House prices to keep rising for years

Time to change subjects...

Reasons.

a) limited supply and increasing demand (immigration)

b) increasing building costs of new homes ripples through to all housing

c) increasing minimum expectations (McMansions)

d) increasing wealth trickling down from mining boom

e) increasing cost of capital (interest rates)

f) increasing wage pressure


The increased building costs are due to:-

1) skilled labour shortages (tradies)
2) increasing OHS requirements
3) increasing environmental standards
4) inflation based increases in building materials
5) increasing compliance requirements on builders

And thats before we start discussing land prices, let alone the dramatic wages currently available to ordinary people who are willing to work in unpleasant places for a while and save big deposits. Nor have I factored in a shift from the stock market back to housing (which I suspect will only be transient).

I can't see a lot of these things reversing all together. It seems to me that those who are hoping for a collapse in house prices are really up against it. It may well be that ownership of property will define the wealthy and the poor, and perhaps eventually require legislation to redistribute the wealth (like the UK did with its death duties to force heirs to sell the family castle etc). But that is a long time away; endless cheap land is the historic reason why every Australian expected his own backyard, but those days are disappearing fast and the owners of land are getting wealthier and wealthier.

And rents will go up up up up...

Thats my theory anyway...

moses said:

Time to change subjects...

Reasons.

a) limited supply and increasing demand (immigration)

b) increasing building costs of new homes ripples through to all housing

c) increasing minimum expectations (McMansions)

d) increasing wealth trickling down from mining boom

e) increasing cost of capital (interest rates)

f) increasing wage pressure


The increased building costs are due to:-

1) skilled labour shortages (tradies)
2) increasing OHS requirements
3) increasing environmental standards
4) inflation based increases in building materials
5) increasing compliance requirements on builders

And thats before we start discussing land prices, let alone the dramatic wages currently available to ordinary people who are willing to work in unpleasant places for a while and save big deposits. Nor have I factored in a shift from the stock market back to housing (which I suspect will only be transient).

I can't see a lot of these things reversing all together. It seems to me that those who are hoping for a collapse in house prices are really up against it. It may well be that ownership of property will define the wealthy and the poor, and perhaps eventually require legislation to redistribute the wealth (like the UK did with its death duties to force heirs to sell the family castle etc). But that is a long time away; endless cheap land is the historic reason why every Australian expected his own backyard, but those days are disappearing fast and the owners of land are getting wealthier and wealthier.

And rents will go up up up up...

Thats my theory anyway...

Click to expand...

You wouldn't be looking for a Valentine would you?

Totally agree Moses

The US house prices are failing so rapidly becasue they are such an unproductive country and simply consume more than they produce.
The US became the most powerful country in the world on the back of resources such as oil, wheat etc but since the 70's when they became a debtor nation they have been on a downward spiral.

Australia has quite a small population and lots of potential for an increase in population, birth rates are slowly starting to increase and we have abundant supplies of energy and resources. We are probably in the best country on earth. We have resources which exceed chinas in some area with a 1/50th of the population.

In terms of been self suffiecient we are not to bad, our agriculture can supply our population and there is heaps of room for agricultural expansion eg. the Ord river etc. + were coming off the back of a severe drought and undoubtedly will have some bumper crops for the next few seasons. We have enough coal for 300 years and enough geothermal for 1000 years and its cheap!

I do believe that with the decline in oil there will be a huge emphasis on Urban consoldation and the biggest house price gains will be in colse proximity to major metro centres, I don't like the outlook for the outer burbs.

The cost of services is only going to rise and the best way to keep them low is to stop the sprawl and consolidate. I don't think the NSW gov should release more land I think we should make better use of the land we have.

KIWIKARLOS said:

Totally agree Moses

The US house prices are failing so rapidly becasue they are such an unproductive country and simply consume more than they produce.
The US became the most powerful country in the world on the back of resources such as oil, wheat etc but since the 70's when they became a debtor nation they have been on a downward spiral.

