House prices to keep falling for years

[Warren Buffet II]

What do the bears think of these numbers relating to Sydney house prices.

Data shows % change to average house price - 1970 - 2003:

% change
1970 18,700
1971 21,200 13
1972 23,700 12
1973 27,400 16
1974 31,800 16
1975 34,300 8
1976 36,800 7
1977 39,200 7
1978 43,200 10
1979 50,700 17
1980 68,850 36
1981 78,900 15
1982 79,425 1
1983 81,425 3
1984 85,900 5
1985 88,350 3
1986 98,325 11
1987 120,025 22
1988 141,000 17
1989 170,850 21
1990 194,000 14
1991 182,000 -6
1992 183,300 1
1993 188,000 3
1994 192,375 2
1995 196,750 2
1996 211,125 7
1997 233,250 10
1998 248,750 7
1999 272,500 10
2000 287,000 5
2001 322,500 12
2002 387,500 20
2003 454,250 17

Those are poor number in my opinion. This just shows a 10% return year on year which is just an average for any investment as shares for example.
But do not forget, if you bought in 1970, how much money have you spend on maintanance, council rates, insurance and bank mortgage interests?.
Well, if you do not know I'll tell you, you have spent much more that the 454,250 you ended up with.

So, can you sell to enjoy that money if that is your place of residence, I bet no, so you will end up living in a poor place without money after your 35 years investment.

WBII

 

[Warren Buffet II]

Have you seen the Australian Net Savings rate?

I understand that for every dollar aussies spend on credit cards banks need to borrow 105% overseas to sustain it.

Aussie saving is much more less that 0%

WBII

 

[YChromozome]

Aussie saving is much more less that 0%
WBII

 

[Aussiejeff]

Did we lead the US into a credit trap?

 

[Mofra]

It then occurs to me a few days later that isn't this a creation of sub prime?

Doesn't this just lead poor first home buying lambs with very little capital and a world possibly on the brink of a recession/depression to the slaughterhouse!?

The sub prime mess was caused by a lack of credit standards, not a one-off payment to a minority segment of the property market. Credit standards (for secured loans at least) are infinately higher in Australia than they are in the US.

 

[Mofra]

Those are poor number in my opinion. This just shows a 10% return year on year which is just an average for any investment as shares for example.
But do not forget, if you bought in 1970, how much money have you spend on maintanance, council rates, insurance and bank mortgage interests?.
Well, if you do not know I'll tell you, you have spent much more that the 454,250 you ended up with.

You'd need to calculate your ROI on initial capital, not entire spend as it is very unlikely that you've paid cash for that property, then subtract cumulative interest payments anyway.
Shares are in front IMO because most comparisons I've seen fail to include franking credits into the scenario, which combined with lower overheads make it a much better asset class for accumulation.
The only real advantage of property for investment is the ease & the cost of credit.

 

[stock_man]

Those are poor number in my opinion. This just shows a 10% return year on year which is just an average for any investment as shares for example.
But do not forget, if you bought in 1970, how much money have you spend on maintanance, council rates, insurance and bank mortgage interests?.
Well, if you do not know I'll tell you, you have spent much more that the 454,250 you ended up with.
WBII

Not sure how you cam up with spending more than $454,250 over the life of the loan?

(Based on $18,200 borrowed - 100%)
Weekly P&I Repayments @10%: $37
Total Repayments P&I: $58K
Rates (average $500/year): $15K
Insurance (average $500/year): $15K
Maintenance (average $2000/year): $60K

Total Spent: $148K

These figures are averaged very high as well. I would estimate that the average for insurance and rates etc would be much lower.

What did he spend the remaining $306K on? ($10K / year)
Probably holidays, swimming pools, cars

 

[Temjin]

I didn't intentionally leave any data out - I just didnt have time to find a more up to date data set.

It could be argued though that we have reached this same point a couple of times before according to the data set - wouldn't you agree? - e.g. 1982 - 1985 & 1991 - 1995.

The biggest problem that people most have is they are too close to the problem but fail to step back and look at the bigger picture.

If I show you the same price series (based on the same collection method) from 1940 to 1980, the whole picture will be different.

