House prices to keep rising for years

[numbercruncher]

According to the news record amounts of properties are coming to market and prices have fall in over half of Australias capital cities.

These students if not living on campus tend to be squeezed in like 5 to a house, way above the current 2.4 average.

 

[gfresh]

Population growth last year was 1.5%, longer term average is 1.3%. This is according to the ABS (on the website)

So whether it's people coming, dying, or leaving, whichever way you look at it, that's ~319k people coming onto the scene each year that need somewhere to live. If we take 2.4 people per household, that's 132k dwellings required.

That seems pretty close to the 150k figure quoted above. No shortage?

 

[gfresh]

Found this as well, some interesting stats and figures on household trends.

http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/8DD7826E7F7235D8CA25732C0020820B?opendocument

 

[nioka]

If we take 2.4 people per household, that's 132k dwellings required.

That seems pretty close to the 150k figure quoted above. No shortage?

I understand that the number per household is falling and that the next census will show a figure at less than 2.4. A small drop will make a big difference. Also making a big difference is the number of old dwellings being demolished to make way for the new. Look at any inner city to see this is happening a lot. If there is no shortage why is it so hard to rent?

 

[numbercruncher]

Population growth last year was 1.5%, longer term average is 1.3%. This is according to the ABS (on the website)

So whether it's people coming, dying, or leaving, whichever way you look at it, that's ~319k people coming onto the scene each year that need somewhere to live. If we take 2.4 people per household, that's 132k dwellings required.

That seems pretty close to the 150k figure quoted above. No shortage?

The growth figure is actually a little bit misleading, because half+ that growth are new born babies living at home, we need to work out how many people are leaving home each year , and with people staying at home longer than ever Im suspecting its lower than the 319k figure, but Im just guestimating there, if we can find out how many Aussies are aged say 18 to 22, that would give us a good indication. Can probably find Aussie birth numbers from 18 or so years ago might help ?


Either way, we have an average of 2.4ppl per household, so 319k / 2.4 = 132k houses needing to be built p/a on that figure to maintain our current very low people per household, If large amounts of people start sharing amid rising cost of living I can see us slipping to over supply at quite a rapid rate.

 

[numbercruncher]

and over to Brisbane ....

It's official: The boom is over

BRISBANE'S property boom has been stopped dead in its tracks by rapidly rising interest rates, according to new figures released today.

http://www.news.com.au/couriermail/story/0,23739,23621595-5011140,00.html

 

[CAFA1234]

I understand that the number per household is falling and that the next census will show a figure at less than 2.4. A small drop will make a big difference. Also making a big difference is the number of old dwellings being demolished to make way for the new. Look at any inner city to see this is happening a lot. If there is no shortage why is it so hard to rent?

Nioka, my dear friend. When is the next census due to take place? And where are you getting the inside information from?

It's a fair cop to say you think something, or even to report that XYZ thought something. One could even go with the flow of someone who guessed that they thought something. But you way you have suggested that somehow you have an inside view of what the next census will say is a tad naughty, and then use that to justify your position.

Be open minded and don't back a position too hard - sometimes you will be wrong. Maybe others are just trying to help you with some more detailed understanding that may not have been visible?

Many of the arguments you have put forward are just as valid in the US - hundreds of thousands of applications for visa every year, tens of thousands of illegal immigrants every month, marriage breakdown leading to small households, old houses being demolished, until recently a 30 year low in unemployment (in CA anyway), low federal bank rate (that's an extra one), intervention in the financial markets to encourage lending like increasing the amount that the federal backed Fannie & Freddie & FHL can lend (sorry another US only one)......and yet houses (not flats / units) are falling at a current rate of 30% PA - see previous post of mine today.

You're right to say a small drop can make a big difference - 'the tipping point' of any market if often finely balanced. It works on the way up and the way down. If I can supply 10 into a market that wants 11, I have pricing power and can push the price up quickly. However as soon as there are only 9 wanted for my supply of 10, I have lost all pricing power and the price will tend to drop rapidly. This is very simplistic and nowhere like the real world with many variables adding to the mix.

