House prices to keep falling for years

[MrBurns]

RP Data says "this is a sign vendor confidence has well and truly improved". Really, sure it doesn't mean no homes are selling and people are desperately trying to sell up regardless?

Thats absolute crap, listings are up because -

1. It's spring, the selling season
   
2. Many vendors are now stressed and need to sell.
   
3. Listings left over from previous weeks low clearance rates (especially in St Kilda)

Vendor confidence has improved ??????????? what planet are these people on ?

 

[robots]

hello,

great article from RBA man,

http://www.domain.com.au/Public/Art...o need to fear house price dive, says Reserve

i think his comment about "flattening" in 03 is spot on, man we miles ahead of US & UK,

the UK has just gone through the BTL debacle, we passed that in 03-04, the majority of views are behind the times

gee property creates so much emotion doesnt it? the great divide is on and on and its fantastic many are still here

i would like to take this time out to thank some of the contributors still kicking it on the property threads: gman, the nun, chops, beej, tysonBoss, NC, explod, steve austin, robots, camkawa, glen48, mr burns and all others

look forward to the next 30yrs,

thankyou
robots

 

[kotim]

Property in general is going down and that is a fact, no ifs or buts about it, the only parameter left to debate is how much. We should have an idea mid next year, but by then it will partly be hindsight.

As more statistics come out, then there will be more comparisons with the past, which ultimatley is all we as humans have to go on. So if the stats were to come out showing that historically we are in for a 25% fall, then expect a fall of that magnitute or whatever history tells us.

Greed feeds upon itself to extend booms and fear feeds upon itself to deepen busts.

Mind you, we are lucky that we can discount our interest rates a lot, however what everyone should remember is this, If Mcdonalds offer you half price slop, the prudent thing to do is save 50% but what nigh on everone does is say I can have twice as much, few eat the same and save the discount.

So no matter what the gov't does with rates, those who buy will buy to the hilt and guess what, we will have all time low rates but based on houses that are according to wages much expensive still and so when the rates start to go up again, you will have people who have paid big money for property even if we see only a 10-15 fall in prices, that have paid very high prices historically speaking for property.

Every new generation believes they know better and are smarter, but history always tells us otherwise

As the saying goes, a recession is a time for a transfer of money from those who thought they knew what they were doing to those who do know what they are doing.

 

[CamKawa]

RP Data says "this is a sign vendor confidence has well and truly improved".

Who are RP Data - Rismark?

Well lets have a quick look.

1. RP Data have significant interests in the mortgage market through Rismark who received an award for “Non-Bank Lender or Mortgage Manager of the Year – 2008”.

2. RP Data's share price (RPX) is under the pump at bit, down 64% trading at on all time low of just 0.70 cents and well below its listing price on the 15th of Dec 2006.

Could they be talking up their own book?

 

[nunthewiser]

Wise men learn by other men's mistakes, fools by their own.

A fool sees not the same house that a wise man sees

excellent quote

Thats absolute crap, listings are up because -

1. It's spring, the selling season
   

1. 
   
   BINGO!

 

[gfresh]

Who are RP Data - Rismark? Well lets have a quick look.
Could they be talking up their own book?

I don't trust too much of what RPdata releases, but many use it to see just how much money their property was worth on paper during the boom. Most agents throughout the country subscribe to their data. Their weekly newsletter has some interesting data sometimes, such as the auction results and total listings. The rhetoric is sometimes amusing though, there is never a negative.

Large listings just the usual Spring selling? Look at the same period last year on the tail end of that chart for Spring 2007, half what it is now

 

[grace]

Know personally of a house in Brisbane that has been on the market this year (on, then off, then on again).

Highest bid at auction today 40% lower than offer received at beginning of 2008.

Nice, inner city house. Not in the very top end market, but above average value range.

Brisbane is really starting to take a dive.

 

[singlefished]

Know personally of a house in Brisbane that has been on the market this year (on, then off, then on again).

Highest bid at auction today 40% lower than offer received at beginning of 2008.

Nice, inner city house. Not in the very top end market, but above average value range.

Brisbane is really starting to take a dive.

