House prices to keep rising for years

Inflation is and has been great for property investors. To not think so makes me curious as to what property investing experience people can share with me as I would like to learn. Extreme conditions might negate this idea, but I will repeat that inflation has been wonderful for property investors in this country. The basic idea is you are positioning yourself on the 'bandit' side of the great inflation tax, a trend that has to rate as one of the great ones of all times.

There's a lot of theory speaking and not much practice I think in this thread, if someone who has actually made some coin from property says that they are selling their portfolio then I'm really looking forward to reading about that and will pay very close attention. So when Sam Zell offloads his holdings that is a very significant piece of information, and a person who has one IP selling their place; somewhat less significant. Have a look around and tell me of the BRW200 rich list most of whom are landed up to the hilt; who exactly is selling at the moment?

Don't we just live in remarkable times when a person can complain about a commute from Brisbane and Ipswich as a negative for their search for a house under 300k? Open your history books and read about the experiences of first home owners in times past in Australia, could learn something.

Robots you are spot on about the tenor of that original thread, and why I posted for the first time here, glad to see the new topic of this thread!

Based on my study the one thing that I consider remarkable at the moment, is not really the prices but the rents. The flipside of govt sponsored resi investment is that your rent is subsidized as well, the rental levels at the moment in Brisbane are just ridiculous, not many talk about what would happen if mean reversion in PE ratios involved rents going to a more realistic level.

I bought twice for PE ratios under 20 in Brisbane (10k CBD) last year, expensive housing indeed but in practice you can still find value if you do some work and stop complaining.

KIWIKARLOS said:

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.

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One of the reasons the median price is a such a smooth line on a log curve. You do however have significant pain at various levels though and luxury has been known to be particularly volatile in the past in areas I'm familiar with such as the Gold Coast.

I saw a prediction of a large reduction in the median house price in Brisbane recently, something that hasn't happened to my knowledge since Federation. Sure it could happen but building an investing strategy around an event that hasn't ever happened, that's quite an assumption to be working from. What might be more accurate is that certain parts of the market could get whacked, and others could do very well, a prediction that is very much in line with happenings of the last 200 years.

WaySolid said:

Inflation is and has been great for property investors. To not think so makes me curious as to what property investing experience people can share with me as I would like to learn. Extreme conditions might negate this idea, but I will repeat that inflation has been wonderful for property investors in this country. The basic idea is you are positioning yourself on the 'bandit' side of the great inflation tax, a trend that has to rate as one of the great ones of all times.

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I'm not sure you even know what inflation is. There have been extended periods in our recent history where inflation has eroded house values. The only type of inflation you seem to understand is asset inflation.

WaySolid said:

Don't we just live in remarkable times when a person can complain about a commute from Brisbane and Ipswich as a negative for their search for a house under 300k? Open your history books and read about the experiences of first home owners in times past in Australia, could learn something.

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I hope you can give me some anecdotes about the struggle of our convict forefathers, because nothing in modern history compares to the bubble we're faced with.

WaySolid said:

I bought twice for PE ratios under 20 in Brisbane (10k CBD) last year, expensive housing indeed but in practice you can still find value if you do some work and stop complaining.

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You bought two properties costing near 20 times your annual income? Were you on ice?

The banks have helped every Henry, Dick and Harry become an amateur "property tycoon".. Let's see how many remain in a few year's time.

numbercruncher said:

Anyone see anything unsustainable in this equation ?




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

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Expectations of Gen Y?

The vanishing of the dream of living in a McMansion or trendy unit within walking distance of coffee culture, work, night life and a better house than their parents ever dreamed of starting with?

I try not to read the lamestream media, I'm not aware of much original thinking and research coming from the papers in Australia, though it might be out there.

Sure property has been on a tear, and gosh it could even be due for a large fall, I've done too much reading of history to think otherwise. But I'm betting on a readjustment of Gen Y expectations long before the property they want to buy comes at the price they want to pay.

The figures show that Gen-Y simply arnt buying, thats when Pyramid schemes come undone, when they dont get new entrants.

