House prices to keep rising for years

[Beej]

It seems to me that you are trying to convince yourself that property is ok, and maybe it is. However there are enourmous amounts of real financial data that indicates all is not well. Be objective and consider that property may be in for a siginificant correction before this crisis is over. I am standing on the sidelines to see what pans out, there are much firmer investments elsewhere at the moment, when I am sure that we are rising off the bottom will be keen to get back in

Explod - At one level I don't really care what happens to property now in the short term - I sold some property late last year including my PPOR and bought an upgraded PPOR that we intend to hold for the next 10-20 years. Other property I hold will be held for a similar length of time - Ie until I retire and beyond. So in effect I personally have already achieved the goals I originally set out to when I first entered the property market 18 years ago.

You are correct that the market is far from healthy - I do not disagree. More out of personal interest than anything (driven mainly by being bombarded with bearish views from the media and some other people I know etc), I continue to maintain a healthy academic interest in the market. Out of habit I always keep a close eye on my local area and areas I used to own/live in. I also know several people looking at the moment.

My observations of the markets I watch do not "gel" with the view that the market is currently falling over all, hence my interest in other musings from sources that are examining the issue. So far, at least as far as this quarters ABS figures go, there are some pretty heavy weight individuals and groups questioning those latest stats and presenting a similar view of the market to my own - including it now seems the RBA.

As far as property being in for a significant correction - in some areas perhaps this is true. In Sydney however, in real terms price have already fallen by 20% since the peak in 2003/2004 - so I feel that the correction has already taken place, or at least is in the final stages, rather than being at the beginning as many of the bears seem to think. I am trying to communicate this information so that anyone bothering to read forums such as this get a broader view than what they would get if all comments were dominated by the bears of the internet on this topic.

As for alternative investments - of course there are alternatives! I too am fairly heavily invested in equities - and my portfolio is now up over 30% from it's low point (with the help of a fair bit of pruning and active management through this downturn), which is nice, plus a lot of dividends have flowed in over the past 12 months while many were screaming to sell. If I focussed purely on the views of the uber-bears of the equities world, I would not have made a cent in the past 2 months from there, and would have crystallised a bunch of capital losses.....

Cheers,

Beej

 

[explod]

I am trying to communicate this information so that anyone bothering to read forums such as this get a broader view than what they would get if all comments were dominated by the bears of the internet on this topic.

Most that have been on this forum for some time are fairly analytical compared to the general property investor who are led very much by the daily press which feeds on a bullish bias. In fact generally from my take on it all, the bulls outway the bears on property who are howled down at every turn with not a lot of substance. Along the beach front down here property will allways hold but one has only to move a short distance inland (1km) and most properties have been refinanced to the hilt just to keep kids in school and maintain a reasonable lifestyle. Many rely on the building trade which has stopped in its tracks. The loss of these and ancilliary jobs will not hit the ABS figures for some time. The cantraction from October has not hit the bottom feeders yet either. My take is that come July we will have a glaring problem all round. The talk in the media seems to be jawboning in the hope that it may by some miracle go away. Worth looking at all sides IMHO.

 

[singlefished]

and the best information I have gained here..is something outstanding....those stats do not include units or detached houses...how surreal...when that market represents 30% of the total market....
geez...what other industry only uses 70% to play god with the figures

So it must be the "massive" price boom in that particular 30% of the market which has led these analyists to believe prices have risen significantly when compared to ABS figures? The excluded 30% being the cheapest sector of the market remember....


You are aware that RPdata don't report "combined" house and unit data? They report house price medians seperately from unit price medians.

And there's your conundrum, a direct comparison can be made between particular sectors of the market, in this case detached houses, so apples with apples instead of apples with a basket of fruit.

So, what are the differences that could cause such a difference in their results?

RPdata define house medians below (basically assessed on land value), units are calculated differently.

For residential houses a similar stratified model is used, but suburbs are grouped by their long term median “price-of-land.” That is, an estimate of land-value is obtained as sale price divided by land-size. This is then used to form the long-term price-of-land for each suburb, from which strata are created.

