House prices to keep rising for years

[Tysonboss1]

Yeah. If that house was on an acre's block next to the Sydney Opera House.

well around the cbd and the north sydney area is where alot of the median houses were over a 100years ago

 

[Beej]

Some interesting data out today from the ABS on loan commitments for housing. The number of loans for owner occupied houses are now -27.1% from the peak in June 2007 and the value of loan commitments is now off -28.8% from the peak.

The chart below tell the story. There is some severe mean reversion taking place. We're just getting warmed up here folks, following the US and more recently the UK into the real estate abyss.

Hang on a second - but I see AT LEAST 5 more troughs in that graph from the past at similar levels?? So what's your point? What happened to the property market during/after each of those past troughs?? In fact I bought my first house back in 1991 just as one of those past troughs was turning around - did pretty well out of that one

Cheers,

Beej

 

[ghotib]

Hey Wayne, Which trigger do you mean?

This is all a very practical question to me at the moment. My house cost 700 pounds in about 1920 and it's now for sale.

We've been on the market for 2 weeks with quite a lot of inquiry but fewer inspections than "normal" and no offers. We're currently reconsidering the price (we decided against auction).

If someone could come up with a bit of good economic news I'd be grateful.

Ghoti

 

[Temjin]

surprised Numbercruncher hasnt popped his head in today he is probably one of the best troll's going around, we all love him,

its all about breaking down barriers, open communication, realising people have different opinions,

I'm going to have to come in and defend Numbercruncher because he has been presenting factual information with evidences.

Like I said, criticising someone is the biggest communication roadblock. By calling someone a troll, you aren't really faciliating an open discussion here and creating more hostility. So I suggest you apologise for it.

Yes, you are right that everyone is entitled to their opinions. However, while I have seen honest and constructive discussion amoung most of the bears/bulls around here, you are the only one who is giving me the impression that you tend to ignore anything that you don't want to hear.

Of course, I'm sure most of us have given up trying to show you the facts, and we wouldn't even consider trying to change your opinion.



And yes, the discussion on a "hypothetical 100 year investment property" is stupid. How could you make a consistent assumption for THAT long a period? Anything could happen or change. You would have geological, political or environmental issues coming into play before you even consider the economic aspect of the investment!

 

[dhukka]

Hang on a second - but I see AT LEAST 5 more troughs in that graph from the past at similar levels?? So what's your point? What happened to the property market during/after each of those past troughs?? In fact I bought my first house back in 1991 just as one of those past troughs was turning around - did pretty well out of that one

Cheers,

Beej

1991 was indeed a great time to buy. The Australian economy was going into recession and as usual housing led the way. Housing had started to turn up about a year before the recession began so your timing was pretty good. The mistake is to believe the current decline on that graph represents a trough. As I said previously, we are just getting started. Expect at least a decline of the magnitude of the late 1980's.

 

[Tysonboss1]

Deja Vu!!

This is exactly..... exactly like reading UK property threads 4 months ago.

* Bears smell blood and circling, looking for the kill.

* Bulls in denial

* Bulls invoking fancy mathematics and dodgy accounting principles to justify recent purchases

* Bulls protesting that THEIR market won't fall.



Even Dr House couldn't save this bull.

I am the first one to admit that property prices will weaken in certain areas,... And I am also the first one to say that property speculating and over extending yourself for short term gain is not really the best stratergy to use in property investing,... but choosing a good longterm investment stratergy that includes some form of property is a good idea, Even if that is only owning your own house and focusing the rest of your investing in other areas.

I only hold about 50% of my invsted capital in property the rest is in my businesses and equities,... and my property portfolio is probally only about 50% leveraged,

 

[wayneL]

Beej, straw man builder,

I don't think you'll get many bears suggesting what you are suggesting that they are suggesting.

So far in the UK, the creme de la creme London properties have been pretty resilient. But we are talking properties experiencing demand from British aristocracy, Arab oil billionaires, Russian oligarchs, and the like. They get favourable tax treatment by our.... ahem, Labour gu'mint. I'm talking the dark blue properties on the monopoly board.

Elsewhere, premium properties are falling. How far, we do not know until this plays out in it's entirety.

