House prices to keep rising for years

[Markcoinoz]

Cafa1234,

Couldn't agree with you more.

The simple fact is "Can Australia justify paying 8 times their Avg Ann Income" to service their mortgage?

I read somewhere that the US should be around 3 - 3.5 times Avg Ann Income.

They appear to be coming very close to that figure now.

Cheers markcoinoz

 

[Flipper15]

Interesting thread which I have been following for a while.

In the short term only time will tell who is right and who is wrong. It is likely to be a combination of the 2. ie. under current high interest rates with high debt levels house prices are not likely to go through the roof on average across the board but also because of our strong economy they are not likley to plummet either.

My view of the rental situation and the economy is this:-

Rents will continue to rise because of supply side issues which have been well documented and investors wanting a decent return faced with high interest rates will demand higher rents from their tenants. Managing agents are the broker so to speak in between conditioning the tenant (as well as the media) to accept the higher rents. If I were a tenant I would not be happy either, but everything is going up.

Everything comes down to supply & demand. If you want to stay in that town or city as a tenant you basically have no choice but to pay the higher rent unless you want to move every 2 years or live in a big shared house which is not practical for most.

But the missing link in most analysis/discussion I see is that the flow on effect is that the renter will not tolerate rising rents at the current levels for to much longer but as I have stated most will not have much choice so will go to their boss and ask for a pay rise. Some people may move back with parents or into bigger shared houses but this is likely to be a small proportion of the overall.

So if the employer wants to keep the employee then suddenly the employer is stuck with this higher wage demand and thus the buck stops with him. You would call it a cost of living pay rise and nothing to do with performance.

Based on the above I believe we are heading for a classic wages prices spiral.

The current employment wages indicators I have heard have not indicated a wages breakout.

But in my view it must be coming and is probably already happening or soon to happen all over Australia right now.

There will be a lot of pressure on all employers big and small and in the end they will have no choice but to pay higher wages. But they will respond by raising the prices of their services or goods. So there we have it a spiral which because of the nature of our economy and expanding government infrastrucure budgets and spending etc can only really slow down via higher interest rates which in this strong economy can only lead to further rent increases and the cycle continues. And IMO it will continue and not end until China and others stop demanding our raw materials. If China and the rest of the world stops industrialising then we have a totally different situation that we will have to deal with. We seem to like building things so while in the next 20 plus years we might see some slowdown it will never stop.

If for eg the day that demand for our raw materials slows right down was 20 years from now then imagine what rents and property prices will be in 20 years time.

In the short to medium term we will come out the other end with rents catching up to housing prices to get back to some sort of equilibrium with higher wages and higher costs (which we are already experiencing).

So based on this reasoning then I believe house prices across the board will not plummet. In the short term only a 10 - 15% correction (which is already occurring in some areas) is the likely result. But considering how far property has gone up in the last 5 years then anyone who bought 5 years ago would be still well ahead.

I think over the long term there can be no argument. Short term analysis is a totally different argument with possible outcomes either way. There will be movements up and down in the short term, this is the nature of markets and peoples situations. But on a long term analysis ask what your parents paid for their houses in the 1960's and 1970's and what are the prices now. Even if they had similar economic conditions as we have now (and as far as employment and economic growth etc there is a good argument to say it has never been better) and are likely to have over the next 20 plus years then why would the result be any different.

I don't have the figures but average house prices in the early 1970's you could say were around $20-$30K. Same houses now are $300 - $500K and even more in some cases. Its called inflation. Unless we as a human race change our reaction/response to higher prices for goods and services then inflation is with us forever.

Too much analysis I see is short term with little focus on any time frame over 5 years.

This is my view only as I see it.

Flipper

 

[CAFA1234]

Rents will continue to rise because of supply side issues which have been well documented and investors wanting a decent return faced with high interest rates will demand higher rents from their tenants. Managing agents are the broker so to speak in between conditioning the tenant (as well as the media) to accept the higher rents. If I were a tenant I would not be happy either, but everything is going up.
Flipper

Interesting situation with rents. Much of the commentary in the US a few months ago consisted of the same logic, especially those poor souls walking away from their mortgages - they HAVE to live somewhere - right?

Funny thing has happened - all those over developed blocks of units that can't be sold for anywhere near what the bankers proposal suggested retail prices, are now flooding onto the rental market. Compared to 12 months ago when I first rented in Los Angeles, the value is significantly better now. Can now get a larger town house for the same price I'm currently paying for a unit - probably about 15% variance compared to May 2007.

