House prices to keep rising for years

[Glen48]

Stocks returned 7% a year for 200 years ended 2004, according to Wharton professor Jeremy Siegel. That’s after subtracting an average of 3% a year for inflation, or the gradual rise in prices of ordinary goods. The plunge in stock prices over the past 16 months makes me all the more sure that shares are poised to deliver good returns over the next decade or two. Houses returned 0.4% a year over 114 years ended 2004, according to Yale professor Robert Shiller, co-creator of the most widely used index for house prices. That number is suspiciously close to zero. Indeed, it might have been zero, reckons Shiller, if not for two periods of aggressive house buying, one spurred by government incentives following World War II and another created by the Federal Reserve’s drastic interest rate cuts in 2002 and 2003.
Some thing to think about???

 

[robots]

Stocks returned 7% a year for 200 years ended 2004, according to Wharton professor Jeremy Siegel. That’s after subtracting an average of 3% a year for inflation, or the gradual rise in prices of ordinary goods. The plunge in stock prices over the past 16 months makes me all the more sure that shares are poised to deliver good returns over the next decade or two. Houses returned 0.4% a year over 114 years ended 2004, according to Yale professor Robert Shiller, co-creator of the most widely used index for house prices. That number is suspiciously close to zero. Indeed, it might have been zero, reckons Shiller, if not for two periods of aggressive house buying, one spurred by government incentives following World War II and another created by the Federal Reserve’s drastic interest rate cuts in 2002 and 2003.
Some thing to think about???

hello,

gee and so many waste there time posting about the 0% return, Shiller wastes his and the universities time on an asset class that provides a 0% return

he should hand back his qualification, cant see ANY unit in my block going for price i purchased for in 1998, stooge

more who have missed out, tall poppy syndrome

top effort kincella, look at the example of doctor out berwick way 1mil to 6mil check that one out Ned, 20yrs locked in Ned

you're a legend Kincella keep the great posts coming

thankyou
robots

 

[kincella]

Hi Robots...thanks for the thumbs up....
now Schillers index is rubbish...and all the kids have spread it around....
schillers chart has been adjusted for this and adjusted for that, and the cpi was adjusted....I used to have a chart that showed original house prices over 100 years....it was then up to you to change it to reflect the cpi....
now when I go looking for it...go 60 pages and the silly schiller thing comes up every time....

here is a really good article...facts and figures and rubbishes a lot of what is spread around on the net today...and used by some as the research....
this writer debunks most of the rubbish....

an extract to start with
........................................................................
All of the Demographia International Housing Affordability Survey findings are based on one extremely simple metric known as a “house price-to-income” ratio. In short, Cox & Co. assume that you can “value” housing markets using this crude measure.

The first problem here is that there is no statistical evidence that there is any stable or predictable long-term relationship between median incomes and house prices. Notwithstanding this, Wendell Cox claims, “The [house price to income ratio] in Australia is 6.0, double the 3.0 historic maximum norm and well above levels of just a decade ago.” In fact, the median incomes used for the purposes of creating these house price-to-income ratios are likely to be quite different to the incomes associated with the marginal home buyer (where the median income used in their ratio includes much lower income and higher credit risk households).

The RBA has recently published some long-term analysis on the subject across a variety of countries. It is useful noting upfront that the RBA’s estimate of Australia’s house price-to-income ratio in 2007 of 5.5x is lower than the Demographia finding. The second interesting point deriving from the RBA analysis is that contrary to some of Demographia’s claims, Australia’s house price-to-income ratio has actually declined since 2003 when it peaked at 5.9x (see chart below). Given that house prices in 2008 have decreased slightly while nominal disposable household incomes rose by a strong 9.5 per cent in the year to end September 2008 alone, our house price-to-income ratio should have declined quite substantially.

and this bit......
Perhaps the most important flaw in this analysis, however, is that incomes are but one variable that determine long-term changes in house prices. House prices are determined by the intersection of a range of demand- and supply-side variables including interest rates, incomes, immigration, organic population growth, employment, and the supply of homes (or housing starts).

You cannot, therefore, “value” house prices by taking one simple demand-side factor, such as incomes. It would be akin to trying to value gold prices ignoring the supply of gold and only referencing some proxy for demand””say, the time-series change in the number of per capita weddings. And we know that there is a very wide consensus amongst almost all economists and government agencies (including both the Treasury and the RBA) that Australia’s housing demand far exceeds supply.

