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House prices to keep rising for years

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Kincella,

Excellent reply - well balanced and thoughtful - thank-you.

I am studying and attending auctions most weekends. I will purchase again when things stabilize. I am not trying to pick the bottom of the market but rather trying to determine what is the right price to pay. My decision last year to sell my PPOR was largely due to family requirements, an apartment on the tenth floor is no good with a 3 year old that likes to climb and needs a backyard.

I believe that paying off your PPOR makes life easier later in life, giving you some security and is only part of an overall investment portfolio.

Robots,

While it would seem that there is some disdain of Steven Keen, if you have read his papers, they do highlight that Australia has to much of a love affair with debt and this debt has largely fueled growth. While his predictions seem a little to extreme they are not totally unrealistic. It would seem that the slow down in the economy has just started, retail sales down for the first time in eight years, unemployment rising, major trading partners in recession, 18 years since the last major downturn. It is to early to make judgment whether he is right or wrong. If he is only half right 20% drop in property prices, a lot of people are going to be affected along with property prices and the rest of the economy.

Maybe a discussion on whether property prices increasing above inflation each year is beneficial for greater society might be appropriate. I for one would like to see a nation less obsessed with property and more focused on productivity and innovation. A clever country that also has great riches to dig up and sell to the rest of the world would be nice and remove any government that thinks giving borrowed money to the masses to spend is a good idea.

Cheers
 
/Yawn ........


" House prices to keep rising for years "


Nope not a shred of evidence exists yet.


Happy debating folks
 

hello,

in his opinion, he can cop it sweat just like me and everyone else, its all just discussion and debate,

hey Satanoperca, i think from memory you might be owing me a slab of ruskies and chicken parma after the stats out from Rpdata, houses up units up

this sunday, got room on the pack rack of the pushie, couple of ocky straps

i might fast from tonite and save up for the counter meal

thankyou
robots
 
just another 2 cents worth.... interest rates started to seriously rise almost every month from Jun 07.....and only started the drop back in Oct 08...
thats about 16 or more months of pain for a lot of people....including all the small businesses....who really are the bulk of the employers in this country...

using my own situation as just a small example.....I kept my 'cash for the rainy days' situation and added to it...that was before Jun 07...one needs to have some there no matter...just in case etc...
Well the incessant rate rises certainly ate into that cash supply...it seemed relentless, month after month.....and I did not see the stock crash coming as large as it did....so the 2nd back up plan also deteriorated very quickly....
so for a small business that had been modest with a good supply of cash for back up...has eventually succumbed to the conditons...mainly associated with the high interest rates....its coming up 2 years now....

after nearly 2 years, with no relief in sight....backup cash gone...then the only solution is to let staff go.....most owners do not do that lightly....
there would not be too many of the employees who would have cash backing to tie them over for very long.....so of course houses will be the first thing to go............
I would say we have held up very well so far, and for so long....
the low interest rates just might save us for now....but it will be a slow ride back to easy street
 
You may have noticed that more and more mining jobs have been disappearing, although not related to every job this does have an impact throughout the country.

For those that have been working away for a year or two and decided to buy a flash new home,boat,car mainly on debt. Well for the lucky few they will find a new job in the mining industry or City usually with lower pay.
those that don't find a new job will soon start selling there cars and boats and luxury goods which they bought on debt to start covering there huge loan repayments, which the dole itself may not even cover let alone living cost.

This will mean that Car and boat and all those other nice goodies that were purchased using debt will be dropped in price causing prices of these items to drop.

Now for those not working in the mining industry working on a medium paying job just scraping through day to day well soon everything they will own will be worth less and if no income is available it wont be long till they will be forced to sell and start renting.

more and more people will be moving to the outer skirts for a cheaper home not worrying about having the city lifestyle and worrying more about afforablity.. down goes city house prices..

Or Maybe i have gone over the top and everything will be rosey, heck 1 year ago i thought my job was safer then some Bank vaults now it seems the security is down and the vault door is open just waiting for the goods to be taken away..
 
First post so please be gentle.

Prices will continue to rise as demand is currently exceeding supply. Especially for affordable housing which is where most FHB are spending there donation from the taxpayers of Australia.
However an article I read the other day discussed the baby boomers (BB) downsizing from potentially $600k-$1mill properties to townhouses or retirement villages. This is going to really gain momentum over the next few years as they have had super wiped out by the GEC/GFC and need to boost there retirement savings.
So we then should see demand for townhouses and retirement village rise and an increase in supply of houses wished to be sold by BB's.