 

[Temjin]

Heres something to ponder on the supply side, notice the amount of unoccupied dwellings has been rising over time, Id like to find the figure for last year, raises questions about demand exceeding supply (except as mentioned in specific areas, which I beleive is falsely used as the blanket debate )

View attachment 20584

numbercruncher, you just brought up an interesting table.

Read this as well if you haven't already, more details on it.

http://cij.inspiriting.com/?p=314

A short summary of the findings.

In short, these are our findings:

1. There is no overall housing shortage. The increase in the number of dwellings far exceeded the population growth and household formation. Furthermore, the increase in unoccupied dwellings is almost triple the increase in population growth.
2. Hoarding could be the reason for housing ’shortage’
3. Overall, real rental costs are resistant to changes in real interest cost.

 

[robots]

Hahaha! robots, yer killing me! Your total bias towards *BOOM TIME* is entertaining, to say the least.

I note you come from one of THE most affluent suburbs in Melbourne (St Kilda). A most desirable suburb (if you are a professional who can afford the unit prices), *only* about 6km from the CBD. Obviously, transport costs would be minimal compared to someone living out further, say, at Sunbury (which is a mere 33km to the NW as the crow flies). Hmmm, lets see how the stats stack up, shall we?

hello,

thanks bro, some great information you have put foward

today was awesome, rode the pushie into city a couple of times, witnessed all the taxi drivers taken' it easy

thankyou

robots

 

[numbercruncher]

hello,

thanks bro, some great information you have put foward

today was awesome, rode the pushie into city a couple of times, witnessed all the taxi drivers taken' it easy

thankyou

robots

I saw them on the News, reminds me why Im not so keen on catching a taxi when in Melbourne, looked like Osamas Jihad brigade, was waiting for them to whip out the AK47's.

Big news story beamed into all Queensland living rooms tonight was .....

" House Prices Hit the Wall "

Now for the panic selling feedback loop, looking forward to next quarters fudgy figures !

 

[wayneL]

I saw them on the News, reminds me why Im not so keen on catching a taxi when in Melbourne, looked like Osamas Jihad brigade, was waiting for them to whip out the AK47's.

Big news story beamed into all Queensland living rooms tonight was .....

" House Prices Hit the Wall "

Now for the panic selling feedback loop, looking forward to next quarters fudgy figures !

It's not time for panic selling yet. The endowment effect is strong, look for a period of price standoff and lower turnover, with small drops because of stress sales at the margins. Something else will have to go wrong in the economy (and it probably will) before there is any panic selling.

It might just drift sideways/downish for a few years, there are still shoes to fall in this game.

 

[nioka]

Nioka, my dear friend. When is the next census due to take place? And where are you getting the inside information from?

It's a fair cop to say you think something, or even to report that XYZ thought something. One could even go with the flow of someone who guessed that they thought something. But you way you have suggested that somehow you have an inside view of what the next census will say is a tad naughty, and then use that to justify your position.

Be open minded and don't back a position too hard - sometimes you will be wrong. Maybe others are just trying to help you with some more detailed understanding that may not have been visible?

Many of the arguments you have put forward are just as valid in the US - hundreds of thousands of applications for visa every year, tens of thousands of illegal immigrants every month, marriage breakdown leading to small households, old houses being demolished, until recently a 30 year low in unemployment (in CA anyway), low federal bank rate (that's an extra one), intervention in the financial markets to encourage lending like increasing the amount that the federal backed Fannie & Freddie & FHL can lend (sorry another US only one)......and yet houses (not flats / units) are falling at a current rate of 30% PA - see previous post of mine today.

You're right to say a small drop can make a big difference - 'the tipping point' of any market if often finely balanced. It works on the way up and the way down. If I can supply 10 into a market that wants 11, I have pricing power and can push the price up quickly. However as soon as there are only 9 wanted for my supply of 10, I have lost all pricing power and the price will tend to drop rapidly. This is very simplistic and nowhere like the real world with many variables adding to the mix.

