House prices to keep rising for years

[trainspotter]

Nuffin more to be said really:-

http://www.thebull.com.au/articles_detail.php?id=6835

BUT ........ house prices keep on keeping on.

 

[robots]

hello,

oh yeah:

http://www.myspace.com/nuffsaidrecords

thankyou
doctor robots

 

[MR.]

Here's a chart which is more up to date then the last one posted.
Excuse the resolution.
View attachment realhouseprices1880to2008-4.bmp

That spike has to be a concern for buying into realestate now.


Robots
http://www.youtube.com/watch?v=1PLr2pKkzEs&feature=player_embedded

 

[Beej]

Here's a chart which is more up to date then the last one posted.
Excuse the resolution.
View attachment 34147

That spike has to be a concern for buying into realestate now.


Robots
http://www.youtube.com/watch?v=1PLr2pKkzEs&feature=player_embedded

If you paid attention to charts like that you would not have bought real estate in Australia at any time since 1977! Maybe even 1967? Yea, great decision that would have been either way....

I have my doubts about the validity/correctness of that chart anyway, but my point above stands regardless

Beej

 

[MR.]

If you paid attention to charts like that you would not have bought real estate in Australia at any time since 1977! Maybe even 1967? Yea, great decision that would have been either way....

I have my doubts about the validity/correctness of that chart anyway, but my point above stands regardless

Beej

Both charts need to be drawn with a logarithmic scale.
It would give a fairer picture of those gains. But yet to find one.

 

[drsmith]

Logarithmic scale or not the rise in the past 10 years does look like an attempt to defy gravity. It's similar in scale to the rise in the early 50's.

A log graph but adjusted for household income (instead of inflation) with household credit as a percentage household income superimposed on top would be interesting.

 

[drsmith]

From the RBA

http://www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_mar03/bu_0303_1.pdf

The graph on page 4 shows household debt as a percentage of household disposable income has risen from 40% in the early 80's to 120% in 2002.

http://www.rba.gov.au/PublicationsA...ilityReview/Mar2009/Html/Graphs/graph_69.html

Household credit growth has been well in excess of 10%pa for most of the period since 2000.

http://www.rba.gov.au/PublicationsA...ilityReview/Mar2009/Html/Graphs/graph_61.html

The cost of finance interest relative to household disposable income was higher in March 2009 than it was at any time during the high interest rate period of the late 80's.

 

[robots]

hello,

oh blast, sorry Kincella i thought i had cleared out all the no-content posters by going on about a bit of other stuff

oh well, hang in there bro and yes still a MASSIVE 8x average income, superb

its getting a bit tired of that statement "it will return to the long term average"

great to be part of this new era in our lives

thankyou
doctor robots

 

[robots]

hello,

good morning fellow Australians and distinguished guests:

http://www.theage.com.au/business/median-house-price-hits-480000-20091023-hdfz.html

WOW, higher than 2007, yes thats right brothers

its strange though WayneL, both the US and UK are throwing money around (low IR's) but not much happening to prices in those countries

its different alright, this country is it

couple of latte's this morning

thankyou
Doctor Robots

 

[joeyr46]

If you paid attention to charts like that you would not have bought real estate in Australia at any time since 1977! Maybe even 1967? Yea, great decision that would have been either way....

I have my doubts about the validity/correctness of that chart anyway, but my point above stands regardless

Beej

Your right there have been a few spikes that could have worried you at certain times and the market corrected quite heavily after them (not all prices came off heavily I saw 50% falls in some outer Brisbane regions in 91/92 period while central Brisbane houses stayed flat and very close in appeared to rise slightly)
Things are no different this time in general terms (Except debt levels are higher) so there will be an inevitable correction (how much is debatable) The biggest problem is the amount of debt that has been created worldwide if the liquidity in the system dries up we could see the biggest correction for a several decades and housing shortages or immigration won't help if the problem is liquidity
Looking at that chart from an EW perspective it is possible to count five clear waves and suggests prices will com back to 92 period of around 150000
That does not make real estate a bad investment nor should we sell our personal home as it has never been an investment other than in lifestyle and also provided you are not heavily in debt should not be a problem But the government and the banks have shafted everyone by extending so much credit and creating this bubble

 

[legoman]

hello,

good morning fellow Australians and distinguished guests:

http://www.theage.com.au/business/median-house-price-hits-480000-20091023-hdfz.html

WOW, higher than 2007, yes thats right brothers

its strange though WayneL, both the US and UK are throwing money around (low IR's) but not much happening to prices in those countries

its different alright, this country is it

couple of latte's this morning

thankyou
Doctor Robots

Yup, population growth and a return to confidence in the medium term for the Aus economy have been enough to turn the house price thing around, with some help from the grant. Remarkable.

