House prices to keep falling for years

[wallyt99]

Should it be "My Fiance and I...."

Sorry to be picky, but you left yourself wide open.

LOOKOUT!!!! It's the Sunday 10pm Grammar Police.



I have a weighted average mark of 80.....so whatever.

 

[wayneL]

I have a weighted average mark of 80.....so whatever.

So we can conclude that that doesn't include Engrish?

 

[Temjin]

Me and my Fiance are considering buying....although everyone advises against it. Perhaps I can get some advice in my situation?

Now that kinda surprised me. Didn't expect the sentiment to change so quickly. Who are the people that you called "everyone"? Friends of similar age or baby boomers who have been in the business for many many years? (and have seen the cycles)

I consider this to be a long term investment, and the long term trend of an economy is up....so should I really wait on it?

Yes, the REALLY LONG TERM trend of economy is up because well....human society tend to grow. But are you willing to buy at the top of the market?

Any advice greatly appreciated.

My advice to you is that be very aware of your recency bias and REAL about the history of economic first. Consider the advises that those "everyone" have been giving you. Try to look at it from an unbiased way. If you find a point that you do not agree, ask yourself why you believe so? Also try to consider where did you get your information from? From the media? From the real estate agents who claim house prices never fall? Or from "similar age" friends who has done this 2-3 years ago and is now better off? (in which you would automatically assume that history will repeat itself forever)

My observation has been that alot of young people, especially those who are very well educated, are very prone to being too confident of themselves and ignore information and history that they have not personally experienced before.

To give you my perspective, and a surprise as well, I am ALSO a Master educated 26 years old with a combined income over $100k with my girlfriend (not yet my Fiancée yet hahah). We decided to put off buying house until the whole global credit crisis mess has sort out itself and when the economy has go through it's recession (and hopefully not), a depression.

Regardless, if you don't really care about the investment aspect of owning your house and that your decision to purchase it is an emotion one where you would like your own home and avoid renting, and that you are VERY CONFIDENT of your ability (and your Fiancée) that you will not be out of jobs over the next several years, then go ahead and purchase it. However, do not expect your house prices do go up as much as what has been observed over the last 7-10 years. This once in a life time global credit boom will not happen for a LONG LONG time again.

 

[CamKawa]

A call for Enzo's head.

RAIMONDO MUST RESIGN

 

[wallyt99]

A call for Enzo's head.

Exert from article - "In November 2007, Consumer Affairs in Victoria (CAV) introduced new laws which stated that agents could not advertise a "plus" price or use the term "in excess of" to quote a price. "

RAIMONDO MUST RESIGN

Is this true? I see alot of properties advertised this way, and the vendor does not accept offers of the advertised price.

 

[Temjin]

http://www.bloomberg.com/apps/news?pid=20601206&sid=aBCuyixr8nJE&refer=realestate

uly 31 (Bloomberg) -- Australia may be headed for a housing recession similar to those roiling the U.S. and U.K. The cause is a combination of rising default rates, the biggest drop in home prices in five years, the highest borrowing costs in a decade and slowing economic growth.

Prices in the property market -- described by the International Monetary Fund in April as one of the world's most ``overvalued'' -- will fall 30 percent by 2010, according to Gerard Minack, senior economist at Morgan Stanley in Sydney. Prices dropped in all of Australia's major cities last month for the first time since just before the Great Depression.

``I panicked'' when the figures came in, said John Edwards, chief executive officer of Residex Ltd., a Sydney company that tracks property prices. ``We've been doing this for 20 years and have data that goes as far back as 1865, and it's really abnormal.''

Prices fell in Sydney, Melbourne, Brisbane, Perth, Adelaide, Darwin, Hobart and Canberra by between 0.6 percent and 2.2 percent, according to Residex. The national median house price fell almost 3 percent to A$458,000 ($435,000).

``Australia is headed for a once-in-100-year real-estate slump,'' Edwards said. ``I have never seen the convergence of so many negatives.''

