House prices to keep rising for years

chops_a_must · 16 February 2008

Tysonboss1 said:
Property values and rent on average will rise faster than inflation ( or worst case with inflation) where as the amount on loan from the bank will decrease with inflation.

So you are saying that inflation and cost of living will end up going vertical for ever more when plotted are you?

ROFLMAO.

Tysonboss1 · 16 February 2008

chops_a_must said:
So you are saying that inflation and cost of living will end up going vertical for ever more when plotted are you?

ROFLMAO.

Not really sure what you mean,... But yes I think there will always be inflation,..

and that the cost of renting any given piece of land will rise marginally faster than inflation do to increasing density.

chops_a_must · 16 February 2008

Tysonboss1 said:
Not really sure what you mean,... But yes I think there will always be inflation,..

and that the cost of renting any given piece of land will rise marginally faster than inflation do to increasing density.

Costs of living, i.e. renting and house prices are the biggest contributors to real inflation, as they comprise the biggest expenses in people's lives.

Now, if you continue to increase rent and house prices above the levels that inflation and the cost of living is running at, then this will feed into itself, causing inflation and the costs of living to keep increasing. And on your logic, this will perpetually keep happening, meaning inflation and the cost of living will eventually be going straight up for ever. So people will actually end up paying more in rent than they are earning on your premise.

Do you see why this is funny coming from a property investor?

moses · 16 February 2008

xoa said:
???

I don't know where the "cheap" houses in SEQ are. They're definitely not in Brisbane or the Gold Coast or Sunshine Coast or even Ipswich. You might find the occasional $300k fibro shack, if you're willing to live with asbestos and a $100k renovation bill.

Not true.

My daughter and hubby just bought a timber Queenslander cottage (no asbestos) in Ipswich for $275k (advertised $295) as a first home; it will benefit from some renovation when they can afford it but meanwhile is perfectly liveable, comfortable and structurally sound, close to the railway station etc.

xoa · 16 February 2008

moses said:
Not true.

My daughter and hubby just bought a timber Queenslander cottage (no asbestos) in Ipswich for $275k (advertised $295) as a first home; it will benefit from some renovation when they can afford it but meanwhile is perfectly liveable, comfortable and structurally sound, close to the railway station etc.

Good for her. Did she find a decent job in Ipswich or does she take an hour commute to Brisbane?

Tysonboss1 · 16 February 2008

xoa said:
Even though we earn less than Americans, our prices are more than double theirs. I wouldn't even want to become an owner occupier at the moment.

Property is a longterm asset, do I believe property will continue to increase in value at rates of 20%,....NO!, I believe that on average property will return just over 10% /pa including rent.

Even if I did believe that my properties were going to drop in value by 20% this year I wouldn't sell them,after all that just the froth of the top from the last 5 years, They longterm holdings, and I feel that if you try and trade your property portfoilio timing the market it's not really worth it,

Do I believe it is a Bad time to enter the property market,... N0! It just depends on your area, your type of property, your stratergy, your debt level, your experiance, there are many factors.

Property is not like the share market where you buy in and get the return you are given,... there is much more scope to improve your out come.

moses · 16 February 2008

chops_a_must said:
Costs of living, i.e. renting and house prices are the biggest contributors to real inflation, as they comprise the biggest expenses in people's lives.

Now, if you continue to increase rent and house prices above the levels that inflation and the cost of living is running at, then this will feed into itself, causing inflation and the costs of living to keep increasing. And on your logic, this will perpetually keep happening, meaning inflation and the cost of living will eventually be going straight up for ever. So people will actually end up paying more in rent than they are earning on your premise.

Do you see why this is funny coming from a property investor?

Yes, this is true, and not funny.

People will actually end up paying more in rent (tomorrow) than they earn (today).

That's what inflation does. Thats why house prices keep rising.

But house loans are fixed in dollar terms. This is why yesterday's house loans and house prices look so cheap today.

moses · 16 February 2008

xoa said:
Good for her. Did she find a decent job in Ipswich or does she take an hour commute to Brisbane?

Commute.

It could be worse. People commute from Lithgow to Sydney, more than 2 hours each way, just to get an affordable house with enough space that the kids can have a backyard etc. Commuting to Brisbane is a pain, but almost trivial compared to Sydney.

All of which raises the prices of inner city and convenient suburbs.

Tysonboss1 · 16 February 2008

chops_a_must said:
Costs of living, i.e. renting and house prices are the biggest contributors to real inflation, as they comprise the biggest expenses in people's lives.

Now, if you continue to increase rent and house prices above the levels that inflation and the cost of living is running at, then this will feed into itself, causing inflation and the costs of living to keep increasing. And on your logic, this will perpetually keep happening, meaning inflation and the cost of living will eventually be going straight up for ever. So people will actually end up paying more in rent than they are earning on your premise.

Do you see why this is funny coming from a property investor?