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I'm usually the first to criticize the US's economy, but the above statement is totally ludicrous. The US's GDP per capita is still far greater than OZ.

And by the way, Australia is also a debtor nation. I guess it's on a downward spiral as well. LOL

wayneL said:

I'm usually the first to criticize the US's economy, but the above statement is totally ludicrous. The US's GDP per capita is still far greater than OZ.

And by the way, Australia is also a debtor nation. I guess it's on a downward spiral as well. LOL

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I would argue that GDP is not the best indicator of a "productive" nation. Alot of that GDP you are talking about would be generated by the US monster financial institutions and banks which play funny games with trillions of dollars. The same insto's that are writing off billions of dollars of monopoly money. Plus the fact that the US has made its dollar the world currency and the fact you can really only buy oil in USD. Its propping them up.

I believe that the real value of a countries money is tied to the tangible assets it can produce. How much do you think their GDP is now with all the economic woes going on I mean for heavens sake they are sending rebate checks to a huge % of their population!

How about other measures such as purchasing power etc.
No country can remain a debtor nation forever its just not possible you have to start paying back the loans sometime or you just default. Notice now its the creditor nations that are in essence saving the debtor nations by pumping billions into their economies.

I think it is a big issue that we are in fact in one of the best positions economically for a half century yet we are still borrowing money from foreigners! What happens if the commodity boom slows or even stops
Times like these should be used to cushion against future times that won't be so good.

KIWIKARLOS said:

I would argue that GDP is not the best indicator of a "productive" nation. Alot of that GDP you are talking about would be generated by the US monster financial institutions and banks which play funny games with trillions of dollars.

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Per person GDP is universally accepted as the best indicator of a 'productive' nation, but of course you can argue with that.

But if you are measuring 'what they produce', consider the computer you are using and a large proportion of the technology you enjoy, most of the media you consume whether it be entertainment or reference (which includes trends, culture, and marketing itself), not to mention plenty of foods, drugs, etc. It's true that the USA is long since being the 'world's factory' but it now leads the world in other much more lucrative areas - innovation, ideas, technology.

To suggest that Australia is somehow more 'productive' than the USA - based on mining? - is definitely something I haven't heard before! Apart from mining we are in the same boat as the USA except we are far less innovative and influential in the marketplace of ideas.

Personally I think the biggest problem is for those who are struck by fear into doing NOTHING.

I remember in 1996 when buying everything that the bank would let me get my hands on----being looked upon as a nutter.A few friends bought a little as investment and wish they bought more.

There are creative ways of taking advantage of that which Moses points out above and creative ways of mitigating Risk which Wayne is forever going on about.

There will always be risk in various degrees and there will always be opportunity in various degrees.

Talks is as expensive as it is cheap!

KIWIKARLOS said:

No country can remain a debtor nation forever its just not possible you have to start paying back the loans sometime or you just default. Notice now its the creditor nations that are in essence saving the debtor nations by pumping billions into their economies.

I think it is a big issue that we are in fact in one of the best positions economically for a half century yet we are still borrowing money from foreigners! What happens if the commodity boom slows or even stops
Times like these should be used to cushion against future times that won't be so good.

Click to expand...

How true, how very true. Howard used that in his campaign to defeat the Keating government yet, under his leadership he allowed/helped the country into a worse position. Will Rudd get us out or dig the hole deeper?

KIWIKARLOS said:

The US house prices are failing so rapidly becasue they are such an unproductive country and simply consume more than they produce.

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If consuming more than you produce is measured in monetary terms, we literally suck.



http://www.whocrashedtheeconomy.com/blog/?page_id=4

If Australians are this bad at saving now, Id dread to see what happens in a recession or an enviroment of rising Interest rates

Whenever a boom reaches its climax, people scramble to find reasons why the good times will continue forever. During the tech bubble, people did the same thing (ironically the tech implosion triggered the housing bubble). I don't find the "reasons" for continued price growth reassuring at all.