Building approvals (ie. supply) in Australia have been in free-fall during the last year with the latest November 2008 data implying that housing starts are running at just 110,000 properties per annum compared with Treasury forecasts for housing demand of closer to 200,000 homes per annum. In NSW, building approvals are at their lowest level since 1958

http://www.businessspectator.com.au/bs.nsf/Article/Demographia-Dogma-$pd20090129-NQTPP?OpenDocument&src=mp

 

[knocker]

hello,

gee and so many waste there time posting about the 0% return, Shiller wastes his and the universities time on an asset class that provides a 0% return

he should hand back his qualification, cant see ANY unit in my block going for price i purchased for in 1998, stooge

more who have missed out, tall poppy syndrome

top effort kincella, look at the example of doctor out berwick way 1mil to 6mil check that one out Ned, 20yrs locked in Ned

you're a legend Kincella keep the great posts coming

thankyou
robots

Good morning robots

All is good here in sunny algarve. Went for a stroll around the town centre, had some lattes, very cheap here only 1 euro. Looked at some nice town houses here, all very cheap because they have been empty for some time. Will go for a drive in my new beemer later into the countryside to see how my villa is going. lol life is grand . Hope your life in Stkilledher is just as nice.

thankyou

 

[robots]

Good morning robots

All is good here in sunny algarve. Went for a stroll around the town centre, had some lattes, very cheap here only 1 euro. Looked at some nice town houses here, all very cheap because they have been empty for some time. Will go for a drive in my new beemer later into the countryside to see how my villa is going. lol life is grand . Hope your life in Stkilledher is just as nice.

thankyou

hello,

sounds wonderful, keep the great times rolling and looks as though we both in paradise brother

thankyou
robots

 

[knocker]

hello,

sounds wonderful, keep the great times rolling and looks as though we both in paradise brother

thankyou
robots

yes indeed. Cheap beer 1 euro a bottle. Great wine. Cafe and bars on every street. Happy people, sunny weather great food. All good my friend. Adios

 

[robots]

Stocks returned 7% a year for 200 years ended 2004, according to Wharton professor Jeremy Siegel. That’s after subtracting an average of 3% a year for inflation, or the gradual rise in prices of ordinary goods. The plunge in stock prices over the past 16 months makes me all the more sure that shares are poised to deliver good returns over the next decade or two. Houses returned 0.4% a year over 114 years ended 2004, according to Yale professor Robert Shiller, co-creator of the most widely used index for house prices. That number is suspiciously close to zero. Indeed, it might have been zero, reckons Shiller, if not for two periods of aggressive house buying, one spurred by government incentives following World War II and another created by the Federal Reserve’s drastic interest rate cuts in 2002 and 2003.
Some thing to think about???

hello,

hahahahahahahaha, and people reckon i am an idiot

ps. is the internet still working in the UK, another one bites the dust

thankyou
robots

 

[nunthewiser]

well sitting in my seedy hotel in melbourne right now , im looking out the window at ALL the cranes doin there thang around southbank and the city centre area and wondering if all these you bewt apartments are actually sold off the plan or do i get a bargain on one of them when they are finally completed ......

on a side note ...... you guys that live here sure are spoiled for good food . just been down lygon street and a had a loverly fish curry, tastede bewtiful ...... no latees for me tho ..... bourbons just fine

thankyou

 

[knocker]

well sitting in my seedy hotel in melbourne right now , im looking out the window at ALL the cranes doin there thang around southbank and the city centre area and wondering if all these you bewt apartments are actually sold off the plan or do i get a bargain on one of them when they are finally completed ......

on a side note ...... you guys that live here sure are spoiled for good food . just been down lygon street and a had a loverly fish curry, tastede bewtiful ...... no latees for me tho ..... bourbons just fine

thankyou

lol hows it goin nun? Still stuck in that sh!thole? Oh well. lol went surfing today here in the algarve. Off to a nice meal in a restaurant around the corner soon. Have some sagres lol Gee life is tough lol adeus

 

[ned_beaty]

hello,

gee and so many waste there time posting about the 0% return, Shiller wastes his and the universities time on an asset class that provides a 0% return

he should hand back his qualification, cant see ANY unit in my block going for price i purchased for in 1998, stooge

more who have missed out, tall poppy syndrome

top effort kincella, look at the example of doctor out berwick way 1mil to 6mil check that one out Ned, 20yrs locked in Ned

you're a legend Kincella keep the great posts coming

thankyou
robots

Yes Robots, great back slapping, but you seem to have missed my premise. I didn't say that people haven't made profits in the past in property, quite to the contrary I know they have, because I am one of them.