Don't get too smug yet though. If in five years your property has held up, be smug then, you will have good reason. But at the present point in time, the bears are smelling blood... and never forget, prices are set at the margins.

Good luck

 

[Temjin]

Hang on a second - but I see AT LEAST 5 more troughs in that graph from the past at similar levels?? So what's your point? What happened to the property market during/after each of those past troughs?? In fact I bought my first house back in 1991 just as one of those past troughs was turning around - did pretty well out of that one

Cheers,

Beej

Just wondering Beej, have you seen this chart?

https://www.aussiestockforums.com/forums/showpost.php?p=309534&postcount=1831

Don't want to spam this thread with too much charts, so just referencing back an older post.

You see how WAY OFF THE CHART real prices of house are right now in comparison to the last 80 odd years before the 1990s?

1991 was indeed a great time to buy. The Australian economy was going into recession and as usual housing led the way. Housing had started to turn up about a year before the recession began so your timing was pretty good. The mistake is to believe the current decline on that graph represents a trough. As I said previously, we are just getting started. Expect at least a decline of the magnitude of the late 1980's.

Hell, I wouldn't be surprised if the decline will takes us back near to the average index level. (from that previous chart) Still a long way to go.

 

[wayneL]

Hey Wayne, Which trigger do you mean?

The credit crunch.

This is not the reason, it is a symptom of a larger malaise. But nevertheless it is the trigger.

 

[Beej]

1991 was indeed a great time to buy. The Australian economy was going into recession and as usual housing led the way. Housing had started to turn up about a year before the recession began so your timing was pretty good. The mistake is to believe the current decline on that graph represents a trough. As I said previously, we are just getting started. Expect at least a decline of the magnitude of the late 1980's.

I don't think so - look at the growth in loan number and values through 1987 - that was also a year in which residential property values in went up by 150% in 18 months! I am not kidding, that was the growth; now *that* was insane, and we haven't seen anything like that since, even with the general growth in consumer credit due to de-regulation and low interest rates.

By the way the 90's recession actually occurred during 1990, by 1991 the recovery had already started. House prices pulled back in 1988/89 by about 20-25%, which meant they were now only 100% higher than they had been 3 years earlier instead of 150% , then they plateaued through 1990/91, then they slowly started to grow again, before really getting up a head of steam again by the mid-90s.

Because prices have not ballooned to anywhere near the extent as in 88/89, plus the growth in lending as shown by your graph also backs this up, I don't see any expectation of a pull back anywhere near as "severe" as in the late 80s, but even if it was that bad, well - I'd be buying at that point because I think predictions of 40-50% price reductions in desirable area's are pure fantasy!

Cheers,

Beej

 

[Tysonboss1]

And yes, the discussion on a "hypothetical 100 year investment property" is stupid. How could you make a consistent assumption for THAT long a period? Anything could happen or change. You would have geological, political or environmental issues coming into play before you even consider the economic aspect of the investment!

I made the coments I made just to point out that the figures are not as out of wack as what people say,... Bears give the 100years numbers to try and proove it is impossible to average 10% returns, I just showed that the numbers are not that out of wack as the bears would like to think

 

[wayneL]

and my property portfolio is probally only about 50% leveraged,

I also hold IP at low LVR.

The conservative will be fine. I've lost about £100k in "valuation" since this started. But I have always viewed those peak valuations as fantasyland.

I prefer to value property at intrinsic value rather than current price, using long term vectors. Their current value is still well above intrinsic value.

fwiw

 

[dhukka]

Hell, I wouldn't be surprised if the decline will takes us back near to the average index level. (from that previous chart) Still a long way to go.

Nor would I. On the chart I posted I would expect the late 1980's lows to be surpassed.

btw did anyone notice Australian consumer sentiment hitting a fresh 16 year low today? We've hit recession like sentiment and the economic malaise is only just beginning. Buckle up folks.

 

[noirua]

Looking very bad now. Options in the States are increasingly, torch the property or sell on the basis of buy two properties and get one free.
Keep lots of cash and earn high rates of interest, some good stock market bargains amongst the falling knives.