It is known that house prices (and not just Australia along) has historically track inflation rate from 1900 to 1980s. When the credit super cycle got kick started, every single assets then went into a booming mode.

Again, on the same other forum, no one has ever answered my question on why house prices can INDEFINITELY rise above wage growth over the very long term. (30+ years) Wouldn't this one day make an average income earner to pay more than 100% of his/her income to service the mortgage loan on an average priced house. Clearly this is unsustainable. But of course, people think boom will last forever because it has done so before. Recency bias again.

Past performance is no indicator of future return.

 

[gfresh]

Temjin: nice questioning over there.

What bothers me is belief disconnect between what is happening, or quite likely to happen in the real economy, and the refusal to accept this will have a marked effect on the housing market. Falling values are happening in major markets overseas quite clearly. It has at all other major periods of economic downturn to some extent, yet apparently it can't happen this time Economists aren't always right, but often they can be close, especially when the big bear is staring them in the face.

This is the worst financial crisis in 80 years, and yet, no effect can be possible other than seen in the last 20 years??

And in other news, exactly what I was suspecting on the Gold Coast property market a few months back. It doesn't make sense (wages vs prices), and we're now starting to see some reality come back in:

http://www.goldcoast.com.au/article/2008/10/17/17573_gold-coast-top-story.html

The latest overview of the Gold Coast residential market produced by Bundall-based property valuers LandMark White is not pretty reading.

"At the moment there is too much volatility in the market and buyers' confidence has definitely taken a hit," said LandMark White Gold Coast director John Muchall.

"People just don't know what is going to happen. They are wandering round in shock wondering what to do.

"That translates in the property market into slowing sales and dropping sales volumes as people wonder how the global financial crisis will affect them."

The report found median house prices recorded the second consecutive quarter of decline, down 4.96 per cent to $490,000.

But it is sales volumes which have seen the biggest slide, dropping by 21.86 per cent in the last financial year and continuing their downward plunge since March, 2007.
...

All property experts now admit the prestige property market has taken a dive since the start of the year, with some waterfront and beachfront homes down in price by 10 to 15 per cent.

More facts here, these are property valuers, it is there job to...value property independently, and they are writing down a very real 5% here.

Thanks to lovely news ltd journalism I've got a picture of these property sellers standing around in a daze that there are no buyers.. I'm sure they'll find plenty if they drop the price 20%, there are always buyers at the right price.

One of Bligh's Ministers came out yesterday and let his tongue wag, suggesting Government was stuffed without the stamp duty incoming from house purchases. He was put back in his box, but still, it's been happening in NSW, it is likely here.

 

[Warren Buffet II]

Not sure how you cam up with spending more than $454,250 over the life of the loan?

(Based on $18,200 borrowed - 100%)
Weekly P&I Repayments @10%: $37
Total Repayments P&I: $58K
Rates (average $500/year): $15K
Insurance (average $500/year): $15K
Maintenance (average $2000/year): $60K

Total Spent: $148K

These figures are averaged very high as well. I would estimate that the average for insurance and rates etc would be much lower.

What did he spend the remaining $306K on? ($10K / year)
Probably holidays, swimming pools, cars

Have you ever heard about compounding interest? and the word inflation?. I will explain that to you so you can find the rest of your money, I am sure there are more people like you out there that make that kind of calculations and believe that are 306K ahead.
Get each of those values per year and bring them to the present value using an inflation number. check this example:
With your weekly payment in year 0 of $37 do the next calculation with an average inflation number of 5%:
37*(1.05)^33 = $185

Now, do the math for all those numbers and come back.

WBII

 

[MrDamage]

If I show you the same price series (based on the same collection method) from 1940 to 1980, the whole picture will be different.

Please do. I have been trying to find this data.

 

[Glen48]

ABC news today told of WA house prices going down some loosing 45K and WA is the best place to make a living.
BHP is at $26 a few weeks ago they were $46 I am betting next week or so $15.. and then keep going down
Would you buy at $15.00 is it a good buy or could they keep going down that is what we are facing.
China is starting to take a dive yet 3 weeks ago they were there to save us.
Why can't this keep going down until the bottom is buy 1 at 10c get 1 free????
Just like 9/11 no one would ever think it could happen now that it has it is
acceptable.