This from their hedonic methodology:

The premise for this lies in hedonic theory which suggests that the value of a composite good – such as a house – is the sum of its components. Thus, by decomposing the sample of houses into their various structural and location attributes, the differences in these qualitative factors across houses can be controlled.

After spending over a year attending auctions and OFI's, there's nothing really that special about any of the particular property coming onto the market and I would go so far as to suggest a lot of crap has flooded the market over the last year and I'm guessing belt tightening has precluded a lot of places from receiving even a fresh coat of paint prior to presentation.

This would suggest that these analyists are being somewhat "optomistic" with the compositional changes and that their paramaters used to guage the values of the individual components are subject to the discretion of the person doing the modelling.

RPdata is also computed using only 40% of reported sales:

RP Data-Rismark collects around 40 per cent of all sales live directly from agents. Testing proves that this information correlates almost perfectly with the final government data, which makes sense since the agents rely on it themselves.

http://www.businessspectator.com.au/bs.nsf/Article/What-went-wrong-with-the-ABS-pd20090507-RT7RU?OpenDocument&src=is&is=Property&blog=Concrete%20Detail


This reporting of sales is also subject to the discretion of the RE Agent selling the property. There is no statute or code of ethical conduct that insists REA's are required to submit ALL data, good or bad, to these private companies....

In your own words and corrected to suit RPdata analysis, "what other industry uses only 40% of select data to play god with the figures?"

Answer : self serving property analyists with vested interest

The good thing about ABS is that they use the same methodology every time with ALL the data, at the least, it provides a clear indication of the trend, either rising or falling in the particular property sector they are analysing.

 

[kincella]

Singlefished... I too have been saying that only low priced houses were on the market and selling for more than they would in a normal market.... I did not see the average ordinary middle range house on the market until some appeared last month....
I have never said to go and buy now....just suggested one keep a keen eye out, and an eye on interest rates....the interest rates being the most important....that gives more buying power....not talking just fhb, but upgraders and downgraders...'whether we see a rate of 4% variable, and a fixed of 5.5...thats up to those in charge...am thinking it could be a possiblity towards the later part of the year...I have taken variable at this stage, and hoping to fix into a 5 to 5.5 for about 5 years...
I do not see 12 or 17% rates....aim for a 6.5 -7% rate as a long term average as a guide

 

[robots]

hello,

http://www.theage.com.au/national/migrant-figures-jump-the-slump-20090508-ay0t.html

how can this be, everybody has been telling me the borders are closed because we in recession,

thankyou
robots

 

[kincella]

'they' must have been telling porkies....'they' may have fairies at the bottom of their gardens too.....
hehehehehe :sheep:

 

[singlefished]

Well, if rental vacancies are to be believed the new arrivals will be sleeping on the streets....

What's Australia got, some 9 million houses? 30% of these are rental so that would be approx 3 million on the rental market. 1% vacancy rate means only 30,000 available.

128,000 more coming in than going out over the quarter means they can slot in nicely at about 4.3 people per property.

So, are ABS stuffing their figures again or is it property analyists telling us porky pies about vacancy rates?

Just checked realestate.com ~ wow, still lots of rentals available!!!! Can't believe it!!!! I thought there'd be nothing left after that quarterly immigration figure!!!! WOW!!!

 

[kincella]

singlefished... without adding the immigration numbers...you forgot about the divorce rate..theres another one needing a prop, then the kids leave for uni, looking for a prop...kids from the country come to work in the city, a few olds die off, some kids move out of home to live alone or with friends...and the average people per house is 2.5
the professionals move around, the females like to live alone...the males do too but not as much as the fems....
suburb I watch about 100,000 population...say 50,000 houses...on average there are 200 houses for sale and 200 for rent...less than 0.5% of each...or less than 1% if both were vacant ....of those amounts only 10% might suit me

 

[singlefished]

That's the funny thing, even with the immigration figures and as you pointed out, divorces, students, deaths, 2.5 average per household, etc the rental vacancy rate over recent years always seems to fluctuate around the historic lows.

It certainly appears that rental vacancies are at their tightest when sales volumes take a dive.

We're certainly not building new accommodation fast enough (apparently) so where are these people residing if they're not on the street? The numbers just don't add up.