Like I said earlier, why doesn't everyone just buy a $500,000 property for the guaranteed pay off (according to you) of $13.5 Mill at retirement?? Sounds like the perfect retirement plan.

Over the last 40-50 years have seen an ever increasing level of debt accumulated by the Australian population, with allot of that going to pay larger and larger amounts for used properties (unproductive). This is why our debt to GDP ratio is at an all time high.

The question I was asking that no-one here has given an answer two is in the future where are the buyers coming from?? Who can, or would want to take on the debt burden to keep prices going up??

 

[kincella]

ned....you could have asked the same question back in 1986..when prices were about 85,000......
are we not all wealthier today....wages have grown, cost of producing has grown...inflation
things are different from the days when wages were 5 pounds a week hey
or would you rather go back to those days ????

 

[Beej]

Over the last 40-50 years have seen an ever increasing level of debt accumulated by the Australian population, with allot of that going to pay larger and larger amounts for used properties (unproductive). This is why our debt to GDP ratio is at an all time high.

Firstly, the debt to GDP has not been growing constantly over 50 years - it's gone up, it's gone down - currently it is high yes, but as discussed yesterday not unsustainably so if you consider the factors that have driven it over the past 10-15 years. The current ratio of household debt to GDP is roughly 100% (and falling by the way) - at the macro level, that's equivalent say to an individual having a $50k mortgage if they earn $50k pa - that's hardly such a huge problem to pay off if they choose to is it?

As for money spent on housing being unproductive, that is an easily challenged assertion. How can you say money going into housing is unproductive? Let's say I borrow $300k, add a $50k deposit I saved and buy a $350k house. I give that money to someone. Either a developer who has just built a house (and therefore all that money was in effect used to buy materials, pay tradies, government taxes/fees for local infrastructure - sewerage, power, roads etc etc). Or an existing holder of established property - who then does what with the money? Maybe they build a new house (so money goes back into building industry) - or another established house? Or they save it? Or they spend it on other stuff? Maybe the invest the money in the share market or start a new business with it? Maybe they just spent a motza renovating (and thus improving the housing stock and employing tradies/ builders/ architects etc). The point is, the money has to end up SOMEWHERE, where it will be "productive" in some way or another.

So IMO it is wrong to say that just because money made available through finance is spent on housing (regardless of price level) is an "unproductive" use of that money.

The question I was asking that no-one here has given an answer two is in the future where are the buyers coming from?? Who can, or would want to take on the debt burden to keep prices going up??

That's easy - The buyers come from new entrants (population growth and migration) - in a growing country like Australia we have probably a century of sustainable population growth yet ahead of us (maybe debatable if you are a greenie but this is what will happen and the government plans for it). As wages/incomes grow through inflation and due to economic growth/ productivity improvement etc, disposable income is higher, and this feeds into housing price growth. Remember that FHBs only represent between 15 and 25% if home purchasers at any time - the rest of existing owners upsizing, downsizing etc etc.

Because land is a "non renewable commodity", existing housing stock will always become more and more "exclusive" as time goes on and the population grows, eg, there will only ever be a certain number of places by Bondi Beach available, which over time are in the hands of a smaller and smaller proportion of the total population. That factor is what drives prices of existing stock at a rate greater than wage growth and inflation - another way to think of it is an area starts as a FHB area, but 30 years later only 20% of owners are FHB, and 30 years later again everyone there is on their 2nd/3rd residences etc (as that area is now too expensive for FHBs).

As for affordability for new entrants, ultimately affordable new housing has to be created over time to meet that demand - over time that new cheaper housing is what will cause MEDIAN prices to only grow by the rate of inflation plus a small amount.

See how it works??