I'd be the first one to admit that I'm often wrong. Aren't we all. However I have read some estimates in recent real eatate publications where they suggest a reduction in the number of occupants per dwelling and discussions with real estate agents seem to back this up.Aged people are living longer and staying at home longer, often on their own. Meals on wheels and aged care help is encouraging this. Time will tell.

 

[CAFA1234]

I'd be the first one to admit that I'm often wrong. Aren't we all. However I have read some estimates in recent real eatate publications where they suggest a reduction in the number of occupants per dwelling and discussions with real estate agents seem to back this up.Aged people are living longer and staying at home longer, often on their own. Meals on wheels and aged care help is encouraging this. Time will tell.

I understand. But this is the point many of us have been trying to point out - the real estate industry has a vested interest in bulling the market. They will fund 'independent' reports to show how great their world is and how stupid you are if you don't but real estate.

Newspaper / real estate magazines get substantial revenue from real estate advertisers. It is better to look at official stats from taxation records or similar to understand exactly what is going on with house prices, or walk the streets, go to the auctions, analysis the real estate web sites on a regular basis, buy previous sales data for any are that you are interested in and do the hard yakka that any investment requires. But, do not put too much faith in real esate publications.

BYW I'm not dissing you - I'm a real state investor myself, but its not a get rich quick scheme that some elements of the industry try and sell on.

 

[CAFA1234]

Standard & Poor's/Case-Shiller US house price report - US house prices down 13% year on year.

Depressing as this may be there is some background detail to the above report.

It is made up from a rolling average over the 3 months to the end of Feb (published yesterday), so contains data from deals that closed last December. And of course last December's closed sales where negotiated in October / November / December. So what the numbers are telling you, are that prices at which houses were AGREED to be sold at showed a 13% decline from the period Oct2006 / Jan2007 to Oct 2007 / Jan 2008, with a bias towards the mid point.

My assertion is that the market has fallen since Dec 2007, and so I suggest that next months figures will be worse.

PS the above index was started in 1988, and the previous low point was in the 1991 recession - a negative 6%. At the time there was a large billboard campaign "Spend a dollar today, end the recession tomorrow" on many prime sites across the US.

 

[CAFA1234]

This is a really long post - however for those that are interested this is a brief chronological listing of various housing data from the end of 2005, when the Bond market called the problems in the US housing market. 12/06/05 Housing Bubble Bursts... (dates in US format)

Hindsight is such a wonderful attribute. However there were enough warning signs along the way for those that wanted to see them.
----------------------------------------------------------------------

4/29/08 According to the Standard & Poor's Case-Shiller home price index U.S. home prices fell 12.7% YoY.
4/15/08 U.S. housing starts fell 11.9% MoM and 36.5% YoY
3/25/08 Standard & Poor's/Case-Shiller index of U.S. home prices fell by 11.4% in January, the biggest monthly drop since the index began in 1987.
1/29/08 According to Standard & Poor's/Case-Shiller, U.S. home prices fell 8.4% YoY.
1/28/08 U.S. New-home sales fell 4.7% MoM, and 26% YoY. The median price of a new home fell 10% YoY to $219,200.
1/24/08 U.S. existing home sales are down 2.2% MoM and down 22% YoY.
Prices of single family homes were down 1.8% in 2007 -- the first decline since records began four decades ago.
12/11/07 The National Association of Realtors said the pending U.S. home sales index was up 0.6% in October but down 18.4% YoY.
A trade group for real-estate agents said the battered housing market is on the verge of stabilizing and raised its outlook for 2007 and 2008 home sales.
11/27/07 U.S. Home prices fell 4.5% in the third quarter from a year earlier.
10/30/07 US real estate wealth is expected to fall anywhere from US$2 trillion to US$4 trillion when the total costs of the recent credit crunch are tallied, the New York Times reported.
10/25/07 U.S. New home sales fell 23% YoY.
10/24/07 U.S. Existing home sales fell 8.0% from August's pace -- the lowest since records began in 1999.
10/17/07 U.S. Housing starts were down 10.2% MoM and down 31% YoY.
9/28/07 New homes sales in the U.S. dropped 8.3 percent to an annual pace of 795,000 in August.
9/21/07 A big overhang of property will bring U.S. house prices down further, but it is too early to say if the economy will sink into recession, former Fed chief Alan Greenspan was quoted as saying.
8/26/07 The U.S. Census Bureau said new home sales were at an annual rate of 870,000 in July, up 2.8% from June's rate. So far in 2007, new home sales are down 21% YoY.
7/19/07 Losses in the fast-unraveling subprime lending market could top $100 billion, but the Federal Reserve is taking measures to protect borrowers, according to Fed Chairman Bernanke.
6/26/07 The U.S. Census Bureau said new home sales were down 1.6% from April's pace, and down 21% YoY. This is the fourth drop in the past five months, providing further evidence of a continued slump in housing.

