House prices to keep rising for years

[wayneL]

Seriously robots, have you EVER considered once that the rapid rise in property prices over the past 5 years was an extraordinary event brought by the greatest credit boom the world has ever seen since the past several decades? And this is not caused by a simple "supply and demand" thing or a simple "cyclical" event?

Or you don't believe that the credit boom ever existed? Or you don't believe that the level of debt that an average Australian carry has NOT INCREASED RAPIDLY over the past several years?

You should be more aware of your recency cognitive bias. Everyone suffers from it. It's not just property alone, even uni kids these days think the share market should rise by 30% every year because it has done so for the past 3-4 years. And when you tell them that they should "realistically" expect no more than 9% p.a., they would think it's unrealistic.

 

[dhukka]

I haven't been following this thread much but I thought the following article from the Courier Mail might be of interest:

Stand-off between Brisbane house buyers and sellers

SELLERS want up to 30 per cent more for their homes than buyers will pay, and the stand-off has caused falling sales volumes in southeast Queensland.

A stagnant market, fuelled by uncertain economic conditions has buyers hungry for bargains.

But many sellers are still refusing to budge from their dream prices, in the face of offers tens and in some cases hundreds of thousands below what they are asking.

Johnston Dixon principal John Johnston said that in a usual market there was a disparity of between 10 per cent and 15 per cent from buyer to seller - a gap agents could often negotiate closer.

But he said the difference recently had blown out to 30 per cent.

He said right across Brisbane there were instances of people wanting $800,000 for their homes, and buyers wanting to pay around $600,000.

The battle of wills was likely to cut prices in areas where people were facing mortgage stress and needed to sell.

But in blue chip suburbs, despite fewer deals being done this year and an especially slow March and April, prices achieved were still fairly solid.



House prices in leafy south-west suburb Fig Tree Pocket have sky rocketed more than 50 per cent in the past 12 months making it the most profitable place to have sold a house in Queensland.

Figures released by the Real Estate Institute of Queensland (REIQ) revealed Fig Tree Pocket was the best performing locality for house sales between March 2007 to March 2008 and Nelly Bay in Townsville was the most profitable for units or townhouses during the same period.

The median house price in Fig Tree Pocket, which is 9km from the CBD, was $850,00 in March 2008 compared to $542,000 last March (an increase of 56.7 per cent). The next best performer in house sales was Mission Beach along the Cassowary coast where the median for house sales rose from $325,000 to $500,000 (53.8) followed by Glen Eden at Gladstone which increased from $262,000 to $389,000 (48.2).

Auction clearance rates were just 30 per cent last weekend and the number of properties sitting on the market continues to swell. There are 36,150 residential properties listed for sale in Queensland, compared with 16,600 this time last year.

Last week, 1612 new properties were added to the Brisbane market and 4032 statewide.

But RP Data's residential research director Tim Lawless said new listings were coming in at a slower rate.

"Even though new stock levels are slowing, the total level of stock is still very high, indicating that the supply simply isn't being soaked up due to fewer buyers in the market place," Mr Lawless said.

He said bargain hunters were making some cheeky offers.

"We are in the middle of a buyers' market, which means vendors hold less power and buyers hold most of the leverage," Mr Lawless said.

RP Data research shows homes were selling at about 6.1 per cent below the asking price in April.

"There has been some movement in the level of discounting since April and I would estimate the average level of market discount in Brisbane now to be closer to 6.5 per cent to 7 per cent," Mr Lawless said.

Real Estate Institute of Queensland managing director Dan Molloy said multiple interest rate rises had caused the market to ease after the 18 per cent growth of 2007.

"Until economic conditions are more stable some buyers remain hesitant to enter the market and are therefore being careful not to over-commit financially," Mr Molloy.

However, some sellers were still expecting the strong growth of last year.