Cheers,

Beej

 

[kincella]

good news for small business....so long as the rates are the right price
small business are the biggest employers......so maybe some more light at the end of the tunnel
............................................
wbc set to topple the nab as the biggest lender for sme's....and planning on employing a further 300 business bankers.....
and what is required for an sme to borrow ????...you guessed it right if you said resi props.....

resi props are the backbone of the country and small business...the banks require that house as security...
..................................................
extract

Westpac, in the meantime, had set no internal limit on its SME lending, after extending $15 billion to the segment in the 2008 calender year.

This compared to recent commitments by CBA and ANZ to lend the same amount as they did last year -- $12 billion and $8billion respectively.

The SME segment was hotly contested because it tended to recover more quickly than large corporations from a recession, Mr Hanlon said.

"The companies tend to be more nimble, and the people running them are more entrepreneurial," he said.

"It's definitely a big opportunity at the moment, one of Westpac's top three priorities, because at some point the economy will turn and start picking up."

Late last year, Westpac announced plans to hire a further 300 business bankers, and add more business banking centres.

NAB is adding 175 business lenders.

http://www.theaustralian.news.com.au/business/story/0,28124,25168126-643,00.html

 

[Trevor_S]

at the macro level, that's equivalent say to an individual having a $50k mortgage if they earn $50k pa - that's hardly such a huge problem to pay off if they choose to is it?

That's a little disingenuous isn't it ? I was of the understanding that was for every single person and yet most babies and kids don't hold mortgages, to use your example.

How can you say money going into housing is unproductive?

Easy, in Australia, on the whole it doesn't earn an income above CPI. In fact it often makes a loss and relies on a hoped for capital gain (what business investment can you name where an investor aims to make a loss ?) nor does it add to export growth.

It's unproductive like you and your neighbor paying each other to take each others washing off the line.

I would suggest a decent return would be 10 - 15%. Just look to Somersoft for some eyewatering use of debt to achieve very little but a hoped for CG, they are reliant on huge capital gain to make any money and even a modest capital gain will see them languish.

So IMO it is wrong to say that just because money made available through finance is spent on housing (regardless of price level) is an "unproductive" use of that money.

So much money is tied up in this "unproductive" use of money that our major business have to go overseas to get money to survive eg RIO, Fortescue etc. and there is little opportunity to expand and value add in Aus because most people are so in debt on their houses, they have little money to invest in genuinely productive assets.

The cash grabs from the likes of WBC, CBA etc etc recently from shareholders, without them the banks would collapse, or Government would be tipping in vastly more amounts of taxpayer $. The government is propping up the housing market with vast amounts of tax payer dollars though

See how it works??

Not at all ie by that I mean I don't agree with you

All of that aside, it seems to me those who think property is a great investment right now, have convinced themselves there is not only a disconnect between resi. property and the rest of the Aus. economy and Aus commercial market (look to GPT, Cetro etc for proof of the massive devaluations there) but the entire rest of the World.... I could be wrong and resi. property keeps going up for ever in Aus but to my mind, the odds are seriously against it for the next 5 - 7 years at least.

I am buying shares because there has been a correction in the sharemarket where lots of shares now represent good value (I have no idea if they have bottomed) but this decent devaluation has NOT happened in the residential property market yet...

 

[kincella]

oh dear...unproductive...a roof over the head for the family...a nesting place...and all the things that go into a house.....whitegoods, entertainment appliances, building materials....insurance, finance....
so you could forget all about the top 200 companies....all produce something geared towards the building or the home

and then you compare it to shares/stocks being productive....if you did not have the house to begin with...no point in holding shares....most of the companies out there produce something for the home...
oh and more importantly....small business are the largest employers in this country.....sme's need a loan to continue......yes but only if the bank has the home as security.....

the alternative....live in a bark tent under a tree....and forget the stockmarket....

 

[Beej]

That's a little disingenuous isn't it ? I was of the understanding that was for every single person and yet most babies and kids don't hold mortgages, to use your example.

No it's not disingenuous at all - just an analogy. At the national level, if we EARN X dollars a year, and OWE X dollars in total debt, then it is analogous to a individual earning $50k a year and having $50k of debt. you could use any wage/debt number you like in my analogy - it doesn't matter.