Rising property prices drove a decade-long consumer spending boom that saw Australia's $1 trillion economy weather fallout from the 1997 Asian financial crisis and the collapse of Internet stocks in 2000.

Soaring Prices

Household debt has almost doubled since 1999 to around 160 percent of incomes, a higher ratio than in the U.S. and U.K., according to AMP Capital Investors. The median national house price soared about 140 percent in the same period.

``By every metric I can think of, Australian houses are too expensive,'' Minack said, costing an average of six years' earnings, double what Americans paid before their property market started falling in 2006.

The Washington-based IMF says Australian house prices were overvalued by almost 25 percent in the decade through 2007 when compared with household income and ability to pay debt. Only Ireland, the Netherlands and the U.K. were higher.

A crash would ``result in a significant negative wealth shock'' for Australians, whose spending accounts for about 60 percent of the economy, Minack said.

While growth is expected to continue for a 17th straight year in 2008, the Reserve Bank of Australia forecasts it will slow to 2.25 percent from 3.9 percent in 2007. A government report today showed retail sales fell 1 percent in June, the biggest drop in six years.

Bank Stocks

A housing recession may also trigger losses at lenders including Commonwealth Bank of Australia and Westpac Banking Corp., whose stock has fallen more than 20 percent this year.

The nation's five largest lenders have added an average 105 basis points to mortgage rates so far in 2008 as the global credit squeeze drove up funding costs. They were also reacting to moves by central bank Governor Glenn Stevens, who raised the benchmark lending rate twice this year by a total of 50 basis points to a 12-year high of 7.25 percent to curb inflation. Prices gained 4.5 percent in the second quarter from a year earlier, the fastest pace since 2001.

The increases have added A$250 to monthly payments on an average A$250,000 home loan, according to the Real Estate Institute. Households spent 38 percent of their incomes on mortgage payments in the March quarter, the most in the 22 years the institute has measured affordability.

`Mortgage Stress'

Sydney research company Fujitsu Consulting says 923,000 households will face ``mortgage stress'' by September, up from 171,000 a year earlier who said they were having trouble repaying loans. Australia's population is 21 million, and 6.9 million households have mortgages.

As the pressure mounts, consumers are spending less on televisions, cars and vacations, hurting retailers including department store chain David Jones Ltd.

Ratings agency Standard & Poor's reported July 23 that payments more than 30 days late on so-called prime home loans increased for a sixth month to a record 1.49 percent in May. Some 14.5 percent of subprime loans were 30 days late, with 7.9 percent more than 90 days late.

John McGrath, chief executive officer of McGrath Estate Agents in Sydney, said the number of unsold homes in his market is rising, auction rates are falling and the time it takes to sell properties is up 50 percent from a year ago to 45 days.

``We're not even in the ballpark when it comes to affording a house in Sydney,'' said Anthony Duckworth, 30, a married father of one who works for a catering company.

Commuting Distance

With A$160,000 in savings, he would need a A$600,000 mortgage to buy a family home in Australia's biggest city -- double what he can afford. So he plans to buy north of Sydney and commute.

The central bank says lending grew in May at the slowest annual pace since 1991, when the property market collapsed amid mortgage rates as high as 18 percent. Home-loan approvals dropped by the most in eight years.

``It's like a debt tsunami out there,'' said Sandra Saker, who manages a Salvation Army service for families in Sydney overwhelmed by financial problems. ``Five years ago, the maximum debt people came in with was about A$200,000. Now we see people coming in with over A$1 million.''

Once in a hundred year event, a typical black swan. No wonder a lot of people ALWAYS BELIEVE that house prices will NEVER FALL.

Of course, I said to be wary of information from the media, and this is no exception. However, I would not look at the comments made by the journalists, rather, I would look at the data presented and find out if what was said is true.

 

[ROE]

About me:

26 Year old Australian.
Masters Educated.
Engaged.
Combined Stable income: 100k.

Me and my Fiance are considering buying....although everyone advises against it. Perhaps I can get some advice in my situation?


