House prices to keep rising for years

[Temjin]

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

If you wish to dig deeper, take a read at Nigel Stapledon's PDH thesis, titled "Long term housing prices in Australia and some economic perspectives". It does get fairly technical though. It should give you a better explanation on how he comes with the data.

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

Some additional charts with explanations from Steve Keen.

http://www.debtdeflation.com/blogs/2008/06/30/debtwatch-no-24-july-2008/

Remember though, you can't just use your parents' house as a basis for the entire property market.

Another statistic you can use is the average mortgage repayment to average income ratio. It's fairly known and highly promoted by the media. It's a fact that this ratio has increased by a fair amount over the last several years.

 

[Tysonboss1]

some good stock market bargains amongst the falling knives.

I have been trying to catch some of these falling knives,... One imparticle has gone straight through my hand and in stuck in my foot.

Crazy times we are in but I can't help but feel the ones who sit out for to long are going to miss some great opportuniites,

 

[Tysonboss1]

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

because the land that is now worth >$30 million has $600M office and apartment buildings sitting on it.

 

[gfresh]

Core factors are the same for property markets o/s - excessive debt, and reduced/more expensive credit. The results could play out differently, but take a similar set of circumstances, and you're likely to have a similar result. And it has been playing out quietly similar across major markets, either in the last year, or in periods before that, no matter how different their markets are.

Seriously what do you guys think? Do you think you are going to be picking up a 5 bedroom/3 bathroom federation on the Balmoral slopes for $500k anytime soon?? Even for $1.5M?? Honestly?

I don't think anybody is seriously expecting 50%+ losses across the board, but 20-30% in a large number of the mortgage-belt areas seems more likely than not. This after all, only 1 or 2 years of gains, the froth at the top. And I think most know that prices will come back eventually - all it is, is an excellent buying opportunity... a once in 20 year one, maybe more.

There has been a tripling of houses listed for sale in Brisbane, compared to this time last year and the financing figures today clearly shows people are not financing to buy. If it's all about demand and supply, there clearly is little demand, increased supply, and price is set where the two meet - simple economics. Obviously equations can be quite different for each area, but overall, people talk in average terms here.

 

[xoa]

because the land that is now worth >$30 million has $600M office and apartment buildings sitting on it.

And the majority of that land probably wasn't low density residential, but rather prime commercial real estate, even back then.

That's not to say that land valuations haven't increased nicely since 1908. The city's population has grown 10 times in the last century. There's not going to be anywhere near that level of growth again.

 

[Tysonboss1]

And the majority of that land probably wasn't low density residential, but rather prime commercial real estate, even back then.

I don't think so,... a 6 story aprtment building was purchased for over $20M about 10 km's from the sydney CBD and has been demolished because the land is worth more than the building,.... now this area would have been semi rural 100years ago.

I am leaving this discussion now,.... i don't really care about real estate from 100years ago I only bought it up to proove a point in reponse to another comment,..I have to go on focus on making money, not just talking about it.

 

[xoa]

I don't think so,... a 6 story aprtment building was purchased for over $20M about 10 km's from the sydney CBD and has been demolished because the land is worth more than the building,.... now this area would have been semi rural 100years ago.

Is this land on the Bondi beach waterfront by any chance?

 

[ghotib]

The credit crunch.

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

Thank you.

That fits with what we're hearing from several agents, in Sydney and in the bush. Their story is that bank valuations are getting extremely conservative. That also fits with the downturn in home loans.

Which all looks like a vicious circle doesn't it, and I guess we'll be adding to the viciousness because we really want to sell. OTOH, people need a roof and this is a very good one: well located, sitting on solid walls in a much-loved garden that likes kids.

We found our perfect tree-change property in May. Pity we weren't ready to sell right then. We spent 6 weeks cleaning up and clearing out, and then someone else turned up and stole ... I mean bought... our perfect place: they exchanged contracts yesterday. We knew there was another buyer but we decided against buying before we had at least an offer for this place.

I gotta say, real estate deals are much more stressful than stocks and shares, as well as much slower <sigh>

 

[ghotib]

And the majority of that land probably wasn't low density residential, but rather prime commercial real estate, even back then.

That's not to say that land valuations haven't increased nicely since 1908. The city's population has grown 10 times in the last century. There's not going to be anywhere near that level of growth again.

100 years ago there was no Harbour Bridge. North Sydney didn't really become prime commercial real estate until the 50s.

Fundies rule in real estate

 

[xoa]

100 years ago there was no Harbour Bridge. North Sydney didn't really become prime commercial real estate until the 50s.

