House prices to keep rising for years

[xoa]

Well you see to maintain a decent quality of life there needs to be a steady rate of investment into housing,... so I can't see how it is an unproductive asset,.. If you took away the private developers and Investors I would hate to see the state of the housing market.

Very few "property investors" are developers. You shouldn't even use both terms in the same sentence. The vast majority of the "property investors" that have emerged in Australia are little more than property flippers. They buy existing properties (on credit) with the hope of selling for a profit later.

Developers who actually use their own money will still be profitable in the event of a severe correction, because construction costs are still low. Responsible developers in the USA are still making money, despite a 20% price slump. Only the highly leveraged developers are at risk.

 

[xoa]

Looks like the next interest rate rise will be 0.5%.

http://www.news.com.au/story/0,23599,23244958-2,00.html

This morning I went to my BOQ branch to deposit $5000 into my websaver, and there was a middle aged blonde woman next to me trying to repay $70 (!) off her home loan. The poor teller advised her that the minimum repayment was $500 or something. I wonder if she's a "property investor" who's starting to feel the pressure of rising interest rates!

 

[tech/a]

because construction costs are still low

Compared to when?

My latest was locked in in December at $1300/Squ meter.
Exactly the same now would be $1600./Square meter.

I just recieved my latest Indent Order Offer for Structural Steel.
Price rise for this Quarter +14% that is massive.

So add spiralling construction costs to the affordability crisis.
Inflation doesnt decrease prices only demand.

 

[KIWIKARLOS]

My prediction for future is

1. Outer suburb prices trend lower as interest rates and cost of transport / services increase. South west / North West Sydney hit hardest. Whilst North Shore, eastern suburbs and inner west increase in price.
2. Inner metro houses increase slowly in price or remain steady.
3. The outer burbs become the cheaper housing for the lower class workers who end up travelling more and more hours on public transport to work becuase driving simply becomes to expensive. Gentrification of the outer burbs consolidation of the inner burbs. As more people head in the people who can't afford the prices move out.


PS: the state government will likely not release any more land because it would only result in increasing budget stress and stress on existing infrastructure.

 

[KIWIKARLOS]

Compared to when?

My latest was locked in in December at $1300/Squ meter.
Exactly the same now would be $1600./Square meter.

I just recieved my latest Indent Order Offer for Structural Steel.
Price rise for this Quarter +14% that is massive.

So add spiralling construction costs to the affordability crisis.
Inflation doesnt decrease prices only demand.

Totally agree mate

steel going up due to iron +65%
Hardwood? ha try buying hardwood at a reasonable price
aluminium up she goes with electricity prices
Labour : most pays up at least 4% year on year and thats before premotions etc.

 

[Captain G]

Hi Tech, I always enjoy your posts so you may be able to help clarify this for me. Someone once told me may years ago that property is a good way to help protect your money against high inflation, because say you build a house for say $200,000 and in the long run as prices for materials and labour increases, to build that same house in 5 years time it'll cost a few 10's of thousands more, so it helps push your asset value along. Do you you see this as being correct or makes sense ?? Cheers, Capt.

 

[xoa]

Compared to when?

My latest was locked in in December at $1300/Squ meter.
Exactly the same now would be $1600./Square meter.

I just recieved my latest Indent Order Offer for Structural Steel.
Price rise for this Quarter +14% that is massive.

So add spiralling construction costs to the affordability crisis.
Inflation doesnt decrease prices only demand.

From 1991 to 2007, the real cost of constructing a typical house (in 2007 dollars) rose slightly, from $192k to $211k. Hardly a 10% movement. Compare that to the movement in median prices. Developers have seen their potential profits soar with only a slight increase in costs, and margins will remain healthy after the slump (provided they aren't recklessly geared). The outlook for speculators/flippers doesn't look as rosy though.

From http://www.library.unsw.edu.au/~the...ved/adt-NUN20071210.120652/public/02whole.pdf

 

[Tysonboss1]

Very few "property investors" are developers. You shouldn't even use both terms in the same sentence. The vast majority of the "property investors" that have emerged in Australia are little more than property flippers. They buy existing properties (on credit) with the hope of selling for a profit later.

Developers who actually use their own money will still be profitable in the event of a severe correction, because construction costs are still low. Responsible developers in the USA are still making money, despite a 20% price slump. Only the highly leveraged developers are at risk.