Gen y simply arnt interested in debt slavery home ownership, they are the gimme now generation, Ipods, foreign holidays, rock concerts, generally having a ball and adding to Inflation

Gen x seem to be the ones obsessed by home ownership, they are something like 20pc of the population and 50pc of the debt

numbercruncher said:

The figures show that Gen-Y simply arnt buying, thats when Pyramid schemes come undone, when they dont get new entrants.

Gen y simply arnt interested in debt slavery home ownership, they are the gimme now generation, Ipods, foreign holidays, rock concerts, generally having a ball and adding to Inflation

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Given a reasonable portion of gen Y is still at high school/university I wouldn't be too surprised by any figures that suggest they have borrowed less than gen X.

Xoa, inflation eats away at my debt even while my holdings stay still or even go backwards in real or hamburger terms. You could look at the 1970's as the best inflation example for a decade. Again you will have to do some homework though.

It's not the biggest bubble if that's what we are in, I've already mentioned that. There is actually under supply of stock in Brisbane and a lot of places around the country.

Jan Somers first house is a good example to start with, or the experience of couples buying in the 40's and 50's and what they started out with in terms of quality of housing, location for the time and other things they did away with that today would be considered nescessities.

PE ratios, I will let you work that one out for yourself.

WaySolid said:

Based on my study the one thing that I consider remarkable at the moment, is not really the prices but the rents. The flipside of govt sponsored resi investment is that your rent is subsidized as well, the rental levels at the moment in Brisbane are just ridiculous, not many talk about what would happen if mean reversion in PE ratios involved rents going to a more realistic level.

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Because society would cease to function. People would just stop working. There's no point in doing anything if you are going to go broke anyway. Rent can't be raised much above real wage, or minimum wage growth, without serious long term consequences.

So much talk about mining boom and housing prices... what exactly does a house in western Sydney have to do with that? And fwiw, the majority of people have not experienced wage increases commensurate with cost of living increases, that's one side of the whole debate. In Perth, most people don't have anything to do with the mining boom, yet everyone assumes they do. cost of living is through the roof and wage increases have been less than the local inflation rate. Essential service staff are going elsewhere because there just is no point working here. Every public service sector from health and education to worksafe, is totally non functional and on the point of collapse because of cost of living problems and comparative wages.

So there are two solutions: Wages increase to fully reflect cost of living, house prices and rent, or secondly, property values decrease so that people living on minimum or even average wage aren't actually going broke, simply being alive.

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

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sorry, am off topic, but not too sure if they are using the baby bonus to buy new plamas as well...

back to the topic...
http://www.domain.com.au/Public/Article.aspx?id=1202760272500&index=NationalIndex&headline=Welcome%20to%20the%20new%20Struggle%20Street&s_rid=smh:Homepage
IMHO, the outer suburbs have been overpriced and reality is starting to kick in, but the inner suburbs will continue to grow

PS. Not a property owner yet, have been looking around and ... still haven't found what i'm looking for ...

numbercruncher said:

The figures show that Gen-Y simply arnt buying, thats when Pyramid schemes come undone, when they dont get new entrants.

Gen y simply arnt interested in debt slavery home ownership, they are the gimme now generation, Ipods, foreign holidays, rock concerts, generally having a ball and adding to Inflation

Gen x seem to be the ones obsessed by home ownership, they are something like 20pc of the population and 50pc of the debt

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If this is true, then Gen Y will be happy to pay higher and higher rents, and Gen X will be happy to invest in more and more property.

This isn't a pyramid scheme. It is a real supply v demand market.

My . Is it or isn't it a bubble. Are the price increases because of a fundamental change, or are the prices increasing because investors think they will keep rising?

Fundamental changes include:
- extra cash from mining
- relatively cheap credit for a long period
- Increasing population
- Higher Consumer sentiment
- Low Unemployment

On the Bubble side, you just have lots of people trying to get ahead of the game, retire early, so you have a number of investors and specutalors buying with the belief prices will continue to increase. I see this as why property investors go with Interest only loans. They expect the price to increase, as such they do not need to make principal repayments to gain equity.