 

[Kimosabi]

The anti-robots speaks. A good article from Neil Jenman

THE TOUGH TRUTH
What sellers need to know.

by Neil Jenman

Right now, in a lot of areas of Australia, there are a lot of unhappy property sellers. They can't sell.


In some areas, some properties have been on the market for six months, even longer.


To sellers, an on-going unsold property can be mental agony. It's like torture. They all have a breaking point, the day when they say, "Enough, I can't take it anymore, just sell it."


Ironically, once they make that final decision to sell - no matter what the price - the sellers' moods usually lift. It's gone. They can get on with their lives.


In an instant, these sellers go from unhappy to happy. There is nothing like a sale to improve the mood of even the most stubborn seller who owns the most hard-to-sell property.


Sadly, though, most sellers who have taken a long time to sell have usually sold for a much lower price than they should have accepted.

It need not have happened this way.


There is no need to wait a long time to sell for a low price, no matter how tough the market might be.


And yes, things really are tough in many (soon to be "most" and then "all") areas of Australia. This time last year, one agent (on the Gold Coast) was getting around 250 enquiries a week from property buyers. Recently he got 21 enquiries for the week.


Another agent (in western Sydney) said, "We thought our phones had been cut off on the weekend. No one called." It's a similarly emerging story in Melbourne, Hobart, Adelaide and Perth.


So, if you're an unhappy seller and you can't sell, here's some tough truths you probably need to face - quickly.


First, understand this truth: There is no such thing as a property that "can't" be sold. There are never "no buyers".


Yes, times might be tough for sellers. But tough does not mean impossible. It is always possible to sell a property. There is always a buyer. It all depends on the price.


"Oh, but we've already tried that," say some sellers. "We've dropped the price $50,000 and there are still no buyers around."


Nonsense.


Let's use a tough truth to kill the "no buyers" excuse once and for all.

No matter what price you want for your property right now, no matter how many times you may have lowered the price, ask yourself this question: "If the price was half what it is today, would it sell?"


In most cases, the answer is, "Of course."


"But we're not going to give it away!"


I am not suggesting you give it away. What I am suggesting is that you stop saying (or believing) that there are "no buyers".

If your property was half its current price, there'd be a buyer for it. So don't say "no buyers".


And no, I am not suggesting you sell your property for half its value.

What I am suggesting, very strongly, is that you realise a tough truth - if your property is not selling, then, somewhere between the price you are asking for it and half the price you are asking for it, is the price it could sell for today.


The tough truth of a tough market for sellers is this: It's not "no buyers" that's the problem, it's that there are "no buyers" at the price being asked by the sellers.


So, if you really want a buyer, just lower the asking price. Still no buyer? Lower it again. Repeat process until a buyer says "yes".

And then, of course, once you have found a buyer, you then have a choice - you can sell or stay.


But, right now, at the price you want - and if there are "no buyers" at that price - then, as tough as this may be to accept, you have no choice. You have to stay. Or, you have to do what lots of sellers are doing right now. Play the waiting game.


"We'll just wait for the right buyer to come along and pay our price." Many sellers make such muscle-flexing statements. In the real world, though, it doesn't work like that.


The longer you wait the less chance you have of finding that elusive "right buyer" or the one who, perhaps, is too silly to realise that a property is over-priced.


Face another truth. In this high-tech age, property buyers are smarter. All it takes is a few clicks of a mouse and they can compare your property with dozens of other properties.


They can find out the selling prices (which are vastly different from the "asking prices") of every property in your area. With one click, they can find out how many on-line 'visits' there have been to your property. The longer a property remains for sale, the lower the price.


"But the agent told us that our property is well-priced."


Never mind what the agent says, there is only one way to know if your property is well priced - someone wants to buy it. It's obvious.


If your property is not sold, it's because the price is too high.


Yes, yes, the price may be lower than you wanted, it may be lower than you were quoted, it may be lower than you were once offered; but, if your property has not sold, the market price is lower than you realise. It's always about the money.


And the property market is like any other market, at least as far as money is concerned. The buyers, not the sellers, set the prices.


