House prices to keep rising for years

[Beej]

Further to Kincella's post, here's the RP-Data/Rismark Hedonic Index data for April (see attached chart). Some selected commentary from (http://www.businessspectator.com.au...rising-pd20090529-SGVEY?OpenDocument&src=is):

Based on Australia’s largest sales database, which includes over 60,000 transactions in 2009, the monthly RP Data-Rismark Hedonic Capital City Home Value Index rose by a stunning 2.8 per cent over the four months to end April 2009. (And there is evidence to suggest that the performance of the non-capital city regions has been even healthier.)

..........

Remarkably, the 2.8 per cent capital growth recorded in capital cities this year has now nearly wiped out all of the modest circa 3 per cent losses in 2008 with home values in the 12 months to end April 2009 being unchanged (ie, zero growth).

........

Reflecting the broad-based resilience of Australia’s housing market, our analysis shows that property values in around 80 per cent of all suburbs are stable or rising. It is only the top 20 per cent of suburbs ranked by price (ie, affluent areas) that have experienced material price falls.

Cheers,

Beej

 

[kincella]

Beej,
I wonder if you would be so kind as to post the link to those charts you put up re the 'median' prices...
I am trying to get some interest going over on the APF site...and copied your post..but the charts link did not copy...so I abandoned it.
or you could just post it over there and help that site out...
psst its getting quiet on here again....
'all those crystal balls' of impending disaster have been squashed....
not saying 'I told you so' to anyone....but geez..the arguments I have had over the past 2 years with this fiasco....
and before that the arguments I had from 2000 to 2007 along the same lines...
cheers

 

[Beej]

Kincella - here is the link: http://www.businessspectator.com.au...odyhtml/0.3D6!OpenElement&FieldElemFormat=jpg

Cheers,

Beej

 

[aleckara]

Beej,
I wonder if you would be so kind as to post the link to those charts you put up re the 'median' prices...
I am trying to get some interest going over on the APF site...and copied your post..but the charts link did not copy...so I abandoned it.
or you could just post it over there and help that site out...
psst its getting quiet on here again....
'all those crystal balls' of impending disaster have been squashed....
not saying 'I told you so' to anyone....but geez..the arguments I have had over the past 2 years with this fiasco....
and before that the arguments I had from 2000 to 2007 along the same lines...
cheers

Their arguments were valid ones if the government did not step in. I had the same bearish thoughts (i.e deleveraging, etc) until the government announced the FHB extension. The only people left who had scope to leverage as obviously they had no debt - and a lot of them felt that saving for a $350,000 house in their area of choice (probably more) was a pipe dream when their job was at stake.

The thing that has made you right so far is nothing to do with shortages, interest rates or whatever. Even with low interest rates a lot of these people wouldn't have bought due ot the economic uncertainity. The FHB with its deadline, with its "buy before you miss out", with Kevin Rudd claiming all good things must end and extending it afterwards. It forced them to ignore their concerns and go on their fears - if they don't get in now it might get even more overvalued and be much harder to get in later. This isn't really possible with any other bubble asset since for most people shelter is a basic need and even if its overvalued people need it. I personally think that the actions by the Labor government were cruel - and while the gamble for them might pay off they enticed the FHB to take a big risk with no equity in a bad time to save everyone else.

The sad thing about this is that they will be the taxpayers of the future, left to pay off the debt of the FHBG that made their houses cost more. More debt, more taxes, less growth in the future.

By allowing the FHB to come in when the investors were pulling out meant that the argument that the bears used (mainly the deleveraging) argument never occured. In fact I would say that wealth has been instead been transferred from future generations to pay for the housing bubble and that there is a good chance that the incumbents with housing already will walk free and proud and praise their investment decisions. I guess they are right - the government will always save them until it can't possibly do it (i.e almost bankrupt).

The only fundamental is credit. And housing credit hasn't been declining all too strongly unlike say the business credit (which is or will IMO definitely have an impact on unemployment). Credit for FHB houses has been boosted substantially hence those homes rise.

Bad to bet on homes falling in Aus. By the time they do the government will be in so much debt or printing money to try to save them (as I believe they would do anything for the housing industry) - so much so that it won't be the same good place anymore to buy a home.