The BB's are going to cause quite a few problems in Australia as they have done over time. What impact will that generation have on house prices at an already uncertain time. 2015-2025 should start to see that generation drop off in increasing numbers statistically. What effect will that have on the economy?
 
That's assuming they can sell and the BB can get their 600 1M price tag there will be lot who end up with not much after 40 50+ yrs of working.
 
I agree with the downsizing, and think it's effects will be important. Get it right and it could be very profitable for investors. I agree townhouses will become attractive - low overheads, managed secured gated complex (often), small garden to take care of, likely to be newer with less maintenance costs. Beachside areas and those close to hospitals and facilities would be prime.

There has been some talk of older generation being "scared off" the sharemarket forever, and any of their extra money going into property investment. However I don't think it would be so simple...

Who is going to lend to retirees with no income, probably 20 years left to live (too short to pay off a bank loan, never mind if the old kipper drops off early)? Also their retirement investments/super payouts/capital base has been slashed, meaning tying up too much into property may not be advantageous.

Which retirees are going to use property for income generation, as yields do not provide cash-flow positive properties except in the most rarest of situations presently?

This crisis has really changed the dynamic of this generation and their spending capacity for years to come, I think anyhow.
 
Uncertain,
all those babes, immigrants and children will take up the slack...
and your years may be out a bit..they start dropping off at age 79 in 2025, not so much earlier...so there is another 14 years to wait
most of us are planning to be here another 25-30 years....
and I suggest the former fhb will upgrade to their dream homes...again taking the slack from the boomers selling to go for the tree change
biggest problems may be for the kids...cannot live at home in the city if the old's have gone into the hills
and there will be people like myself..not going out to the hills and trees, stay in the city
 
But Kincella, what about the changes these days with Gen Y happy with smaller and lower-maintenance apartments or the like? closer to facilities, no garden to take care of, walk to the tram/train. Many are having less children, if not at all.

The old 3/4br for 3-4 kids Aussie life is almost becoming a thing of the past. So a lot of those free-standing houses will be removed, sub-divided into townhouses, and large profits will be made.

Not sure, just some thoughts anyhow.

Demographics is always interesting
 
numbercruncher said:
" House prices to keep rising for years "


Nope not a shred of evidence exists yet.
Click to expand...

Will there are actually quite a few "shreds of evidence" - see below (from http://www.rpdata.net.au/news/rp/RP...erty_Value_Indices_release_Mar_09_FINAL.pdf):


So as observed and stated by many (including myself) on this thread weeks/months ago, prices have been stabalising and rising slowly in Sydney and Melbourne since the end of last year. And there are now quite a few "shreds of evidence" emerging, other than observation/anecdotal evidence (of which there is plenty) to prove this is the case. Re your question above, there is certainly a lot more evidence emerging to support stabalising and rising prices (in terms of national averages anyway for what they are worth) than evidence to support any great across the board national crash in prices aka US or UK etc.

Perhaps we should really stop some of the great generalisations here about the property market as a whole, and instead look at specific regional markets more closely? It seems a very different story is emerging for Darwin, Melbourne and Sydney + Adelaide vs Perth and Brisbane?

Year/Year figures to Feb now showing only small price declines for Sydney, Melbourne and Adelaide (which occurred mainly in the middle of last year - old news), big gains for Darwin and more significant falls for Perth and Brisbane:

Sydney Melbourne Brisbane Adelaide Perth Darwin Canberra
-2.17% -1.75% -7.18% -1.01% -7.15% 10.72% -3.69%
Click to expand...

So if you live in Perth or Brisbane, then prices have fallen quite a bit over the past year, and are still falling. However if you live Darwin, they have risen strongly. If you live in Sydney or Melbourne, they fell slightly during the mid/end of 2008 (more in higher price ranges than lower), and have now stabalised in higher price ranges and are rising in lower ranges. The trends seem to be quite different in the different regions, so perhaps people watching the market should consider this when thinking about whether it's a good time to buy or sell?