Take the share market. A few months ago, people who owned Commonwealth Bank shares could have sold them for more than $60.00. Today, those same shares sell for around $40.00. That's the "market price". People who own shares understand share market truths.


Not so in the property market. Some sellers have properties that, a few months ago, were worth, say, $600,000. Today those same properties may only be worth $500,000 (that's not as big a drop as the Commonwealth Bank shares, by the way).


The difference with the property market is that, unlike the share market, property prices are not displayed on TV each night. And so, the property market is full of deluded property owners. They think their properties are worth more than the true market price.


Now, of course, none of this matters unless you are selling. If you are not selling, you can be happily deluded about the value of your property. You can fool yourself for years.


But the minute you try and sell, you cannot fool the market. If you ask for a certain price and there are no takers at your price, the market is saying "too high". Like it or not, you are being rejected.


Imagine going to a stock broker and saying, "I want $60.00 for my Commonwealth Bank shares. I don't care that the current price is $40.00, I want $60.00." The stock broker would laugh at you.


But not the real estate broker (or agents as we call them in Australia).

No, the agent will sign you up at "your price", get you to pay thousands of dollars in "marketing fees" and then, when no buyers show-up, the agent will give you the "market feedback". In the agent game, it's crunch time.


If you want to sell, the agent will eventually get you to sell by convincing you to lower your price to "meet the market" (the agents love that expression).


Now, sure, you may have fired the first agent (that rotten liar who agreed with your price). You may even have sacked the second agent (another liar who told you what you wanted to hear). You may be thousands of dollars out of pocket by the time you say to the third agent, "Please, I can't take this any more. Tell me the truth."


And then you'll sell because, finally, you'll face the reality of a tough market. Your property is not worth what you think it's worth, it's only worth - and here comes another real estate cliché - "what a buyer is prepared to pay".


There's an old Buddhist saying, "All human unhappiness comes from not facing
reality squarely, exactly as it is."


Unhappy sellers are seldom facing reality. That's why their properties are not sold.


If you're selling today, don't get sucked into the "my price waiting game". Don't wait while your property gets more and more stale in the market place. Face the facts.


If the agent could sell your property at the price you're asking now, the agent would sell it.


Agents want to sell properties, that's how they get paid. Even if they tell you that your price is right, that's because, like most sellers, agents also delude themselves.


Salespeople are eternal optimists.


They don't want to look you squarely in the eyes and say, "The asking price of your property is too high." They are scared of what you might do to them.

They don't want cranky clients.


Do you know what agents hate more than anything else? I'll tell you. Agents hate being fired by a seller (because they "couldn't sell" the property) and then, a few weeks later, seeing the property sold by another agent at a lower price than they could have achieved weeks earlier. That's every agent's nightmare.


So, again, I repeat. Don't play the price plummeting waiting game.

If you get a genuine offer on your property in a tough market - and there is no better offer - then, no matter how low the offer may seem, it may be a lot higher than you'll be offered in a few weeks from now. Don't reject it without some serious thought.


You've got to face the tough facts. The best price in today's market may be less than the price you want. But that doesn't change the fact that it's the best price.


Don't let your property go stale. Price it to sell it.

http://www.jenman.com.au/news_article.php?id=237

 

[wayneL]

Holy Dooley!!! Never thought I'd see this in The Gaurdian!

http://www.guardian.co.uk/commentisfree/2008/jul/01/houseprices.property?gusrc=rss&feed=uknews

House prices: too high for too long

Let's welcome further price falls in the housing market as a return to something approaching sanity
All comments (34)

* Patrick Collinson
*
o Patrick Collinson
o guardian.co.uk,
o Tuesday July 1, 2008
o Article history

Cheer up, house prices are falling. Nationwide said today that values have fallen again, for the seventh month in a row. Everything else is going up in price - food, petrol, electricity - but houses, our biggest and most expensive purchase, are falling. Hurrah!