Even the first (and most commonly cited) "reason" - immigration, is misleading, because the growth of our adult population is actually at historic lows, due to 30 years of below-replacement birthrates. Immigrants are preventing population decline, but that's all.

Even ignoring plummeting house prices in the USA, NZ and UK, there is one good reason why prices can't rise much higher: peak debt. We're reaching a point where the average household cannot afford to borrow more.

kivvygosh said:

Per person GDP is universally accepted as the best indicator of a 'productive' nation, but of course you can argue with that.

But if you are measuring 'what they produce', consider the computer you are using and a large proportion of the technology you enjoy, most of the media you consume whether it be entertainment or reference (which includes trends, culture, and marketing itself), not to mention plenty of foods, drugs, etc. It's true that the USA is long since being the 'world's factory' but it now leads the world in other much more lucrative areas - innovation, ideas, technology.

To suggest that Australia is somehow more 'productive' than the USA - based on mining? - is definitely something I haven't heard before! Apart from mining we are in the same boat as the USA except we are far less innovative and influential in the marketplace of ideas.

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Innovation sure but that doesn't help when a foriegn gov or company can simply steel your info and not contribute to its discovery. I would also argue that they are not the worlds leaders in innovation.

Look at GM ford etc the japs are kicking their butt in development of cars and drive systems hence why they are lossing so much money. The real big innovation in the US is to produce better arms ! I would say their best industry is the arms industry The Europeans are far more innovative in renewale energy than the US aswell !.

The big difference is in the US the laws are set up so that if a company releases a product and it causes harm the company gets sueed, hence they believe that this will result in safe products because nobody wants to get sued. But in fact the big companies just pay the victems off or get laws passed so they are not accountable. In europe a product must be proved safe before it is sold. Their product safety and standards are much higher than the US. Australia is actually also a world leader in producing medical breakthroughs, technology and drugs.

You say they export culture but that is on the wane aswell anti US sentiment is growing around the globe and people no longer see them as the best country to idolise and work toward becoming.

One last point throughout the cold war the USSR produced much more innovative weapons systems that were inexpensive and worked as good if not better than the US. They simply lacked the economic clout to compete.

Theres one thing you Property Spruikers forget to mention, there is only so much Rent people can afford to or are prepared to pay.

Really whats their other option?

Buy a house or live in a cardboard box :

Perhaps move to a rural community where there is no work, and no ladies :

Default on their rent and excercise squatters rights while their landlords bleed a grand a week

Even Pollys arnt getting pay rises this year, so dont put up their rent

RBA is going to put up the Money renters rent though

Kimosabi said:

Theres one thing you Property Spruikers forget to mention, there is only so much Rent people can afford to or are prepared to pay.

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thats why the average property over the years will increase in desity and get smaller. so that more renters will occupy the same land area.

yeah i have no sympathy for investors with multiple negatively geared houses. Negative gearing is BS all it does is push up house prices and feeds the asset bubbles whilst pushing first home buyers out of the market.
I was speaking to a guy a year ago he had 8 properties all on interest only loans ! I dont know who's the bigger scum the investor or the bank that backs him

numbercruncher said:

If consuming more than you produce is measured in monetary terms, we literally suck.

View attachment 18128

http://www.whocrashedtheeconomy.com/blog/?page_id=4

If Australians are this bad at saving now, Id dread to see what happens in a recession or an enviroment of rising Interest rates

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does it really matter if you are not saving cash but just investing all your wealth in income producing and growth assets.

I mean some one who took a snap shot of my personal finances today would see credit card debt of about $10,000 and about $250 in the bank,.... which may look bad. but if you took a closer look you would see that I never pay interest on that credit card debt and the only reason I have no cash is because i always use it for investing or clearing down debt.