Notice that I said the cost of renting a given piece of "Land".

not the cost of renting a certain number of bedrooms,...

the cost of renting an average 3 bedroom accomadation may only increase at the rate of inflation,.... but the average 3 bedroom accomadation will decrease in land content over the years,...

for example in the 50's the average 3 bed sydney home was probally on a 1/4 acre block,.... now over the years the cost of renting 3 bed homes has probally gone up with inflation, but the cost of renting the original homes on 1/4 blocks has increased far more than inflation,... because the average 3 bed home now is probally a town house or apartment.

numbercruncher · 16 February 2008

moses said:
Commute.

It could be worse. People commute from Lithgow to Sydney, more than 2 hours each way, just to get an affordable house with enough space that the kids can have a backyard etc. Commuting to Brisbane is a pain, but almost trivial compared to Sydney.

All of which raises the prices of inner city and convenient suburbs.

Ahhh so much for the next generation living better than the last, enslave em with debt and make em do 10 hour days, when Interest rates rise make em flip burgers on the weekend - all for a depreciating over priced asset :bad:

Dont worry the kids will understand why they never see mummy, houses are the most important thing to Aussie "battlers"

Its no wonder we have a rapidly falling birthrate eh ?

chops_a_must · 16 February 2008

Tysonboss1 said:
Notice that I said the cost of renting a given piece of "Land".

not the cost of renting a certain number of bedrooms,...

the cost of renting an average 3 bedroom accomadation may only increase at the rate of inflation,.... but the average 3 bedroom accomadation will decrease in land content over the years,...

for example in the 50's the average 3 bed sydney home was probally on a 1/4 acre block,.... now over the years the cost of renting 3 bed homes has probally gone up with inflation, but the cost of renting the original homes on 1/4 blocks has increased far more than inflation,... because the average 3 bed home now is probally a town house or apartment.

Originally, you did not. That's what I was answering.

And in theory you are correct. But then you propose another absurd premise. That density in areas will continue to increase ad infinitum. So, eventually, 3 bedroom homes will be the size of cardboard boxes. Is that correct? And don't say it is the proportion of land to the number of apartments built on it, because you have already equated 3 bedroom homes with apartments above.

And in areas like Perth, it's not correct anyway. For the price of renting a shoe box these days, you could have rented a 3 bedroom house inner city 2 to 3 years ago. Rent in apartments in Perth have appeared to increase on a percentage basis, far higher than homes on their own land in the inner suburbs.

So what will be the next lot of 3 bedroom homes that allow the now apartments to increase in rent above inflation? And then after them? And again...

moses · 16 February 2008

Tom Ronalds said:
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

Tom, thanks for your responses, you make some good points.

Sydney: yes, prices paused, even fell a little, but have now picked up 10% although no strong indicator as to what happens next. This would be described anywhere else as consolidation.

Perth: prices are flat, clearly consolidating after some dramatic rises, and prone to fall only in the unlikely event of a mining collapse.

Brisbane: no sign of slowing down, up 20% pa.

When I was young we HAD to be stretched to the max to achieve anything as worthwhile as buying a house; consequently I'm stretched to the max now, to the point where I've left my job to concentrate on developing my investments as my wages ($100k+) didn't have a hope of maintaining my debts, let alone achieve my lifestyle goals.

Do I worry? Yes?
Am I taking risks? Absolutely?
Will I win? Don't know.

What I do know is that I have only ever succeeded by stretching myself to the max, so that is what I do even if it means being debt driven.

Tysonboss1 · 16 February 2008

wayneL said:
Think about this for a little while, open up excel and do some simple modeling, you'll realize the absurdity of this statement. We have dealt with these myths waaaaaaaaay back in the other thread with some very simple extrapolation backwards and forwards.

Rent most certainly does NOT increase faster than inflation. That is ridiculous. I can't believe anyone who has passed year 10 maths could possibly believe this.

I will demonstrate this if I absolutely must, but anyone can prove this for themselves.

read the above thread where I explain this,

tech/a · 16 February 2008

What I do know is that I have only ever succeeded by stretching myself to the max, so that is what I do even if it means being debt driven.

While there is truth in this statement,I really cant see the point in doing this without quantifying risk and having contingency plans to avoid disaster.

This was me in the early 80s and I paid the price.

This time I wont be paying that price if the worst does happen.

Going outside the comfort zone in times of growth is fine---to stay there and indeed maintain or even increase that level of discomfort---isnt I'm afraid wise investing OR speculation.

moses · 16 February 2008

wayneL said:
Think about this for a little while, open up excel and do some simple modeling, you'll realize the absurdity of this statement. We have dealt with these myths waaaaaaaaay back in the other thread with some very simple extrapolation backwards and forwards.

Rent most certainly does NOT increase faster than inflation. That is ridiculous. I can't believe anyone who has passed year 10 maths could possibly believe this.

I will demonstrate this if I absolutely must, but anyone can prove this for themselves.

Not forever of course, but rent can rise faster than inflation if other costs are rising less than inflation (or going down). In our economy most manufactured goods are getting cheaper and cheaper; the price of a fridge/washing machine/lawn mower hasn't changed in 25 years for example, and hi tech goods like computers just keep getting cheaper and better. Meanwhile more people are measurably wealthier than ever and can afford to pay more for lifestyle choices.

