House prices to stagnate for 'years'

[chops_a_must]

Did the car industry sit back and say time to stop manufacturing?
Did car dealers stop selling cars?

Both Ford and GM have really tried hard. Lol!

 

[dubiousinfo]

Ahhh here comes the 100 reason why you won't.

...and here lies the key to the reason why some members of society choose to play playstation and you bitch and moan because they do.

It's a win/win situation!

No one loses, if they don't turn out to be good workers, well hey, you have made money in the process, so how can you lose?

Kris
You just dont get it.

Tech just told you he is hiring people. As is every other contruction company.
It is just that the people he and other companies will hire, are the ones that demonstrate the will and desire to do whatever it takes to succeed. He's not going to go down to the local Centrelink office when Rob is coming to him and showing the sort of commitment he did.

After many years of running commercial construction and property companies, I can tell you that I look for people with the desire and will to succeed before I worry about skill or experience. Regardless of whether it's onsite tradesmen, secretaries, accountants or senior mangement, the desire has to be there.

Skills can be taught (after all its not rocket science) but you can not teach attitude or desire.

 

[dubiousinfo]

I'll be honest with you Wayne, I don't know. If the person who beats your hypothetical bread winner to the punch is a hypothetical ex-blue collar guy who saw the writing on the wall for the manufacturing sector in this country and went off to night school to get a new skill for the new century and ten years down the track he ends up renting his first investment property out to one of his buddies who is about to be laid off in the factory...how much deserve does each of them measure out?

Do you think wife of ex-blue collar man will let him lower the rent to do a favour for his buddy when it's their lifestyle and their kids up bringing that will be compromised and she experienced first hand the sacrifices her husband made?

I'll borrow another Rohn adage, learn to bring value. One guy learned how to remain valuable in the new century while the other watched his value diminish until he had so little that he could no longer negotiate.

I'll drop one last quote because Rohn says it a gazillion times better than I could ever hope to:

"Let others lead small lives,but not you.Let others argue over small things,but not you.Let others cry over small hurts,but not you.Let others leave their future in someone elses hands,but not you. not you."

Great post Gorilla.

 

[wayneL]

I'll be honest with you Wayne, I don't know. If the person who beats your hypothetical bread winner to the punch is a hypothetical ex-blue collar guy who saw the writing on the wall for the manufacturing sector in this country and went off to night school to get a new skill for the new century and ten years down the track he ends up renting his first investment property out to one of his buddies who is about to be laid off in the factory...how much deserve does each of them measure out?

Do you think wife of ex-blue collar man will let him lower the rent to do a favour for his buddy when it's their lifestyle and their kids up bringing that will be compromised and she experienced first hand the sacrifices her husband made?

I'll borrow another Rohn adage, learn to bring value. One guy learned how to remain valuable in the new century while the other watched his value diminish until he had so little that he could no longer negotiate.

I'll drop one last quote because Rohn says it a gazillion times better than I could ever hope to:

"Let others lead small lives,but not you.Let others argue over small things,but not you.Let others cry over small hurts,but not you.Let others leave their future in someone elses hands,but not you. not you."

Been thinking about this...and been thinking why I was a little uneasy about it.

Whilst the general thrust of the post is certainly valid, it doesn't address the fundamental overvaluation of property, which this thread is about.

The smart guy, in our pseudo meritocratic society would certainly end up with nicer accomodation than the other guy, and that is probably well deserved.

However our other fellow, who could have afforded a modest family home as little as two or three years ago, now (presuming he does not already own) cannot, or certainly not the same accomodation anyway.

This strikes me as a fundamental imbalance that will surely correct in some way back towards normal value metrics... as all markets do.

The people Jim was addressing are aiming higher than an average home, yet the property bulls are now expecting above average earnings and/or business acumen to be able to afford the average home.

There is something wrong with that on a number of levels. It is unsustainable and will revert to the mean. (value as opposed to price).

Interesting times.

 

[tech/a]

This strikes me as a fundamental imbalance that will surely correct in some way back towards normal value metrics... as all markets do.

Wayne.

These imbalances have occured at least on 2 other occasions nationally in my 50 year lifespan.
The return to balance doesnt and hasnt come about as abruptly as the imbalance. As such those expecting this to happen will be left waiting as the imbalance balances without a discernable change over a number of years.
Those who place themselves in the property cycle will make the gains as balance re distributes but over time. Like looking at the float of CBA and now looking back and saying wow 15 X the initial float---wish Id got on!!

The people Jim was addressing are aiming higher than an average home, yet the property bulls are now expecting above average earnings and/or business acumen to be able to afford the average home.

Well this will happen overtime like it has over the last 50 yrs.
Nothing will change.

Its not different this time!!

 

[Smurf1976]

Professionals in ANY business are neither bullish or bearish.
I'm neither---Property/Trading/Business. I dont care how others percieve conditions.I'll do business as best I can in whatever I'm doing given whatever is dished up.

