House prices to stagnate for 'years'

wayneL said:

OK misunderstandings here.

There is absolutely no way in the wide world I would pay current Perth prices to enter the market... NO way.

(for me anyway)

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Neither would I, however DYOR and you will find many bargains in Perth ATM, and not that hard to find either. I follow the Perth/WA property market very closely and plenty to be had for those prepared to look outside the square, providing instant capital gain and very high rental returns.

Rents just keep flying ahead.

We have had a number of calls to see if we will rent fulltime our Holiday Apartments. They're booked---by holiday makers.
But the word Ive had is that there have been up to 100 applicants for the one home/and Units are no better.

Now whats that tell property developers in ADELAIDE?

Yes all across Australia and New Zealand, and from what I hear the USA rents are rising.

How there has suddenly become a lack of housing so quickly is amazing.

Big jump in new home sales
1st February 2007, 5:30 WST

The WA new home market may be staging a recovery with new figures showing buyers are starting to return.

The latest Housing Industry Association figures showed sales of new homes across the State increased more than 14 per cent in December, following a 12 per cent lift in November.

Nationally, new home sales were up 6 per cent during the month, largely due to the improvement in WA plus a strong result in Victoria.

Association chief economist Harley Dale cautioned that although there had been an improvement in December, it would still be a long way back from many buyers effectively priced out of the market.

“The further widening in the housing deposit gap through 2006 meant that there simply weren’t enough aspiring home owners out there who could afford to push the button on buying a new house,” he said.

Realist said:

Yes all across Australia and New Zealand, and from what I hear the USA rents are rising.

How there has suddenly become a lack of housing so quickly is amazing.

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Not really.As Home ownership becomes more difficult those that are new to the market---without partners for various reasons (2 Wages) look for cheaper alternatives---renting.

Next step is pooling of rentals common in the UK and larger inner suburb cities.

tech/a said:

Rents just keep flying ahead.
We have had a number of calls to see if we will rent fulltime our Holiday Apartments. They're booked---by holiday makers.
But the word Ive had is that there have been up to 100 applicants for the one home/and Units are no better.
Now whats that tell property developers in ADELAIDE?

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Has anyone heard of the Scarborough Environs Area Strategy Project (S.E.A.S) ?
We bought luxury Scarborough Beach W.A. apartments back in 2001
Same story: "Rents just keep flying ahead".

Realist said:

Yes all across Australia and New Zealand, and from what I hear the USA rents are rising.

How there has suddenly become a lack of housing so quickly is amazing.

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This is NOT surprising, nor is it sudden. There has been a lack of supply of quality rental stock in the desirable middle-to-inner-city suburbs of many capital cities for the last 2-3 years. In most cases this has been coupled with strong ongoing demand.

The cause? Economics. See the chart below which shows a clear decrease in housing finance for investment purposes against a sustained increase in owner-occupied financing. It is well known that NEW housing starts have been in the doldrums for several years already. Therefore, this chart can be interpreted as showing a conversion of properties from rental to owner-occupation.

Against a backdrop of media scaremongering about interest rates and an inevitable bubble burst, those investors who held their properties have been afraid to raise rents. They've opted instead for secure tenancy rather than risking prolonged periods of vacancy AND increasing mortgage repayments.

Remember too that during this time there have been several rounds of income tax cuts. The government probably knew they couldn't eradicate the false rental market created by "negative gearing", but they could reduce the effects of it. At the same time they've pleased the electorate with surplus budgets and bigger take-home pay packets. Several birds, one stone.

Pre-boom, the top tax bracket kicked in at $50,000 and was 48.5 cents in the dollar. As IT and banking/finance sector salaries increased during the late 90's investment in residential property was encouraged and made affordable by "negative gearing" and depreciation allowances.

Since the last tax cuts the top tax bracket now doesn't kick in until $150,000 AND has been reduced to 46.5 cents in the dollar. The tax appeal of property as an investment is considerably less today than it was when the boom was on (as an aside, recent changes have meant that the tax appeal of putting money into super has increased, considerably! what does this mean for residential property? beyond the scope of this post, but food for thought). Add to this low rents and a perceived stagnation of residential property prices and what reasons do you have left for investing in property?