Also, inflation isn't the only reason why prices rise. Increased intrinsic value raises prices too, which is another way of saying that distortions in the relative costs of rent and housing between, say, the city and the country, or between different countries, have a real economic basis that cannot be explained by inflation.

Therefore rent can certainly rise faster than inflation.

It can also fall behind.

So it gets back to choosing when and where to invest.

moses · 16 February 2008

tech/a said:
While there is truth in this statement,I really cant see the point in doing this without quantifying risk and having contingency plans to avoid disaster.

Of course. Merely stretching oneself to the limit isn't a recipe for success.

But not stretching oneself is a recipe for failure.

Tysonboss1 · 16 February 2008

chops_a_must said:
Originally, you did not. That's what I was answering.

And in theory you are correct. But then you propose another absurd premise. That density in areas will continue to increase ad infinitum. So, eventually, 3 bedroom homes will be the size of cardboard boxes. Is that correct? And don't say it is the proportion of land to the number of apartments built on it, because you have already equated 3 bedroom homes with apartments above.

And in areas like Perth, it's not correct anyway. For the price of renting a shoe box these days, you could have rented a 3 bedroom house inner city 2 to 3 years ago. Rent in apartments in Perth have appeared to increase on a percentage basis, far higher than homes on their own land in the inner suburbs.

So what will be the next lot of 3 bedroom homes that allow the now apartments to increase in rent above inflation? And then after them? And again...

Firstly.... I have very limited knowleadge on the perth market, So I can't comment on that, I don't invest there.

secondly,... yes density will continue to increase from,.. large blocks to ,.. small blocks,... town houses,... low level apartment building,... medium apartment building etc.etc.

does this mean that every suburb will eventually be apartments, no.

some areas with houses,... but the price of the house and the rent will grow at a rate faster than average,... other areas will stay at town houses but again as developement edges closer then they to will have there rents grow marginally above inflation, and other areas will have density increase qutie quickly, and should maintain rental increases on par with inflation in the longterm,.....

factors that allow rent to increase in apartmenta are the actual size of the apartment eg number of bedrooms,.... It's location in respect of sort after areas eg. a low level apartment with veiws onto bondi beach, has a better chance of it's rent out pace inflation than a studio in a 60 storey apartment building in the cbd, features such as carparking can also give it an edge if more new developments have limited parking,

my mate owns a large 3 bedroom apartment with a veiw of sydney harbour, and 2 car spaces,.... his rent has been out pacing inflation because apartments of that size are hard to get,... especially with a veiw and two car parks,... at one stage he was renting out the carparks separately to the apartment because the tenant didn't have a car.

numbercruncher · 16 February 2008

Anyone see anything unsustainable in this equation ?

Financial services research firm Cannex says median house prices across the six capitals have risen 340 per cent since the March 1990.

“Weekly earnings have increased by 87 per cent since 1990 so in a time when the amount earned by ordinary Australians hasn’t even doubled, the price of houses has more than trebled,” said Cannex financial analyst Lauren Newlands.

http://www.news.com.au/business/money/story/0,25479,22717645-5013951,00.html

KIWIKARLOS · 16 February 2008

numbercruncher said:
Ahhh so much for the next generation living better than the last, enslave em with debt and make em do 10 hour days, when Interest rates rise make em flip burgers on the weekend - all for a depreciating over priced asset :bad:

Dont worry the kids will understand why they never see mummy, houses are the most important thing to Aussie " battlers "

Its no wonder we have a rapidly falling birthrate eh ?

Mate the birthrate is actually increasing. The baby bonus is making a real difference.

Fundamentally most house prices in inner metro areas will either stay flat or increase slightly as long as our economy is strong. Undoubtedly it is unlikely that the boom with double digit growth will continue but prices have a strong economic base. China is not goin to decrease its consumption of oz resources. BHP rio etc have order books filled for the next few years and are rapidly expanding their operations eg. BHP olympic dam and rio iron ore production. Vietnam the largest exporter of coal to China just ann they are going to cut exports and may even stop them !

We are powering the largest industrialisation the world has ever seen. With 8 % of the worlds coal reserves the cheapet and closest iron ore provinces to China, Massive amount of LNG, huge amounts of uranium the list goes on we are sweet. Qld gas is in the process of a JV to export LNG to the US and BP was going to build a hub at california fo oz LNG. The biggest business deals in the world are happening with oz companies. How is there any sign of weakness in our economy. We may be loading our debt onto future generations but if trends are anything to go by the future generations will be far more productive than we are today through innovation and technology anyway so the debt burden will be significantly less.

Debt economics is driven by productivity gains, increasing populations and increasing standards of living and all three of these factors are still powering along. Even if pops go down standards of living simply increase even more.

KIWIKARLOS · 16 February 2008

one last thing median house price is a fuzzy figure. There are many places where all the housing is well below this figure and places where the housing is all miles above. Your speaking as if the whole country was priced the same. There is plenty of cheap housing out there and well if people can't afford a 3 bedroom house tough t1tt1es go live in an apartment which you can afford.

House prices to keep rising for years

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