We are looking at a potential property which is within walking distance of my Mum. (free childcare) The block has a delapidated 3BR weatherboard on it ATM, and plans and permits for a 2BR unit at the back. It is selling at 260+. House prices in the area range from 270 to 360.

Purchase 265k.
Develop Site. 100k.

There are then many options....Whether we sell, rent ect. is irrelavent.

2 properties each @ 200k+

I feel that now is a good time to buy, as the uncertainty in the market means we can squeeze a potential seller for a good price.

I consider this to be a long term investment, and the long term trend of an economy is up....so should I really wait on it?


Any advice greatly appreciated.





Oh.....and having been looking for 3-4 months now, I can say good value (position, price, layout) houses are still selling. However the ones which don't offer alot sit on the market for a long time.

My take on this is, you going to need a place to live, whether buying and renting you still need a place.

If you can afford it after you factor in all the down sides then why not.
if you are having kids having your own place is better than renting because you get to do what you want with your place and have a stable home for the kids... with renting you up to the mercy of the landlord and they can sell up the place any time and force you to move when you don't want to.

you obviously got your finance right and buy within your price range..

260K is reasonable and provided you can continue to repay the loan through thick and thin economic condition then I cant see the reason for holding it back.

I bought mine when I was a little younger than you but back then I wasnt too concern how expensive or how cheap the property was... I was purely concern on if I can buy within my price range and If I can afford to pay it if interest was to go to 12% and I repay my repayment based on 18% ..
I remember 25 years for me was $700 a fortnight ... I pay $1400 a fortnight

done deal 7 years later my own place ... about to upgrade in the next few years and calculate at 20% interest repayment

I do think current house price is over value and I'm prepare to wait a little to see how things pan out.. I have plenty of cash and I can pound anytime I want so no need for me to rush.

 

[wayneL]

Roger Bootle is another finance journo worth reading. Good article here with applications to the Oz market IMO.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/08/04/ccom104.xml

The faster house prices fall, the better off we'll all be

By Roger Bootle
Last Updated: 10:38am BST 04/08/2008

Something must be done! This is something. Therefore it must be done. Following such logic, governments have blundered into all sorts of interventions which they have subsequently lived to regret.

By contrast, last week's interim report from Sir James Crosby on the mortgage market came up with virtually no proposals for action. But was this a mark of failure or of success?

SNIP:

But don't prop up house prices. They have got wildly out of line with the economic fundamentals. They can only get back into line by falling or by the fundamentals adjusting to those prices. The latter would mean higher wages and salaries and that would entail much higher inflation for several years. That is a route we should want to avoid at almost all costs. Accordingly, it is house prices that have to do the adjusting. The faster that they fall, the sooner that they can get back to a reasonable level and normal conditions can resume.

The Government has banged on ad nauseam about the need for "affordable housing" and has introduced various ill-conceived measures to promote it. In fact, the best way to make houses more affordable is for prices to carry on falling. Like it or not, that is what is going to happen.

 

[wayneL]

In other news in The UK market:

 

[pepperoni]

On the recent housing bubble ... "the bigger they are the harder the fall" ..


http://business.smh.com.au/business/housings-downhill-run-has-upside-20080805-3qig.html

 

[theasxgorilla]

In other news in The UK market:

Love the headline about the French trader.

 

[gfresh]

Housing finance continuing their steep falls last month. Financing for owner-occupier taking the biggest hit, down 3.7%. Largest falls in NSW (-6%), and QLD (-5.8%) also starting to show it's not immune. Uptick (+6.9%) in financing for owner-occupied newly constructed properties. Investors still fairly steady with 0.3% fall in financing.

http://www.abs.gov.au/ausstats/abs@...mmary&prodno=5609.0&issue=Jun 2008&num=&view=

 

[Mofra]

What are "auctions with no result"? Are these auctions that passed in but the REA has failed to report them to REIV?

