House prices to stagnate for 'years'

Spot on Tech/a

There are plenty of opportunities around at the moment, there always is and always will be, the trick is getting yourself in a position to take advantage of the opportunities when they come along.

This requires a certain amount of hard work and sacrifice.
I'm only 30, own a unit in which I have alot of equity in. But to get to this position I had to sacrifice certain luxuries to save the money to be able to buy the unit without getting in over my head with debt. Meanwhile my friends were out blowing their cash, and are now complaining that they can't afford to get into the market.

I'm now using the equity and more savings to build a duplex which hopefully will provide me with another property with low debt levels (planning to keep one and sell one).

One thing I've found/learnt from dealing with builders and developers is that now is the best time to look for opportunities, cause in 10,20,30 years we'll be saying I should've brought back then or if I'd only taken advantage of that or this opportunity. Prices now are not as cheap as 10,20,30 years ago. So like tech/a said what is the mean value?

Julia said:

"Property values always revert to mean of value. "

Piffle.

Agree entirely with Tech.

Julia

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Some "Get it"

Hi Julia./Nomore4s

And some dont.

Smurphy my man your brighter than that!!

Precisely the arguments many bears have been expressing.

The line between bulls and bears seems to have become incredibly thin.

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You do understand the meaning of isolated context! I know you do.

Some excellent posts tech.
And i thought you were the man for stocks!

There is always opportunity. Sometimes they present themselves, most of the time you have to look for it.

But i personally dont like property, 2 main reasons, being, 1) illiquid, and 2)indivisible, but still if there is a really good opportunity then im keen.

So i prefer stocks, and it seems easier as well. Though thats maybe because i have a better understanding of stocks.

Just a general question regarding property. Can you sell property before settlement??

(If yes - its like a T+3 equivalent)

Eg. Buy property now (today). 120 days settlement. Pay a deposit. Sell in 60-90 days?? Can you do that??

Julia said:

"Property values always revert to mean of value. "

Piffle.

Agree entirely with Tech.

Julia

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Julia

Such intelligent response backed by logic, history and statistics.

Well done (not)

tech/a said:

Some "Get it"

Hi Julia./Nomore4s

And some dont.

Smurphy my man your brighter than that!!



You do understand the meaning of isolated context! I know you do.

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Steeled by reinforcements arriving, you have regressed to insults.

You sir, should give yourself an uppercut.

nomore4s said:

One thing I've found/learnt from dealing with builders and developers is that now is the best time to look for opportunities, cause in 10,20,30 years we'll be saying I should've brought back then or if I'd only taken advantage of that or this opportunity. Prices now are not as cheap as 10,20,30 years ago. So like tech/a said what is the mean value?

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Not having a go at you nomore4s, but just wondering if this is entirely correct in the context of relative affordability. It's probably been argued somewhere else in here, maybe in this thread, but has anybody compared what it takes to buy a house now relative to the average wage, and what it took say 30 years ago relative to the average wage?. Or is this ratio adeqautly explained with the affordability stats that come out every so often?.

As well as that ratio (ave wage to ave house price), has anybody correlated the percentage of loan amount to total price and percentage of wage going toward mortgage re-payment?.

So we have 3 variables which together should give us a relative gauge as to whether now is the most opportune time to buy, or to wait for such a time in the future?.

Comparing to (say?) 30 years ago (are they the same ratios) -

1) Average house price compared to average wage (rising?)
2) Percentage of mortgage to total house cost (rising?)
3) Percentage of wage going towards mortgage repayment (rising?)

If the ratio's are rising (have risen) then buying today, maybe, is not a good time (relative to historic values), unless you have to buy out of neccesity.

Does that make sense?.

Also, on another topic, there is plenty of land to build houses on (around Sydney at least) it's just that we (the government?) have to decide if we want to use it as productive farmland or sterilise it as housing, and provide the neccessary increasingly costly infrastructure that nobody wants to pay for.

My own view is not to get fixated, as the Aussie House price scene may well be similar to that in the US, but, much of the rest of the world is still booming, in the property sector.