Cheers,

Beej
 
Beej, on another site a fellow poster said...3 tradie mates...2 stopped doing quotes...too busy...the 3rd put on extra staff to cope...the legal faternity are pretty busy with conveyancing....
friend looking at delays of 10 weeks to receive offer from the banks...
meet with the bank and hand over infor.....wait 4 weeks before they can look at it...then the usual time to process and make the offer....

some kids with pre appovals and settlement dates are stressed out with the delays...hello..can they put on extra staff to cope ?
 
could someone explain how the medium price is calculated as it seems to me that it could only be based on the current markets opinion of housing prices thus if low end houses arent selling as much then upper end houses are then surely the upper market would pull the price up and this obviously is reversed if the lowwer end of the market is selling more houses?

Just another question to get my head arround how SIGNIFICANT 1.0% rise is.
 

Median price = if you lined up all the houses sold over the sample time period, from cheapest to most expensive, the median price is the price of the house that sits right in the middle of the line. So yes if a lot of expensive houses vs fewer cheaper houses are sold, then the median can go up, and that does not necessarily mean individual house values rose. Conversely, if more cheaper houses are selling, then the median can go down, but again, that may not mean values of individual properties have fallen....

Over-all the median is a more stable statistic than the average (or mean). Ie it is effected less by a change in the mix of sales than the average price is.

For example, say 10 houses sold, 7 for $350k, 2 for $500k and 1 for $1.5M. The median price is $350k. The average price is $445k.

Now let's say 6 houses sold for $350k, 2 for $500k and 2 for $1.5M. The median is still $350k, the average is now $610k. Notice how the change in mix of sales left the median unchanged but the average went up?

Understanding the above, ie the median will be effected less by a change in mix of sales in a sample vs the average, it can still be influenced, so the important thing to look at are the trends in median prices, ie how they change over periods of time. That should also answer your question about the significance of a 1% rise - you have to look at that in context of the trend and that small rise might indicate a change from a downwards to a flattening or rising trend.

PS: Also remember when looking at quarterly stats 4 x 1% rises in a row = 4.06% annual rise. Rising prices can creep up on you faster than you think.....

kincella said:
some kids with pre appovals and settlement dates are stressed out with the delays...hello..can they put on extra staff to cope ?
Click to expand...

That nearly happened to me last year when I was buying my new place! Everything was pre-approved etc (mainly I was just swapping the security under existing facilities, no new finance etc), but the bank only just managed to get the final documents done and accounts etc set-up ready for settlement 2 days prior to my contracted settlement date!!! That was a close one.... They put it all down to being swamped with new loans to make...

Cheers,

Beej
 
enigmatic....when in doubt try the google search...

........................................
Easy explanation of the sample median
As an example, we will calculate the median of the following population of numbers: 1, 5, 2, 8, 7.

Start by sorting the numbers: 1, 2, 5, 7, 8.

In this case, 5 is the median, because when the numbers are sorted, it is the middle number.

For a set of even numbers:

As an example of this scenario, we will calculate the median of the following population of numbers: 1, 5, 2, 10, 8, 7.

Again, start by sorting the numbers: 1, 2, 5, 7, 8, 10.

In this case, both 5 and 7, and all numbers between 5 and 7 are medians of the data points.

Sometimes one takes the average of the two median numbers to get a unique value ((5 + 7)/2 = 12/2 = 6).

http://en.wikipedia.org/wiki/Median
 

I don't quite get it to be honest. Volume of sales is probably 50% of the boom period and yet they are having trouble coping? Something doesn't quite stack up there in terms of lenders really being "swamped" with applications...

I think the true reason is closer to them applying a lot more scrutiny to each and every loan granted.. no automated approval system, like a couple of years ago
 
It cost 40% more than your mortgage payment to own a house.