Like yourself, we've been keeping tabs on the Brisbane market... We first saw a smallish but fairly adequate house on 405sq.m in Wooloowin middle of last year - passed in at auction with a bid of 800K. Readvertised for sale again the following week looking for offers over 1.15M. Guess what - didn't sell....

Appeared again in April this year for a few months and finally sold in July. Just Checked "onthehouse.com" and the sale price 780K.

Not a bad result when "the market" valued it at 800K last year and "the market" has revalued it at 780K as of July this year. Pretty dire result however when you compare the eventual sale price to the vendors initial expectations though....

Plenty of lessons in there all of which I've read about elsewhere on the net... just goes to show that emotions should play no part in any financial transaction (buying or selling) and property purchase should be treated as a pure business decision regardless whether it's for investment or PPOR.

The poor bugger who was selling the house could have taken the 800K offered a year ago, stuck it in a term deposit at 8% for a year and come out with about 866K... With hindsight being 20/20, he'd have now been 86K better off before even considering the $$$ he'd have been pumping in over the last year paying back on the initial rented money....

 

[Beej]

Like yourself, we've been keeping tabs on the Brisbane market... We first saw a smallish but fairly adequate house on 405sq.m in Wooloowin middle of last year - passed in at auction with a bid of 800K. Readvertised for sale again the following week looking for offers over 1.15M. Guess what - didn't sell....

Appeared again in April this year for a few months and finally sold in July. Just Checked "onthehouse.com" and the sale price 780K.

Not a bad result when "the market" valued it at 800K last year and "the market" has revalued it at 780K as of July this year. Pretty dire result however when you compare the eventual sale price to the vendors initial expectations though....

Plenty of lessons in there all of which I've read about elsewhere on the net... just goes to show that emotions should play no part in any financial transaction (buying or selling) and property purchase should be treated as a pure business decision regardless whether it's for investment or PPOR.

The poor bugger who was selling the house could have taken the 800K offered a year ago, stuck it in a term deposit at 8% for a year and come out with about 866K... With hindsight being 20/20, he'd have now been 86K better off before even considering the $$$ he'd have been pumping in over the last year paying back on the initial rented money....

So all that story proves is that someone was "dreaming" about their house value (ie vendor expectation totally unrealistic as you state) - if the market valued it at $800k a year ago and $780k today, then that means prices have been essentially flat (or maybe -2.5%) since things were last booming in that area, all other things being equal.

Re putting the money in a term deposit, 1) 8% is an historically high cash return rate which is now all but gone and 2) he would also have to pay tax on that $66k of up to $30k, which really eats into the numbers quite a bit. The long term gains that will be made on PPOR property are all tax free.....

Cheers,

Beej

 

[cuttlefish]

Like yourself, we've been keeping tabs on the Brisbane market... We first saw a smallish but fairly adequate house on 405sq.m in Wooloowin middle of last year - passed in at auction with a bid of 800K. Readvertised for sale again the following week looking for offers over 1.15M. Guess what - didn't sell....

Appeared again in April this year for a few months and finally sold in July. Just Checked "onthehouse.com" and the sale price 780K.

Not a bad result when "the market" valued it at 800K last year and "the market" has revalued it at 780K as of July this year. Pretty dire result however when you compare the eventual sale price to the vendors initial expectations though....

Plenty of lessons in there all of which I've read about elsewhere on the net... just goes to show that emotions should play no part in any financial transaction (buying or selling) and property purchase should be treated as a pure business decision regardless whether it's for investment or PPOR.

The poor bugger who was selling the house could have taken the 800K offered a year ago, stuck it in a term deposit at 8% for a year and come out with about 866K... With hindsight being 20/20, he'd have now been 86K better off before even considering the $$$ he'd have been pumping in over the last year paying back on the initial rented money....

Just curious - what sort of weekly rent would a place like that in Brisbane be fetching? $400/week? $600/week? $300/week?