 

[satanoperca]

From the RBA

http://www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_mar03/bu_0303_1.pdf

The graph on page 4 shows household debt as a percentage of household disposable income has risen from 40% in the early 80's to 120% in 2002.

http://www.rba.gov.au/PublicationsA...ilityReview/Mar2009/Html/Graphs/graph_69.html

Household credit growth has been well in excess of 10%pa for most of the period since 2000.

http://www.rba.gov.au/PublicationsA...ilityReview/Mar2009/Html/Graphs/graph_61.html

The cost of finance interest relative to household disposable income was higher in March 2009 than it was at any time during the high interest rate period of the late 80's.

Thanks DrSmith for the links.

Now can someone provide an analysis of the following :

Debt Growth %10 p.a
Asset Growth 7% p.a
Inflation %3 p.a
Wage Growth %5 guesstimate

How much has property increased over the last 10 years if you remove debt growth. It would seem that property has increased due to expansion of credit and not from equivalent increases in income. If debt growth is removed and property only increased on wage growth would it have increased as much?

I will assume that credit growth can only expand until it reaches a ceiling, namely people being able to service the loan without starving to death. If our house hold debt to GDP is %160 how much more can it increase before we hit the ceiling and it cannot expand any further resulting in prices declining or stagnating until incomes catch up.

Cheers

 

[MrBurns]

1000 Actions this weekend ? Shows a lot of people are cashing in at the top of this housing bubble, ready to cash up ready for the crash.

 

[robots]

Thanks DrSmith for the links.

Now can someone provide an analysis of the following :

Debt Growth %10 p.a
Asset Growth 7% p.a
Inflation %3 p.a
Wage Growth %5 guesstimate

How much has property increased over the last 10 years if you remove debt growth. It would seem that property has increased due to expansion of credit and not from equivalent increases in income. If debt growth is removed and property only increased on wage growth would it have increased as much?

I will assume that credit growth can only expand until it reaches a ceiling, namely people being able to service the loan without starving to death. If our house hold debt to GDP is %160 how much more can it increase before we hit the ceiling and it cannot expand any further resulting in prices declining or stagnating until incomes catch up.

Cheers

hello,

non issue, irrelevant to house prices

just more fluff while people continue to avoid the real reason Australia is doing so well

fills a bloggers page i guess, i just hope people start to question those who have carried on regarding the prices and delve into the true hidden motives

for example, the association they may have with CFD Companies, Fund Managers, Forex Companies, Publishers, New Media, Gambling etc etc

thankyou
Doctor Robots

 

[MrBurns]

hello,
oh yeah, top day brothers
looking forward to enjoying the weekend riding the trams looking at the architecture which creates the best store of wealth known to mankind
might see a few strange characters on the way
getting excited
thankyou
Doctor Robots

Should we notify the police ?

 

[Beej]

Thanks DrSmith for the links.

Now can someone provide an analysis of the following :

Debt Growth %10 p.a
Asset Growth 7% p.a
Inflation %3 p.a
Wage Growth %5 guesstimate

How much has property increased over the last 10 years if you remove debt growth. It would seem that property has increased due to expansion of credit and not from equivalent increases in income. If debt growth is removed and property only increased on wage growth would it have increased as much?

I will assume that credit growth can only expand until it reaches a ceiling, namely people being able to service the loan without starving to death. If our house hold debt to GDP is %160 how much more can it increase before we hit the ceiling and it cannot expand any further resulting in prices declining or stagnating until incomes catch up.

Cheers

Those are interesting questions. The way see it is like this:

There is no point in looking at property price growth sans "debt" growth. Of course the two go hand in hand. The thing that needs to be understood is the primary reason for the debt expansion of the last 10-15 years, and that is that we shifted fundamentally from a high inflation to a low inflation economy, and interest rates came down and stayed down accordingly. Add to that an increase in 2 income households, high income earners delaying starting families etc (which of course were probably one shot effects), + the trend to bigger/better houses and less people per household and so on.

This might suggest that the biggest risk to property prices would be a shift back to a high inflation/high interest rate environment, and a corresponding reduction in credit, and in terms of "real" price growth, this would probably be true. But in terms of nominal price growth, even a high inflation/high interest rate climate (like we had in the 70s/80s) would likely see quite significant nominal price increases for property. Remember that GDP expands nominally with inflation as well as from real growth, so a debt to GDP ratio can remain constant, or even fall, and yet the actual numbers in terms of loan and house prices etc can continue to rise. Think about that a bit....