Like RPData's 40% of sales to summarise the whole market, maybe the rental vacancy rate is only 40% reported and mis-represented as being the whole of the market. It certainly wouldn't surprise me...

 

[robots]

hello,

good morning

http://www.morrellandkoren.com.au/topend/

great commentary from these buyers advocates who get out there and put in the yards every day,

some great results still coming in with another fine day on the auction scene yesterday, WOW paradise

oh well, its all no big deal if you cant afford or dont want to own a home just rent, easy

thankyou
robots

 

[kincella]

Morning Robots...thanks for the link....they do write some entertaining stuff on that site.....psst....our mates on the other side probably dont read this, or if they did ...would not believe it....
cheers
an extract ...................

What planet do they live on?

Median: “Median (mathematics), the value of the middle member of a set of numbers when they are arranged in order …”

That’s clear enough. But it’s nothing but misleading when applied to house prices and it is out-of-date, has little relationship to what is happening now and is not comparing like with like.

And then it leads to you-beaut headlines such as:

“Victorian house prices suffer biggest drop in 40 years.”

Sure did. But so what?

Delve a little deeper into the REIV’s stats and you’ll come across such useful information as Toorak houses dropping 26% in the March quarter and 33% over the last 12 months.

It is high time the REIV and its so-called experts learnt that judging property by median values is useless and they should go back and do a valuation course. Regrettably there is still a lack of real information accessible to the buyer with respect to the property market; and apparently that’s the way the REIV likes it.

It’s not rocket science: start with land value (position, area and outlook), then add improvements and factor in scarcity and desirability (or lack thereof). And ignore misleading medians.

 

[kincella]

some of us have been arguing about the number of vacant properties and the number of people per housing.... the number has been declining since the since the 1950's ...guess there were similar families to my own...dad mum and 4 kids....today its down to 2.46 thats either mum dad and half a kid, or a mum with 1 and 1/2 kids....sounds funny...
and of course there may be some temporary moves by the adult kids (apparently up to age 34) to move back home with mum and dad...ouch fancy dealing with a kid aged 34.....whilst the GFC is blamed for everything for the next year or so...
but when it returns to normal...the trend in the number per house will not grow,,,well not in the western world....there are other people that do take the olds into their homes...to help with childminding and other housework....
heres another story with some stats about women with choices about having children...
ps...I have no intention of living with anyone...young or old...I love my sole household with the dog...
http://www.theage.com.au/national/o...-special-treatment-20090509-ayov.html?page=-1

 

[enigmatic]

I always get confused by both kincella, robots, Beej comments never know if there trying to sell me that houses are on the up and up and every day I dont buy I miss out, Or that you should be patient and look for a bargin..

Kincella i think your point is that patient is important.

Any way Maybe rather then blaming us Short term Housing Bears, for looking at both sides of the coin you might want to look at both sides instead of playing the Houses will always go up card..

Reading a majority of your comments reminds me of a work mate who use to be in the Realestate industry for 20years before moving out..
He told me in early August 08 that I should be buying a house NOW. my reasoning for waiting was simple house prices would slow if not reverse allowing me to save money for a better deposit and lower loan at the same time I would be able to get myself a lower interest rate.

What has started happening in the recent short term just that.
Now personally i dont see houses dropping to far from here although after the FHBG has gone an easy 14k-25k will drop of the lower end which is about the time I believe the Investors will start moving into the market. Which should be the time for some bargins.

After the FHBG is dropped the number of new homes will drop causing sales to be forced to drop there price to make a sale, younger house hunters will stay at home until job security is back, no point leaving home unless you can afford it and without an extra 7-14k deposit thats alot of weeks saving, banks aren't any were near as kind with borrowing lately.

Any way thats my Opinion after reviewing both sides of the story, and yes I agree in the short/Long term Median house prices are useless indicators However what is a good source of decision making is Logic.

 

[enigmatic]

The facts you provide kincella are always interesting though, I some how always seem to see the other side of the story or just mix your side up.

Renting vacancies being so low is an interesting fact that I haven't really looked into though, might be the thing that convinces me to get a Investment property aswell Rent being tight means there are plenty of people out there that cant afford to buy, unlikely going to change as were nearly at the best time to buy.. Cheap interest rates.