 

[robots]

hello,

its no different to banging a car on carsales.com for a "huge" price is it?

or putting a swiss army knife on ebay for a "huge" buy it now price?

havent noticed 5000+ blogs carrying on about those issues

thankyou
robots

 

[cuttlefish]

For an investors perspective the idea of selling in that scenario makes sense. For a home owner perspective the numbers there wouldn't yet justify the emotional upheaval involved in moving a house, kids, pets, vegie gardens, cubby houses, sand pits, green houses, skate ramps, basketball nets whatever the ingredients of a "home" are.

Thus given how attached home owners are to their abodes, the most likely cause of a move would be job losses creating a forced selling situation - the Australian way from past recessions is to try to tough it out when it comes to the family home - even if its a 20 year slog. Thus historically there have been sticky prices in patchy, inefficient markets that don't reflect the true values that supply/demand would normally dictate. (affecting historical price data probably in a way that makes things look better than they were I guess).

 

[Glen48]

In Sat. Courier Mail they was an article about parents trying to force their children to buy a house while times are good.
Wonder is the kids can sue their parents when their house values collapse or have them charged with child abuse.?

 

[generalofthearmy]

generalofthearmy is now guessing there will be a long term price slump.

this is not simply a correction based upon current economics, but a long-term bubble.

generalofthearmy has just been reading that houses are twice as affordable in Canada as here. This must be eventually corrected? Have a look at this interesting report. (Warning: It's written by an economist)

http://www.ampcapital.com.au/K2DOCS...s_edition-15_house-prices-and-debt.pdf?DIRECT

I wouldn't put money on it though, cos who knows when the discreptancy will be corrected. Could take many years or decades, right?

Generalofthearmy does not trust RBA predictions that the property prices have already popped. These seem based upon boom era fundumentals. If we have a depression, anything could change.

I once read a book by Janet Mcalman which stated that after the Melbourne 1880's land bubble popped, prices in Hawthorn did not return to boom heights until the early 1980's. NINETEEN EIGHTIES. (but don't quote me on that)

Cheerio.

 

[YChromozome]

Have a look at this interesting report. (Warning: It's written by an economist)

http://www.ampcapital.com.au/K2DOCS...s_edition-15_house-prices-and-debt.pdf?DIRECT

Cool Report. An updated version of the first graph in the report was posted here showing Australia is now following suit.

I'm a little more bearish than the report on Real House Prices being overvalued 32% above the trend or more precisely the trend doesn't go back far enough to be of any use. When you have a look at Robert Schiller's (US) and Nigel Stapledon's (AUS) real house price indices (Australian vs US Real House Prices) you see the trend line for the US is almost flat. This is what it should be, house prices should not rise faster than inflation or wage growth, otherwise eventually people will not be able to afford them.

When you look at the Australian graph you see the bubbles of 1950, 1970 and especially 1990 did not fully correct. There are some explanations behind this like the two income trap where the Australian Household now has two incomes to service the mortgage, not one. Others are increased household income from other investments (which should do well during a recession).

I note the AMP graph presented show real house prices (i.e. corrected for inflation) actually increase in value over time. If the trend line was to continue, it does mean at some stage in the future house prices will be priced out of reach of the majority - i.e. they increase faster than the owners ability to service them. Also never ignore the power of compounding. As the trend continues, it gets worse much faster.

It would be interesting to see if the AMP Capital Investors data goes back earlier than 1926. I also notice the peaks are not consistent with Nigel Stapledon's data set, no to say one is incorrect over the other. What is consistent is in the 2nd half of last century house prices did trend up in Australia (ignoring the current super bubble), which is not consistent with many other countries and skews the "overvalued by 32%" argument.

I also have to laugh at the shortage of house argument. Are people still using that?

 

[singlefished]

So all that story proves is that someone was "dreaming" about their house value (ie vendor expectation totally unrealistic as you state) - if the market valued it at $800k a year ago and $780k today, then that means prices have been essentially flat (or maybe -2.5%) since things were last booming in that area, all other things being equal.

As suggested, either the vendor was dreaming about their house value, the advising agent was dreaming about their house value or vendors on-the-hole in this part of town (do you know Brisbane well? - Wooloowin is a neighbour to some of the most exy burbs in the state) generally have until now had unrealistic expectations. I would suggest the latter as properties are not moving fast, if at all, around here so expectations need to come down to see a bit more liquidity.

