House prices to keep rising for years

[wayneL]

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

We been through this before 'bot.

Middle class suburbs are as safe. I've lived there bud.

 

[Tom Ronalds]

@kivvigosh:

That there is no sign of a recession in Australia yet means very little. It can all turn very quickly. Just look at the share market - as late as early January, BT Investment Management issued a bulletin saying the Australian market fundamentals were strong and we could still expect between 11-13% return for the current financial year!

The recent business sentiment data shows a massive drop in confidence - why do you think that is? -- These people are at the battlefront; they see every day how their customers feel and behave.

Think also of the fact, in your personal situation, how would you cope if you or your wife lost your jobs. Would it still be so easy to service your loan then?

With regards to renters: Here in Cairns, increasing numbers of people are struggling to afford even to rent - particularly at the lower end of the market. These guys simply don't have the money to buy and now they can't even find rentals. Potential landlords, on the other hand, can't find cheap houses they could rent at affordable prices to that market segment, and even the medium priced properties now deliver very mediocre returns. Not far from where I live, near the Cairns CBD, a 2-bedroom unit sold recently for $375,000. I know that these places rent for around $335-$350 per week. There is a body corporate fee of about $2,500 p.a. plus rates of around $600. Would you think buying at those yields is a smart idea? How much further do you think the rents can go, before even more people cannot afford to pay - especially if the unemployment rate shoots up to, say, 7% - which is still low going by historical standards?

Additionally, the recent wage increases have not been distributed equally around the working population. Many people in the hospitality industry around here don't earn more than $40K - which isn't a great deal more than what they were getting 3-4 years ago. Yet their cost of living has gone through the roof over the same time period.

The housing situation is definitely unsustainable.

Furthermore, some of the stories I see at work would make your hair turn white. Like this 53-year old guy, who was "advised" by an "investment adviser" to use the equity in his home as a deposit for a margin loan, whereby he then geared up to 70% in "safe stocks" - mainly banks. He has lost over $250,000 already and may now well lose his house. He's far from being the only one in such a predicament.

The number of people I come across who have used the growth in their home equity to follow the "How to Build a 10-million Dollar Property Portfolio in 5 Years" con is also something you wouldn't want to believe. This is a borrowing on top of another borrowing and so on. It all just works while the properties are tenanted and keep going up in value by 25% each year, the rental flows keep coming and you keep your job at the end of the chain. Once a link in this chain breaks, you lose the lot.

Also, the "wealth effect" is now starting to dissipate. Many people, who felt great and confident about taking on more debt, because the news was full of stories about the house prices going up by 20% every year, and because their paper profits on their geared share portfolio were into the hundreds of thousands of dollars, are suddenly not only realising it was all a bit of a chimera, but many are losing their shirts in margin calls and forced sales. How long do you think before this trips the economy and affects housing prices?

You guys here may think this is all a bit far fetched, but this is what I see too often for comfort. Unlike some here, I am also very very sceptical about claims that this is a new economy, so it does not matter that we are having housing affordability levels at almost 9 times salary, which is close to three times long term average and two and a half times what's viewed as a "comfort/reasonable level". Our national median house prices - and remember these include the back of Woop-Woop - are now around $450K. If you think it's all unimportant, then it only confirms my opinion that too many people have by now forgotten that property crashes do happen, and that they can be every bit as vicious at their stockmarket counterparts.

Tom R.

 

[robots]

hello,

when I see pictures on the tv of these typical uni students or school kids it looks just like a suburb here in Aus,

it is very real and happens all over the US, 9mm's are everywhere

people have shooting range's in their homes in the middle/high class suburbs

thankyou

robots

 

[robots]

You guys here may think this is all a bit far fetched, but this is what I see too often for comfort. Unlike some here, I am also very very sceptical about claims that this is a new economy, so it does not matter that we are having housing affordability levels at almost 9 times salary, which is close to three times long term average and two and a half times what's viewed as a "comfort/reasonable level". Our national median house prices - and remember these include the back of Woop-Woop - are now around $450K. If you think it's all unimportant, then it only confirms my opinion that too many people have by now forgotten that property crashes do happen, and that they can be every bit as vicious at their stockmarket counterparts.