Rents should go up.

Bronte said:

Has anyone heard of the Scarborough Environs Area Strategy Project (S.E.A.S) ?
We bought luxury Scarborough Beach W.A. apartments back in 2001
Same story: "Rents just keep flying ahead".

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The people behind the S.E.A.S. project seem to be pushing for a
mini Gold Coast type development. Lots of building going on at present.

Realist said:

Yes all across Australia and New Zealand, and from what I hear the USA rents are rising.
How there has suddenly become a lack of housing so quickly is amazing.

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Happy Birthday Realist artyman: :birthday:

Does it really matter how good you think your city is, house prices aren’t determined by this! They are determined by Supply and Demand.

Demand side factors;

Interest Rates – been historically low for a while
Available Credit – banks have been throwing money at people hand over fist
Emotion – People will always tend to want the best house they can get money for (not necessarily what they can afford)
Population Growth – Ensures that new stock has to be built (usually in outer suburbs)
Economic Growth – primarily reflected in the average wage that people earn in the city and employment levels
Taxing Regime – ie availability of negative gearing etc

But everyone seems to forget Supply Side Factors;

Land Release Policy – ensuring that homes are actually built as population increases (at a reasonable price!, state govts basically determine this)
Development – ability to allow efficient subdivision and higher density living to limit urban sprawl
New Land Taxing – proportion of tax burden put on new developments

From what I have read the US has a fundamentally different reaction to price rises in that the new developments are not heavily restricted. Which result in new stock being built if prices get out of whack – end result is an increase in inventories and prices stabilise.

As much as people would like to blame the federal govt for getting us into the house price rise syndrome (halve capital gains tax etc), they have only fuelled the demand side, state governments have made sure that the supply side hasn’t been able to respond – which we are now seeing in rent increases. It seems to me as the states are in general trying to use the real estate industry as a cash cow out of all their other problems – which I think disadvantages the younger generation as they try and establish an economic footing, if they want population growth then they have to provide some reasonable way for the market to provide housing to these people (young and immigrants).

But some of the stuff I have seen in the media is not that encourageing, Iemma basically staring down the camera and saying first home buyers aren’t getting in the market because they fear higher interest rates – as if its got nothing to do with high prices in the first place (Moris – heard of fixed interest loans? and as far as interest rates go we are in an historically low IR environment). I heard some poli saying the other day that halving stamp duty to investors would fix the probem….. unbelievable.

I reckon there are two paths for property in general;

1) Prices steadily up (3-5%pa) for next 5 years if state and fed govts continue to keep the game going through tax incentives, as a result higher percentage of population will become permanent renters

2) Prices stagnate or down for next 4-6 years as wages catch up. If you think property is unaffordable now try 1 or more of the folowing;

a) interest rates up 2-3%
b) Recession (and double the unemployment rate)
c) Credit tightneing (banks stop lending at 90-100-110% loans as the credit bubble bursts). Forcing people to save for a 20% deposit (how long would it take to save up for a 100k deposit on an average wage in Perth or Sydney!!!)

If you think the commodity boom will keep prices spiralling – consider Canada (similar populaiton and commodity rich), they have house price to income ratios of 3-4 in all capital cities (Aust ratio is 6-8)

If you think population growth will keep it spiralling – consider New York and London, Most Aust capital cities are already on par or exceeding these cities in terms of house price to income ratios.

Having said all this, I will be probably buying my own PPOR later this year– for lifestyle reasons

On the 'easy credit' side of things, a mate of mine went to a mortgage broker and was told he could borrow up to 390k on his single wage (apprx 50-60k gross) for a house.

At 7% he would be paying 27.3k in interest with his after tax income to service this loan. Needless to say - i don't think he will be signing his life away by accepting the offer..... but I'm sure a lot of young people are

I think the single biggest factor that will constrict the market is if the lending policies of creditors change, it is truly unbelieveable the amount of credit being thrown around at the moment

TJ

tech/a said:

Next step is pooling of rentals common in the UK and larger inner suburb cities.

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So we've gone from an ordinary worker being able to buy a 3 bedroom house just 10 years ago to the point of not even being able to afford rent without sharing.

