House prices to keep rising for years

[satanoperca]

some of you guys are on the wrong thread....go back to the losers thread....ahmm...you know the one..... house prices keep falling thread....
and leave this thread to the winners....

Leave it for the playground.

Property is about housing the work engine of an economy, people.

 

[Mofra]

This IS the losers thread, didn't you see the writing on the wall ?

Yep, Steven Keen did really well out of selling his property at the bottom of the market

 

[Beej]

This IS the losers thread, didn't you see the writing on the wall ?

Mr Burns if you are so certain of this why don't YOU follow Prof Keens example and sell your $2M Melbourne house and buy a similar one back in a couple of years for half the price, and pocket the difference???

Cheers,

Beej

 

[moXJO]

I went to buy a unit in a block of four priced at $195k but it sold the following week (3 weeks on market, about a month ago). Now another unit in the same block is for sale this time for $235k Think I will pass on that unless I can haggle them down. Properties are moving very fast here. Good quality houses are just not coming on the market, and the crap ones that are on there now are expensive+.

The market down here seems to have swung to extremes the past year.

 

[MrBurns]

Mr Burns if you are so certain of this why don't YOU follow Prof Keens example and sell your $2M Melbourne house and buy a similar one back in a couple of years for half the price, and pocket the difference???

Cheers,

Beej

Too lazy of course.

Spoke to someone today who tried to sell their $1.4 m house in Melbourne , marriage breakup, no takers so she bought her husband out, where's the boom there ?

 

[Buckeroo]

some of you guys are on the wrong thread....go back to the losers thread....ahmm...you know the one..... house prices keep falling thread....
and leave this thread to the winners....

Fair comment, but this thread would be boring as hell if only the affirmative people where posting don't you think?

Property is about housing the work engine of an economy, people.

Well said satanoperca, this is such an important point that is lost in the rush to make a buck. Having affordable housing for workers is part of the productivity equation that makes economies thrive.

Cheers

 

[Mofra]

Spoke to someone today who tried to sell their $1.4 m house in Melbourne , marriage breakup, no takers so she bought her husband out, where's the boom there ?

Maybe their house is only worth $1.35m

 

[Mc Gusto]

Everything’s distorted from inside this housing bubble
by Adam Schwab
We may sound a little like a broken record on Australia’s residential housing market. Based on metrics like disposable income-median property price or relative debt levels, Australian house prices appear extraordinarily expensive. Housing price data is thumbing its nose at our claims, continuing to rise (significantly in the most recent quarter), even as GDP remains stagnant or falls and unemployment edges higher.

Data released by the ABS earlier this week indicated that financing commitments for owner-occupied and investor housing grew by a further 1.8% in June (0.3% on a seasonally adjusted basis).

There have been many ‘reasonable’ explanations provided for ever increasing residential property prices (the median house price in Sydney is now $547,000  ”” almost ten times median income levels). Most common is the ‘supply’ argument: that hundreds of thousands of people are moving to Australia and they need to live somewhere. Or that Australia is a highly urbanized country and this vindicates a median house price which is more than double that of the United States.

Those reasons appear to make sense. But then again, during a bubble lots of things appear to make sense which in hindsight, are ludicrous. Remember the dot.com boom, when it was commonly thought that business over the internet would take over from bricks and mortar? This meant that at one point the loss-making pets.com was worth more than US$100 million before collapsing into liquation after 268 days.

There are two major causes for the recent residential property bubble  ”” first, government meddling (specifically through the first owner’s grant, but also bank funding guarantees). This is providing house buyers with more cash (which is then leveraged up substantially) to purchase their dream home.

The second reason for the bubble is the Big Four banks’ continued willingness to lend money to home buyers on exceedingly generous terms, upwards of 90 percent loan-to-valuation ratios. If banks took a more prudent approach and cut LVRs to say 70 percent, we would witness a rapid, almighty slump in property prices (most notably at the lower end). Banks of course don’t want this, the collateral (security) underpinning the loans they have already made are other houses. Banks don’t usually like to destroy the value of their collateral  ”” it isn’t good for business (or more pertinently, for bankers’ salaries).

The supply argument is not actually incorrect. Supply issues are clearly having a short-run effect on prices. However, eventually (and it may take years for these structural changes to transpire) the supply curve will adjust. If property prices become too expensive, immigrants will opt to relocate to other countries, where the cost of living is more bearable. People will also move further away from expensive cities. Japan is a far more urbanized country than Australia yet since 1991 Japanese city property prices have suffered a remarkable downturn, falling for 15 consecutive years.

It took a decade for Japan’s property boom to finally burst but eventually, supply readjusted and prices plummeted, even in Tokyo, which has a population of more than twelve million but is far smaller in geographical size to Melbourne which has a population of less than four million.

