House prices to keep rising for years

[KIWIKARLOS]

hahahahahha yeah except the internet bubble is based on the VIRTUAL world and was over a 5 year timeframe where as oil economies are REAL world and have been the basis of industrialisation across the globe for 150 years.

Germany lost WW2 because the US had texas oil and the USSR had Baku oil each drove their war machines. Resources drive economies not the ability to talk to your friends on facebook : The internet is nothing without the real world for it to relate back too.

 

[Tom Ronalds]

tech/a:

Of course my view is broad brushed and any slowdown will have different impact in different places. That has already been happening - look at Sydney prices, where the growth over the last 3 or so years has been relatively minimal.

My concern is that I see many people on a regular basis who are stretched to the max. They keep going because they can still service their costs - for now. As you would no doubt agree, debt can help accelerate your wealth building, but it can also kill you off very quickly. Too many people are too exposed, on the assumption that good times will keep rolling on for ever. The more people are in this situation, the bigger the impact on those who have been prudent once they start going broke. I actually lived in Adelaide in the late 80s & early 90s, and remember quite a few good, relatively conservatively run companies going broke because they were not getting paid by those who had not been so conservative and went under as a consequence. These things snowball in a frightening manner, the more debt there is to service.

Interestingly enough Adelaide is mentioned in the Demographia report as an Australian city that has had minimal population growth and yet its house prices have moved into the severely unaffordable category now. Why do you think that is? -- Four words: Cheap debt and property speculation.

Cheers,

Tom R

 

[KIWIKARLOS]

Yeah gone are the days of leaving high school at 15 getting a job for life and been able to live comfortabily. These days you have to continually educate yourself to ensure that your wages do increase, you are in demand and that we can improve productivity. Education in this country is great but it could be better and more money need s to be invested in the system and in getting older people back into education. Education can also be a exported as a commodity.

 

[tech/a]

I actually lived in Adelaide in the late 80s & early 90s, and remember quite a few good, relatively conservatively run companies going broke because they were not getting paid by those who had not been so conservative and went under as a consequence. These things snowball in a frightening manner, the more debt there is to service.

Hmm you must have been watching me!

I'm in construction.
That was the case and that was me.
This time round did the same as far as gearing to the teeth till 2002.
But this time round geared down since,sold some and freeholded others.

These days (Different to 80s) we can demand our payment terms even on the larger Civil Projects 500k+
We have no problem with 14 days from invoice.
Exposure is minimised---no EFT no Start!
As for work we are knocking it back as we are 90 days pre booked.
Expansion is very difficult as we are waiting for all the qualified boys to come back from Cairns begging for a position.

Perhaps there are advantages in getting older!
One of the very few.

 

[Temjin]

Very nice summary there, Tom.

My awareness and understanding of the current credit crisis (and how it potentially affect Australian properties) were gain quite recently but I have come to the exact conclusion as yours.

Rising property values are largely because of the era of cheap credit first introduced by Alan Greenspan back in the 2001s and as a result, directly influence the cost of money in Australia. In fact, the era of cheap credit may have gone back as far as over 20-30 years ago according to some experts.

Your comment on that you have been a bear on property for the last 5 years is very interesting. I wished I had attained the same kind of knowledge I had back then and gauge how my perception on the market be back then. However, we still need to realise that the markets CAN BE irrational for longer than one would think.

Speculating back several years ago would have been extremely profitable, and obviously, at the expense of those at the top of the property pyramid scam. That is, property value rises only if someone else is willing to get into much deeper debt than you are currently in at the moment.

How all this will come out will depend on how US will respond to the current crisis in the near future. The possibility of a staginflation is becoming more of a reality where inflation occur during a recession, which was previously regarded as impossible by Keynesian economists. (i.e. mainstream)

It's now a fight between inflation and deflation, where the former will occur if the central banks continue to drop money from helicopters in an attempt to simulate growth, or deflation where defaults and leveraged financial instruments loses continue to increase and spread to other assets. (i.e. potential massive defaults from bond insurers on CDOs were mentioned recently, and this is serious stuff and would make the subprime a child play)

The US Federal reserves have already announced their intention to prevent deflation at all cost after the stagflation happened back in 1970 when Paul Volcker decided to pump up interest rate to the mid-high 10%.

I agree with Tom on this one. It is naive to assume China be completely decoupled from this, while they are more independant they have ever before, China's growth is still highly dependant on export with their majority of factories are geared for export. Alot of critics are saying but US is only 30% of China's export, however, US is not China's only customers. There have been talks of global recessions as the global credit crisis hits other developed countries where the public and private sectors are leveraged to the max. There are now talks about staginflation occuring in parts of Europe.