Incomes, at least in real terms, are quite obviously going backwards rather quickly in this country. Continue the trend and in another decade younger workers will be lucky to share a tent (a rented tent of course).

I just don't see how this situation is sustainable socially. At some point we're headed for either a wages boom, house price slide at least in real terms or some form of social unrest. That's the lesson of history when ordinary workers see their living standards progressively eroded compared to the previous generation.

If the rate of lenders going broke as the market for lower quality debt dries up in the US is any indication then a good old fashioned credit crunch is on the way. Not good news in itself but the market is well overdue a shakeout to restore balance and it's likely to be less damaging than some of the alternative options.

This post raises some good an interesting points Smurf.

What if our larger more cosmopolitan cities are heading towards a London-like situation where you have a virtual underclass who almost literally can't afford to live there and will almost certainly never actually own anything?

The value of the average Perth house is now $502,441.

Perth house prices soar 31 per cent
February 2, 2007 - 5:59PM
http://www.theage.com.au/news/Business/Perth-house-prices-soar-31-per-cent/2007/02/02/1169919525894.html

Perth house prices jumped by almost a third last year on the back of the resources boom, while Sydney's high prices barely moved as interest rate rises started to bite.

Despite Perth's huge gains, Sydney still retains the title of Australia's most expensive capital city, according to new figures released on Friday.

But there are signs the Perth property market will go off the boil this year - with growth slowing markedly in the December quarter - and start to plod along with the other major cities, which have a flat growth outlook for the next 12 months.

According to research by property price information group Australian Property Monitors (APM), the value of the average Perth house surged an astonishing 31 per cent in 2006 to be worth $502,441.

But growth in the West Australian capital slowed to just 0.9 per cent in the final three months of the year.

In Sydney, houses prices grew by only 0.5 per cent in 2006 to $526,158, making the harbour city 4.5 per cent more expensive than Perth.

Prices in Sydney improved slightly at the end of the year, with 1.2 per cent growth in the December quarter, but little improvement is expected any time soon.

Perth is the nerve centre of the China-fuelled resources boom and house prices there have almost directly tracked the rise in commodity prices.

Adelaide, to a lesser extent, has also ridden the boom to an eight per cent increase in its median house price to $331,407.

But when commodity prices started to stabilise in October last year, house prices in Perth and Adelaide stabilised too.

"There's also the matter of people's ability to pay," APM operations manager Michael McNamara said.

"Wages have not increased at the same rate as commodity prices and house prices.

"That creates a ceiling."

The stabilisation in house prices in Perth and the rest of the nation is likely to continue with the full effects of the three, 25 basis point interest rate rises in 2006 still to pan out.

Rising interest rates scare buyers away, leading to an oversupply of houses, which pushes prices down.

They also trigger more forced selling in outer suburbs when lower to middle income earners can't afford to make mortgage repayments.

On the upside though, a market flooded with houses leads to higher housing affordability.

But while affordability in some suburbs will improve, Mr McNamara doubts rates will fall this year.

"Remember the Reserve Bank of Australia in five years has only raised them eight times, so that's eight board meetings out of 50.

"If the RBA is going to do something as dramatic as change the rate cycle, they're not going to be doing it in a hurry."

Nevertheless, not every house in every city is forecast for flat growth.

A widening chasm is forming between affluent "premium" suburbs and those in the outer mortgage belts more sensitive to rate rises, Mr McNamara said.

For example, houses in high income suburbs like Waverton and Bellevue Hill in Sydney, and Camberwell and Brighton in Melbourne, experienced double digit growth in 2006.

There may also be some positive news for long-suffering investors in apartment markets, particularly in the Sydney market - but not until the second half of this year.

Changes to rules easing the tax burden on deposits to superannuation of up to $1 million before June 30 will stimulate selling of investment properties, weakening the apartment market.

But rental income will remain high as vacancy rates continue to decline.

Then, post June 30, apartment values will start to rise.

"We think there will be a recovery in the apartments market in the latter half of 2007," Mr McNamara said.

"That's right when we will see a demographic change, when the retired babyboomers think about moving from their houses into apartments."

Apartments in Sydney lost 2.9 per cent of their value last year while Perth apartments added 31.4 per cent.