Melbourne is a case in point, where rents are rising and house prices are falling. The $600,000 - $1,200,000 price range is seen to be the one to follow. Follow? - yes, because most of the investment cash is going into stocks and shares. The turning point will come as Australia moves increasingly to the "buy to let" investment property scene.

Taking a 10 year investment view, get ready to buy the sector, but not under $600,000.

Dr Doom,

I agree in part to what you are saying, the ratio of current average house prices to average wages is probably high compared to historic values, but doesn't that strengthen the arguement that houses aren't as cheap as they were 10,20,30 years ago?
There is also no guarantee that it will return to historic values(I'm not saying that it won't either). There will always be data out there that will put people off buying, but does that mean you just sit back and wait for something to happen? What happens if it doesn't happen?
I realise there are alot of overpriced properties around at the moment, all I'm saying is there is also alot of good opportunities as well.

nomore4s said:

Dr Doom,

I agree in part to what you are saying, the ratio of current average house prices to average wages is probably high compared to historic values, but doesn't that strengthen the arguement that houses aren't as cheap as they were 10,20,30 years ago?

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Yes and Yes, however this current high average house to average wages ratio cannot continue to increase indefinitely. After all, in the majority of cases, mortgage repayments are draw from wages and if wages grow at a slower rate (% wise) than property prices, then there WILL come a time when the amount that people can (or are prepared) to borrow would have a dampening effect on future growth in property prices.


I suspect that when WayneL referred to property prices revert back to the mean, he was referring to the average house to average wages ratio and NOT the absolute house pricing. The average house to average wages ratio gives an indication as to the ease with which people are able to service their mortgage. A high historical ratio indicates a high pain level and if its at a sufficiently high level will start to put a lot of families off property.


Adding to that argument is that from a rental point of view, the rental yield is not all that flash either. USing Realist's example (which is quite common in Sydney, baring some inner city suburbs), his landlord is receiving 2.8% rental yield (and that is before real estate agent fees, outgoings, council rates, insurances etc etc). Yet he is paying close to 7.5% on his mortgage. SO unless he is very bullish on property prices, he could find himself going backwards real FAST.

Investment in any asset class requires Due Diligence and there are right and wrong times to enter any investment. My own feelings are that property prices will get worst before they get better and therefore will be looking elsewhere for my investment returns until such time as the average house to average wages ratio returns to a more sensible and sustainable level.

bingk6 said:

I suspect that when WayneL referred to property prices revert back to the mean, he was referring to the average house to average wages ratio and NOT the absolute house pricing.

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Yes. Apologies if that was not clear.

I am still open to the idea of nominal falls however... depending on on a whole bunch of factors. We are seeing that already in parts of the prime US markets.

Whether that happens here remains to be seen. It is a possibility, no matter how unpalatable that is to investors.

Yes and Yes, however this current high average house to average wages ratio cannot continue to increase indefinitely.

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Bling6 OF COURSE IT CAN

Below is WHY and HOW it will.

Wayne its not an insult its an observation.

Some get it some dont.

Back to your case of this mean of wage average/house price.

(1) There will always be a side of the market where the demand will be high for first and even second home buyers.This market will and is being catered for.

(a) Suburbia is moving further away from the city centers.

(b) Housing product is moving away from brick more into blue board and some plastics products like hardie,s wall claddings.

(c) Buildings are getting smaller developers are looking at duplex housing and often community title 3,4,5 on a block which used to the the 1/2 acre.

(d) You have investment in the UK---just lately they are importing kit housing from Belgium ---build it yourself from foundation to structure to kitchen to flooring.

(e) Inner city is no different I saw programme on Fox where a 30 apartment complex was built in 10 days---start to finish!

(f) Housing will and has become smaller --- even micro in inner city.


(2) Pricing for higher standards of housing will REMAIN HIGH NEVER reverting to the "Mean".

Again you've invest in the UK.

(a) For the first time EN MASS we are going to enter the age of OLD MONEY. First home buyers in general will struggle in the above. In most cases when their parents pass on there will be old money now combined with the new at 40-60s for most. Where will they go?

(b) You bet they'll want more room bigger housing more luxurious surroundings---the POPULATION is AGING---so demand will INCREASE not decrease---thats WHY much property in sought after areas both in size and quality has risen so quickly and will remain so.---"They dont make more Esplanade Property close to city centers"---is ONE demand area which I like in SA.