5/07/ Bernanke Warned by Real Estate Analysts:Housing Collapse Is Much Worse Than You Say
5/25/07 The National Association of Realtors reports U.S. existing home sales down 2.6% from March's pace and the lowest level in over three years. Current inventories of homes for sale represent an 8.4 month supply, the most in 15 years.
5/1/07 The National Association of Realtors said pending U.S. home sales fell 4.9% in March, more than expected.
4/20/07 The National Association of Realtors said that U.S. existing home sales were at an annual rate of 6.12 million units in March, down 8.4% from the previous month and weaker than expected. YoY Median home prices were down 0.3% in March.

3/26/07 U.S. New home sales were weaker than expected down 3.9% from January's pace. This # is dimming hopes for a rebound in the housing market and increasing worries about the health of the economy
3/13/07 Question marks continue to hang over the US mortgage market. The Securities & Exchange Commission is investigating troubled subprime mortgage lender New Century, the firm has revealed.
2/28/07 New home sales fell by 16.6%, the Commerce Department said Wednesday. The monthly decline was the biggest, since a 23.8 percent drop-off in January 1994. The median sales price of a new U.S. home rose $400 to $239,800.
2/26/07 US mortgage crisis goes into meltdown Nouriel Roubini, economics professor at New York University, says the housing bust is slowly pulling America into recession. He cites a 14.4pc drop in housing starts last month; an expected loss of 600,000 real estate jobs in 2007; a sharp fall in home equity withdrawals - down from 6pc of GDP at the top of the boom; and a squeeze as $1,000bn of mortgages are adjusted upwards this year to higher interest rates.
2/12/07 The number of U.S. homes entering foreclosure rose to 130,511 in January, up 25% YoY.

12/19/06 U.S. Housing starts came in at an annual rate of 1.588 million units in November, up 6.7% from October's pace. So far in 2006 housing starts are down 12.5% YoY.
12/11/06 The National Association of Realtors expects U.S. existing home sales down 8.6% in 2006 and down 1.0% in 2007.
11/29/06 U.S. New home sales were at an annual rate of 1.004 million units in October, down 3.2% from September's pace and less than expected. YoY new home sales are down 18%.
11/28/06 The National Association of Realtors said U.S. existing home sales were at an annual rate of 6.24 million units in October, better than expected and up 0.5% from September's pace. The 3.85 million homes for sale in October represented a 7.4 month supply, the most in 13 years.
10/26/06 The Commerce Department reported the median price for a new home sold in September was $217,100, down 9.7 % from September 2005. This is the lowest median price for a new home since September 2004 and the largest year-over-year decline since December 1970.