Do you think that many properties would be developed if the developers had no investors to sell the finished product to, to help finance the deal by buying of the plan.

and if there was no developments or subdivions going ahead, and no investors buying them to rent out,.... where would all the renters live,

not many developers that I have met use there own money,... most are aleast 50% leveraged.

 

[Tom Ronalds]

Tom.

Firstly I know it wasnt you on the Adelaide statement Id read it elsewhere myself.

I dont disagree with you on many points your presenting.

But interested in your view of how better off do you or those you follow believe home buyers will in x? years time.

That's an extremely wide definition, as you no doubt realise.

Those home buyers who bought several years ago and have by now substantial equity in their properties, will be better off; no doubt about that. That applies to most of them even if we have a pull-back in prices.

Those who bought in the last few months may well find themselves with negative equity and even facing repossessions.

It really is no different to any other investing. Had you bought CBA shares at the float, you'd be laughing even after the recent 30% drop. Had you bought a few months ago and funded it with debt, you'd be looking at pretty severe margin calls, with your equity being decimated if you couldn't cover those.

Will they ever be better off?

Those who may be going to get wiped out over the next few years may take a long time to "be better off".

Will there ever be a time which is right to buy?

Any prudent investor will buy when the fundamentals on the property/investment s/he is contemplating the acquisition of are a lot less stretched than what we are seeing now.

If so what in your view will be the signs.

See above. If you can find a property that returns 5% or more in net rentals, and afford to buy it on the basis of being able to carry the loan repayments should you have no tenant for a while, or being able to cover interest rates at 12%, then chances are you will be doing OK in the long run.

These are just basic rules of prudent investing, as I'm sure you'd agree.

Do you expect prices and wages to eventually return to say 4x ratio?

Given the long term trends here and in other countries, I do expect these to trend significantly towards the mean values.

There will be crashing of prices I agree in the rediculous situations you mention.
Not so in those that are more "Realistic".

Of course, I agree with you.

Will inflation be bought under control.

Recessions generally do have a positive effect on inflation.

Back in the 80s housing dipped but didnt crash.
In the years to follow prices just took off again albeit years later.

And it will be the same now. Prices are not dropping everywhere in America, either, but the possibility of multi-trillion dollar losses I saw mentioned by a fellow who has been an adviser to the US Treasury just today still remains.

Not all builders will go broke.
Not all investors or home owners will lose their shirts.

Again, I couldn't agree more. But the vast majority of property investors would in such a scenario be wise to at least not expect large capital gains over the next decade or so.

Allowing for the after tax cost of negative gearing, if you have no or only very low capital gains for several years, then it would be hard to argue that your money would be better off in a term deposit.

Cheers,

Tom R

 

[Tysonboss1]

I am not talking about owner occupiers. Sure we need investment in property but there is far too much capital wasting in this sector, it won't add to our future earnings capacity as a nation, innovation will. I can't blame investors for chasing the best returns, just saying the system is a little skewiff at the moment.

I don't believe it is a waste of capital, I know that in my situation that my property portfoilio has allowed me to invest 1000's more into the share market than I otherwise would have been able to,

over a 1/4 of the population rent accomadation that has been provided by investors, it's a market that needs more investment, the only way to lower the rent that people complain about is to build more developments.

your saying that investing in housing won't increase the nations earnings, but the thing is people need some where to live,

A woolworths supermarket doesn't add to australias earnings either but we need some where to shop.

 

[numbercruncher]

Compared to when?

My latest was locked in in December at $1300/Squ meter.
Exactly the same now would be $1600./Square meter.

I just recieved my latest Indent Order Offer for Structural Steel.
Price rise for this Quarter +14% that is massive.

So add spiralling construction costs to the affordability crisis.
Inflation doesnt decrease prices only demand.

Wouldnt want to build down your way with prices like that !

You can build in Qld for less than half that, Coral homes is a big name here can build 25sq (232m2) for 132k - plus flooring/extras/earthworks etc.

Thats a massive difference.

 

[Temjin]

I'm interested in what people actually believe will happen---the end result.

From what I can gather the scenario looks a little like this.

(1) A severe correction in housing prices say 30% in median values which in realterms could well mean very little in some areas and massive (over 50%) in others.

(2) A continuation in interest rate rises.10 even 12% not out of the question,making the affordability issue even worse.

(3) Severe downturn in housing demand due to spiralling costs.

(4) Increasing Un employment further exaserbating the situation.

(5) Stagnation as demand is met by supply as some investors sell properties no longer giving better returns than other investments.(Which will be??)

