House prices to keep rising for years

[Uncle Festivus]

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 :

Actually I think you'll find the regional areas are doing pretty good, as they are taking in the 'disposessed' section of the market who are unable to afford to live in the capitols (yes, we even get your 'Klopaks' ).

University towns = lot's of ladies !

It's top of the cycle comrades. As Australia is lagging the rest of the world it may be a good time to sell. Something about a global reccession....?

 

[Tom Ronalds]

Sorry, a typo sneaked in to one of the above links. The personal debt comparisons between USA/AUS are here:

http://tinyurl.com/2kxk9o

Tom

 

[Uncle Festivus]

Sorry, a typo sneaked in to one of the above links. The personal debt comparisons between USA/AUS are here:

http://tinyurl.com/2kxk9o

Tom

Yes Tom, your post was a refreshing summary of reality. But it maybe when not if? Only the timing is in question.

 

[tech/a]

Tom

Interested in your comments with regard to the following related to the affordability question.

Will not the affordability issue be quelled from both sides,possibly over years.

(1) A retreat in pricing of housing particularly in areas of over supply (Some Australian CBD's),and at least a stagnation for a time in other areas.
(2) An increase in real wages.
(3) Decrease in real taxation.
(4) Decrease in consumer debt.

Is not the major problem consumer debt---hence lack of disposable income.

Is Australia not in a position where an un winding of this in balance is more likely than a crash?
Due of course to some of the points mentioned?

 

[KIWIKARLOS]

Your talking long term trend over the last 80 years, the thing is there can be huge planet wide phenomenums which buck the trend and start a whole new type of economy focus.

The trend we are basing all these assumptions on has been on the back of rapid development from 120 years of growth on the back of the most cheap, abundant and energy dense resource on earth !.

in ten years you won't be able to build a house cheaply becuase the materials will cost huge amounts more. Hard wood will be even rarer, plastics which are a product of oil will become more expensive, steel / aluminium will increase rapidly as the cost of production skyrockets. Vietnam just announced they are reducing and may even halt coal exports to china.

As resources become scarce they cost more, land in australia may be abundant but land in city areas is finite and will not grow as it did throughout the 70's and 80's. Its just not economic now to build huge amounts of infrastructure to service outling suburbs with relatively low population density.

Right now we are seeing countries fighting to secure energy resources for their future. Australia is energy secure now and is one of the few countries that can be energy self sufficient. we may not have oil but we can still easily run a efficient and productive economy of cheap electricity.

I guess i do agree house prices in some areas will decrease becuase the cost of living there will become to much, I think house prices will increase in areas where people will flock to to ofset rising living costs. Particularily transport which is so dependant on oil rather than electricity. There are big plans to upgrade and expand Sydneys rail network but the focus will be on the inner suburbs not the outer burbs.

 

[krisbarry]

What a load of garbage...if people think house prices are going to keep rising for years then I have 2 words for you "INTEREST RATES"

The only sure thing that is going to be rising is interest rates, NOT the price of housing!

What are people smoking? The RBA has given its strongest hint that more aggressive rate rising is on the way.

I can feel a late 90's housing bubble bursting all over again!

 

[Tom Ronalds]

Hi tech/a,

Your points are valid and if you do a Google search on "Australian house price bubble", you'll find links to articles from 2004/2005, when it appeared the bubble was getting ready to burst. Then as now, informed commentary was for a "soft landing", where prices would stabilize and stay flat, allowing incomes to catch up.

Unfortunately the bubble re-inflated due to various government incentives, the mining boom and the easy availability of massive amounts of cheap credit. We are now not only in a much more exposed position, but, unlike in 2005/2005 we are also looking down the barrel of a world recession.

Despite the widespread belief that China and India will keep us going, mining in fact employs relatively few people in relatively few areas. We are already running into major infrastructure capacity constraints and the proposed re-regulation of the workforce and increased participation by unions in the mining sector will exacerbate this. There is little chance of mining all by itself providing an ongoing support to the economy.

From my professional capacity, I see the current housing/debt relationship as not dissimilar to margin lending: While the going was good, many people geared massively and thought the good times would just roll on forever. When prices dropped dramatically across the board, we have seen many margin lenders drastically downgrading loan valuation ratios of many companies (HFA/AFG are prime examples - beloved by analysts & total disaster for investors), which exacerbated the margin calls and subsequent sell-offs & realized losses. Many of these investors will not be able to recover easily from this.

With houses, it's a true house of cards/pyramid scheme. I see it where I live (FNQ). An influx of southern migrants has pushed prices up. That pushed construction up and also attracted lots of extra tradespeople & building industry workers here. Hell, any tradesperson could earn well in excess of $100K easily and even unskilled jobs paid up to $60K - you just needed to turn up and start pushing the wheelbarrow! Of course, all these people require housing, so the merry go round continues. Local median house prices jumped up to about $450K - in a city where the average household earns around $60K!

Now Cairns is being hit with a slowdown in tourism. The AUD doesn't help and the economy here is not overly diversified. House prices are also such that it is no longer overly attractive for even migrants from capital cities to come here. What will happen when construction slows substantially, as it must?

Clearly, many of the tradespeople working in that area will then be out of work. They will move on, which means they'll want to sell their houses. That will put downward pressure on prices and rentals, which are also becoming unaffordable for many people. The net result will be major drops in property values, and many investors will suddenly have substantial negative equity in their properties & face a loss of rental income. Repossession is then next.

