House prices to keep falling for years

[pepperoni]

What about inflation...I would think that the pumping of countless billions would cause prices to rise but this capital is only replacing capital that was vapourised

... or potentially more capital vaporised than money printed, so deflation, which Ive seen at least one economist say is the case.

Personally I think falling spending alone will kill inflation.

 

[pepperoni]

Just a little reminder for those that compare Australia's high cost of property relative to the world market

Its actually aussie property relative to aussie salaries which is exy relative to us and uk.

On this basis it hasnt quite fallen 20-30% ... yet.

 

[chops_a_must]

Investors will be ruing the ammount of negative gearing they have acheived on their investments as all prices drop leaving them down bigtime.

I've really never understood this. The whole point in investing is to make money. I just can't compute it.

Just a little reminder for those that compare Australia's high cost of property relative to the world market:

House prices have already effectively fallen 30% throughout the Australian market relative to the American market in the past month and 20% against the Euro market in the same period.

Lol.

Try telling that to someone looking to buy.

AFAIK there are some peculiarities when looking to buy here if you aren't a citizen or permanent resident, that make it prohibitive for foreigners to even make a meaningful dent.

 

[grace]

Ch7 to night Kochie tells us they will job loss 300-500 K House, prices to go down no recession,

I noticed the guy Kochie was interviewing said we will see house prices in Australia go down by as much as in the US. Kochie said "why?". Reply was "because we have much higher household debt compared to the Americans (in relation to household earnings I would gather).

Interesting times ahead for the property market.

 

[chops_a_must]

Lol... the fade Kochie play is in order.

You can add it to the following list:

The Fade Krudlow play.
The fade Bush play.
The fade Paulson play.
The fade Bernanke play.

They've been mighty effective.

 

[singlefished]

AFAIK there are some peculiarities when looking to buy here if you aren't a citizen or permanent resident, that make it prohibitive for foreigners to even make a meaningful dent.

Tell me about it.... couldn't even get a credit card as a temporary resident. Fat chance of getting a mortgage!!!

Upon getting the telephone call from Immigration a few years back telling me that the permanent residency had been approved, I dashed up there at lunchtime, stopped in at the pub on the way back to work for a quick celebratory beer, then straight to the bank with passport in hand and got the visa card application in straight away.... a few short days later, bingo!

Haven't payed a penny in interest on it since I got it 3 years ago and the usage has been enough to have the annual fees waived each year.... The bank must love me

I believe there are ways new immigrants can get some sort of mortgage sorted out however but I never persued them. It was hard enough getting into a rental property without any previous Aussie rental history....

 

[Julia]

I've really never understood this. The whole point in investing is to make money. I just can't compute it.

You do make money by negative gearing on property if you are paying a high rate of tax. The negativity on the investment property offsets your tax bill.

 

[YChromozome]

I noticed the guy Kochie was interviewing said we will see house prices in Australia go down by as much as in the US. Kochie said "why?". Reply was "because we have much higher household debt compared to the Americans (in relation to household earnings I would gather).

That is correct. It would be Household Debt as a percentage of Household Disposable Income.

Interesting times ahead for the property market.

It certainly is. There is a prediction thread running GHPC.

 

[chops_a_must]

You do make money by negative gearing on property if you are paying a high rate of tax. The negativity on the investment property offsets your tax bill.

I understand that. But it's not actively making you more than what you could get by other means with the same money, is it?

It's not something I've explored, so wouldn't know. It just doesn't appear to be something I would consider. It's like not clearing margin interest in a margin account, purely to cut tax. In my mind anyway.

 

[theasxgorilla]

I understand that. But it's not actively making you more than what you could get by other means with the same money, is it?

It used to be a very tax-advantaged way to hold property. Particularly when used together with depreciation. When netted out you could hold a property at cashflow neutral. Yes your outgoings were greater than the income earned from the rent, but the tax break offset that. Given that tax used to be most peoples largest single monthly expense it was well worthwhile trying getting some back.

Now Aussies pay much less tax but stupendous amounts of interest.

 

[Temjin]

You do make money by negative gearing on property if you are paying a high rate of tax. The negativity on the investment property offsets your tax bill.

That does not compete either. It's amazing how one could purchase a DEPRECIATING asset that usually generates a negative cash flow (yes, after tax deduction and depreciation) and hope to make a profit through holding and reselling it to another person. And historically and fundamentally, this asset should never rise faster than wage/inflation growth because it is not a "value-adding" asset, unlike production factories, mines, etc. Of course, people tend to treat it much more valuable than mines/factories for reasons like there is more demand than supply of available land. And then you consider the irony of Australia is one of the most sparse populated land in the world....

 

[robots]

hello,

investment with leverage is always for those who can afford it, remember negative gearing has been around for 20+ years, yes 20+ years

there wasnt the hype back then with all the handout crew was there, just now when you can plonk yourself on the internet read a blog and you an expert,

why get rid of debt now as many are advising to do? if I dont have a job how can I pay mortgage or rent

how we going? still at 7x income, what a grand country we live in

play it fair

thankyou
robots

 

[Santoro]

Just a little reminder for those that compare Australia's high cost of property relative to the world market:

House prices have already effectively fallen 30% throughout the Australian market relative to the American market in the past month and 20% against the Euro market in the same period.

Don't expect that strong dollar to last too long with all that debt they have recently added. The USD is in line for a big fall effectively wiping out the middle class in the US. If I held large USD reserves I'd be looking to buy things with them ....esp resources. If or once this starts the value will plummet...