It is the ultimate contest in the field of Australian investment. Which is better, shares or property?
Both have their cheer squads. And both can easily pull out a pile of statistics and charts "proving" their argument is right and their opponents are wrong.
Our view is that it is a nonsense argument. The fact is, they are both wrong. And furthermore, the race for spruikers on each side to outperform each other is partly behind the bubbles in both markets.
In reality you shouldn't compare shares against property. They are both completely different types of investments. They are not comparable. In a normal, undistorted free-market they would each provide a different set of returns based on growth and income.
Unfortunately, both markets have become so distorted by taxbreaks and leverage that it is almost impossible to know what the true rate of return on either asset should be. All anyone can do is guess. But one thing we know for sure, an asset value cannot consistantly achieve double digit gains year after year.
Even a small cap company will return to modest growth after its initial spurt.
On the one hand you have the share spruikers. Those that claim the only way to invest in shares is to buy them and hold them forever. This case is most frequently argued by those with a vested interest. That is fund managers and financial advisers.
The more money you give them and the longer they hold it, the more money they make for... themselves.
You've seen the chart from Vanguard showing returns of three million percent from buying and holding shares. That's if you happened to buy your portfolio in 1898 and held it through to today. Happy 101st birthday to you if you have.
But for many investors, after a year and a half of pain they are taking the decision to exit the stock market, perhaps forever.
The trouble is, now is exactly the wrong time to get out of the stock market. Instead, what most investors should be doing is taking a look at their portfolio and - in the words of fund managers - rebalancing it.
You see, for years fund managers have brain washed the investing public into believing buy and hold is the only strategy. That you should split your assets between blue chip shares, cash, fixed interest and listed property.
Except, they've got it all wrong. That's the formula to make average and below average returns. If you're happy with that then go for it. If you're only after 3% per annum then you shouldn't invest in something providing 10%, because you'll take a bigger hit if things turn out wrong. But if you want to make above average returns you have to play the market differently to the fund managers.
Don't get me wrong, this isn't all about getting one-up on Wall Street, Collins Street or Martin Place. And it isn't about earning more than your neighbour or your work colleagues. This is about getting a better return on your investments. I wrote recently that the 'rule' about diversification was
just fund manager spin. There is a simple reason why that's true, and I'll get to it shortly.
As an investor, you want your investments to do one of two things: grow, or provide an income. Sometimes you get lucky and you can have a bit of both. But not usually. In fact, if any investment offers growth and income in the one investment then take a second look to make sure you aren't being conned. Those investments are out there, for instance, a small company we tipped in the Australian Small Cap Investigator last October looked too good to be true with a 9% yield and the potential to more than double in price. So I checked the figures again, and the numbers did stack up.
Let me make one thing clear. I'm not saying that investing in small cap shares is better than investing in property. They are different investments with different returns. In other words, you should match your investment based on the returns you want rather than trying to get higher returns from an investment that can't provide it.
In order to understand investing we need to take a step back and see how an economy works. In very simple terms you can split businesses into two areas - companies that make things (products), and companies that provide a service.
You then have entities that buy those products or services. They are either other businesses or individual consumers. (We'll leave government out of this to keep it simple - if only we could do that for real!)
Over time some companies will do better than other companies. It could be for a variety of different reasons - a better product, a cheaper product, better marketing, etc. Also some companies will fail and go out of business.
But new companies will emerge. They may fill the gap of the failed companies by copying their technology. Or, as frequently happens, a new company will improve on an existing product or service. This may (but not always) increase demand for their product and allow the company to grow.
The existing companies will then have two choices. To either adapt their own business to follow suit or stick to what they have been doing. Either way, it is a decision that could either ruin the company or allow it to remain in business to grow further or at least maintain its market share.
Over time new companies will replace the old, get taken over by the old, or they will take over the old companies themselves.
And that's how you can achieve above average returns. Sure, it does mean taking on more risk - the fund managers have got that much right - but without risk there is little reward. And if you want higher returns you need to understand there is higher risk.
That's the problem with the recent trend in the property market. We're not saying it isn't a good investment and property investors haven't done well over the last twenty years or more. What I am saying is valuations have got "out of whack" with reality. Property values have increased for all the wrong reasons. Thanks to property spruikers, negative gearing, and the belief that property values always rise, the reality has become lost amongst the dream.
Think about it, throughout time, housing has been built and bought as somewhere to live. Or built and bought by a landlord for someone else to live in - whether its a nineteenth century industrialist building terraced houses for factory workers, or country gents building cottages for labourers, or even modern day landlords building well-appointed units in Docklands.
 