But it is hard to tell how much is bubble and how much is fundamental. I think we have seen in a couple of markets where the bubble component hqas started to wear off, ie in Perth and some parts of Sydney. Does this means other states will also follow this path.

Others have posted that the prices cannot continue at current levels because no one will be able to afford to purchase a house so there is a ceiling. On the other hand Gen Y wants wants wants wants, and their is currently enough credit to allow them to get get get. But with increased interest rates, comes fewer loans. It may take time to filter through, but it happens.

The currently rental crisis will also see additional development take place as it is less risky. This will bring on new supply, unfortunately, that supply can take a couple of years to come about and is not always what people are after.

I will be looking to upgrade my home in a few years time, and I hope to see a cooling of (not necessarilly a drop, but a slower increase) during that time. I do not see how rents can continue to increase over the longer term way ahead of wage increases. People just cannot afford it. So either they will move further out, or downsize their requirements, or the government will step in with new supply, or subsidies. Subsidies however will not slow house price growht so I hope they do not do that.

From the master builders website.

Slide in Dwelling Approvals
05 Feb 2008

Dwelling approvals fell back sharply in December in the wake of last November’s interest rate rise, according to Master Builders Australia, the peak body for the building and construction industry.
Mr Peter Jones, MBA’s Chief Economist, said “Recovery in residential building will be further delayed as the impact of January’s bank-induced rate increases as a result of the sub-prime crisis flows through.”
“With the Reserve Bank likely to lift official interest rates again, the prospect of any sustainable upturn this year appears very unlikely.
“The so-called take-off in dwelling approvals looks like being aborted in a similar fashion to previous episodes experienced since the cycle troughed way back in 2004.”
“Another false dawn means the growing imbalance between residential building demand and supply has the potential to escalate to intractable levels.”
“The dilemma for the Reserve Bank is that higher interest rates are suppressing building activity and the shortage of stock is fuelling rental increases that, in turn, feed into the consumer price index measure of inflation. The RBA responds to higher CPI inflation by lifting rates and a vicious cycle develops.”
“The total number of dwelling units approved, seasonally adjusted, fell by 16 per cent to 12,263 units in December, to be 0.9 per cent lower than the same month in the previous year.”
“Private sector house approvals fell by 11.6 per cent to 8,199, to be down 4.9 per cent on the same month last year.”
“The more volatile private sector ‘other dwellings’ (apartments and townhouses), fell by 24.5 per cent in December, to be 8.2 per cent higher than in December 2006.”

I also remember from another article that we are also only building about 90% of the needed demand for new dwellings to meet the current market interest.
so from this it's clear that supply and demand will keep house prices rising for the forseable future on its own. so this coupled with rising interest rates i can't see a slow down in property price's.
IMO good properties (close to cbd, schools, transport, etc) will always increase in value no mater what the market conditions are. and these are the properties that i always look for when investing in property.

Tom Ronalds said:

- Australia already has the most unaffordable housing of any developed country. Every single one of our capital cities is classed as "severely unaffordable" (the highest rating), with regional cities largely all in the same category as well. See detailed discussion on this in the latest Demographia report: http://www.demographia.com/dhi.pdf

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Interesting read, but imho it makes a better case for land prices going up faster than ever than for governments to ease restrictions. Land use restrictions are increasing, and will continue to increase (a) as environmental concerns mount, and (b) as food production gets more important.

The outcome will be more people crammed into less space, making land and house prices less affordable than ever.

hello,

rents are going up up and up in the future, its a given

many renters can afford the increases and if they cant then downsize, move suburb or get better paying job, very simple

a lot of landlords are passing on the increases very quickly,

just back from having latte on chapel st and is this tattoo thing going around the country?

thankyou

robots

I think there are couple of popular explanations what propels property market waves.

One is mentioned already, that houses wander in an out of buyers reach.

Another is, that rent makes house more or less attractive.

More attractive when rent is so high that repayments of purchased property are not much higher than rent.
Less attractive when rent is so low that purchasing own property is much more expensive.

Rents cannot continue to increase forever, even if there is a shortage of available housing. It's simple, really, and I have already written about it earlier.