There has been no mention from my landlord or agent regarding an increase, or even if I wanted to stay and extend the lease (now out of lease contract) - just happy to have the payments made each month. This is VERY different compared to the 'norm' in L.A. Hey, maybe I'm just a mug paying too much

 

[numbercruncher]

There is no shortage of rentals, let me repeat NO shortage.

There is how ever a shortage in certain "desirable" areas and this is used by the spruikers dishonestly as a blanket debate.

Check out realestate.com.au there is squillions of places available for rent.

The abs even says there is 800k vacant residential properties in this country.

No shortage, more RE spruiker lies.

Thankyou.

 

[pepperoni]

There is no shortage of rentals, let me repeat NO shortage.

There is how ever a shortage in certain "desirable" areas and this is used by the spruikers dishonestly as a blanket debate.

Check out realestate.com.au there is squillions of places available for rent.

The abs even says there is 800k vacant residential properties in this country.

No shortage, more RE spruiker lies.

Thankyou.

Id go further and say there is no shortage anywhere.

There was a spike, caused most likely by slum lords struggling under higher rates trying to pass on the costs. Many abandoned their properties looking for cheaper rents and in some cases agreed to silly rents but this is well and truly over hence the sudden lack of "rent crises" news reports.

Inthe middle of it all I got offered 3 properties at negotiated discount bargain rents.

In fact now in many desirable areas properties are sitting empty for over a month. This will no doubt exacerbate the problems of the greedier slum lords ... cant say I fell sorry for them or would support their cries for goverment help ala US credit crunch "victims".

Thank you.

 

[Temjin]

Here is an interesting new site attempting to debunk the theory of "rental shortage crisis".

http://bubblepedia.net.au/tiki-index.php

It's quite a brand new site, I found this from another forum. (obviously biased to being BEARISH) http://forum.globalhousepricecrash.com/index.php?showtopic=32341&st=0

SMH.com.au also posted a news article TODAY (27/May) related to this new site, http://www.smh.com.au/news/national/housing-shortage-myth/2008/05/26/1211653939197.html.

Their server is being hammered at the moment due to the news article, so you may have trouble accessing it at this time. As for the maps, it is still in early stage, but I hope more and more people will populate them.

 

[theasxgorilla]

Inthe middle of it all I got offered 3 properties at negotiated discount bargain rents.

Top end properties like the one you're renting are a complete other kettle of fish. There are fewer candidate leasees so landlords have to be prepared to move their price points. A lot of these properties are trophies owned by rich folk and ex-pats and the like who are more interested in holding the property than renting for any kind of yield that makes sense. It stands to reason that you'll find a place which you can rent for less than you could afford the mortgage. You can think of it like a subsidised house-sitting assignment (you subsidising the actual owner ). And of course it's win-win so there is nothing wrong with that.

But you obviously haven't been at the open-for-inspections in out in the 'burbs in Melbourne these last 6-12 months. Don't expect landlords to have been discounting anything. Expect to have to use your elbows to ensure your application gets submitted toward the front of the list.

 

[numbercruncher]

.

But you obviously haven't been at the open-for-inspections in out in the 'burbs in Melbourne these last 6-12 months. Don't expect landlords to have been discounting anything. Expect to have to use your elbows to ensure your application gets submitted toward the front of the list.

I see the spruikers can even fool people on the other side of the world .....


A quick look for rentals at domain.com.au shows 7532 properties available for rent in Melbourne, and considering realestate.com.au is heaps more popular you could probably treble that number. (just cant search for total listings at re comau)

Sure there might be hoards of people at SOME of these places but no way at all of them.

http://www.domain.com.au/Public/SearchResults.aspx?mode=rent&State=VIC&Areas=Bayside%2cNorth+East%2cEast%2cNorth+West%2cGeelong+%26+District%2cPhillip+Island+%26+District%2cInner+City%2cSouth+East%2cMornington+Peninsula%2cWest%2cNorth%2cYarra-Dandenong+Ranges&agid=

 

[Flipper15]

As we know there are a lot of different factors at play here such as type of property and location etc. So we can all build an argument around a particular facet of the property market and actually be correct.

It all depends on what viewpoint you are coming from.