Global consumer demands will drop and and this would put a huge break on China's demand for resources. And everybody would know what this will do to Australia.

Uninterruption in real wages rise, employment rate? I wouldn't bet on it.

 

[nioka]

Yeah gone are the days of leaving high school at 15 getting a job for life and been able to live comfortabily. These days you have to continually educate yourself to ensure that your wages do increase, you are in demand and that we can improve productivity. Education in this country is great but it could be better and more money need s to be invested in the system and in getting older people back into education. Education can also be a exported as a commodity.

My plumber left school at 15 and became a plumber. His son did the same and became a plumber. They are both still plumbers. They are hard to get to a job as they are very busy. They charge $75 per hour plus make a profit on materials used. This is, in my view, due to the fact that there were too many got a good education but a useless one and not enough left early to learn a trade. I have as much trouble getting a brick layer or a carpenter.

 

[ROE]

Cant believe people keep arguing for and against house price rise.
I said let people borrow what they want to borrow, spend as much as they want, drive up price as much as they like.

Come the correction, it will clean out the weak and leave the strong standing just like Uncle Warren always said

"It's only when the tide goes out that you learn who's been swimming naked."

 

[Tom Ronalds]

@tech/a:

Well it's good you can set your payments terms now. Unfortunately that's not the case with plenty of other industries. And if you've been around as long as you say, you'll know that the current demand can turn rather quickly.

It's still flat out up here as well, but with basic house/land packages for a 3-bedroom home now starting at $450,000 plus costs, I can't see how much longer that can continue. My wife and I have a combined income well into the six figures, but I would not go and buy a house at these prices. With say a $400K loan (nothing unusual these days), it means a couple on say $120K (way above average income) will be paying the equivalent of 50% of that in after tax repayments (meaning you need to earn around $60K gross to service the net payments over a 25-year term). That's pretty crazy if you ask me and in itself shows the house price levels cannot rise much further. Eventually the construction sector will slow and so will the order books for builders.

@temjin:

Again quite frighteningly in my view, amazing numbers of people do not appreciate or understand that property is a very illiquid investment, has major acquisition/disposal/holding costs and is totally inflexible - i.e. you cannot flog off one bedroom if the going gets tough. Also, for many property investors, it's the proverbial "everything in the same basket" story, when it comes to their investment exposures. That makes them much more vulnerable once a downturn comes.

We have had an amazingly long run here in Australia of never ending good times and increasing prosperity. Many people seem to think it will just keep going. They are in for a rude awakening sooner or later.

The Keynesian approach to stimulating the US economy also worries me - the Fed over there was the main culprit of the current fiasco and they are now applying more of the same medicine. It can only postpone -and magnify - the final reckoning. Our Reserve Bank has not been a lot better - the major growth in money supply over the last few years is one of the main reasons for the current inflation pressures that are now starting to show.

Tom R.

 

[robots]

hello,

gee great stuff 47 posts in a day,

and property doesnt stir up emotion NC?

the whole affordability "crisis" is a fabricated load of rubbish,

look at a couple on similar to TOM R's buying a house in say Frankston here in Melb for 330k, nice 3-bed house, driveway for cricket, yard for swimming pool

and guess what 3x salary,

can see why people question financial services workers,

sure you arent Steven Keen?

thankyou

robots

 

[kivvygosh]

@tech/a:
With say a $400K loan (nothing unusual these days), it means a couple on say $120K (way above average income) will be paying the equivalent of 50% of that in after tax repayments (meaning you need to earn around $60K gross to service the net payments over a 25-year term). That's pretty crazy if you ask me and in itself shows the house price levels cannot rise much further.

I think you're off the track a bit Tom. No evidence of a recession in Australia at this time, except that the economy is growing very strongly and prices are rising. But rising prices does not equal a recession!

I recently bought a new house and now have a loan close to what you mention above, and my household income is again close to what you mention. It's a lot of money, no doubt. But I know a lot of people that are renting houses and paying over $500 a week for a fairly basic, nice-but-nothing-fancy house. You'll find very few houses for rent under $400, and even fewer units under $300.

Do you believe this is unsustainable? People don't have a problem paying this on rent, so why wouldn't they pay another 50% on a mortgage? This sort of activity points to an increase in inflation (which we are seeing) rather than an imminent price correction.

The only way prices would drop significantly is if there was a recession. And again, what evidence is there of a recession?