Professionals go about business given the conditions dished up to them.
I dont know of any PROFESSIONAL property developer/s who are out of the market.

Land SA make my investments look like a trip to the deli.
The latest release is 5000 blocks.
Hickenbothams (builder) one of our clients have just opened a 300 block subdivision and selling houses on their land and building them as fast as council will approve them.

Wayne the people you speak of arent professional.
They dabble in property. Its not their principal scource of income.
Those of us who are small---professionals look for those opportunities the huge players overlook.For them its not profitable to build a 5-10 apartment developement---but demand dictates opportunity. We fill a hole and service a need.

All jokes aside pro developers who read this thread would simply shake their heads.

Doesnt matter what industry you chose there will always be adversity.
Take the Fuel crisis.Did Toyota roll over and stick up the white flag?
Did the weaker players get taken out or forced to adjust their ways of thinking and doing business?
Did the car industry sit back and say time to stop manufacturing?
Did car dealers stop selling cars?

Opportunity---Identify it.
Opportunity---learn how to take advantage of it.
Opportunity---Take it!

Sure I get frustrated when I see constant excuses why this or that cant happen and how unfair life is.

This is the greatest counrty on earth ANYONE can succeed all it takes is effort.

Most choose to be victims of circumstance---its easier in the SHORT term
but life becomes more difficult in the LONG term.

Just look at most long term un employed who chose to be victims and sat home playing Playstation for anyone of 100 reasons.---easier at 20 harder at 30---lost cause at 40.--their choice!

Totally agreed with your point about taking advantage of opportunity.

But it doesn't answer the question as to what happens next with house prices. Sure, there is an opportunity to develop, buy and hold or stay out of the market etc. But with the exception of the development aspect which most investors aren't going to be doing, you are basically speculating on the house price going up since the yield doesn't make property attractive in itself.

Personally, I can't see housing rising as much as other assets over the next few years simply because it is starting from such a high valuation relative to the fundamentals which support it. I think you could make more profit investing in something else - in recent times even cash isn't doing badly compared to property in many parts of the country.

If you value houses in something other than fiat currency then a very different picture emerges. They've outright crashed compared to most other physical things - oil, zinc, food etc. It's only the continuing loss of value of the currencies that hides this when house prices are measured in terms of fiat currency.

Long term, borrowing lots of currency at low rates and buying something physical with it is a no-brainer in a world of constant inflation. The question is about what happens in the immediate future. That is, is now the best time to buy or is it better to wait? So far, waiting has done me quite nicely over the past 3 years but that obviously won't continue forever and that's the issue - WHEN to go short the Dollar and long Housing?

 

[Dr Doom]

Good post smurf. It's all relative to what else is on offer for investors, and what is affordable for home buyers.

"Investment property lending in NSW has plunged by 38.1 per cent since June, a much greater drop than that which followed the introduction of the ill-fated ``exit tax'' on property investors in that state in 2004.

In a clear sign that the West Australian property boom has run out of steam, investment property lending in the state has plunged 37.1 per cent in six months. In most other states it has dropped by about 20 per cent. "

http://www.news.com.au/business/story/0,23636,21224392-37037,00.html

The general view, even among the pro's, is to wait until July for some sort of magical turnaround... when people will start withdrawing their super to buy property?.

Isn't the problem that vacant land is just too expensive, at over $340k in Sydney?.

Tech/a, would you buy one of these blocks?. Then build a home, costing say $250k, so we're getting up to $600k plus with fees etc, & then you still have a mortgage to pay off.

People are being squeezed and it's starting to hurt. The cycle has turned.

 

[theasxgorilla]

Whilst the general thrust of the post is certainly valid, it doesn't address the fundamental overvaluation of property, which this thread is about.

I didn't join the dots very well.

The guy who re-invented himself doesn't find property over-valued. It's all relative, as other recent posters have also stated.

Thomas Friedman writes about this scenario in his book, "The World is Flat". While unions are protecting the wage levels of old professions and many here seem to expect that property prices will come back down to be more affordable relative to these wages...there is another scenario IMO.

The old jobs will continue to receive union negotiated pay increases which barely keep pace with inflation, whilst the new professions receive pay increases more in line with the rate at which property prices are advancing.

Longer term its going to be more beneficial for the individual to identify a new profession that will allow them to become valuable and hence make property prices seem less over-valued, relative to them. If you don't believe me...that's okay. The forces at play here are global in scale and greater than our mere 20 million populous can do much about.

 

[legs]

What the hell has any of this got to do with stagnating house prices...get a bit carried away did we?

 

[theasxgorilla]

What the hell has any of this got to do with stagnating house prices...get a bit carried away did we?

After 47 pages of a thread...what do you expect?

 

[Smurf1976]

I didn't join the dots very well.