In the end we all need somewhere to live and unless our population starts to go into decline then in an overall sense there can be only one result. More demand for housing. Supply is going to be constrained because of the lack of available land within a reasonable distance of the major capital cities. Not many people are going to travel to work in the city if they live 60kms from the city. There are many jobs outside of the CBD's but young people in particular want to be where the action is. Most of our major sporting and entertainment stadiums are in or near the capital cities with the exception of Homebush in Sydney.

Whether we like it or not most of us choose to live in or very near the big capital cities that cannot sprawl out much more than they already are. So in 20 years time if the population of Australia is for eg say 10 million more than now then where will all these people live.

One solution to this is satellite cities (or CBD's) outside of the major city's CBD. But these satellite cities are usually still within 50 kms of the major CBD. So the little circles or ripples that will be created around these satellite CBD's are going to intertwine with the major CBD anyway creating more density and pressure on housing.

In the long term the well established trend of rising prices for everything has strong historical foundations and there is no reason to suggest that this trend and history will not impact significantly on housing prices and rents in an upward manner well into the future. Couple this with population and density issues and it is clear if we took at 20 year plus view that we are headed only in one direction.

On the other hand a 1-2 year view is a totally different analysis.

Flipper

 

[wayneL]

...it is clear if we took at 20 year plus view that we are headed only in one direction.

On the other hand a 1-2 year view is a totally different analysis.

Flipper

'zactly.

And this could be the source of a lot of disagreements on this thread, that is, the time horizon of the argument.

As long as we have the current monetary system, and we will unless is breaks down completely (unlikely), fiat currencies will continue to be gradually debased. Over the long term, the trajectory of all general asset classes (apart from cash) is up in nominal terms.

This offers the person willing to gear their investments a significant advantage. Short term, there will be fluctuations in both nominal and real terms as we are now seeing here in the UK with property suffering it's eighth MoM fall in a row.

I can state categorically that there are hundreds of thousands of people here in the UK, who have invested in property in the last 2-3 years for the long term, who have been utterly screwed over by short term considerations.

This is the message the more sober bears have been trying to get across. No longer are the property cautious ridiculed at dinner parties for not buying "now before it's too late". In fact property is not even mentioned at dinner parties anymore... only credit problems, interest rates and job prospects.

Property will recover, once relative value is restored. As most here will know, I'm a property bear (too soon as the record will show), but only in the medium term. As holder, I remain a long term bull and there will be a point when I become a medium term bull as well.

As a side issue, on the news this morning, so called "liar loans" (the stock in trade of the whole industry for years) are being called in. Various sting operations have been launched with dozens of brokers losing their accreditations so far. It didn't matter when prices were rising, but it is now an enourmous issue as prices are falling and is another reason credit is being squeezed.

The next shoe to fall IMO is unemployment.

(comments relate to UK)

 

[Macquack]

Too true ... for $750 a week Im renting a $4m-$5m house on balmoral slopes .. yes its a bargain but small bickies to the owner Im sure.

I did'nt think pizza delivery boys earnt that much.
Must be the "tips".

 

[Mofra]

Ever heard of property development. Ever spend you days wondering why they sell asap and dont rent them out and negative gear like the mugs. SD is factored in when deciding to develop property.

Yes I have - have you ever heard of development finance? If so yous hould be able to answer your own question

Every suburb is falling there are just a few morons paying above market to get into the lucrative negative gear game. It will get worse. Rents spiked but have stalled or gone back. Watch this space.

Every suburb is falling? Please show me the figures that show every suburb in Australia is falling - or that, over a reasonable period (ignoring a short term fluctuation) of say 7 years that a high proportion of suburbs have fallen.

We can agree rates are up though ... soon you will be able to lose $3 to save $1 in tax.

Yes, and inflation is up too, further eroding the real return on cash. Not sure how many people invest solely to save on tax - I don't hold any forrestry scheme investments myself.

No the money is earmarked for property or shares both of which are down about 9% so Im about 17% on the average "follow that market downers". If I was going to buy 2mil of premium unleaded you would have a point.

All property or equities are down 9%? If you honestly believe your investment performance is merely going to match the wider market, I can understand your fear & trepidation based on short term volitility.

Perhaps you should look at some professional financial help to try and obtain some long term higher than market returns. Good luck.

 

[Mofra]

Id go further and say there is no shortage anywhere.