 

[Mofra]

And historically and fundamentally, this asset should never rise faster than wage/inflation growth because it is not a "value-adding" asset, unlike production factories, mines, etc. Of course, people tend to treat it much more valuable than mines/factories for reasons like there is more demand than supply of available land. And then you consider the irony of Australia is one of the most sparse populated land in the world....

In theory what you're saying makes perfect sense.
In practice, despite the sparcity of our nation we have one of the most urbanised settlement patterns on the planet, and these cities are based on a single transport hub/CBD, where proximity to this hub is at a premium. Given the rising pressure of transportation costs (both personal & goods) and time taken to travel to/from employers, this proximity will (IMO) continue to attract a premium in excess of inflation over a longer timeframe.

 

[gfresh]

Well, well, we're now starting to see "prime time" (channel 7) telling us now is not the right time to buy a property. Amazing. How things have so quickly changed in the space of 6 months.

Fear it seems is even ruling the property market.. These things have a habit of being self-fulfilling.

Property market takes another hammering

October 13, 2008

PANIC on Wall Street and world sharemarkets has quickly spilled into property, spooking buyers and sellers, pushing Melbourne's weekend auction clearance rate down 4%.

In some suburbs less than half the houses and units listed for auction found a buyer.

Real estate agents reported that conversations at public auctions and open-for-inspections were dominated by the collapse of the Australian sharemarket on Friday and fears of worse to come this week.

The jitters easily overshadowed the 1% interest rate cut by the Reserve Bank on Tuesday, and turned many auctions into lonely affairs.

The clearance rate for metropolitan Melbourne fell to 62% while many private negotiations after the hammer fell failed.

"What we are seeing is a stalemate," Eric Cohen, of Eric Cohen Real Estate, McKinnon, said.

"Buyers are certainly worried about the sharemarket and they are happy to wait even longer now before buying into property. And not only are they not buying, they are also not even looking, not turning up to open for inspections."

Clearance rates in the inner city, inner east and the west fell below 50%. In the inner east, the rate dropped to 37% against 53% for the previous weekend.

ANZ chief economist Saul Eslake said he believed prices would only fall significantly if owners began panic selling.

"But the more common reaction among vendors who are not selling because they have to is not to sell, and remain in the property for longer," he said.

"Turnover drops, perhaps sharply; real estate agents' incomes decline, and state governments experience shortfalls in revenue from stamp duty."

 

[Temjin]

In theory what you're saying makes perfect sense.
In practice, despite the sparcity of our nation we have one of the most urbanised settlement patterns on the planet, and these cities are based on a single transport hub/CBD, where proximity to this hub is at a premium. Given the rising pressure of transportation costs (both personal & goods) and time taken to travel to/from employers, this proximity will (IMO) continue to attract a premium in excess of inflation over a longer timeframe.

That is the biggest flaw there. How is it possible for house prices to attract a premium in excess of inflation over a long time frame? How long are you projecting? 100 years? You should be fully aware of your recency biases in that past performance is no indicator of future return. Just because the average return of properties from 1980 to 2008 is approximately 6-7% p.a., it does not automatically mean that the next 30ish years will produce the same return.

I don't think I need to explain the reason why house prices CANNOT increase above wage/inflation rate over a long time frame due to the affordability issue. If this continue to occur indefinitely, an average priced house will eventually require a repayment of more than 100% of an average income earner. Some people seem to think this is possible forever by making assumptions that perhaps we will have sustainable lower interest over the long term or multi-generational mortgage loan.

By the way, I agree your point with how our cities are urbanised based on a central business hub with surrounding suburbs. This type of "unsustainable" living pattern will have to cease one day and one day people will have to start getting used to living in apartments and not mansions with a big background. The reason why we are still following such a pattern is because of political and social reasons, that is, everybody love to own a big nice house with a backyard.

 

[Uncle Festivus]

Trends - some tightly held historic buildings, all asking $1m plus, are showing up in the local property guide, something I haven't seen for several decades. It is usual to get the odd one go up for sale, but there are now several pages full of 'prestige' properties for sale now. It's hurting the rich too?

 

[robots]

hello,

hope you have had a great day,

http://business.theage.com.au/business/big-banks-cut-fixed-rates-20081013-4zmg.html

nuffsaid!

thankyou
robots

 

[pepperoni]

That is the biggest flaw there. How is it possible for house prices to attract a premium in excess of inflation over a long time frame? How long are you projecting? 100 years? You should be fully aware of your recency biases in that past performance is no indicator of future return. Just because the average return of properties from 1980 to 2008 is approximately 6-7% p.a., it does not automatically mean that the next 30ish years will produce the same return.

I don't think I need to explain the reason why house prices CANNOT increase above wage/inflation rate over a long time frame due to the affordability issue. If this continue to occur indefinitely, an average priced house will eventually require a repayment of more than 100% of an average income earner. Some people seem to think this is possible forever by making assumptions that perhaps we will have sustainable lower interest over the long term or multi-generational mortgage loan.

By the way, I agree your point with how our cities are urbanised based on a central business hub with surrounding suburbs. This type of "unsustainable" living pattern will have to cease one day and one day people will have to start getting used to living in apartments and not mansions with a big background. The reason why we are still following such a pattern is because of political and social reasons, that is, everybody love to own a big nice house with a backyard.

This is so simple and fundamentally obvious that the sheeple seem to reject it.

They are drawn more to things that they dont understand and that dont implicitly make sense (ie 10% average returns with 4% wage growth because ... well ... just because).

I guess there was the eternal boom theory that might have supported their thinking but thats well and truly myth busted!

 

[robots]

hello,

for a bit of a laugh check ABC 4-corners tonite 8.30pm,

paul barry in the good ol' US of A, if you want to see one "sick" country check it,

down down down they go, thank the lord we here in Australia

thankyou
robots