that time?

It still tells me that as an inflation hedge its better to hold your wealth in a property and pay down debt than it is to keep pouring it into things that depreciate.

 

[wayneL]

The doozy for me is if someone can then answer the question: were houses expensive back in 1890? And where were 1990 prices relative to recent levels before and after that time?

It still tells me that as an inflation hedge its better to hold your wealth in a property and pay down debt than it is to keep pouring it into things that depreciate.

 

[CanOz]

Oh no, more hockey sticks.

 

[wayneL]

Oh no, more hockey sticks.

Here's a longer hockey stick: For some reason I haven't been able to determine only goes to the 1970s

http://web.mit.edu/cre/research/papers/wp86eichholtz.pdf

 

[Sean K]

Question?

(and this may be way off)

Is that index, and this general discussion, about the price of land, or house, or house and land?

I have always thought that it was the price of the land that was the most significant factor in contributing to house prices.

Simple supply demand consideration is that, isn't there FAR less land available to be built on in metropolitan areas and therefore the prices of land (and houses) MUST go up over time.

At this moment in human development populations have exploded, and everyone has moved to cities! There isn't a spare piece of dirt within 15km of the Melbourne CBD. (Except for the West, which is just a **** farm)

Therefore, costs of land has exploded.

It's just supply and demand.

Someone slap me in the face, if I have no idea.

 

[noirua]

This chart looks very dodgy indeed, would not like to be on the end of that red spike. A fall of 30%+ looks very likely.

 

[Beej]

I have always thought that it was the price of the land that was the most significant factor in contributing to house prices.

Simple supply demand consideration is that, isn't there FAR less land available to be built on in metropolitan areas and therefore the prices of land (and houses) MUST go up over time.

At this moment in human development populations have exploded, and everyone has moved to cities! There isn't a spare piece of dirt within 15km of the Melbourne CBD. (Except for the West, which is just a **** farm)

Therefore, costs of land has exploded.

It's just supply and demand.

Someone slap me in the face, if I have no idea.

You are EXACTLY right Kennas. Others who try to analyse property prices in the same manner as stock prices fail to see the fundamental difference between the two asset classes.

In fact what I believe happens over long periods of time is the price of *established* land and houses goes up faster than inflation due to the limited supply, plus increasing demand and the increasing real wealth situation.

The *average* price of property will, in most cases, over the VERY long term, track inflation plus a small margin. How can this be? Because the SUPPLY side of property is increased via the building of new houses on land released either further out from the city CBDs, or in rural area's - where hopefully, over time, new towns and cities become established as population grows over long periods of time. You HAVE to consider this factor if you are going to attempt to analyse a property value chart dating back to 1890......

Away from the CBDs and in rural area's, the land is cheap and the cost to build a house is the cost of materials plus labour (not all houses are built by developers for massive profit remember - anyone can organise to build your own house if you want). So these "cheaper" new houses, which end up costing well below median/average, bring the over-all average price of property down to keep it roughly in line with inflation. As affordability in established areas becomes too high, there is greater and greater economic incentive for those who cannot afford it anymore to move further out (or to a new area) to the new affordable housing area. I have seen this happen for example in the mid late 90s when many people I know packed up and moved from Sydney to Brisbane, the central coast, or the Blue Mountains, simply because they could not afford a house here, but could there. And now surprise! Guess what? Brisbane and those other areas are now a lot more expensive in relative terms! Obviously this migration of wealth from Sydney and Melbourne to Brisbane in particular has been a major factor in that?

That, my friends, is how come you can always make good money in real terms from property, even though analysis of average and median prices over long periods of time might appear to suggest otherwise - or at least make one fearful of some sort of great correction being imminent....

That graph above that has been posted so many times on this thread I believe simply demonstrates the current major supply problem we have in Oz for new housing - especially affordable housing. Ie - yes we are due for a "correction" but the correction we need is a big increase in building of new, affordable homes in affordable land areas - either city outskirts of rural/regional centres. If affordable homes are not built, then rents will continue to increase rapidly and in effect the same thing will up hapenning, but it will take longer to work through.

As all that happens over time, the average house prices will adjust back closer to the norm, but that doesn't mean your house in Sydney 10km's from the CBD is going to see any real drop in value.

Capisce?

PS: If you look at the development and population growth of the US through the 19th and 20th centuries you can this exact effect happening, just a lot faster than here.

Cheers,

Beej

 

[noirua]

Kennas appears quite right in his land views. Over a short period of time though prices go down, just because some sell and others hold off because next year it will be even cheaper. Lots of inner city appartment blocks have been driven up in price, quite often by Britishers escaping the drudgery over there. Some can't make it now as their property will not sell or that appartment in Sydney is looking a bit expensive.
On the otherhand the Aussie$ is collapsing, you may say, but so is the British Pound.

In South Africa some bought diamond exploration land from British investors who were bankrupted after the crash in rail stocks in the 1850's. Made their fortune a few did, especially Cecil Rhodes, who had a country named after him.
Only point here really is that forced sellers arrive and then the floor opens up.