9/27/06 U.S New home sales were up 4.1% MoM. New home inventory dropped from 7.0 to 6.6 months. YoY new home sales are down 16%.
9/25/06 The National Association of Realtors said that U.S. existing home sales were at an annual rate of 6.30 million units in August, more than expected. The median home price was down 1.7% from a year ago, the first annual drop in eleven years.
From Barron’s 8/21/06
32.6% of new mortgages and home-equity loans in 2005 were interest only, up from 0.6% in 2000
43% of first-time homebuyers in 2005 put no money down
15.2% of 2005 buyers owe at least 10% more than their home is worth
10% of all homeowners with mortgages have no equity in their homes$
2.7 trillion dollars in loans will adjust to higher rates in 2006 and 2007
8/24/06 New home sales fell 4.3% in July, the Commerce Department said Thursday. For 2006, new home sales were down 14% YoY.
8/2/06 The Mortgage Bankers Association said its index of mortgage applications is at the lowest level since May 2002.

6/28/06 U.S. Mortgage applications dropped from 567.6 to 529.6 last week, hurt by the recent rise in mortgage rates.
6/27/06 Buyers in more markets find housing out of reach
San Diego could be a poster child for the affordability crisis. Home prices here have risen 142% since the start of 2000. Only 9% of residents could afford the median home if they had to put down 20% of the purchase price. Even so, a dizzying array of high-risk adjustable-rate mortgages has sustained the market by helping more people qualify.
6/26/06 U.S. New home sales were up 4.6% from April's pace and more than expected. For 2006, new home sales are down 11% YoY.
6/20/06 The U.S. Census Bureau said housing starts were at an annual rate of 1.957 million units in May, up 5.0% from April's pace and more than expected. YoY housing starts are down 1.7%.
4/26/06 U.S. new home sales were at an annual rate of 1.213 million units in March, down 7% from March of 2005. So far in 2006, new home sales are down 8.2% from a year ago.
2/27/06 New home sales fell 5% in January to the lowest level in a year, the Commerce Department reported Monday.
1/18/06 43% of first-time home buyers put no money down. The median first-time home buyer scraped together a down payment of only 2% on a $150,000 home in 2005, the NAR found.
12/06/05 Housing Bubble Bursts in the Market for U.S. Mortgage Bonds
Bonds backed by home loans to the riskiest borrowers, the fastest growing part of the $7.6 trillion mortgage market, have lost about 2.5 percent since September on concern an 18-month rise in interest rates may force more than 150,000 consumers to default.
11/28/05 Sales of previously owned U.S. homes fell 2.7 percent last month to a 7.09 million annual rate, the slowest since March, the National Association of Realtors said. The number of unsold homes was the highest since April 1986.
09/26/05 ..most homeowners are in a fairly good position to weather a shock if prices drop, Federal Reserve Chairman Alan Greenspan said Monday.

 

[Temjin]

Very nice CAFA1234! Must have spent alot of time putting all those stuff together!

Do we see a pattern too over in Australia too?

Our "mainstream" news aren't as gloom and doom as over in the US right now, but we seem to be in the late 06 to early 07 range. Stuff like applications down, sales slowed down, median price start showing weaknesses.

It's only a matter of time now.

I'm more worried about the hundred trillion dollar CDS bomb than anything else right now, it's the next potential massive global black swan event. If it explodes, then every assets will collapse in prices. (and maybe include gold with it as well, though it should hold up the best)

 

[numbercruncher]

Standard & Poor's/Case-Shiller US house price report - US house prices down 13% year on year.

Depressing as this may be there is some background detail to the above report.

It is made up from a rolling average over the 3 months to the end of Feb (published yesterday), so contains data from deals that closed last December. And of course last December's closed sales where negotiated in October / November / December. So what the numbers are telling you, are that prices at which houses were AGREED to be sold at showed a 13% decline from the period Oct2006 / Jan2007 to Oct 2007 / Jan 2008, with a bias towards the mid point.

My assertion is that the market has fallen since Dec 2007, and so I suggest that next months figures will be worse.

PS the above index was started in 1988, and the previous low point was in the 1991 recession - a negative 6%. At the time there was a large billboard campaign "Spend a dollar today, end the recession tomorrow" on many prime sites across the US.

Some are saying drops in the US could exceeed that of the great depression, they fell 30pc then, half way there now ...