 

[kincella]

aleckara...less than 25% of all the recent sales were to FHB's...the balance of 75% were not fhb's........
and I posted yesterday...renovations are contributing 47% to the economy,
today the QLD govt receives 40% of its revenue from developers and house/land taxes....
we are talking about a lot of money from housing goes into our govt coffers...and the rest into the economy...
its a win win for everyone....
stop housing....and contribute a big loss to the economy...everyone suffers
its your choice to come along for the ride...or stay away

 

[kincella]

decided I am pretty happy with property atm....more so with the nice low rates on offer...and BankWest offering 4.99% variable for business loans..
and the resi loans at 5.2%....
what some on here are not aware of ....when rates go down prices go up...ie more buying power...and when rates go up, as they did last year..the prices go down..
now I dont want anyone else...not a single sole...to buy a house under duress or because everyone else appears to be buying...thats the wrong thing to do....
I just blog to advise what my thoughts, are and what I am doing with property.....in order to give a balanced view, rather than the incorrect messages from the media
I am hoping to buy another prop..while the rates are low...I have missed out on 2 exceptional buys....but with patience I am sure I will find another to suit my needs...

cheers

 

[aleckara]

aleckara...less than 25% of all the recent sales were to FHB's...the balance of 75% were not fhb's........
and I posted yesterday...renovations are contributing 47% to the economy,
today the QLD govt receives 40% of its revenue from developers and house/land taxes....
we are talking about a lot of money from housing goes into our govt coffers...and the rest into the economy...
its a win win for everyone....
stop housing....and contribute a big loss to the economy...everyone suffers
its your choice to come along for the ride...or stay away

Renovations do not affect housing prices - so take that out. If no one else is willing to pay the price for the renovated property then renovations won't raise the price. I repeat again - it is credit only that drives prices. Nothing else (well not in Australia anyway).

I don't mind if it stimulates housing construction. It means more houses. But for the last few years most debt has been bidding up existing properties. The country has more debt, yet the same amount of houses. Sorry don't see the more money argument of yours. In fact I see that overall we have a debt program that isn't diminishing but houses that are depreciating. The money for housing mainly bids up the LAND VALUE of the housing - not the house itself.

A lot of money from housing does go into the governments coffers as you say. But the effect of Australia as a whole is a different story. We get require new debt constantly to keep house prices where they are - to stimulate the market. And the more debt is used the more debt is required as the interest component of the debt rises - or we need ever increasing lower rates of interest over time to keep the interest burden constant.

Australia as a whole is losing money as a result of this boom. The money in the government's coffers is the borrowed money of the public and is definitely less than what we are borrowing. It has to be, because we don't save anything yet spend like bad thinking we have wealth in guess what... houses.

If the world called in its loans there would be no money for housing. Simple. The government through housing is making money because while the government has been paying off debt (in the liberal time) that money has come at the expense of the household's becoming more and more indebted. Of course when they can't or won't take on more debt the government falters - the debt money source that was once property is dried up for now.

Is it a good thing for Governments to borrow endlessly and forever? why is it a good thing then for them to do it to homeowners? the compensation is that while the music is playing prices go up (if other people are willing to take your place pulling the debt money into Australia). Once the music stops there will be debt, but housing will drop. The government has brought in FHB to keep the money flowing - when there is no debt source left you will see it for what it is. Maybe in 10 years time? Maybe 2? Maybe 20? Who knows? After all people are still lending money to the US and they didn't have a resource boom like us.

Everyone wins.... will not really. Everyone that is 'incumbent' in property wins or is in the industry wins. At the expense of future generations and everyone else. That is the nature of debt. Gravy now, pain when the gravy stops flowing.

 

[Beej]

A lot of issues raised in your post aleckara, but I'll try and address a couple that sparked my interest:

Renovations do not affect housing prices - so take that out. If no one else is willing to pay the price for the renovated property then renovations won't raise the price. I repeat again - it is credit only that drives prices. Nothing else (well not in Australia anyway).

I do not believe this is correct. One the the benefits of the "boom" in Sydney has been that it made economic sense for existing owners to transform/improve much of the existing housing stock, or renew it. If prices had remained stagnant and only fell in real terms, the housing stock would have slowly deteriorated (= depreciate) without the financial incentive for renewal. This would result in lower living standards for most. Instead we have the opposite where on average houses have got better, bigger etc over the years and thus have improved living standards, and this has been to a large extent due to rising prices providing the financial incentives for grass roots housing stock renewal/improvement.

I think this view is backed up by the figures Kincella posted showing that $31B was spent in 07/08 on house renovation. That's about 3% of that years total economy/GDP, with the economic benefit feeding directly into improved living standards.

Think of it another way - if renovation did not effect prices, then why do renovated houses sell for more than un-renovated ones all other factors being equal? Add to this what happens when an old suburb undergoes gentrification (think Glebe or Surry Hills). There is a tipping point where as a certain percentage of old houses have been renovated, the values of all properties in the area's lift, which provides incentive for the remaining ones to be renovated as well, and within a decade or so nearly the whole suburb has been renewed. Without the price rises (usually well above city-wide trend as well in these cases) this improvement of the housing stock in those type of areas would probably not have occurred.