The slow moving supply curve was well explained by Nobel prize winning economist, Robert Shiller in The New York Times recently when he noted:

Several factors can explain the snail-like behavior of the real estate market. An important one is that sales of existing homes are mainly by people who are planning to buy other homes. So even if sellers think that home prices are in decline, most have no reason to hurry because they are not really leaving the market.

Furthermore, few homeowners consider exiting the housing market for purely speculative reasons. First, many owners don’t have a speculator’s sense of urgency. And they don’t like shifting from being owners to renters, a process entailing lifestyle changes that can take years to effect.

Among couples sharing a house, for example, any decision to sell and switch to a rental requires the assent of both partners. Even growing children, who may resent being shifted to another school district and placed in a rental apartment, are likely to have some veto power.

Business Spectator and Crikey contributor, Chris Joye, was correct last week when he noted residential property isn’t the only asset bubble ”” witness the dramatic collapse in commercial property prices in Australia (and rapidly increasing vacancy rates) or sharp loss in equity values last year.

However, simply because there are other asset price bubbles which are more obvious and more reactive to economic conditions doesn’t mean that the price of much of Australia’s urban residential property has not far exceeded its intrinsic value.

As long as Australia’s banks have an interest in propping up residential property, the bubble will be tentatively kept alive. However, the risks of this path are significant. As Dan Denning in the Daily Reckoning noted presciently yesterday:

The bigger risk … is that Australia’s banks will become increasingly reliant on rising house prices to spur demand for new mortgages. That’s the process that contributes to earnings and keeps the balance sheet ticking along. The loans made to mortgagees go on the balance sheet as assets. They are funded from money borrowed abroad, which goes on the balance sheet as a liability.

The trouble here is that assets can change in value while liabilities do not. The debt has to be repaid, even if house prices fall. Australia’s banks are gambling with the capital structure of the entire nation, sinking more and more borrowed money into residential housing. It’s the biggest and riskiest bet yet.

Yes. Big, risky and very stupid. As no doubt Japanese banks can attest.

http://www.crikey.com.au/2009/08/12/everythings-distorted-from-inside-this-housing-bubble/

 

[Beej]

Everything’s distorted from inside this housing bubble
http://www.crikey.com.au/2009/08/12/everythings-distorted-from-inside-this-housing-bubble/

Already posted by Mr Burns yesterday here:https://www.aussiestockforums.com/forums/showpost.php?p=473991&postcount=5915

As soon as they start going on about the Japanese property market I tune out........ Adam Schwab is wrong - he has been proven to be wong, and he is still wrong. His assumptions about what has happened are wrong and his views on what will happen are wrong.

Beej

 

[kincella]

your right Beej, tell them to do some reserch on Japan to find out what the problem is there.....its nothing like our situation at all...
oh and heard two analysts on radio this morning....both say interest rates will not rise before late 2010.....
cause there is all this other bad news still to turn up...to cool things down...in the interim....
oh and I have an extended family member wanting to buy a house....not a new home so only about 14-16000 govt grant....but they are a bit nervous...
so its easier for them if I buy the house and rent it out to them....they get all the benefits of ownership without responsibility....so not everyone is utilising the fhb grant....and the sale will show up as an investor purchase...
give them 5 years of being 'pretend owners' and we shall see how the attitude is after that.....
I have done it for two others in the past....they turned out to be...really positive home owners....then I transfer the house to them, they finance the loans themselves,(they get the house at the original price, and refinance the loan I had) and are then on their way....

 

[Uncle Festivus]

Fair comment, but this thread would be boring as hell if only the affirmative people where posting don't you think?
Cheers

Usually pop my head up to see what the Latte trio are spruiking this week.....

After 5 years of flat to negative prices, we get a coupla months of stimulis assisted rises and the thread title finally has some truth in it?

So let's take it to the extrapolated conclusion - the median price get's to $1M+, everyone's working 2 jobs to pay for it, and little left over for the rest of the economy. Great standard of living & work/living balance there? Keep those migrants coming....

 

[kincella]

??? prices flat or stagnate for 5 years....must be overseas...not australian house prices......maybe some houses...like public housing, or in remote outback areas.....not here...what planet are you talking about
....................................
and this
so whats all this about...house prices rise about 3% and earnings up 6%.....for the past year.....
so where are the crowd that says house prices are too high, and way above the average earnings, for the average bloke ????? well thats never been the case,,,the average earnings are higher than house prices....and has been so for many years now.............

Average weekly earnings near $1200August 13, 2009 - 11:59AM
Average weekly ordinary time earnings for adult full-time employees rose by 1.2 per cent in the three months to May for an annual rate of 6.1 per cent, seasonally adjusted, the Australian Bureau of Statistics said today.

The quarterly survey also showed AWOTE for the private and public sectors combined was $1196.50.

Private sector AWOTE was up 1 per cent in the quarter at $1174.50, seasonally adjusted, for an annual rise of 6.1 per cent.