Fundies rule in real estate

Well, I wasn't talking about north Sydney in that context, rather the CBD, which was well and truly developed at federation.

Talking specifically about north Sydney, there is no "median" house plot worth $30 million. Not even on Bondi beach. Unless you join a dozen or more house plots, and that's cheating.

Fundamentals definitely do count. I'd invest in north Sydney property, if the city's mothers were still popping out 6.5 kids each, net rental yields were still 7%, and the city's population was going to increase another 10 fold this century. Unfortunately, that's not going to happen again. Ever. Instead, the fundamentals are screaming "bubble!".

 

[robots]

hello,

great night folks plenty hitting the thread,

lots of opinions out there,

is being called a troll like the darkest moment for a forum user is it?

anybody been to the bank recently to get a loan for a house?

http://www.theage.com.au/national/thousands-give-up-on-home-ownership-dream-20080709-3cl9.html

craig james says we in situation never seen before in aus, nothing wrong with renting looks more and more likely the day or racking and stacking is upon us

thankyou

robots

 

[wayneL]

anybody been to the bank recently to get a loan for a house?

It's not hard to get a loan... providing you fulfill more old fashioned qualifications.

That's why more old fashioned valuations will eventually apply.

Easy really.

 

[Tysonboss1]

Is this land on the Bondi beach waterfront by any chance?

no, north of sydney, on the train line.

 

[Pommiegranite]

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.

It doesn't matter who we are like, or not like.

The facts are that inflation is hitting the businesses hard. Job losses are inevitable, with a contraction in the economy. Real estate does NOT reside outside of this conundrum. Reduced lending is just a massive spanner in the works.

 

[pepperoni]

It doesn't matter who we are like, or not like.

The facts are that inflation is hitting the businesses hard. Job losses are inevitable, with a contraction in the economy. Real estate does NOT reside outside of this conundrum. Reduced lending is just a massive spanner in the works.

Indeed.

To summarise, there are two schools of thought on this thread:

1. those that realise the Aussie real estate prices do not exist in a vacuum; and

2. those that live in fairly land.

 

[robots]

hello,

wow look at that unemploment went down to 4.2%, great news for the community

looks like one of the BEARS arguments has just been wiped out,

thankyou

robots

 

[theasxgorilla]

It doesn't matter who we are like, or not like.

The facts are that inflation is hitting the businesses hard. Job losses are inevitable, with a contraction in the economy. Real estate does NOT reside outside of this conundrum. Reduced lending is just a massive spanner in the works.

You might be right about the economic factors you mention in your second paragraph...but the doesnt change the idea for me that bears who drop phrases like "look at what happened in Japan" or "look at inflation in post WW1 Germany" are making weak arguements.

Its 2008, it's Australia, and the future is always different. Try playing a different game with yourself which might stop you from being blindsided by a reality that goes against what you're expecting...try to answer the question in serveral different ways, "how could house prices keep rising for years"?

 

[Pommiegranite]

You might be right about the economic factors you mention in your second paragraph...but the doesnt change the idea for me that bears who drop phrases like "look at what happened in Japan" or "look at inflation in post WW1 Germany" are making weak arguements.

Its 2008, it's Australia, and the future is always different. Try playing a different game with yourself which might stop you from being blindsided by a reality that goes against what you're expecting...try to answer the question in serveral different ways, "how could house prices keep rising for years"?

Agreed.

I think I mentioned this before that Japan's bubble was extreme to say the least. Apparently the value of real estate in Japan, at the bubble's peak, was 4x that of the whole of the US!!

No way are we near this. However, spec in Japan's RE market was funded by large savings by the Japanese and a appetite for speculation. The current global bubbles are funded by debt. Time will tell what the full effect will be once the rug is pulled out from under borrowers' feet.

 

[wayneL]

"how could house prices keep rising for years"?

Easy.

Banks continue a fast and loose credit credit regime that so far has nearly bankrupted them; or, they use up the remaining oil running the printing presses at MachII and inflation gallops off into the sunset.

Of course we must again reference the time frame involved. Looooong term, prices will keep rising. Meanwhile, the question is: Is now a good time to buy to capitalize on that?

I say no.

 

[noirua]

House prices in the UK dropped by 2% in June. This follows a 2.5% drop in May.
Prices for the last 12 months have now dropped by 6.5%, reversing a double figure climb in the 12 months before that.
Some now forecast a drop of 30% in Northern Ireland from the peak and 20% for the rest of the UK.
Parts of London are still seeing increases, so figures for May indicated.