I don't mind if it stimulates housing construction. It means more houses. But for the last few years most debt has been bidding up existing properties. The country has more debt, yet the same amount of houses.

There are more houses, which are better than what used to be built, plus there are many renovated/improved existing houses as well - so that debt has bought something real, not nothing as you are suggesting.

Anyway you could make the same argument here about any commodity (le gold etc) being bid up just because of increased demand for a scarce resource (ie land). It happens, can't be stopped. At least with land/houses the utility of the commodity is improved along the way.....

Australia as a whole is losing money as a result of this boom.

The money is not lost - I really think that's the wrong way to look at it. All of it goes into circulation through the economy, with the vast bulk likely to stay in country and not get spent on imported goods (although some inevitably will). A large amount of the money goes back directly into the construction/development/building industries, and is used to renovate existing stock and build new stock.

Everyone wins.... will not really. Everyone that is 'incumbent' in property wins or is in the industry wins. At the expense of future generations and everyone else. That is the nature of debt. Gravy now, pain when the gravy stops flowing.

Playing the violins for future generations is a bit melodramatic; for a start everyone dies sometime and when they do their assets including all their "inflated" property assets will be passed on to the next generation (ie our kids!). Also you make out like an entire current generation is locked out of the property ownership market; that's also not true - as pointed out many times there is plenty of affordable housing around, it's all just a matter of matching price and location/quality expectations.

Debt is not forever - it's a tool used by smart long term thinking people wisely for long term accumulation of hard assets. It can also be used by the foolish to fritter away income on depreciating consumer goods of course, but that's an individual choice - the 2 things are not the same. When you take on debt to purchase land/housing, at some point in the future you own the asset with no debt - surely you can the benefit at that point? Almost regardless of actual asset price movements?

Cheers,

Beej

 

[aleckara]

When people die - a lot is given to inheritances yes.

But believe it or not the fact that we have a current account deficit shows that the money is spent elsewhere.

Hosuing isn't the only thing the economy needs. I can buy houses, I can buy TV's, etc. Your argument is that I need an increasing price constantly to improve my own stuff is wrong. The only difference then between a house and anything else then is the timeframe of depreciation.

My point is that house prices should be worth something yes, but they should be worth in terms of purchasing power to other assets. I.e you look at gold and other commodities - their purchasing power relative to each other most in the long term is usually constant. However housing has generally outclassed all forms of commodity investment, unlike incomes which commodities normally follow the CPI and income tends to grow with this figure. I don't see how the price of anything rising that is essential can be a good thing. TV's at least are getting cheaper over time.

Inheritances get squandered as well or are taxed - but that's besides the point. America has no shortage of houses - does anyone think their inheritance is worth the same as what it was despite the debt used to build it up? Not everyone is lucky to get an inheritance either. Two generations ago (60's) work 6 years in a labours low skilled job (didn't even have to speak English) to have a paid off house after expenses. Now days it is more or the same with longer working hours and more skills required. That's what I mean by generational theft - new labour is worth less per hour in real terms than the labour of the past. Like all ponzi schemes (and housing is where most of our household wealth is so any price rises have to come from some other source than in country - if we are a deficit nation guess where it comes from?). We are still net spenders despite some of us saving more in this downturn. The maths are not hard to figure out. The money, even your savings must come from somewhere and in a country with ever increasing debt the answer is of course it comes from someone else's debt/pain. The problem really is if the music stops everyone realises we really have no money to begin with, just housing, imported goods and because the debt kept our dollar higher no way to produce for ourselves. That's another point - debt brings up the value of the dollar today but risks a much bigger decline in the future. Another theft into the future - you incorporate value of the dollar in the future to today's dollar.

Your argument is like a person going wild on their credit card to buy the store out. Everyone is happy (right now that is). If that person can't pay eventually though what happens? They have a bunch of stuff that they need to sell, and that the seller doesn't want to take back even if it is a need. In an economy its worse - the pain of a lot of bankrupt people can't be wiped off. Its shared through the banks. Our housing is what we use to channel the funds to buy everything that we don't provide for ourselves - imports and of course money (hence net interest burden overseas).

My point is that housing may be great, but can we afford it at the price? I think everything is great - housing, food, entertainment, etc. The fact that we are racking up debt that isn't constant but growing over time signals to me that we can't. Debt for houses - not bad. But ever growing debt greater than income growth on houses - bad. Debt is forever Beej if the country's net mortgage is only growing and never being paid off.