Public sector AWOTE rose by 0.9 per cent to $1269.30, seasonally adjusted, in the same period for an annual rise of 5.7 per cent.

http://business.theage.com.au/business/average-weekly-earnings-near-1200-20090813-ej2y.html

There was no market forecast for this series.

 

[Uncle Festivus]

??? prices flat or stagnate for 5 years....must be overseas...not australian house prices......maybe some houses...like public housing, or in remote outback areas.....not here...what planet are you talking about

Somewhere like, um, remote little town called.... Sydney

The weather might be getting a bit nippy but Sydney's real estate agents are basking in the warm glow of recent sales figures showing property prices especially for units and townhouses are finally coming good.
.........

The head of research at RP Data, Tim Lawless, says this boost in unit prices is good news for investors, who are now enjoying an annual rental yield of 5.6 per cent.

"Growth in Sydney home values has been a long time coming," he says. "Australia's largest property market recorded virtually no growth between 2004 and 2009."

So RP Data is or is not reliable??

You property permabulls should get together so you can read from the same script

 

[Taltan]

oh and I have an extended family member wanting to buy a house....not a new home so only about 14-16000 govt grant....but they are a bit nervous...
so its easier for them if I buy the house and rent it out to them....they get all the benefits of ownership without responsibility....so not everyone is utilising the fhb grant....and the sale will show up as an investor purchase...
give them 5 years of being 'pretend owners' and we shall see how the attitude is after that.....
I have done it for two others in the past....they turned out to be...really positive home owners....then I transfer the house to them, they finance the loans themselves,(they get the house at the original price, and refinance the loan I had) and are then on their way....

So alltogether you miss out on the FHB, pay stamp duty twice and pay CGT on a main residence (when u transfer to them)???

 

[kincella]

dont really follow Sydney...Beej knows that place, but of course the median is lower...so blah blah blah....but overall I bet some stories are very different...
if 1000 sales are all at the bottom of the market...then of course they can say that....

 

[kincella]

Thats right Taltan....you do strange things for the family, and extended family...treat it as a learning exercise for them

 

[Beej]

Somewhere like, um, remote little town called.... Sydney


So RP Data is or is not reliable??

You property permabulls should get together so you can read from the same script

That's true and something I have been pointing out here for nearly 18 months! All the house price growth (and all the angst!) in Australia has come from all other cities except Sydney. That is actually why I reckon that:

a) Sydney real estate in NOT in a bubble; it is poised for the next stage of growth, which will however be more moderate than the last stage (1996-2003; due to the one off factors that drove it then). I reckon in 10 years the Sydney median house price will be around $750k-$800k, assuming inflation/CPI remains at ~3% average levels through this period, and average full time wages will probably be ~$100k pa. If inflation breaks out, then things could look very different indeed and prices today will seem ridiculously cheap when we look back!

b) Prices in other cities are either in a bubble, OR they have gone up for the same reasons Sydney prices went up 5-10 years earlier, and the fundamentals behind that may be permanent? I suspect the Melbourne and Brisbane price rises might be more permanent than say the Perth or Darwin ones. The last 5 years in Sydney might give you a pretty good indication what these other markets might look like over the next 5 years.

PS: You have highlighted well the problem with labels like "permabulls" and "permabears". Why should they/we read from the same script? I have my own independent views thanks and will read from my OWN script! As I am sure will Kincella, and yourself UF!

Cheers,

Beej

 

[dhukka]

Interesting data in CBA's FY09 results on their home loan portfolio. Home loans that are past due more than 180 days increased 107% in the last 12 months, home loans 90 - 179 days past due up 67% and home loans 60 - 89 days past due are up 70%. However the dollar amounts aren't huge, only 3% of CBA home loans are past due to some degree with more than 50% in the 1 - 29 days past due category. Still mortgage stress is clearly on the rise in Australia.

 

[MACCA350]

I wonder how many of those are part of Rudd's 12month mortgage relief for the unemployed.

.........what happens after the 12 months for those loans?
.........are they repossessed?
.........or will Rudd tell the banks to put it off for another year?
.........how long will the banks put up with that before pulling the plug to get their cash back?

cheers

 

[satanoperca]

Riddle me this.

If you had invested $400K in 2002 and it returned $425K in 2009 would you think this is a good investment?

Hint, if inflation was running at 3% you would need $480K

I reckon in 10 years the Sydney median house price will be around $750k-$800k, assuming inflation/CPI remains at ~3% average levels through this period, and average full time wages will probably be ~$100k pa.

This would seem quite realistic, given the median is around $570K in Syndey this would mean a approx 45% increase or 4% p.a growth. Just 1% above inflation - heard that somewhere before.

Answer to riddle.

That was the result if investing in the Sydney property market over the last 6 years according to ABS weighted average figures for Sydney.

Disclaimer : calculation based on a nice bottle of Cab Sav from W.A

Note : past prices are not a forecast of prices in the future