Tom R.

hello,

I am amazed, now we are up to 9x salary,

thats just not the case, every case is different

Tom R, did you own any property during the so-called crash?

my GF had a unit in Elsternwick (melb) which increased in value during the "so-called" crash,

sure people were affected, for instance those in Mt Eliza walked from their mansions as "executive" jobs crashed

thankyou

robots

 

[theasxgorilla]

I am amazed, now we are up to 9x salary,

thats just not the case, every case is different

Yes, I bought a property in Melbourne at 3.2 times income. Girlfriend not counted at the time as she hadn't been working for long enough. Then, a handful of years later, the bank comes chasing me (I say chasing because I was applying for a credit card at the time) telling me that they want to lend me something that would have amounted to us being able to buy a house at over 7 times our household income.

Surely if the credit is on-tap like that and being peddled actively by the banks we can at least begin to understand how the multiple has become so high.

ASX.G

 

[Tom Ronalds]

@ robots:

Check out the data in the Demographia report. I already provided the link earlier, but here it is again:

http://demographia.com/dhi.pdf

The overall national multiple in Australia is 6.3, but as I said before, that includes the back of Woop Woop and many areas are between 8 and 9 The likes of Sunshine Coast and some parts of Perth are 9.3-9.5.

 

[Tom Ronalds]

@ robots:

Sorry, I overlooked your question: No, I didn't own property during the "so-called crash" (too young at the time), but I knew quite a few people who lost their homes.

I also know that I owned several properties (in coastal Queensland) between 1992 and 2001, and over that period capital gains amounted to less than CPI.

We built our home in 1992 in a seaside town, with great seaviews, swimming pool and only a short walk to the main street & beach for the grand total of $150,000. This was valued by a registered valuer in 2000 for $198,000! We sold in 2004 for $400,000 and the same property is now supposedly worth about $800,000. You may think this is reasonable; I don't.

 

[wayneL]

hello,

when I see pictures on the tv of these typical uni students or school kids it looks just like a suburb here in Aus,

it is very real and happens all over the US, 9mm's are everywhere

people have shooting range's in their homes in the middle/high class suburbs

thankyou

robots

Stuff like that happens in Oz middle class too mate. Don't you recall the Monash Uni shootings? Flinders lane? Lygon Street underworld murders?

...and that's just in your home town of Melbourne.

Puhleeeze.

 

[numbercruncher]

@ robots:

Check out the data in the Demographia report. I already provided the link earlier, but here it is again:

http://demographia.com/dhi.pdf

The overall national multiple in Australia is 6.3, but as I said before, that includes the back of Woop Woop and many areas are between 8 and 9 The likes of Sunshine Coast and some parts of Perth are 9.3-9.5.

That 6.3 is household income. And doesnt take account income tax

So the after tax PE for the average wage for the average house has got to be running around 10x

Get it to 15x this year anyone ?

 

[theasxgorilla]

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.

It's important to go deeper than the stats and ask how and why and genuinely want to find the answers.

Household income is more important for starters. The olden days (the good old days??) where a household could survive on one income have rapidly become a thing of the past. Those that can survive on one income, lets say its the median you describe from the ABS, probably bought their houses early/pre-boom and have little mortgage compared with today's wages/cost-of-living.

Hands up property OWNERS if your partner is under 30 and stays at home all day while you making a living for the household? Please tell us how you do it!