 

[pj2105]

Another note that you have overlooked. Australia is a great country, what I mean is where else can you buy property on the beach for about 200K? Alright, it might be far from a city centre, but still, compared with overseas in Japan you have to get a 99 year loan to buy a house which means your grandkids will be in debt for it to be paid off.

Sooner or later, people will flock to Australia in the hundreds of thousands.

 

[kincella]

aleckara...your statements are almost unbelievable.....fancy saying its only credit that drives house prices....etc...
most of us like to live in a nice house in good condition, with all the modern conveniences including air conditioner, beautiful garden and outdoor living....

do you honestly believe that the old unrenovated place next door is going to fetch the same price...lets say it has an old wood stove, and a wood fire for warmth in the winter, no airconditioning or any other modern convenience....there is no garden (its been rented out for years)...the garden alone may cost me 5000-10,000

these old props are the ones I like, I buy them cheaper, then renovate...it may cost me 50-100k's to bring it up to the standard of next door....
but I paid 100k's less...compare apples to apples
now I can sell mine for about the same price as next door.... add or subtract for the number of bedrooms, bathrooms, garage etc....
some people pay cash for their house...so credit has nothing to do with it in their circumstances....the others may borrow 50% only
grrrrrrrrrrrrrrrrr
the economics of the world revolves around trade...goods and services..and labour...australia sells its resources...then buys back all the other things we consume...cars, whitegoods, tv's etc....all the people involved can earn a living, then provide a house for their family....
you must be another of those 'theorist people'...very different to the real world

 

[gfresh]

Sooner or later, people will flock to Australia in the hundreds of thousands.

They already do? but the question is how much more can we take? Already I would argue we are struggling to balance our budgets, and house everybody and well keep things ticking over without cracks appearing in the system. We can take millions of more people into the country, but the question should we, do we want to, and if so, do we have the proper systems in place to make sure it doesn't destroy our way of life. Bigger picture thinking needs to undertaken, and longer term sustainability issues needs to be looked at a decade out, not in half-baked fashion either as I think is the case presently.

Even though we may deride China's way of life, they look forward much further into the future and make the hard decisions, even if it may make some uncomfortable in the short term. We can't even plan more than the next election in many cases.

 

[robots]

hello,

to steal one from the great Shane Crawford:

"thats what i'm talking about"

fantastic result from RP today, this just amazing during the biggest event since the great depression and even some calling it a greater event than the great depression

this is great

special thanks for todays posts must go out to Kincella, Aleckara and Beej, superb job keeping the community informed

just like to say a special word out to all in the UK, anyone know if the internet back on over there yet?

walking tall brothers

thankyou
robots

 

[robots]

hello,

whats going on brothers, anyone around?

thankyou
robots

 

[robots]

hello,

oh, gee does anybody remember that guys name, what is it, u know from Western Sydney Uni, it will come to me, hang on hang on, i think he is an economist or something, media w***e a while ago, oh god

it will come to me, the one that made all those predictions

thankyou
associate professor robots

 

[joeyr46]

Keen to help robots but memory sadly lacking this early in the day

 

[aleckara]

aleckara...your statements are almost unbelievable.....fancy saying its only credit that drives house prices....etc...
most of us like to live in a nice house in good condition, with all the modern conveniences including air conditioner, beautiful garden and outdoor living....

do you honestly believe that the old unrenovated place next door is going to fetch the same price...lets say it has an old wood stove, and a wood fire for warmth in the winter, no airconditioning or any other modern convenience....there is no garden (its been rented out for years)...the garden alone may cost me 5000-10,000

these old props are the ones I like, I buy them cheaper, then renovate...it may cost me 50-100k's to bring it up to the standard of next door....
but I paid 100k's less...compare apples to apples
now I can sell mine for about the same price as next door.... add or subtract for the number of bedrooms, bathrooms, garage etc....
some people pay cash for their house...so credit has nothing to do with it in their circumstances....the others may borrow 50% only
grrrrrrrrrrrrrrrrr
the economics of the world revolves around trade...goods and services..and labour...australia sells its resources...then buys back all the other things we consume...cars, whitegoods, tv's etc....all the people involved can earn a living, then provide a house for their family....
you must be another of those 'theorist people'...very different to the real world

I'm glad you are being rewarded for your renovation work. You are doing people a service.

Credit drives houses yes, but certain people can only tap a certain amount of credit. So houses are split into price bands. Pretty obvious to me. People only have a certain amount of credit capacity that they can take and they tend to get the best they can with it. I don't think that's theory - I think everyone wants the best for themselves that they can. You renovate, you attract a different buyer who has a higher credit capacity. But obviously the buyer pool shrinks as the price rises - doesn't mean you won't get your price. But you price people out on the lower ladder.