(6) Rent continues to increase as affordability remains the issue.

Pretty well all this occured in the 80s

Those that bought then and still hold now (Mainly single dwelling owners) wish they had 10
So in 2030 will the scene be any different to those who get through this?

What about the impact of the global economy when the US goes into a hard recession?

What if the decoupling theory is not true and rest of the emerging economies go down along with the US as well? (including China)

What if the credit crisis continue to worsen and the lending become much more tightened?

What if the local banks have a serious solvency issue? That their explosure to the credit crisis is a lot worse than have reported thus far?

What if the world inflation continues even higher and commodities price increase by alot as a result of it?

Or maybe what if deflation wins and we have a 1929 type of global depression?

I just don't know if I can totally discount all these "possibilties" and safetly assume none of them will occur at all.

Again, I couldn't agree more. But the vast majority of property investors would in such a scenario be wise to at least not expect large capital gains over the next decade or so.

That has been the main message.

Sophisticated property investors may have strategies to minimise the damage during a market downturn, but mums and dads investor may not be that lucky.

 

[Tysonboss1]

Wouldnt want to build down your way with prices like that !

You can build in Qld for less than half that, Coral homes is a big name here can build 25sq (232m2) for 132k - plus flooring/extras/earthworks etc.

Thats a massive difference.

bull****

 

[xoa]

bull****

http://www.coralhomes.com.au/design-prices/downloads/BRISBANE.pdf

 

[numbercruncher]

bull****

Shocking isnt it, did they just devalue your perceived properties worth or something ?


Two years ago I built in Hervey Bay(with tamawood/Dixion), which is dearer to built than brisbane, 190sqm , Colourbond, Double height bricks, bull nose verandah etc, nice federation style 160k including the septic system. I did floors/blinds/paving myself on top - and the block involved alot of earthworks and a improved type of slab because of the soil type.

The cost of Building a house hasnt gone up much further than Inflation throughout the boom as far as I can tell.

 

[Tysonboss1]

Shocking isnt it, did they just devalue your perceived properties worth or something ?


Two years ago I built in Hervey Bay(with tamawood/Dixion), which is dearer to built than brisbane, 190sqm , Colourbond, Double height bricks, bull nose verandah etc, nice federation style 160k including the septic system. I did floors/blinds/paving myself on top - and the block involved alot of earthworks and a improved type of slab because of the soil type.

The cost of Building a house hasnt gone up much further than Inflation throughout the boom as far as I can tell.

Sorry I mis read you,.... I thought you said including earth works and flooring.

 

[KIWIKARLOS]

this stuff about building costs been the same is cr@p you may be spending a similar amount but there is no way your getting the same quality. The only reason you can build quite cheap still is because they build houses to last 20-40 years not 40-100 as they used to.

Does your house have hardwood structure or floor boards? how much do the current costs go up when you stray a little from the basic design? tiles extra, double power points extra. A stencil crete drive way or pavers? the list goes on and on. Double brick is now not the norm its for millionaires

 

[numbercruncher]

this stuff about building costs been the same is cr@p you may be spending a similar amount but there is no way your getting the same quality. The only reason you can build quite cheap still is because they build houses to last 20-40 years not 40-100 as they used to.

Erm ... dunno about that, I see all the 60/70/80s houses that arnt falling down being teared down ....


What do you propose is going to happen to these new homes in 20 years time ? Brick work turns to dust or something ? Nothing wrong with the quality of build now a days, spend an extra few k and get a steel frame to boot.

 

[robots]

hello,

you should see the maintenace crews the home builders have now, going around fixing up problems, massive

i hope the thread stays honest and allows everyone to post appropriately, I have copped it and get called names,

still here proud and strong

thankyou

robots

 

[zt3000]

At the end of the day people one single fact remains. One of the three basic NEEDS of humanaity is

well we have food
then we have water
hrmm last one?? SHELTER ie Housing

Bricks and Mortar is a physical asset, correction or no correction the human population is growing every day and people need a place to live (or rent)

We most probably need a wash out of the speculators in the property market which is most likely to happen in the median house price range.

The high end wont get touched, limited supply and these people are cashed up and more than likely own their home outright. Anything close to the CBD will be fine too.

The problem in WA is that currently so many people are cashed up from mining boom that rasing rates doesn't mean nothing and they keep on spending, whilst the people on low incomes who are currently hurting and NOT spending are just going to get hurt further by rate rises.

i dunno thats just my .... critique me if you think im wrong