Financial websites this morning reported the news in their usual gloomy fashion – economists "fear" further declines, experts say the market is "the worst for decades". And it comes after figures showing new mortgage approvals are at their lowest level since 1993, and down 64% over the past year. Cue more wailing about a housing market "meltdown".

Down in the real world, where young adults have for a long time been priced out of the market by avaricious investors, price falls are unalloyed good news.

Ah, the pessimists say, first-time buyers are no better off because the price of mortgages is rising. That's true - fixed rates are moving over 7% and it's virtually impossible to find a loan without putting down a 10% deposit. But that is only a problem if first-time buyers are insane enough to enter the market at the moment.

Young adults who are refusing to buy are behaving as perfectly rational economic beings...

 

[robots]

hello,

great to see all the posters coming out of the woodwork,

keep it comimg, great post from beej

was great to see Rolf Harris inducted into the Aria hall of fame,

have a fantastic day

thankyou

robots

 

[theasxgorilla]

Seriously robots, have you EVER considered once that the rapid rise in property prices over the past 5 years was an extraordinary event brought by the greatest credit boom the world has ever seen since the past several decades?

Speaking of recency cognitive bias, didn't the property boom really get in gear way back in 1997?

 

[pepperoni]

Seriously robots, have you EVER considered once that the rapid rise in property prices over the past 5 years was an extraordinary event brought by the greatest credit boom the world has ever seen since the past several decades? And this is not caused by a simple "supply and demand" thing or a simple "cyclical" event?

Or you don't believe that the credit boom ever existed? Or you don't believe that the level of debt that an average Australian carry has NOT INCREASED RAPIDLY over the past several years?

You should be more aware of your recency cognitive bias. Everyone suffers from it. It's not just property alone, even uni kids these days think the share market should rise by 30% every year because it has done so for the past 3-4 years. And when you tell them that they should "realistically" expect no more than 9% p.a., they would think it's unrealistic.

+1.

I would have added that the abs statistic about owners and renters confuses cause and effect, but then we have said that numerous times already on this thread.

 

[pepperoni]

Speaking of recency cognitive bias, didn't the property boom really get in gear way back in 1997?

Funny you should say because I cant remember exactly.

I remember my first house cost $400k in 1998 which was not boom by any means.

I think I sold 4 years later when things were moving a little and that prices started moving 2 years before I sold but not sure exactly. The price was $890k. Ridiculous in 4 years IMO.

After I sold until ... maybe 2004 ... things really went nuts but havent gone much further since then.



My dad sold a 600sqm new house with views in collaroy plateau for about 890k in 1998. It took over 6 months to sell and the price seemed fair. Today it would list over, if not well over, $2.5m. But with recent events it wouldnt get that,

Luckily dad bought a barely livable place in probably 1999 with views near the one he sold ... for $750k! He got bitten but today that shack would still sell for 1.3m in a few days. At the top of the boom they would have asked around 2m for that shack.

I guess Im a huge bear because I was shaking my head through all of it. BTW this just the northern beaches of syd only which I have since left.


I see the whole boom as being cause by the credit bubble AND a rush of people valuing houses by reference to what they could borrow rather than any inherent value having regard to historical prices (which they seemed to think they were smarter than).

Prices are hanging in a little in spite of 12 rate increases (or whatever it is) ironically because of recent historical values. However I can definitely see things coming back more when they realise where rates are and what could happen if there is any recession over their 30 year - every cent they could borrow - loans (which is essentially what their valuations were based on)


As an aside dad was also lucky to quickly build a bigger house on the last block ... for $400k. He says today it would cost $1m to OWNER BUILD the same house. He talks $600k minimum to owner build a small quality house so building costs have gone up almost as fast as properties.

This is hurting some properties alot.

Not long ago people bought knowckdowns thinking they could get a builder to build a mansion for $300k. They all got burnt and more people realise this now which is why in my area anything that needs work is suffering the most.