The picture is not that different on a national scale. Once loans cannot be serviced, it all falls over.

All of this has happened before. And it will happen again. I'm afraid the chance of a soft landing this time around is very, very remote.

And yes, I have been a property bear for at least 5 years now. And I have been wrong so far.

However, as we all know, fundamentals will dominate over the long term and the bigger the bubble, the bigger the bang when it finally bursts.

Cheers,

Tom R.

 

[Tom Ronalds]

Kiwikarlos: "new type of economy"

Now where did I hear this one before? ;-)

 

[KIWIKARLOS]

Yeah interest rates are going to increase rapidly but they can come down just as fast mate. The main reason they are on the way up now is inflation.
What are the biggest contributors to inflation ?

1. Energy cost
2. Food cost
3. Living costs eg. entertainment and consumption.
4. Wage increases without productivity gains.

coming down potentially are.

1. Energy costs. If the US does go into recession oil could easily hit $70-80 a barrel. Electricity costs will increase marginally but both these energy costs can be offset with efficiency gains.
2. Food costs are going to go down. We are officially in El nina and above average rain if forecast for the next 3 - 6 months at least! probably the next 12 - 18 months really.
3. Living costs. Because this is descretionary spending it will be the first to be cut back as interest rates rise.
4. Wages will go up but we need to remove bottle necks at ports, road and rail. Work choices was starting to help by reducing conditions and pays and even though the current labour gov is scrapping AWA's I bet the new system is still fairly identical and will encourage a "flexable" workplace.

Also it takes months to even know the impact of rate rises on the economy + banks are increasing beyond the RBA. Consumer sentiment is dropping as is business confidence give it 6 months a couple more rises and the brakes will be well and truely starting to work. I believe by end of year we will be on the cusp of the interest rate down cycle.

 

[Tom Ronalds]

One more thing, on Kiwikarlos' comment regarding resource availability:

The same constraints apply presumably in every country. Yet Canada for example is nowhere near AUS in the affordability stakes. Similarly, many areas in the USA (Texas, Georgia), which have exhibited some of the best growth rates, have remained affordable.

I would suggest you read the Demographia report I linked earlier. It's a very interesting reading.

Tom

 

[KIWIKARLOS]

There is currently a huge shortage of workers particularily skilled workers even in a significant downturn all we will do is reduce the shortage not tip it into excess because the shortage is so severe.

 

[Tom Ronalds]

I would be so certain about drops in energy and food costs, Kiwikarlos.

You're forgetting about the "green madness" that is extending its grip over the developed countries. Any form of carbon tax, coupled with mandatory renewable energy targets will see energy prices going through the roof.

Similarly, food prices are rising throughout the world, to a large extent due to subsidies being paid for growing biofuels, where these displace food crops.

The growing energy needs of China will ensure oil prices do not drop substantially, even if there is a slowdown in the USA.

Tom

 

[Tom Ronalds]

Of course I meant to say "I would *not* be so certain...." in the post above.

 

[KIWIKARLOS]

You can't just compare OZ to US and canada. The US is the size of oz with 90% of it habitable OZ has 10% habitable land.

In the US house prices rose heaps but wages have stagnated and there skilled labour is shrinking. Most of the subprime borrowers work in the service industry getting paid peanuts and the service industry is always the first to get hit in a downturn.

We may be getting 100% loans in OZ but at least we can service the loans + we don't have ARM's our interest rates increase relatively slowly across the board in the US a subprime borrower can one day service his loan at 6% the next day he can't at 12% because the rate resets. Not to mention the fact that in america people can simply hand back the keys to a house they can't afford with no debt in OZ we can't we are liable for the loss.

 

[KIWIKARLOS]

I agree but if house prices look like they were to do 20% the gov would soon relax its energy emission targets and the RBA would almost certainly drop rates like the ECB and FED becuase inflation is better than an across the board asset depreciation. We can survive inflation but asset depreciation on that scale = world wide depression

 

[Tom Ronalds]

<quote>
You can't just compare OZ to US and canada. The US is the size of oz with 90% of it habitable OZ has 10% habitable land. </quote>

Even if this was correct, it still does not explain why you can't compare with Canada. You could say exactly the same thing with regards to habitable land in Canada as in Australia.

And you can only service the loans while you have a job.

 

[Tom Ronalds]

Anyway, time will tell, as it always does. And there are in fact plenty of people who believe just what you said - asset depreciation on that scale = world depression.

Well maybe not a depression, but a serious, deep recession without a doubt.

 

[tech/a]

Hmmm didnt I see truckloads of Fruit and vegetables being fed to livestock as cheap imports (Over supply) cut the hell out of our producers?

While this continues increases in food costs are unlikley.

Tom.
I think yoiur view is broad brushed.
While I know in FNQ your pretty spot on here is SA---you know that little state that everyone here is over 80---Kiwi's out look is more reasonable.

Now Interest rate rises AND a recession---which one?

My take is More middle road.
Areas of extreme pain.
Areas of No or very little growth or negative growth
Areas of growth.

Nett---depends on where you are.
Depends on personal circumstances---and where you are.

 

[xoa]

Kiwikarlos: "new type of economy"

Now where did I hear this one before? ;-)

Dot com

 

[chops_a_must]

Hmmm didnt I see truckloads of Fruit and vegetables being fed to livestock as cheap imports (Over supply) cut the hell out of our producers?

While this continues increases in food costs are unlikley.

Had a look at soft commodities futures lately?

Or the margins farmers had before the grain run up? Food cost increases indeed...