Thanks,

ASX.G

 

[robots]

hello,

yes Tom R,

so now we have Interest rates at the highest level since 1996, another increase in March maybe yet no crash is occurring in prime wanted real estate,

many talking how the credit crunch is going to ruin the globe have been greatly embarassed I believe,

whats happening?

you have building starts decreasing monthly yet unemployment in the building sector is nil,

thankyou

robots

 

[robots]

hello,

yes,

Aus gets it once a year or two, not every week

let alone all the other drive-by's and ghetto boys capping the innocent in US

thankyou

robots

 

[wayneL]

hello,

yes,

Aus gets it once a year or two, not every week

let alone all the other drive-by's and ghetto boys capping the innocent in US

thankyou

robots

No wonder Goebbels was so successful.

 

[GreatPig]

ultimately there is only one fundamental that really matters... CREDIT ... Recession is inevitable.

A good book on the subject, and the fate of the US dollar: The Dollar Crisis by Richard Duncan.

Written in 2002, his comment on when the global recession will occur:

When the US property bubble pops. In 2002, the global economy is being supported by an American shopping spree that is being financed by a bubble in the US property market.

Hmm... isn't that, like, now?

GP

 

[chatty]

A lot of people have fixed their home loan. the proportion of fixed rate home loan has increased from 7% to 30%. This proportion is likely to continue as people can see that RBA is going to increase interest rate again.

Also long term fixed rate is lower than the current variable. It looks like investors can see that in the next 12 to 18 months the interest rate will start to fall down.

unemployment rate is historically low. high interest rate forces the consumers to reduce their spending. That's why JBH price has been hit hard.

People will tighten their budget and do everything to keep their house.


DOes it mean that recession is unlikely?

I bought a house in deer park in melbourne for $182K. Today, my house is around$210K. Our loan is $120K (our household income is $110K) so when I read the report that people are buying a house at 6.5 x their income.

Just doesn't make sense to me.

 

[gfresh]

hello,

yes Tom R,

so now we have Interest rates at the highest level since 1996, another increase in March maybe yet no crash is occurring in prime wanted real estate,

many talking how the credit crunch is going to ruin the globe have been greatly embarassed I believe,

whats happening?

you have building starts decreasing monthly yet unemployment in the building sector is nil,

woa.. damn some people have it coming if they think these things have an *instant* effect in the property market.. there hasn't been a real recession in 17 years and people have clearly forgotten how these things play out.. You might want to check lag time between the 1987 stockmarket crash and the recession that followed, and the crash in housing across Australia. It didn't happen in 1987.. the real crash hit later when the ass fell out of the jobs market, etc as a result of the turmoil, but it took a while... and it's looking very similar right now.

Who wants a personal loan right now for a boat? hmm, variable personal loan interest rates are now over 14% .. no thanks, I'll pass right now. Mr Boat Builder who's since done a roaring trade suddenly finds himself low on work as nobody's buying boats. Off go the staff, damn not much work in the boat business right now, ****, getting harder to find a job. Makes the home repayments a little difficult at a rate of 10% being unemployed - damn, wish I'd saved a little when times were good..

Mr Allco employee, company about to go under, guess they are out of work too... damn, time to sell up that second beach property.

Mr NAB who works at NAB just lost his job too, as the bank savages staff to protect it's net profits as that cost of wholesale credit soars and the share price sits at a 7 year low (now). Hard to grow earnings when Mr Consumer isn't buying boats on credit, that leaves cutting expenses to maintain the same net profit - staff are an expense. Guess that property has to go to...

Mr NAB and Mr Boat Builder Staff start selling their properties. Values come down, lines of credit drawn on "always increasing" property value suddenly cutoff.. in fact bank is no longer willing to extend the line of credit as the property value is actually decreasing - that would be silly anyhow, we can't package that into a AAA security on world markets anymore.. damn, guess I'm not buying a new car this year.. Mr car seller has trouble selling cars, lays off staff, and so the spiral continues.

These things take time ...

 

[Tom Ronalds]

I bought a house in deer park in melbourne for $182K. Today, my house is around$210K. Our loan is $120K (our household income is $110K) so when I read the report that people are buying a house at 6.5 x their income.

Just doesn't make sense to me.