Eventually you get to the point where more and more people cannot afford to rent anything. That's becoming the case here in Cairns now. At the same time, would-be landlords cannot buy cheap enough properties to satisfy this market segment. There is only so much demand for property that can be rented for >$400/week - especially when the average family earns just over $67,000 p.a.

Ultimately you end up with people who can't afford anything that's available, and with landlords who cannot rent their $400,000+ townhouses. At such time, rental yields, which are pretty poor already, drop even in what is otherwise a tight market.

As I also said many times before, if/when the economy slows and the credit bubble blows up, there will be even more people (unemployed etc) who can't afford to pay the median rent (now over $300/week) and even more of those who can't keep repayments on their overpriced properties in which they now have negative equity.

I am amazed that in light of what is happening in America, where by any measure the bubble was a lot less severe than here, so many people here can still continue to argue that our property prices will keep going up and up and up on the basis of what I'd see as some pretty dodgy reasoning.

In fact the writing is already on the wall: When you have news like this on bankruptcies running at record highs from early last year, what's going to happen when the economy really slows:

http://tinyurl.com/2poxmz

Quote from the article:

"In the three years to last December [2006] house prices fell an average of 8.8 per cent in Sydney, according to data from the Australian Bureau of Statistics (ABS).

"In real terms, relative to inflation, prices have fallen almost 16 per cent in Sydney over the past three years as values slumped mainly in the western suburbs.

"'They jumped on the bandwagon on the assumption of rising property prices in Sydney,' Mr McDonald said.

"'They felt a degree of peer group pressure that if you're not in the market then you're losing.'

"Queensland bankruptcies jumped 10 per cent to 1,521 to their highest level since the June quarter of 2002, according to the ITSA data."

In the European countries, with a high population density and long histories, the long term data trends (350 years in the link below) are very revealing for those in Australia who believe property price growth can consistently exceed income growth: Prices fluctuate wildly, but ultimately return to equilibrium. The following link gives some great reading:

http://www.abc.net.au/news/stories/2008/01/28/2148237.htm

Tom R.

numbercruncher said:

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.

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Clearly many people don't. The equation of 2+2=5 is still widely believed to be true.

The deadly mix of too much debt and a slowing economy has now been forgotten by too many, who either have not experienced it or, after 17 years of uninterrupted good times, believe the normal economic cycle is now dead.

Statements of this type just show the depths of the delusion:

robots said:

many renters can afford the increases and if they cant then downsize, move suburb or get better paying job, very simple

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You can only move to a better paying job if you have the needed qualifications and if there are any to be had, mate. You can only downsize if there are places available to downsize to.

Well it seems like many people will need to be reminded of how things can be in bad times...Does any Victorian here recall what things looked like in Collins Street in 1991 or thereabouts? I reckon every second building was vacant and for rent, with up to 24 months of lease holiday being offered to prospective tenants. Sounds hard to believe, viewed from today's perspective, doesn't it?

Tom R.

moses said:

Interesting read, but imho it makes a better case for land prices going up faster than ever than for governments to ease restrictions. Land use restrictions are increasing, and will continue to increase (a) as environmental concerns mount, and (b) as food production gets more important.

The outcome will be more people crammed into less space, making land and house prices less affordable than ever.

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And yet you seem to ignore that this is not the case in at least some countries comparable to Australia (Canada & parts of USA in particular) or even in some high population density countries like Germany (where prices have been flat or falling for decades) or Japan..

Tom Ronalds said:

And yet you seem to ignore that this is not the case in at least some countries comparable to Australia (Canada & parts of USA in particular) or even in some high population density countries like Germany (where prices have been flat or falling for decades) or Japan..

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I don't know, they'll find some excuse. Live and let live though. I don't care what they do, so long as they don't crash the entire economy.

Tom Ronalds said:

Well it seems like many people will need to be reminded of how things are in bad times...

Tom R.

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Downsizing can go as low as few families in one house or unit.

People can move to caravan parks and possibly tents.
People could endure quite a lot if they had to.

But things can turn nasty really quick, because several generations back, people could take pressure on their own shoulders, now increasing number of people believe that everything has to be provided.