Nice work on the data list Cafa btw (>:

 

[CAFA1234]

Very nice CAFA1234! Must have spent alot of time putting all those stuff together!
Do we see a pattern too over in Australia too?
Our "mainstream" news aren't as gloom and doom as over in the US right now, but we seem to be in the late 06 to early 07 range. Stuff like applications down, sales slowed down, median price start showing weaknesses.

It's only a matter of time now.
I'm more worried about the hundred trillion dollar CDS bomb than anything else right now, it's the next potential massive global black swan event. If it explodes, then every assets will collapse in prices. (and maybe include gold with it as well, though it should hold up the best)

Thanks - pulled the date from an investor web site, and highlighted a few items. Cut lots out as there is a 10000 character limit - just as well!

Whats interesting to me is the recent data. In December we had the Real Estate mob saying that he market has stabilized - we now know taht is was falling of a cliff. Will you EVER believe real estate publications again?
12/11/07 ...trade group for real-estate agents said the battered housing market is on the verge of stabilizing and raised its outlook for 2007 and 2008 home sales.

The next worrying aspect is the velocity of the decline...
1/24/08 .. Prices of single family homes were down 1.8% in 2007 -- the first decline since records began four decades ago.

A week later it was..
1/29/08 According to Standard & Poor's/Case-Shiller, U.S. home prices fell 8.4% YoY.

By end or March..
3/25/08 Standard & Poor's/Case-Shiller index of U.S. home prices fell by 11.4% in January, the biggest monthly drop since the index began in 1987.

And this week ..
4/29/08 According to the Standard & Poor's Case-Shiller home price index U.S. home prices fell 12.7% YoY.

Looks as if the velocity is about 1.5% per month, between 1/29 and 4/29.

This is probably a silly view, but what the hell. If that velocity continued for another 6 months then we would be seeing a YoY decline of over 20%. I'll let you work out the number for a year out

Will it repeat in Aus - I really don't have sufficient local data to make that call, but I'm sure others will be able to look at the US data and take a view as to whether there is a repeatable pattern developing. Maybe a view from the UK as well?

I share some concerns about CDS - maybe another thread??

 

[CAFA1234]

# The Guardian, UK
# Thursday May 1 2008

House prices fell 1% over the last year, says the Nationwide. It doesn't sound much but, as ever, the story is the trend. The rate of decline has accelerated in each of the past three months. Add up those declines - 0.5% in February, 0.7% in March and 1.1% in April - and you get an annualised fall of 9%. That sounds more serious.

Indeed, the useful picture is offered by looking at the decline from the peak, which was last October according to the Nationwide's figures. Viewed that way, house prices have fallen 4.2% in six months.

A few optimists, such as the Royal Institution of Chartered Surveyors, insist on describing the picture as a "softer tone," but those at the sharp end seem to be preparing for a harder fall.

Persimmon, the country's largest housebuilder, has postponed work on new sites. At HBOS, Britain's biggest mortgage lender, chief executive Andy Hornby is officially predicting a single-digit decline in prices this year. But he felt obliged, when asking shareholders for £4bn, to display a graph illustrating the effect on capital ratios of a 10% fall this year and next. One assumes he regards that as a real possibility.

So he should. It is now as clear as day that the era of 100% mortgages is over. We are about to discover what happens to house prices when the support of loose lending is removed.

In theory, prices ought once again to bear some relation to earnings. The long-term average is four times earnings, not the current ratio of six times. That's the basis on which David Blanchflower, a member of Bank of England's monetary policy committee, said a fall in prices of one-third is "not implausible".

That may turn out to be too dramatic, but the trend has clearly turned. When the old trend was a 15-year bull market, common sense says we are still in the very early stages of the correction.

----------------------
Enjoy the ride.

 

[numbercruncher]

The Investor market seems to be falling apart ....

INVESTOR appetite for housing debt has plunged to its lowest on record, despite a stagnating sharemarket.

Amid rising interest rates, annual growth in borrowing for housing investments has fallen below 10 per cent for the first time since records began 17 years ago.

http://www.smh.com.au/news/national/investors-shy-away-from-house-market/2008/04/30/1209234957576.html