(c) To now combine that with your mean wage/housing ratio
These buyers DON'T have to freehold the house---OLD money will give them the equity in the home for affordability.


Wait and be left behind or be innovative and go where the money is?

AND go there OFTEN!!

Come on people give me some real ammo on why every young undercapitalised person is doomed!!

Simply they JUST DONT GET IT.

tech/a said:

Once in 30 yrs!

Well Im 53 and been through 4 of them.
.

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The difference with this boom was it was a mega super boom.

Just like the drought we are having now, it is a super mega drought.

No doubt you can still make money in proerty and still make good returns, but come on you and I both know that the returns see in the last 4 or 5 years are coming off the boil and returning to normal.

Property runs in cycles of mini booms and bust, then we get the mega boom, and now its a mega bust.

A great quote tech/a.
We are very pleased that we are not 'Playing it safe"
Sitting on the sidelines waiting for something to happen.
We are all going to die.
70 / 75 if we are lucky
How long should you wait?

By the way what are you doing for your birthday tomorrow? :birthday:
(11th Feb was also my recently deceased fathers b'day)

bingk6 said:

I suspect that when WayneL referred to property prices revert back to the mean, he was referring to the average house to average wages ratio and NOT the absolute house pricing. The average house to average wages ratio gives an indication as to the ease with which people are able to service their mortgage. A high historical ratio indicates a high pain level and if its at a sufficiently high level will start to put a lot of families off property.

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My comment of "piffle" was made on the interpretation that Wayne was talking about absolute house pricing in which case I didn't think it required any statistics to back it up and still don't. If the above difference had been clear then I wouldn't have made that comment because I simply don't know enough about it. OK, Wayne?

Julia

We are all going to die.
70 / 75 if we are lucky
How long should you wait?

By the way what are you doing for your birthday tomorrow?
(11th Feb was also my recently deceased fathers b'day)

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Hmm how apt!

Got a phone call from Mum this morning---still going strong---her sister died over night.

You know there are 2 biggies in life.

Birth and Death
We just fill in the time in between.
Its how and what you do that time that determines wether it was a life worth living.And in this country we are lucky enough to be able to determine our OWN destiny---some dont have that luxury.
Now that can be in many different forms other than wealth creation.

There are many like Bronte,Myself and quite a few others that dont wish to look back at life and say----

I wish I'd tried that!!!

I do even now!
Thanks for the best wishes

Sorry for not quoting the entire post, but this was the only bit I want to comment on

Tech/a said:

Come on people give me some real ammo on why every young undercapitalised person is doomed!!

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Quite simply they aren't. Not all young people are doomed(unless they resign themselves to that fact like Stop The Clock has,
but that's a completely different topic). I know quite a few my age(26) that were able to take advantage of the most recent boom, and other's
like myself are starting to look at entering the property market, now that houses are more reasonably priced(well,in my area anyway)

Hopefully will have bought a house by the middle of this year, and I'm not worried if I get in a little early and
prices still fall a bit. I'm getting to the point where I don't particularly care if there is a "mega bust" or not-I
consider prices to be quite reasonable in my area, and I'm gettin to the point where I want in!

Stop the clock,
If it all goes horribly wrong and I lose my money in a mega crash, I'll come back for the I told you so speech, I'll deserve it after you've been
posting about it for all this time!

If it works out, you can come pitch your tent in my backyard

tech/a said:

(a) For the first time EN MASS we are going to enter the age of OLD MONEY. First home buyers in general will struggle in the above. In most cases when their parents pass on there will be old money now combined with the new at 40-60s for most. Where will they go?

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Tech/a, your insight into this entire situation is refreshing. This observation struck me the most and within it I believe is a solution that too few people consider.

Family. Learn to get along with them, learn to do business with them, learn to invest with them. It is going to become increasingly difficult to rise above the challenges of high house prices as a sole family unit.