Re the unproductive spending argument - I think you are imagining all this money sitting there doing nothing - that's not how it works as I see it. The money used to buy a house ends up somewhere else in the economy, doing something productive. It has to! Your argument would only apply to that portion of GDP (which represents a portion of the GDP portion which is total wages/salary earned by individuals with mortgages) spent each year paying back interest on housing loans, not the total amount of money SPENT on housing. Ultimately however money makes it's way into the economy, someone somewhere has to pay the interest (or opportunity cost) on it. You could argue that high house prices result in less credit being available DIRECTLY for other borrowing/purposes though that are unrelated to the housing/construction industry - maybe that's what you are saying?

Cheers,

Beej

 

[gfresh]

good news for small business....so long as the rates are the right price

small business are the biggest employers......so maybe some more light at the end of the tunnel

resi props are the backbone of the country and small business...the banks require that house as security...

And that is another very important thing to be keeping an eye on.... If a very large number of SME's go to the wall (and they are starting to), then so do the houses supporting them, enough of these go and well, we've got the domino effect, no matter how much underlying demand there is due to population growth or the like, short term at least.

I agree fully with Trevor_S' perspective regarding the argument of productivity.. if we are relying on a large chunk of our "production" to be simply tied up with "shelter" and even simply "consumption", and very little innovation or actual exportable production going on then this country could have a serious problem. If the money wasn't going into housing, it would have to be created elsewhere wouldn't it, and go into other areas - many of which could help Australia rise up several ranks in the top 20 economies. Having such a large chunk of GDP focused on housing really has never made any country wealthy, at least not longer term.

Looking across to our forefathers, the UK, we can see such a path can lead... and that is serious damn problems if things go even slightly pear, even worse so than the US, that at least has some intuitive productive capability.

 

[gfresh]

case in point re sme's: http://www.businessspectator.com.au/bs.nsf/Article/Dun--Bradstreet-$pd20090309-PXR24?OpenDocument&src=sph

Australia’s leading debt rating/collection agency Dun & Bradstreet raised the financial distress alert last month when they reported that the number of companies rated as having a high risk of financial distress or failure was up 12 per cent on the previous year and was 20 per cent up on 2007 figures. D&B reported a 40 per cent rise in debt referrals in November and December and a sharp increase in payment terms which took debtor days to the highest level since 2001.

Since then there has been a significant further deterioration and the level of impending financial distress among business enterprises has risen to levels that D&B have not seen since the early 1990s.

 

[Glen48]

Hail KING ROBOT"S et al:
They were right and us poor ones have to eat humble pie...Looks like I missing out on another boom

AUST DATA REVIEW] The recovery in demand for housing finance continued in Australia; with the number of home loans approvals rising firmly for the fourth straight mth in a row. Approvals gained by a further 3.5% over Jan, less than forecasts on a 4.0% gain but after Dec's prelim 6.4% surge was revised up to a higher 6.7%. Meanwhile, total value of owner occupied loans rose a further 0.7% after rebounding 6.0% prior. Of the latter, the value of invt lending fell back by -3.8%, but owner occupied housing gained a further 2.3%. Jan's ensuing gains continue to be primarily driven by ongoing demand for new home purchases after the Govt's handout to first home buyers in Dec. However a broad recovery is also starting to be evident in response to RBA's aggressive rate cuts since Sept.

 

[Uncle Festivus]

Hail KING ROBOT"S et al:
They were right and us poor ones have to eat humble pie...Looks like I missing out on another boom

AUST DATA REVIEW] The recovery in demand for housing finance continued in Australia; with the number of home loans approvals rising firmly for the fourth straight mth in a row. Approvals gained by a further 3.5% over Jan, less than forecasts on a 4.0% gain but after Dec's prelim 6.4% surge was revised up to a higher 6.7%. Meanwhile, total value of owner occupied loans rose a further 0.7% after rebounding 6.0% prior. Of the latter, the value of invt lending fell back by -3.8%, but owner occupied housing gained a further 2.3%. Jan's ensuing gains continue to be primarily driven by ongoing demand for new home purchases after the Govt's handout to first home buyers in Dec. However a broad recovery is also starting to be evident in response to RBA's aggressive rate cuts since Sept.

Mmmm..... suck them in then have a recession? Sounds like the teaser rate scheme they had in the US.......only make it worse in the end when all the newcomers want out coz they don't have a job? Either that or it's getting set up again for some hefty (house price) inflation down the track and.....higher interest rates to cool it down.......like an imbalanced wheel....