Cam,

I e-mailed REIV on the weekend, as I couldn't think of any normal circumstance an auction would have "no result" that wasn't either a sale, passed in, or later sold after negotiation with the highest bidder. My reply (just received) was:

"Thank you for your email.

Auctions with no results are not included in any of the above figures.

Kind Regards,"

So basically we have:

TOTAL AUCTIONS
This week: 428
Last weekend: 445
This time last year: 491

S Sold at Auction: 211
SB Sold before Auction: 56
SA Sold after Auction: 4

Passed in: 157
Clearance rate: 63%

Postponed: 0
Withdrawn: 2
Auctions with no result: 54

54 "results" not included in the above figures. Have asked for further clarification, because to be honest I'm baffled.

 

[wayneL]

Another update from over here:

http://business.timesonline.co.uk/t.../construction_and_property/article4477236.ece

From Times Online
August 7, 2008
Halifax piles more misery on housing market
Heath Aston

British house prices fell for a sixth month running in July to an average of £177,351 - a price in line with the average in June 2006.

According to HBOS, Britain's biggest mortgage lender, properties are changing hands for 11 per cent less than the average £199,600 that they were at the last peak in August 2007.

The rate of decline is now sharper than in the last housing slump in the early 1990s.

According to the Halifax House Price Index released today, prices fell 1.7 per cent in July to a UK average of £177, 351. The survey fits with recent data from rival Nationwide, which found also found that prices were 1.7 per cent lower in July.

 

[WaySolid]

Far out.. Just noticed this thread! Completes the trinity I guess..

House prices to..... nah can't think of another one.

Those comments by John Edwards are pretty worrying, he's a guy that should be on top of the data. Interesting times anyhow.

I'm curious about the RBA, Glenn Stevens strikes me as a smart cookie, and they kept rates on hold even though they have been tracking all of the falling data points.. Are they still inflation nazi's or are they thinking it's not as bad as to need some pretty swift rate cutting?

Will go and have a closer read of Edwards writing now, haven't noticed it before, thanks for the link

 

[lusk]

I'm curious about the RBA, Glenn Stevens strikes me as a smart cookie, and they kept rates on hold even though they have been tracking all of the falling data points.. Are they still inflation nazi's or are they thinking it's not as bad as to need some pretty swift rate cutting?

They want to make sure they have pushed the economy well and truly into the Bust cycle before they take the peddle off and start lower rates. I believe they will keep rates on hold until you start seeing the liquidation process begin and significant falls in house prices, l can't see them lowering rates and letting house prices barrel on upward if they do we are on a road to nowhere.

 

[explod]

This thing of rates, jawboning by Government and the banks. Interest rates are effected by world monetary policies and the most import, MONEY SUPPLY.

Governments have only the ability to deflate its value by printing more. On the global plain money is in short supply so it is getting expensive. That means higher rates, which we have witnessed with the actions of our big four over the last few months. The US are printing like crazy to try and keep rates down but still it is failing and the banking institutions continue to go to the wall.

It has got to the stage here in Aus. where small businesses can no longer get money at all for plant and expansion.

So in my view if anyone really believes that there is any chance of a real drop in local rates they need to have a good think.

 

[CamKawa]

So in my view if anyone really believes that there is any chance of a real drop in local rates they need to have a good think.

I just walked past my local ANZ branch, they have lowered the 6 month term deposit rate from 8.15% to 7.80% . The banks are pretty good at picking which way rates are going to move, they wouldn't be lowering rates if they thought they were going up. It would suit me if they kept going up but I don't think they are going to.

Maybe you should have a good think?

 

[gfresh]

That's because ANZ just dropped their fixed rates across the board, including their mortgage ones

http://business.theage.com.au/business/anz-cuts-fixed-mortgage-rates-20080808-3s4w.html

 

[CamKawa]

So who's going to rush out and buy this partially built home in Cranbourne?
http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2007313626&s_rid=buy:HaveYouConsidered#