On the ground, I'm seeing plenty of feet doing plenty of miles around the glut of properties on the market at the moment.... still hasn't translated into sales as yet.

The example would also go to show that at the end of the day in this current climate it's the buyers who have the initiative in setting prices, not the vendors. The properties won't sell unless vendors are prepared to meet the market (or some idiot with the $$$ burning a hole in their pocket )

Re putting the money in a term deposit, 1) 8% is an historically high cash return rate which is now all but gone

I'm not comparing historical averages here - I'm using market data appropriate to this time frame. Yes, high rates have gone, good for borrowers, not good for savers.... and your point is????

2) he would also have to pay tax on that $66k of up to $30k, which really eats into the numbers quite a bit. The long term gains that will be made on PPOR property are all tax free.....Beej

I'm certainly not going to comment the vendors tax liabilities - my example is purely hypothetical based on what feasibly "could" have been done with the proceeds of the sale from a year ago.

The hypothetical 66K interest earned may have been taxed in an unworking partners name that would only attract just over 13K of tax if there was no other taxable income (income splitting the ATO calls this).... nowhere near your 30K as suggested. This interest earning scenario would also suggest that the sold property was an investment and not a PPOR so would have been subject to substantial cap gains prior to even earning the 66K interest.

Or possibly this was a PPOR and the proceeds from the sale a year ago could have been sunk into another property and then subsequently lost 2.5% or more!

We will never know....

Just curious - what sort of weekly rent would a place like that in Brisbane be fetching? $400/week? $600/week? $300/week?

I'd be guessing for this property in particular about $450/week... could be wrong though.

 

[Glen48]

$450 PW then the house is worth $292,500.00
Strange how economist are doubting the Fed's figures on growth and saying the Fed's are too high, first time i have seen that.

 

[gfresh]

I repeat the basics again:

FHOB, entry level $330k unit (Brisbane):

Minus $14k - $30k deposit = $286k loan
$466/wk (7%)+$26 rates+$30 bodycorp = $522/wk

Rental Equiv: $300/wk.

Savings of $222 over mortgage put into bank x 52 weeks = $11,544

Deposit of $30k x lowly 5% interest x 0.70 (mid-bracket) = $1,050 interest

Total at end of year 2009 renter: $12,594

FHOB: 3% x $330k = $9.9k cap gain. Even a small possibility of a 2-3% fall, puts you a few behind, and likely $20k behind the lowly renter. It is quite a risk, never mind a bad case of 10% fall in 2009 were to take place.

To be honest, I doubt most FHOB do these sort of sums purely on dollars, although maybe some are starting to.

I think this, more than ever has stalled price rises this year -- there is no rush. There is no "I better buy now or it will cost me 10% more next year", or "I will never be able to afford my own place". This was the fear last year, this is what kept people buying.

Until that returns, the status quo will remain - low ballers, window shopping, but little buying. Then maybe the herd will take over, and when they see others buy in great numbers, they will buy.

As we saw after the recession in 1991, it was a good few years until that took place again.

 

[joeyr46]

$450 PW then the house is worth $292,500.00
Strange how economist are doubting the Fed's figures on growth and saying the Fed's are too high, first time i have seen that.

By my reckoning that works out at 8% before we minus rates insurance (agents fees) and maintenance (leaving interest out of the equation) Only reason to buy to rent is for capital gain and after so many good years you'd have to expect some sort of correction if only flat.
I was always taught that you should get $40 dollars (Rent) for every $16000 dollars spent. (292500/16000 *40=731.25 per week)
As this hasn't been the case for years something is out of whack and as history shows these things always come into the norm one way or another ie rents rise house prices fall or a bit of both :
292500 is a long way from $780000 and if we return to historic lows it could fall even further
And of course interest rates coming down is not neccesarily bullish for property as we saw from Japan since 87

 

[Pommiegranite]

Savings of $222 over mortgage put into bank x 52 weeks = $11,544

Don't forget the interest that the renter will receive on this money (which I can't be bothered to work out!)