 

[xoa]

the whole affordability "crisis" is a fabricated load of rubbish,

look at a couple on similar to TOM R's buying a house in say Frankston here in Melb for 330k, nice 3-bed house, driveway for cricket, yard for swimming pool

and guess what 3x salary,

robots

There must be a massive conspiracy. All those impartial researchers from within Australia, the OECD and international universities must be cooking the books.

You should also inform the Australian Bureau of Statistics that the median salary is actually $110k, because they seem to have the opinion that it's less than half that level.

If you think it makes sense to buy a $330k fibro house in Frankston, an hour's drive from Melbourne, then go ahead and buy it. Personally, I'd rather continue renting, and buy a nice villa in Seattle or San Fransisco instead. Lots of one-time property bulls are facing foreclosure over there. Good luck!

 

[xoa]

I recently bought a new house and now have a loan close to what you mention above, and my household income is again close to what you mention. It's a lot of money, no doubt. But I know a lot of people that are renting houses and paying over $500 a week for a fairly basic, nice-but-nothing-fancy house. You'll find very few houses for rent under $400, and even fewer units under $300.

My unit costs $160 pw. It's old and has a combined bedroom/loungeroom, but it suits me. The unit's about 50 metres from the beach. In the suburb of Shorncliffe, Brisbane (surrounded by quite a few million-dollar homes).

 

[robots]

hello,

yeah man, another great day in the USA

6 dead, 5 just going about there business thankyou very much such a great place

oh ABS stats, owners 6x wealthier than renters so go for it

might flip you a dollar when I see you on the street

thankyou

robots

 

[robots]

If you think it makes sense to buy a $330k fibro house in Frankston, an hour's drive from Melbourne, then go ahead and buy it. Personally, I'd rather continue renting, and buy a nice villa in Seattle or San Fransisco instead. Lots of one-time property bulls are facing foreclosure over there. Good luck!

hello,

is that slang for a cabin in a trailer park next to Kid Rock?

thankyou

robots

 

[xoa]

hello,

oh ABS stats, owners 6x wealthier than renters so go for it

robots

Owners may be wealthier, because (a) they are older, and (b) most were owners before the property boom.

Your arguments are non-sequitur. Using your "logic", I could have argued for everybody to buy dot com stocks at the height of the tech boom, because the average such investor was wealthier than average. Or I could urge everybody to buy a BMW, because the average BMW owner is wealthier than average.

 

[wayneL]

I think you're off the track a bit Tom. No evidence of a recession in Australia at this time, except that the economy is growing very strongly and prices are rising. But rising prices does not equal a recession!

How quaint!

People still believe in the extrapolation of recent trends to infinity. The folks here in the UK were saying the exact same things in defense of the house price bubble... immigration, lack of supply, strong economy, blah blah BLAH!

But the bend at the end of the trend has done gone and bended.

People can list every BS fundamental they want, but ultimately there is only one fundamental that really matters... CREDIT.

Perversely, the RBA attempt to tighten credit by raising interest rates is bringing fresh cash to the country looking for superior risk free returns, which in turn must be lent out to get a return for the instos. That's why the credit crunch hasn't hit Oz as much so far and why "official" inflation is higher than other western countries. This however only serves to delay the inevitable.

Recession is inevitable.

 

[xoa]

hello,

is that slang for a cabin in a trailer park next to Kid Rock?

thankyou

robots

Search for yourself on the internet. $330,000 AUD buys you a very nice home in a wealthy suburb there.

The same money here buys you a "renovators delight" in Frankston. Talk to your bank manager and snap up that fibro house before it's too late!

 

[robots]

hello,

you just have to send the kids to school in an armoured Humvee with a gunner in back, uzi in pocket, vest under school shirt,

laser on the 9mm and be ready as hell to pop caps

so I guess by the time you add up those costs things change

thankyou

robots

 

[xoa]

hello,

you just have to send the kids to school in an armoured Humvee with a gunner in back, uzi in pocket, vest under school shirt,

lazer on the 9mm and be ready as hell to pop caps

thankyou

robots

Yeah, suburban Seattle and San Fransisco are really dangerous. They're practically synonymous for murder. Don't let the low crime rates fool you, the police are in cahoots with the crooks, cooking the books.

Those silicon valley and microsoft employees must enjoy raising their families in a violent environment.

 

[CecilHills]

Hey, the outer suburbs (Sydney) are getting a raw deal here: 25 years from now we won't be worrying about surging king tides ruining our beachfront( if there is a beach left) or harbourside coffee shops.
BTW this forum is so informative and such a good read!