 

[gfresh]

Jenman speaks some sense there, you can sell anything at the right price - and if there are no buyers, you're asking the wrong price. Whether it's property, shares, or marbles, the principles are exactly the same. Maybe some will "give up" and try and hold onto the property for better times, but there will be many that do not have a choice.

You're dealing with the lowest common-denominator here, those that are most desperate to sell, and have to sell. And there will be plenty of those coming up, it will no longer be optional. Buyers out there will be taking those properties at those prices - not the profit takers who've probably already locked into their head how much they've made. Buyers know the tide has turned, and most will wait until prices come into their range. And for the last couple of years especially, the price was creeping way above most people's comfortable range.

Goldcoast small businesses are starting to fall over (we deal with them, and they're not paying their bills, telling us others are also chasing them money, get in line).. the coffee shop owner, the hairdresser, the beauty therapist, etc - all are demand driven, and very much optional for consumers. As other price rises bite, people are giving up these optional niceties, and these businesses will start shutting up. All more than likely own property, and probably have their business equity staked on their home. This is why I think the Goldcoast could particularly get nasty, even if population growth is continuing to rise. It's all very much small businesses, construction, tourism. All of which are very much boom focused.

 

[Mofra]

The anti-robots speaks. A good article from Neil Jenman


http://www.jenman.com.au/news_article.php?id=237

"Salespeople are eternal optimists."

Never a truer word spoken. Expectations a ridiculous in some areas - my street is a perfect examle.

A sale of $472k in April last year followed by a $500k sale a few months later.
A very similar property (nicer kitchen however no backyard) in early June was passed in... at $769k reserve!

Sold last week for $730k, at least some sellers are becoming realistic.

 

[Temjin]

Speaking of recency cognitive bias, didn't the property boom really get in gear way back in 1997?

Yeah, but then people don't usually look back "far" enough. The good old, "It's different this time!".

The chart below was posted in this thread in a few pages eariler, but I always love to refer to it. It's an excellent shock therapy for those who never fully appreciate this particular cognitive bias. Though certain people tend to "ignore/denial" it. Probably doesn't fit their believes.

I'm actually looking for an updated chart with the real price index of the US is now turning back down, I've seen it before but couldn't find it.

Kimosabi, great article there. Done in a simple, no-BS language.

 

[Go Nuke]

Indeed that was a fantastic article Kimosabi! Thx. And so true too.

Property is eactly like shares. Once the prices runs away too high..expect a pullback. And typicaly with a pullback...the buyers disappear to see how low she will go

Thats an interesting chart Temjin.
To be honest i don't really understand it...but its way off the chart right about now hey!!

As i say...property prices have far exceeded peoples desposable income.
Somethings got to give

 

[kingbrown]

The whole housing industry is a Joke imo
And is destined for failure
It appears we are on the American tram of more people the better
Thats an unsustianable and a false economy imo

One only has to try and find a place to rent
Or drive in or around a major city
Melbourne's traffic chaos is tipped to rise 100 % wtf ?
Becoming no more the land of a fair go
its just how much you can be robbed

Many ppl have no where to go as all cheap rentals have dried up
I even know of some people heading up bush
Yes living in state forrests like ferals but at least they can live

Funny we never hear the real estate agents using the word over capitalised these days
i hope this phrase will be back in vogue soon

Otherwise all our children may end up in the mines ?


Housing crisis will hit elderly the hardest
HOUSING affordability in Australia is becoming a problem, with affordability levels at the lowest they have been in decades and with little hope of relief in sight.

The problem is exacerbated for older Australians, people with a disability, or anyone trying to balance a budget with a pension as their only means of income.
High interest rates tend to slow home purchases, which reduces the pool of affordable housing stock and inflates rents.


http://business.theage.com.au/housing-crisis-will-hit-elderly-the-hardest-20080630-2zgk.html

A million houses needed to avoid shortfall

A MILLION new homes need to be built over the next five years to cope with Australia’s booming population, new figures out from the Housing Association show.