I don't think its theory kincella. I just think that everyone wants a great lifestyle (myself included) but think that Australia is living beyond its means and our biggest purchase on that Australia credit card is housing (and I think I heard somewhere before that something like 50% of our foreign debt bill is on housing loans - don't remember the exact figure). I'm worried about the future of this country - the debt, and what can happen if house prices keep rising and wages don't rise as fast.

Like I said the shopkeeper may have a job in the first place because of the customer spending in the credit card, but can we really afford his job in the long term? Same possibly with the building workers. I don't like to seee anyone out of work but at the same time debt isn't making the same amount of GDP (a bad measure of work but its what I've got) that it used to. Most of the resources boom was spent anyway because we Australians don't save anything - I'm worried about our short term focus as Australians and the lack of long term planning to deliver houses, food, goods, and a quality of life without prices rising of these things so it isn't just housing. Maybe I shouldn't - just worry about myself and my profit.

 

[kincella]

now it seems I am guilty of contributing to gentrification myself....when I was a FHB I could only afford a place out in whoop whoop....but later on in life after I had my career on track I upgraded into the heart of the city...again I could not afford the renovated house...but I could afford the unrenovated one....then took about 5 years to make it comfortable...I am not finished...it still needs a new roof, and outdoor entertaining area.
I actually thrive on buying and renovating period homes...I retain all the old world character and appearances including the garden in period style. I update the kitchen and bathroom into modern living with airconditioner , and create an outdoor entertainment area.
now read this article....you can buy an unrenovated period house in Castlemaine in Vic for 200-250k's, with new road and rail fast tracked to Melbourne....
"There are unrenovated period homes here still in that range of $200,000 to $250,000 and some of those go right back to the 1860s, gold rush time," he says. "For local people, who've grown up here, it feels like things have got really unaffordable, but for Melbourne people, it's cheap."

With a new freeway to Melbourne opened last month and the recent federal budget promising a faster train service, the city commute is not much longer than that of some outer suburbs

http://www.theage.com.au/national/ca...0529-bqbm.html
on TT last night they told where you could buy affordable houses close to the city in each state...I missed most of it..but noted Braybook 11 klm from Melb cbd for about 250k's
__________________
Ever met a wealthy person who complains and moans about everything ?

*** The best way to become a millionaire is to borrow a million dollars and have your renters pay it off.

 

[kincella]

here is a list of suburbs for affordable housing in each city...I missed most of the show but caught Braybrook 11k's from Melb at 250k's
here is the list...............

So where do you start looking?

Peter Koulizos has selected the top five first homebuyer gem suburbs in every capital city.

Sydney's suburbs are:
Arncliffe
Darlington
Enmore
Newtown
Woolloomooloo - where units are much more affordable.

Melbourne's suburbs are:
Coburg - units are the best option.
Braybrook
Flemington, Frankston
Seaford

And in Brisbane:
Redcliffe
Brighton
Clontarf
Margate
Woody Point

In Hobart look for a house in North Hobart, while in Darwin houses may now be too pricey, so go for units in Rapid Creek.

Further informationPeterâ•s book, "Top Australian Suburbs" is available at all good bookstores.
http://au.todaytonight.yahoo.com/article/5615551/money/home-bargains

 

[kincella]

in this article Marcus Padley is comparing risk in the sharemarket to risk in marriage....if you insert 'property' into the article.....the same applies...
I agree with his statements......but use it in all facets of your life.............

this post is targeted to the non home owners, who are waiting to enter the market....I am not saying to enter now...just in the future when you are ready...and to the potential Property Investors...
..............................................................................................
The fear of the future is no reason to delay it. You need the courage to take steps and let the future unfold. Simply put, it is what we do, not what we avoid, that allows progress.

The way to manage risk is not to spend your life avoiding it, but to plan for it. Expect disaster, expect mistakes and, in the sharemarket, expect losses. You can't avoid them, you just need to develop the skills to manage them when they happen. All the researching in the world will not save you, but preparation will. The skill is knowing what you are going to do when disaster strikes.

Do all this and you can boldly step out into the night and not be afraid because you have certainty of action whatever the outcome. You don't need to be courageous or reckless. You don't need to step out of your comfort zone. You just need to contain the damage when it happens and move on. Preparation rather than indecision. Indecision is the bus stop of life.


http://business.theage.com.au/busin...-planning-not-fearing-risk-20090529-bqc8.html