ROFL at this one... no shortage anywhere

Good one.

http://www.news.com.au/heraldsun/story/0,21985,23743830-2862,00.html

0.3% Vacancy rate for inner-city Melbourne properties, 0.7% for the Geelong region. Please explain how these rates could be so far off the mark, and how rents are rising so quickly if there is no shortage of suitable properties.

Cheers

 

[CAFA1234]

As we know there are a lot of different factors at play here such as type of property and location etc. So we can all build an argument around a particular facet of the property market and actually be correct.

It all depends on what viewpoint you are coming from.

In the end we all need somewhere to live and unless our population starts to go into decline then in an overall sense there can be only one result. More demand for housing. Supply is going to be constrained because of the lack of available land within a reasonable distance of the major capital cities. Not many people are going to travel to work in the city if they live 60kms from the city. There are many jobs outside of the CBD's but young people in particular want to be where the action is. Most of our major sporting and entertainment stadiums are in or near the capital cities with the exception of Homebush in Sydney.

Whether we like it or not most of us choose to live in or very near the big capital cities that cannot sprawl out much more than they already are. So in 20 years time if the population of Australia is for eg say 10 million more than now then where will all these people live.

One solution to this is satellite cities (or CBD's) outside of the major city's CBD. But these satellite cities are usually still within 50 kms of the major CBD. So the little circles or ripples that will be created around these satellite CBD's are going to intertwine with the major CBD anyway creating more density and pressure on housing.

In the long term the well established trend of rising prices for everything has strong historical foundations and there is no reason to suggest that this trend and history will not impact significantly on housing prices and rents in an upward manner well into the future. Couple this with population and density issues and it is clear if we took at 20 year plus view that we are headed only in one direction.

On the other hand a 1-2 year view is a totally different analysis.

Flipper

Flipper, all of your arguments to support ever increasing house values over the longer term appear sound, especially to those who's only view of the world stops at the east and west coasts. Maybe you should check out Tokyo home prices since about 1980. Anyone buying property there in 1989 is STILL trying to get their money back. As a property investor myself, I like your views, but we should aim to give a balanced and analytical view to others?

 

[CAFA1234]

Flipper, all of your arguments to support ever increasing house values over the longer term appear sound, especially to those who's only view of the world stops at the east and west coasts. Maybe you should check out Tokyo home prices since about 1980. Anyone buying property there in 1989 is STILL trying to get their money back. As a property investor myself, I like your views, but we should aim to give a balanced and analytical view to others?

The first quarter S&P/Case-Shiller figures show that home prices declined by 15.3% in the composite of the 20 largest U.S. metro areas and were down by 14.4% in the 10 largest metro areas.

Metro Detroit saw a 17.9% fall in home prices in the first quarter as compared to the first three months of 2007, according to the index.

And metro Detroit remains the only metro area in the top 20 that has an index level under 100. Metro Detroit had a 95.57 index level in March, below the 100 set in 2000 as the baseline. That means home prices did not appreciate enough since 2000 to offset the current erosion.
---------------------------------------

Now I know metro Detriot is not everyone's idea of an ideal home, however it is one of the larger cities, and now worth less than in 2000 after over 8 years later. Overall in the 10 cities we are back to September 2004 prices - period.

The S&P/Case-Shiller is the most respected house price index world wide, as it uses actual sale prices of homes that have previously been sold e.g. it tracks actual individual houses, as opposed to medium sale prices.

This removes the impact of 'more low end houses sold' etc.

Even this standard can not take into account the money spent on upgrades and general improvements that individuals generally perform on their homes, or indeed destruction by DIYers.

Why is this relevant? Well in a raging bull market, houses or shares, it really is rather easy to make money. In a bear market it becomes a struggle to preserve your capital. Do not listen to those who put up all sorts of arguments that house prices "must rise for ever" without doing your own research, and in depth.

House prices are showing various levels of stress in most western markets - why do you think Australia will be exempt. Maybe the same logic as those that in Dec 2007 were saying that the drop in US share markets would not impact the ASX - they had one good logic reason after another why the ASX would stay on the 'golden egg' scenario - and where are we now?

PS Los Angeles is down over 21% in 1 year - S&P/Case-Shiller.
Las Vegas down 25.9%
Miami down 24.6%
Phoenix down 23.0%
Los Angeles down 21.7%
San Diego down 20.5%

 

[theasxgorilla]

Maybe you should check out Tokyo home prices since about 1980. Anyone buying property there in 1989 is STILL trying to get their money back. As a property investor myself, I like your views, but we should aim to give a balanced and analytical view to others?