The number of houses currently being built falls well short of this, and according to the HIA, there'll be a shortfall of at least 175,000 houses if current building rates continue.

Record-low affordability

A shortage of housing is one of the key drivers in record-low housing affordability.

The Housing Industry Association (HIA)/Commonwealth Bank First Home Buyer Affordability Index fell 3.5 per cent in the quarter, and was down 10 per cent on the same time last year.

Mortgage repayments now account for 29.1 per cent of an average first home buyer’s income – the highest percentage on record.

http://www.news.com.au/story/0,23599,23944631-2,00.html?from=public_rss

 

[robots]

hello,

yes its tuff out there for the hard workers,

thankyou

robots

 

[robots]

hello,

http://www.tradingroom.com.au/apps/view_article.ac?articleId=151680

fantastic news, approvals down 6%

things are looking great for investors of all sorts,

this is why the gov has to look at providing "better" incentives for people to get involved in the construction of new dwellings,

whether it be improving negative gearing or capital gains concessions, funding etc

the rental program they want to introduce will do nothing

the good days for building workers will most likely roll on,

pep's has highlighted the increase in building (labour) costs

thankyou

robots

 

[CamKawa]

hello,

http://www.tradingroom.com.au/apps/view_article.ac?articleId=151680

fantastic news, approvals down 6%

The reason why building approvals are down is because there's no demand for them. It's a signal that prices will fall.

 

[robots]

hello,

plenty of demand for existing stock though,

tenants union of victoria say 1% vacancy rate lowest for as long as they can remember,

i am new to this, so if prices fall will rents fall as well camkawa?

thankyou

robots

 

[motion]

well it seems things are just going up and up in Sydney within a 8km radius. Will be interesting to see if it falls at all over the next 6 months, because a lot of people are saying we are at the bottom..

Who do you believe, the agent, the press or the chat in the local pub !!

 

[Temjin]

Thats an interesting chart Temjin.
To be honest i don't really understand it...but its way off the chart right about now hey!!

As i say...property prices have far exceeded peoples desposable income.
Somethings got to give

Here is a brief explanation on the chart,

The current housing bubble is a global phenomenon. Most OECD countries have seen rapid rises in house asset prices in the past decade. Before we look at the Australian market, Yale economist and author of Irrational Exuberance, Robert J Shiller, has probably the best picture of the current house asset boom, albeit in the US. Temjin - Nigel Stapledon added the Aus index onto his chart.



Shiller has created a real house price index for existing dwellings dating back to the 1890s. As you can see from his data below, once the effects of inflation are removed, house prices never really deviated much more than 30 percent from the baseline in the 110 years from 1890 to 2000. Temjin - Or 1997ish.



This is what you would expect. If house prices were to go up faster than inflation, this would mean houses would become un-affordable. Who would have guessed? The next generation would struggle to buy property, and the generation after that would struggle further.


Then in the last decade there has been a tremendous, and in keeping with the Shiller theme, irrational growth spurt in housing asset prices. Ignoring the effects of inflation, house prices have doubled in 10 short years. It should be enough for anyone to question if it is sustainable at present levels? or worst, will it burst?

In a brief sense, house prices have always increased in price in nominal term at the rate of inflation since back in 1880 to 2000 with 30% of so deviation from it. In theory, if house prices track inflation rate perfectly, the chart should have a straight horizontal line. The last 10 years see this trend completely changed.



As usual, I still get IGNORED by robots. He is definitely very "selective" in what to read and what to write.

 

[YChromozome]

I'm actually looking for an updated chart with the real price index of the US is now turning back down, I've seen it before but couldn't find it.

I don't have one of real house prices (i.e adjusted for inflation), but here is one of true house prices. ABS vs Case Shiller Index :



It still needs to be indexed properly - but you get the point. Depending upon the dataset you get, I believe Australian property has had much bigger gains than the US which is not evident in the above data.