But, do you see the difference? Industrialists didn't build thousands of terraced houses in the north of England because they thought the price would rise allowing them to sell them off at a profit. They built them because they needed people to work in factories. People would only move from the countryside to the cities if they had somewhere to live.
What better way to indenture the workers than giving them a house in return for working in the factory. If they play up or complain then they're out of a job and a house.
The point is, property was not the investment for the industrialist. Property was merely a way of securing labour that could work in the factory to manufacture the products. That was how the industrialist made his money. Owning the land and houses was a bonus, and a liability.
Suddenly things changed. More and more people started owning their own homes, which meant that more and more people wanted to own their own home. The banks realised there was good money to be made in lending money against property - providing they didn't lend too much of course.
But once the floodgates are opened it takes a lot of effort to close them again. The banks were willing to increase the amount of money they loaned. Property owners now wanted to buy a beach house to complement their home. "If the rich can do it, why can't I?"
And then before you knew it, everyone wanted to be a property developer. Units, townhouses and apartments were springing up everywhere. The promise of easy money was too hard to refuse. And don't worry about rental income being high enough to cover the mortgage, because negative gearing means you can get away with undercutting yourself.
In fact, why not make the rental income so cheap that it's cheaper to rent than buy!
Besides, property investors aren't interested in the income, it's the capital gains that count. Because property prices always rise.
There is little doubt that property values have risen very healthily. If you'd bought a block of land in the 1970s or 1980s you would have made many times your money on the investment. So why shouldn't that be the case now? Why shouldn't a property bought today increase in value by the same amount over the next twenty years?
Well, that brings us right back to productivity. When you buy shares in a small company you are buying the rights to share in its current and future profits. It is making something that has a demand in the market, and that will be used by the end user. The company can keep making the product until a better product emerges and the business starts to decline.
However, when you buy a property, sure there may be a demand for it now, but what about when a better property becomes
available, will it be in such high demand then? Will it not also start to decline?
What is the productive output of a house that causes it to continue rising in value?
Take a look at the chart below...



Source: http://www.debtdeflation.com/blogs/
It displays the growth in property prices in Australia since 1890. Now, we don't need to go back that far, so let's take the period from the early 1970s. Since then, the house price index has risen from just over 100, to more than 350 today. And that's removing the impact of inflation.
But the real spike doesn't start to kick in until the 1990s. That's when the credit bubble really started to take off. Can we really believe that the credit excesses will cut the stock market in half yet leave the property market almost completely unscathed? Even though property has been just as leveraged as shares.
Yet that is what the property spruikers claim.
But for some investors and the economy, things could just be about to get a whole lot worse. Because just as the stock market is cruising around the lows - in our opinion - the property market is still close to a record high.
Lured by the belief that property prices always rise, many investors are closing the door on the stock market and opening the door on the property market. And they're doing so at exactly the wrong time. Not only are property prices near record highs but interest rates are at record lows.
That is a recipe for disaster once interest rates start rising again. In the recent Australian Small Cap Investigator newsletter I took the decision to tip a property trust as a short term punt. That's because I believe we are approaching a short term "Super Spike" in the property market as demand and supply converge.
It won't last for long. Soon interest rates will rise, government subsidies to prop up the property sector will run out and the glut of over-priced and over-appointed new property developments will be awash over the economy. Hopefully, just before that happens I'll tell Australian Small Cap Investigator subscribers to bail out of the property trust as soon as they can.
Meanwhile, while all this is happening, many - but not all - small companies will continue producing, servicing and making money. That's why it is the worst possible time to leave the stock market and buy property.
Remember, the saying is "buy low, sell high." Buying low is not something that could be said for the property market at the moment.
Kris Sayce
for The Daily Reckoning Australia
 
Please thats is slightly insulting that you would think I dont know the difference between mean and median.

Although maybe it was from my poor choice of questioning what i was went was were do they get there sample group from as this can change the outcome quite heavily.

Beej cheers for your insightful answer although not exactly what i was looking for, you stated if you lined up all the houses sold over a time sample this statement is what my questioning is directed you state "if" does this mean that is how it is calculated or is a random selected group obtained and the median over that sample used.

For example to show i Understand the concept of mean and median
note used 000's
Sample Group 1:100,200,300,400,500,600,700
Sample Group 2:100,100,100,400,450,460,470
Sample Group 3:100,100,100,200,300,400,400,400,400,400,400,900,900,5000

Mean:
Sample Group1:400
Sample Group2:297
Sample Group3:714

Median:
Sample Group1:400
Sample Group2:400
Sample Group3:400

so obviously in all sample groups the median ended up being 400 although not entirely the same, significant outlier are therefore excluded this can be show in sample group 3 although this can be applied on either spectra of the scale. It is all possible that the increase in price is only due to the change in number of high priced houses being sold due the inability to service there loans, note a while back a post which showed an intial dip and then a recovery followed by a server downturn this reminds me of that exact example were the illusion of house prices increase can be seen only due to the change in who is selling offcourse more are buying these homes dont think I am forgetting that but this is likely to come from those of us who currently dont believe there job is in jeopedy and are buying the max they can afford at the current low rates. Only to find they cant afford it when rates return to there past values.

Just a thought..
Oh and i think they teach you about mean and median in primary school although I could be mistaken..
 
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