 

[stock_man]

Have you ever heard about compounding interest? and the word inflation?. I will explain that to you so you can find the rest of your money, I am sure there are more people like you out there that make that kind of calculations and believe that are 306K ahead.
Get each of those values per year and bring them to the present value using an inflation number. check this example:
With your weekly payment in year 0 of $37 do the next calculation with an average inflation number of 5%:
37*(1.05)^33 = $185

Now, do the math for all those numbers and come back.

WBII

Ouch!!! No need for the attack!! It might be nicer if you could illustrate to myself (and all the others you placed into the same category) where all the money has gone. It is much nicer to share wisdom and help others as opposed to public ridicule.

Anyhow, true, I was being lazy in my calculations. I took what I perceived was a generous average mean for the rates, insurance etc (being too lazy to work on the inflation adjusted figures).

Does the amount paid on the interest for the loan not change with inflation, as the final amount left is the same as the original amount, ie $18,200.

As I see it, the interest payments become less over time due to inflation. I would appreciate your help into the missing $$$$

Cheers

 

[Temjin]

Please do. I have been trying to find this data.

Here you go.

http://www.library.unsw.edu.au/~thesis/adt-NUN/public/adt-NUN20071210.120652/index.html

Remember there is no "reliable" housing data that goes back before 1970s. However, Nigel basically used the data series made by BIS Scrapnel from 1965 to onwards. And thus, he applied the same method for data before using other sources.

Robert Shiller in his Irrational Exuberance book also constructed a similar series based on the same data collection method.

Most would found it surprising that the real price of house has barely moved beyond above inflation from 1900 to 1970s and has pretty much exploded since the credit super structure began 25 years ago.

For the latest information on this "credit super structure cycle", refer to the following report from Merryll Lynch.

http://cfcr.ml.com/GetDoc.aspx?e=5Q%2fVo0o9XsED%2f8F4M6l%2fyyL4hHiMTF4vtdtjObk2HN7rX25MG5ZD06uznwQl5QNOdWancTQ%2bDVxdjB7oLHoA1Q%3d%3d&ctbDocIDs=10772136&v=1&m=%2b4K0MqQy8Zjr%2frmZ33Uci7rsXXU%3d

 

[awg]

talking to my RE agent who handles my Commercial lease yesterday.

I asked him what prices of residential RE had done in the local area he handles in the last 12 months. (SE coastal Newcastle area)

He told me prices had fallen 20-30%.

i mentioned I believed at least another 10-20% or more to fall.

I was out at a very nice new lakeside residential development last weekend, heaps of brand new places on the market in the $600k+ bracket.

Why would you even think of paying that at the moment?

You would have to be completely mad

 

[robots]

hello,

here we go property professors!

http://www.news.com.au/heraldsun/story/0,21985,24510915-661,00.html

down they go, fantastic a company many "rent money off" has just sent a nice little reduction through, the money renters on a run again

woo hoo, hope everyone has had a great day

any questions fire away

thankyou
robots

 

[gfresh]

I'll be in at 6.5%, as long as prices seem steady enough

I thought I heard you on the radio today actually: "Great news for first home buyers, with property prices on the Goldcoast down 5%".

(note, I am not being sarcastic, this was the lead story on commercial radio)

 

[gav]

Did anyone read Steve Keen's "Housing’s day of reckoning delayed" on tonights Eureka Report? He believes our property bubble burst will be worse than that of the US, and our houses are heading for a 40% fall!

 

[MrBurns]

Did anyone read Steve Keen's "Housing’s day of reckoning delayed" on tonights Eureka Report? He believes our property bubble burst will be worse than that of the US, and our houses are heading for a 40% fall!

There's no doubt that he's right, except I beieve it will be more like 50%

 

[ggumpshots]

Annual immigration is 240,000 and with an annual shortage of 50,000 houses yearly.
Rent is pretty tight at between 1 and 3 percent depending on where you are

Prices wont continue accelerating at the previous ratres which i accept.

can someone show me the math for a 40% or 50% drop in prices?