Source: Australian Property Monitors

Good points there Smurf....I am english live in Sydney now but have also lived in Berlin and London.

I see the Australian capital cities going the same way as London....for the normal working guy......living a long way from work and having to commute....London does however have good train links which lets face it capital cities here lack....

I agree with you something has to break....house prices down....wages up or big unrest.

Although I have solved the problem for me.....I will go back to Berlin in a few months where I can rent a 100sq m appartment in the centre of the town for about AU$800 a month (including the heating and hot water).

EB

exberliner1 said:

Although I have solved the problem for me.....I will go back to Berlin in a few months where I can rent a 100sq m appartment in the centre of the town for about AU$800 a month (including the heating and hot water).

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Does that mean you will become and ex-exberliner??

TjamesX said:

As much as people would like to blame the federal govt for getting us into the house price rise syndrome (halve capital gains tax etc), they have only fuelled the demand side, state governments have made sure that the supply side hasn’t been able to respond – which we are now seeing in rent increases. It seems to me as the states are in general trying to use the real estate industry as a cash cow out of all their other problems – which I think disadvantages the younger generation as they try and establish an economic footing, if they want population growth then they have to provide some reasonable way for the market to provide housing to these people (young and immigrants).

But some of the stuff I have seen in the media is not that encourageing, Iemma basically staring down the camera and saying first home buyers aren’t getting in the market because they fear higher interest rates – as if its got nothing to do with high prices in the first place (Moris – heard of fixed interest loans? and as far as interest rates go we are in an historically low IR environment). I heard some poli saying the other day that halving stamp duty to investors would fix the probem….. unbelievable.

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I'm always amazed at the calls for reducing stamp duty on homes. Instead of doing this and creating a housing bubble, governments would be far better served by implementing measures that would protect value into the future. Building in public infrastructure is the way to do that, and in that way shaping the social culture (something that needs to happen here in Perth). We are in boom times, and what the hell do we have to show for it?

A number of years back now, I was looking at policies to attract people to Perth and WA. The number one reason people stayed here and came here was affordability. It was great for artists, musicians, athletes and anyone looking to start up a business. In the space of a few years, Perth has gone from one of the most affordable, to one of the least affordable cities in the world. My friends can't afford to rent anything (that is if anyone actually takes the risk of letting young people rent their property). It's a joke that a group of my friends left for Melbourne, so that they could find somewhere to live, and that was cheaper than here!

So apart from jobs, what exactly is keeping people here in Perth? There IS nothing. Forget cutting tax on property, they should be spending money on things that will keep people here, once the boom inevitably turns into a bust. Otherwise, people will leave in droves, and people will cry foul once their asset value is halved.

WayneL, where exactly do you live? I thought you were in WA.

The Adelaide Sunday Mail has some top quality journalism today. There is a full two page spread showing, by suburb, what your Adelaide house will be worth in 2016.

Titled "Future Shock : Welcome to our millionaire city", they tell us that Adelaide will have 83 million-dollar suburbs by 2016.

They go on to interview two 16 year olds contemplating their futures in ten years time and if they will be able to buy a house.

"The 2016 projections were made by applying the annual 8.7 per cent growth rate recorded by the Valuer General's office in the past decade to the next ten years."

"Independent real estate analyst firm Australian Property Monitors said the predictions were conservative." "Over the past decade the population and economy have grown and there is no reason why that wouldn't continue to put pressure on prices to grow at around the same rate," APM operations manager Michael McNamara said.

Now if you could only get PUT options on housing . .

Yeah Right, house prices gonna increase by 8.7%pa for next ten years. And what do people expect salaries to increase by over next 10 years?. Does not compute!.

kyme said:

Yeah Right, house prices gonna increase by 8.7%pa for next ten years. And what do people expect salaries to increase by over next 10 years?. Does not compute!.

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I know. I had a good laugh when I saw it.

I guess the mistake they have made is to assume the economy will continue to grow at the same rate than in the past - "and there is no reason why that wouldn't continue".

I tend to believe the economy is running on 72 months interest free.

They do mention that average house prices have increased over the past decade by 160%, but for the same period wage growth was 54% - but that doesn't seem to bother them. Even if the cost to service a mortgage was more than 100%, every Australian would still be able to find the money - no probs.