KIWIKARLOS said:

yeah i have no sympathy for investors with multiple negatively geared houses. Negative gearing is BS all it does is push up house prices and feeds the asset bubbles whilst pushing first home buyers out of the market.
I was speaking to a guy a year ago he had 8 properties all on interest only loans ! I dont know who's the bigger scum the investor or the bank that backs him

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whats wrong with negative gearing property,.

any asset that returns less than 9% has to be negative geared,...... 95% of shares would be negative geared if you borrow to buy them.

Tysonboss1 said:

thats why the average property over the years will increase in desity and get smaller. so that more renters will occupy the same land area.

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Also the average number of people per household will probably increase (Kids stay at home longer, more lodgers etc), currently runs at like 2.6 ppl per household.

I know alot of argument gos to the supply side but last year was a 300k population increase, about half natural, yet 150k new dwellings built - that averages 1 dwelling per 2 people, seems to be keeping up to me. I assume a certain percentage would be tear downs and rebuild, but its surely got to be in the vicinity of matching supply despite what the commentators/spruikers are saying.

Its easy to research, always squillions of rentals available on r....e..comau , just certain areas that demand out strips.

This will be the tell tale year though to see who was right or the least wrong in the property debate If Interest rates bite and selling momentum and sentiment kicks in ..... youve got huge swathes of the population nearing retirement and if they see asset prices reversing and they are relying on that cash to fund retirement, oops

Anyone who thinks house prices will continue rising much further from their present levels must have rocks in their heads. Consider the following:

- Australia already has the most unaffordable housing of any developed country. Every single one of our capital cities is classed as "severely unaffordable" (the highest rating), with regional cities largely all in the same category as well. See detailed discussion on this in the latest Demographia report: http://www.demographia.com/dhi.pdf

- House prices in relation to incomes are now so far out of historical averages that it makes the US situation *before* their property crash look good. Check out this graph - it's scary:
http://tinyurl.com/239gqj
Prices clearly cannot continue to keep increasing, as there will soon be hardly anyone able to afford to buy anything! Where there are no buyers, prices must fall.

- The massive bubble shown in the above chart has been largely funded by debt, made possible by relatively low interest rates and a loosening of prudential lending standards. It certainly was not possible to borrow 100% or even more of the acquisition price 10 years ago, where the nominal repayments are 80% of the gross income - a true case - I dealt with a client in my professional capacity recently, who has entered into just such an arrangement! -- Now some lenders will do that. If that's not asking for trouble, I don't know what is.

- Personal debt levels in Australia are way above those in the USA:
http://tinyurl.com/2kxk9oY
Many of these people are already struggling to keep up with repayments; if the economy slows & unemployment increases, we'll see a property crash here that could exceed the current wipe-out in America. Some economists have mentioned across the board price drops of between 35-50% will be needed to restore affordability.

As share traders, you'd no doubt agree that over the long term, fundamentals tend to re-assert themselves, regardless of any short-term price fluctuations. This applies equally to house prices, and as anyone who was around in the late 80s & early 90s will attest, "safe as houses" is a massive fallacy.

I have no doubt that the current major falls of even large financial stocks (Big4 banks in particular), which would appear unjustified on current fundamentals, are at least to some extend due to the major institutional investors being concerned about a likely fallout from a property crash. Then of course the banks' fundamental indicators will suddenly look very different!

Keep in mind also that it's no longer just sub-prime borrowers in America that are getting evicted and their homes repossessed. We are even more vulnerable here in Australia - their interest rates are going down; our are going up. Our debt levels and subsequent servicing costs are much higher. Altogether a pretty toxic mix, if you ask me.

It is also interesting to note that some of the most affected areas in the States have also had housing shortages & major price rises & affordability issues, due to zoning restrictions etc. - especially California. Yet CA is now the amongst the leaders in repossession rates and price falls.

Property prices are also now falling in the UK, with loan defaults on the increase. Again, this is despite previously insufficient supply in some areas. The ridiculous prices and cost of debt servicing have all started to catch up.

Personally, I am a financial services professional and I can say I would not be in the least surprised if we had a recession in Australia over the next 12-18 months. And then all the bets on housing will be off.

Tom R.