Scenario 1) So if things stay as they are, the economy remains robust and grows, lending continues and current inflation/interest rates remain as they have for the past 10 years, then while there might be room for a bit of growth in credit yet, the primary driver of R/E prices will be wage growth (which should continue in real terms as it has recently). That still imply's inflation plus a bit to me across the board. Remember though that this will be suburb/region dependent as wage growth is not equal and the big cities have a lot of stratification of household incomes. That's why there's 75 $1M+ median price suburbs in Sydney vs only 6 in Melbourne even though the over-all medians are not that far apart at ~$550k and~ $480k respectively. And I'm not sure the other cities have any more than 1 or 2 $1M+ median suburbs if any?

Scenario 2) If things change and we end up with a high inflation/high interest rate economy, (forced on us maybe by the bloody US and UK + globalisation), then we will be less likely to see real wage growth, or real property price growth, BUT we will see both over time run up with inflation at least, so nominal wage growth and nominal property prices (+ nominal credit figures) could still increase quite significantly. Remember as I have tried to explain above, this could all happen even with a flat or falling household debt to GDP ratio (which is based on nominal numbers by definition).

There is/was of course a scenario 3) which is the "house price crash" scenario, but this requires a systemic crisis of the banking/financial system with resulting collapse of available credit, recession/depression, massive unemployment, possible deflation, huge increase in number of mortgage foreclosures, forced sales etc; ie the US situation right now, and to a lesser extent what the UK experienced. IMO the chance of this occurring in Australia is now very very low (though never zero). If it was going to happen last year/early this year was it.

Cheers,

Beej

 

[Dowdy]

There is/was of course a scenario 3) which is the "house price crash" scenario, but this requires a systemic crisis of the banking/financial system with resulting collapse of available credit, recession/depression, massive unemployment, possible deflation, huge increase in number of mortgage foreclosures, forced sales etc; ie the US situation right now, and to a lesser extent what the UK experienced. IMO the chance of this occurring in Australia is now very very low (though never zero). If it was going to happen last year/early this year was it.

Cheers,

Beej

Few things you're forgetting

- interest rates rising
- government grant being eliminated
- It's not a collapse of available credit, it a collapse of available savings through banks raising their lending standards (although increasing the max borrowing limit from 95% of the value of the house to 90% is still pretty poor standards)
- petrol prices and everyday food cost rising putting stress of mortgage repayments
- people don't know how to save
- people want too much for their FIRST home


Here's a classic example...
I have this friend at work who borrowed 95% to buy her FIRST home and her land release has been delayed for about 1 year so she might not get the full first home grant either. She's angry because she thinks she deserves it (the same type of attitude i guess you get from people who receive the dole and any centrelink money and think they deserve it)
She doesn't know how to save either - she want to buy a brand new holden cruze and recently went on a holiday to Thailand.

Guess she'll learn the hard way, as will alot of people

 

[Soft Dough]

1000 Actions this weekend ? Shows a lot of people are cashing in at the top of this housing bubble, ready to cash up ready for the crash.

I wonder if some of the smarter investors are cashing up a little. They might see some bargains over the next 12 months or so. Time will tell.

I just hope the people on the knife edge do not wait too long, or have contigency plans in place in case prices fall and/or banks start getting nervous.

 

[drsmith]

Below is a link to a document from the RBA which contains updated graphs to September 2009.

http://www.rba.gov.au/PublicationsA...p2009/Pdf/financial-stability-review-0909.pdf

Of particular interest is the updated graph (graph 63 on page 44) on household interest payments against household disposable income.

Emergency low interest rates and and government stimulus to household income have both failed to bring this down to peak levels of the late 80's let alone to anything that puts households into a position to cope with the rising interest rates that would come with a response to inflation.

It's a very skinny tightrope the RBA will have to walk as it raises interest rates to more normal levels let alone in response to inflation.

 

[satanoperca]

Should we notify the police ?

Yes and the guys with the straight jackets and padded van.

Thank you Beej for your detailed response and Dowdy, DrSmith and Soft Dough for your contribution.

Robots if you have nothing intelligent to say or are unable to comprehend this discussion please get on a tram and check out the architecture of Melbourne.

Think about that a bit....

Yes some thought is required, will get back to you. Thanks for your detailed explaination.

It's a very skinny tightrope the RBA will have to walk as it raises interest rates to more normal levels let alone in response to inflation.

This is extremely true, the economy may be considered robust but it will not take to much to get it out of kilter.


An another note, I have compiled all the auctions for five suburbs (approx 58 auctions) in Melbourne from the REIV website and will cross check on Monday when they publish this weekends auction results to see how accurate they are. Got to love self regulated statistics from the RE industry.

Cheers all, stunning day in Melbourne, going for a fish with a bottle of wine in hand.