I'll give you an example from an appointment I had recently:

The other day I spoke to a client, who is a 37-year old single female, on $85,000 annual salary. She is interested in purchasing a unit in Palm Cove (Cairns Northern Beaches), which she can buy for $700,000 plus costs. She has saved $100,000, so would need to borrow approximately $635,000 to complete the purchase. She has, believe it or not, secured a lender who is prepared to forward this amount - provided the loan is taken on an interest-only basis. She will therefore have to pay at least $54,000 p.a. in interest (assuming 8.5% commencing interest rate). The unit can apparently be let for $550/week (a gross yield of around 3.9% - net yield is likely to be closer to 3%). The client would then have a shortfall of at least $26,000 (or over $17,000 after allowing for the tax deduction) to cover from her own pocket.

Is this a wise strategy? ”” On her income, it can be said it is affordable; just.

However, what happens if the unit is not rented for some time? What happens if the value drops and so does the achievable rental? What if she loses her job? What happens if - as is likely - there is no capital gain of note over the next decade? Wouldn’t it be more prudent to invest elsewhere, with less debt and much less risk?

The fact that somebody in that situation is seriously contemplating borrowing such a large sum of money, that she can actually obtain it and that she still expects to make a large capital gain over the next few years - as she must to justify the net cashflow loss - is to me enough of a proof that this is the worst property bubble/some of the most loose lending standards I can remember.

These people are out there. It may not be you, but when they crash and burn, it will hurt more conservative property investors as well.

Cheers,

Tom

 

[Tom Ronalds]

@gfresh:

My words exactly! How soon people forget!

No wonder history tends to repeat itself...

 

[jet328]

Tom R.

Well said Tom.

Charlie Aitken has a good article in todays Eureka report. Along similar lines, people using 'equity mate' from their houses, then into margin loans and even adding the unused part of the credit card in to the margin loan. Then using the loan to buy into junior resource stocks! Ouch!

He also notes an increase in top-end houses for sale...

Credit goes in cycles, wouldn't be touching the consumer stocks at the moment

 

[Kimosabi]

I'll give you an example from an appointment I had recently:

The other day I spoke to a client, who is a 37-year old single female, on $85,000 annual salary. She is interested in purchasing a unit in Palm Cove (Cairns Northern Beaches), which she can buy for $700,000 plus costs. She has saved $100,000, so would need to borrow approximately $635,000 to complete the purchase. She has, believe it or not, secured a lender who is prepared to forward this amount - provided the loan is taken on an interest-only basis. She will therefore have to pay at least $54,000 p.a. in interest (assuming 8.5% commencing interest rate). The unit can apparently be let for $550/week (a gross yield of around 3.9% - net yield is likely to be closer to 3%). The client would then have a shortfall of at least $26,000 (or over $17,000 after allowing for the tax deduction) to cover from her own pocket.

Is this a wise strategy? — On her income, it can be said it is affordable; just.

However, what happens if the unit is not rented for some time? What happens if the value drops and so does the achievable rental? What if she loses her job? What happens if - as is likely - there is no capital gain of note over the next decade? Wouldn’t it be more prudent to invest elsewhere, with less debt and much less risk?

The fact that somebody in that situation is seriously contemplating borrowing such a large sum of money, that she can actually obtain it and that she still expects to make a large capital gain over the next few years - as she must to justify the net cashflow loss - is to me enough of a proof that this is the worst property bubble/some of the most loose lending standards I can remember.

These people are out there. It may not be you, but when they crash and burn, it will hurt more conservative property investors as well.

Cheers,

Tom

Tom, Tom, Tom,

I know your new around here, but I've got to let you know, we try not to use facts or logic in Real Estate threads on ASF, ok.



There is not Real Estate Bubble, there is no Credit Bubble, there is definitely no Credit Crunch, there is no Housing Unaffordability Crisis, left is right, right is left, up is down, down is up, right is wrong and wrong is right. Real Estate will continue to rise by at least 20% YOY for eternity...

Thankyou....