For decades the immigrants to our shores have operated in this way and they are serving our butts to us on a plate in this space. Perhaps when your government is corrupt or communist or dictatorial or whatever else made prosperity for the masses impossible in the old country, and you arrive in a place where money is plentiful and everything seems so fair and transparent and possible then, as tech/a says, YOU GET IT and YOU JUST GET ON WITH IT.

Don't believe me? Ask a second generation Greek what they thought when they went back to the village. Then ask them why, if it was so beautiful, that they didn't stay? Ask the same thing of a second generation Indian...or even a first generation Indian who has migrated here. When the Indian economy is thriving and the share market has gone up 10x in a few years, ask them why they didn't consider moving back.

wayneL said:

There are people right now in the US UK and Aus who are in dire financial trouble because they took the "opportunity"... especially in the US where some folks have lost hundreds of thousands in the crash that is in progression there.

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Wayne,

I am fortunate enough to receive a multitude of data through my employment on housing defaults. Mortgage Insurers have reported over a 150% jump in defaults for insured loans (figures are comparing Decmbers 05 & 06). One weekend in January had a ridiculously high figure for mortgagee auctions in Sydney (over 30% of cleared properties were mortgagee auctions).
On the face of it (and really, by most definitions) this constitutes a bear market for housing, however the figures made public never seem to provide a breakdown of the housing types that are being hardest hit:

a. Metro locations: established suburbs where the overwhelming majority of owners are living in the property in major cities
b. Properties where the valuations were inflated by recently completed improvements to the property
c. The balance sheets/A&L summaries of the mortagors showed a significant proportion of them were largely debt free.

For mine, point c is the sticking point. As a lender to high net worth clients, I find the hardest deals to get accross the line are those who are highly geared for investment purposes - insurers apply harsh restrictions to these clients, but being financially savvy I tend to look upon them more favourably. Of course, experience with obtaining and managing good debt can only help the ongoing maintenance of loan requirements.

I am personally bucking the trend and am looking to purchase an investment property in the next 6 months - my gearing levels will, for mortgage purposes, be less than half of what I can afford because the greatest opportunities (and rental growth) in the areas I am looking at appear to be in the bottom end of the market. This is, of course, the sector most effected by the rental squeeze, exagerating the opportunity

There are still opportunities in the market, despite the bear market label being absolutely correct. It just appears that the are less total opportunities available, making the research a little more difficult.

Cheers

Stop_the_clock said:

Property runs in cycles of mini booms and bust, then we get the mega boom, and now its a mega bust.

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This is a very one-dimensional assessment. Australia is a very rich country. What if your reference points are all wrong? What if the wages don't adjust upwards to close the gap to mortgage repayments...what if the middle class in this country has had a permanent adjustment down in living standards, and as tech/a says, the OLD MONEY are the new (middle/upper)-middle class ie. them with the guts to have taken a chance some decades ago when none of what has happened was yet written.

The social ladder in Australia might be longer than it was 20 years ago and the bottom rungs a bit lower (and based on how I see many CEOs being compensated I would say that the top rungs are MUCH higher). And what do you think George Bush whispers into John Howards ear during those dinners at the White House? "Hey Johnny, if you let heaps of immigrants in you'll have cheap labour to mow your lawns, tend your gardens and keep your houses when you're all too old and rich to do it yourselves". But when you pick up one end of the stick, you get the other end too. Once in the population these immigrants can climb the ladder too, and the rules are the same for them. Why aren't they all complaining?? They're too busy competing and GETTING ON WITH IT.

If this is the case, then your mega bust is fiction. Frankly I can't see where a mega bust will come from when there is so much money sloshing around in this economy. Even with 6.25% interest rates the RBA can't soak up enough of the excessive liquidity in the money supply, and so house prices (among other things) keep on rising. There is still so much money sloshing around!

On a side note, if people are concerned about wages vrs repayments... lowering house prices is just one solution to this imbalance (??). But do you think that Johnny Howard and his constituent are going to let wealth be redistributed from their demographic to another when it's known they're all so close to retirement and will need that wealth to live?? Heck no!

If you want a piece of the pie that the baby boomers have your are going to have to fight for it. Wishing house prices to come down is a very indefinite approach. Rather work out how to increase my income personally. House prices are not expensive...they're just expensive for YOU!