Interesting though that house which are rental have so few people in them which to my way of thinking means there is plenty of room for people to move into rentals. Unless you were talking about Homes at which point i Appologies.

 

[kincella]

you just do whatever feels right for you...we are not trying to talk you into buying....as I have said keep your eyes on it..re the interest rates...if you are really in a position to buy...

just being contrarian to the argument that if you wait long enough you will save 30-50% of the cost...that will not happen.. and if you are really in the market to buy...ie have deposit saved and ready for the committment....then you may be a little dissapointed if you keep waiting for the drop and it does not happen and in fact goes against you...thats all

but you will always be able to find the property that is right for you and affordable....just look harder, or change the goal posts for now

oh and the Vic govt is providing an extension to the FHB grant to june 2010...of about $18000 metro and $22500 regional for new homes...$9000 for used homes...expect the other states to follow...
so forget the grant being axed...it will have an extension until the economy is back on track....
I suggest there will be some form of grant until 2012 or 2013 at the least..

 

[nunthewiser]

More than 1.3 million households are suffering mortgage stress despite low interest rates, a new survey has found.

Independent market analyst Datamonitor found that almost a quarter of mortgage holders are experiencing mortgage stress, with first home buyers who bought in the past 12 months especially vulnerable.

Thirty per cent of these new buyers said they were facing mortgage stress, while 21 per cent expect they will have difficultly paying back their home loan over the next five years

http://news.ninemsn.com.au/article.aspx?id=812057


yep looking great out there brothers

sunshine and lollipops for everyone

"Economic contraction and consumer concerns risk fuelling a vicious cycle."

The Reserve Bank of Australia (RBA) left the cash rate unchanged last week after its monthly board meeting, but had previously reduced the rate by 4.25 per cent since September last year.

Mr Ingemarsson said official interest rate cuts to stimulate spending may have become less effective because the major banks have not passed rate cuts on to borrowers in full.

Borrowers may also be hesitant to spend the money freed up by lower rates.

The most common reaction from pressured home loan borrowers has been to cut back on spending, with 39 per cent saying they had cut back on luxury items in order to be able to afford their mortgage.

However, concerns over the economy are not just isolated to home loan borrowers with 29 per cent of all consumers saying they will have difficulty paying their bills over the next 12 months.

"There are also some concerns that cautious consumers may hoard government stimuli payments," Mr Ingemarsson said.

"There is the risk that consumer concerns will result in a negative spiral, as lower consumer spending leads to lower business spending and higher unemployment, which in turn leads to an even more cautious consumer mindset."

Eighty-six per cent of consumers deemed it likely that Australian unemployment would rise over the next 12 months.

 

[robots]

hello,

good evening brothers another great day on the planet

check weekend report:

http://www.morrellandkoren.com.au/topend/

fine writings with the first 5-6 lines summing things up well, great report on proceedings over the weekend, great report

the sun still shining strong man, i cant believe it

thankyou
associate professor robots

 

[kincella]

Robots...thanks again...old money still around and insulated from margin calls and GFC...hehehehehe and paying nearly a million more than the reserve....

oh and my response to that is....what were the agents thinking to put the lower figures on them in the first place....if half a dozen bidders at the higher price....one would think the agents made the wrong call...and the buyers got it right.... there is something lovely about period homes....
have to wait to see what nasties are in the budget tonight,,,,but its getting closer to the 'I told you so' time....those lovely little interest rates that our opponents choose to ignore.....notice we have rent threads now
cheers

 

[Beej]

March housing finance figures released today: http://www.abs.gov.au/ausstats/abs@.nsf/mf/5609.0?OpenDocument

Very positive: +6.7% over-all; OO housing +7.3%, Investment housing +4.7%, New dwelling construction +13.7%.

It really looks like housing finance bottomed out late last year - total finance now growing strongly. We are now back to early 2008 levels. Plus it seems investors are now starting to slowly return to the market. Also good to see strong new dwelling numbers - I suspect that's primarily the FHBG boost at work there.

Cheers,

Beej

 

[nunthewiser]

i see as usual no one adressed my article and merely skip around it with other happy stuff

great work fellas

sunshine and lollipops for all