 

[xoa]

Crap - the reason I know is I own and live in a 100 year old house so it's not so hypothetical to me . Back then they built houses out of double brick. 1000s of them all still standing around here today. Yes, some $ have to go into the housing stock over the years to keep it up-to-date, but nowhere as much as you are suggesting above. Take maybe 1% p.a of that 4% rental return/value and you should cover all those ongoing maintenance and renewal costs easily (including the big ones like electrics/modern plumbing etc - those things get done once every 50 years).

You should look at some data regarding net rental yield (accounting for expenses and plant depreciation) in 2005 (begins page 71):

Long term housing prices in Australia and some economic perspectives

 

[Beej]

Just wondering Beej, have you seen this chart?

https://www.aussiestockforums.com/forums/showpost.php?p=309534&postcount=1831

Don't want to spam this thread with too much charts, so just referencing back an older post.

You see how WAY OFF THE CHART real prices of house are right now in comparison to the last 80 odd years before the 1990s?

Hell, I wouldn't be surprised if the decline will takes us back near to the average index level. (from that previous chart) Still a long way to go.

Hi - yea I saw that chart. To be honest, something looks not quite right about that to me, and I'd like to dig deeper. I don't see how real house prices have on average nearly tripled since 1985? Since that time the actual prices have gone up by about 4-5x, but there has been a LOT of inflation, and real wages growth since that time as well? For example, my parents sold a house (Sydney suburbs) in 1985 for $110k - that same house today would cost around $550k - that's ~7% compound price growth over 23 years - inflation alone over that time would have been roughly 4-5% pa, so I just can't see where a 2.5+ times real price growth (as shown in that chart) comes from???

Maybe the problem is that ultimately you have to factor real wages and disposable income plus general average wealth to guage where "fair value" for house prices *should* be? I mean our living standards, both purely financially and in terms of quality of housing (size, amenities) etc have all increased dramatically since 1890 haven't they? But using the example of my parents house above, I think there is something fishy with that chart anyway....

Cheers,

Beej

 

[theasxgorilla]

hello,

has been going on for almost 3yrs here at ASF, with the anniversary i think on the 12th September 2005 of the infamous thread,

man we miles ahead of the UK

thankyou

robots

Actually, we're vastly different to the UK, just like we're different to Japan at the end of the 80's, which is IMO why the whole bear argument fails to be convincing.

 

[dhukka]

I don't think so - look at the growth in loan number and values through 1987 - that was also a year in which residential property values in went up by 150% in 18 months! I am not kidding, that was the growth; now *that* was insane, and we haven't seen anything like that since, even with the general growth in consumer credit due to de-regulation and low interest rates.

By the way the 90's recession actually occurred during 1990, by 1991 the recovery had already started. House prices pulled back in 1988/89 by about 20-25%, which meant they were now only 100% higher than they had been 3 years earlier instead of 150% , then they plateaued through 1990/91, then they slowly started to grow again, before really getting up a head of steam again by the mid-90s.

Because prices have not ballooned to anywhere near the extent as in 88/89, plus the growth in lending as shown by your graph also backs this up, I don't see any expectation of a pull back anywhere near as "severe" as in the late 80s, but even if it was that bad, well - I'd be buying at that point because I think predictions of 40-50% price reductions in desirable area's are pure fantasy!

Cheers,

Beej

Yes you're right the recession began in mid 1990 but didn't trough until August 1991. You also didn't have the explosion in easy credit that you have had in recent years nor were households as up to their eyeballs in debt.

Time will tell if we see the 1980's lows again. I will be interesting to see an updated chart in 6 months to a years time. Predictions of 40-50% price declines in desirable areas seem over the top to me too. I'll be a buyer as well if that's the case.

 

[Beej]

Yes you're right the recession began in mid 1990 but didn't trough until August 1991. You also didn't have the explosion in easy credit that you have had in recent years nor were households as up to their eyeballs in debt.

Time will tell if we see the 1980's lows again. I will be interesting to see an updated chart in 6 months to a years time. Predictions of 40-50% price declines in desirable areas seem over the top to me too. I'll be a buyer as well if that's the case.

Ahh - some common ground!

Cheers,

Beej

 

[xoa]

well around the cbd and the north sydney area is where alot of the median houses were over a 100years ago

Then why do we see restored federation cottages selling for around $1 million each, and not $30 million?