Is it balanced to suggest that people who brought property in Sydney or Melbourne in 2008 should consider that they might still be in negative equity in 2027? That sounds extreme, as opposed to balanced.

ASX.G

 

[CAFA1234]

Is it balanced to suggest that people who brought property in Sydney or Melbourne in 2008 should consider that they might still be in negative equity in 2027? That sounds extreme, as opposed to balanced.

ASX.G

Your view, not mine. I simply reported a factual situation. If you wish to extrapolate this to Aussie house prices then, your call.

However, those that purchased Tokyo in 1989 also thought that a 20 year bear market was absolutely impossible. And of course this is in the country with the 2nd highest GDP in the world, a consistent exporter, and a car industry that has decimated the established players, plus a leading edge electronics industry. Not exactly a basket case?

Bubbles are bubbles and for the last few hundred years there have always been great stories about how it is different this time.

I think you will find that the Japanese stock market peaked at 40,000 in 1989. Now 20 years later, where is it. I guess with hindsight they were just plain old fashioned suckers?

 

[theasxgorilla]

Bubbles are bubbles and for the last few hundred years there have always been great stories about how it is different this time.

I think you will find that the Japanese stock market peaked at 40,000 in 1989. Now 20 years later, where is it. I guess with hindsight they were just plain old fashioned suckers?

Yeah, poor guys. But what's the chances of that happening again? Isn't it different every time?

 

[CAFA1234]

Yeah, poor guys. But what's the chances of that happening again? Isn't it different every time?

YES, YES, YES. That is the point. It IS different every time, otherwise investors would learn

Look at the PE ratios on railways stocks, steel stocks - early 20th century, internet stocks (2000), financial stocks (2007). Until about a year, may 2 years, Spanish property was in a bubble - look at the mess right now. Chart out a little stock called RCA - it used to be the Microsoft of it's time (Radio Corporation of America) - read the press and investment reports of the time - this stock was going to make everyone rich.

Housing, generally, will perform according to basic macro economic inputs e.g. if the super rich find that the nice penthouse in Sydney harbor is now 5 times the price of a beach front pad on Long Beach then they may well move? If low income housing is priced out of reach, then where do you get the cleaners to live and still clean? Santa Barbara, CA has this problem right now - they are having to implement more social housing in one of the most expensive towns in the US because teachers, civil servants, security guards, shop workers etc are driving upwards of 50 miles each way to do minimum / low wage jobs.

Simple logic should be able to tell you something. If wage inflation runs at 4% for the next 20 years (interest rates will be used to constrain this), and house prices rise at 6% for said 20 years (and lots of people on this site think that there are a myriad of reasons why they should be 10/12/15%), then at the end of the period the average worker will be paying about 50% more than they are now for their property or their rental. Do you honesty think that people have the ability or the will to pay these amounts of their disposable income?

Just for fun - using 4% and 8% = more than 100% increase, and for those with their heads in the clouds and believe the 'this time it's different' lets look at 4% and 10% = 3 and a half times current expenditure. You know, I just don't see it.

The really worrying thing is that house prices never have risen as much as the headlines would have you believe. It would be nice to know how much is spent on renovations / repairs every year. Does anyone have any reliable figures to show how much value is added to the housing stock each year by improvements? During the 2000 - 20004 boom in Sydney a significant number of older properties were pulled down / gutted and new Mac mansions built, so a $1m wreck turned into a $2m sales figure. The owner probably made a couple of hundred thousand in a year - great for them, and what fantastic news for the overall increase in house prices! And yes this is an exaggerated view and would not have a major impact, but the point needs to be raised.

 

[WaySolid]

Anybody interested in the Brisbane market might want to check Michael Matusik's website tomorrow when he places up a presentation he gave tonight about the next few years for Brisbane. It's got a lot of data and what I consider high quality research in it.

Also.. Some good stuff on affordability, will need to digest past the headlines and pretty charts though.
http://www.stgeorge.com.au/corporate-business/institutional-financial-markets/
Scroll down to the bottom for economic reports.

I won't put my opinion to it as it appears the regular posters on this thread have stated and restated their positions many times, just mentioning two decent data sources for people to do some more research.