The guy who re-invented himself doesn't find property over-valued. It's all relative, as other recent posters have also stated.

Thomas Friedman writes about this scenario in his book, "The World is Flat". While unions are protecting the wage levels of old professions and many here seem to expect that property prices will come back down to be more affordable relative to these wages...there is another scenario IMO.

The old jobs will continue to receive union negotiated pay increases which barely keep pace with inflation, whilst the new professions receive pay increases more in line with the rate at which property prices are advancing.

Longer term its going to be more beneficial for the individual to identify a new profession that will allow them to become valuable and hence make property prices seem less over-valued, relative to them. If you don't believe me...that's okay. The forces at play here are global in scale and greater than our mere 20 million populous can do much about.

I can see your point, but we'll still be needing doctors, engineers, police, tradesmen etc in the future so us all simply moving to a new career isn't an option. By definition the average worker can't "trade up" to a better position unless the economy moves away from lower paid work as a whole.

 

[chops_a_must]

The old jobs will continue to receive union negotiated pay increases which barely keep pace with inflation, whilst the new professions receive pay increases more in line with the rate at which property prices are advancing.

Historically, collective bargaining agreements raise wages above that of workers negotiating on their own. That's why employers don't like it.

The case in point being women in the workforce. Women have a lower union representation in the workforce than males do. Wages for women have FALLEN 3% in the last year. End of story.

 

[Broadside]

House prices are completely out of whack with earnings which makes them fundamentally overvalued by historical standards. Has there been a paradigm shift which means we can dismiss historical measures of affordability? I don't think so. So either earnings need to increase dramatically which is going to be massively inflationary with severe repercussions for the economy and interest rates, or house prices need to fall or at least stagnate for a time while wages play catch up.

I don't subscribe to the "this time it's different" theory, house prices are like any other asset class and sooner or later fundamentals will kick in, hard.

 

[Rafa]

I don't subscribe to the "this time it's different" theory, house prices are like any other asset class and sooner or later fundamentals will kick in, hard.

I may be wrong, but surely, 'this time is different' means, this time housing will actually crash!

I mean, there have been many booms, followed by plateaus, then followed by another boom... (not adjusted for inflation, i am talking absolute figures here...)

When was there a time in Oz when house prices actually fell substantially?
Why should this time be any different?

I have to say, its you guys saying the market is going to crash, that are the ones hoping for it to be different this time...

 

[Broadside]

I actually think we will see a plateauing or moderate decline rather than a crash, but the longer it defies gravity the harder the potential fall....there was a fairly severe fall in the early 90s when many people had negative equity in their homes.

 

[theasxgorilla]

Historically, collective bargaining agreements raise wages above that of workers negotiating on their own. That's why employers don't like it.

The case in point being women in the workforce. Women have a lower union representation in the workforce than males do. Wages for women have FALLEN 3% in the last year. End of story.

Maybe so, but when property prices boomed out of the low in '97, which industry sectors saw their wages growing in line with the boom in prices?

You refer to collective vrs individual...I'm refering to non-unionised sectors eg. IT, accounting, finance, real estate, self-employed trades people etc.

 

[chops_a_must]

Maybe so, but when property prices boomed out of the low in '97, which industry sectors saw their wages growing in line with the boom in prices?

You refer to collective vrs individual...I'm refering to non-unionised sectors eg. IT, accounting, finance, real estate, self-employed trades people etc.

Then you can't make the comparison. It's like saying a workplace with mandatory union membership has higher wages than the zero workers on the site without a union. It doesn't make sense.

Even workers in the boom industries (like home building) have had increased wages for unionised workers substantially higher than those without.

It's all well and good to say that these builders need a new profession to move into, with wages that keep pace with inflation. But you are still going to need the people to build the houses that allow the rise in wages for the new professions that you are talking about.

 

[theasxgorilla]

It's all well and good to say that these builders need a new profession to move into, with wages that keep pace with inflation. But you are still going to need the people to build the houses that allow the rise in wages for the new professions that you are talking about.

I didn't say any of this.

I don't think wages that keep pace with inflation is the objective...thats why people are in this predicament in the first place. Wages need to keep pace with house prices or affordability suffers...this is what we're stating isn't it?

 

[wayneL]

I may be wrong, but surely, 'this time is different' means, this time housing will actually crash!

I mean, there have been many booms, followed by plateaus, then followed by another boom... (not adjusted for inflation, i am talking absolute figures here...)

When was there a time in Oz when house prices actually fell substantially?
Why should this time be any different?

I have to say, its you guys saying the market is going to crash, that are the ones hoping for it to be different this time...

This is an interesting point.

In my involvement in property markets during "busts" I have noticed a strange divergence between the indicies and actual empirical examples.

I can state categorically in the places I have lived in at those times, e.g. early 90's, prices did indeed fall on individual properties... and in enough cases, and by enough dollar value, that it should have mattered to the indicies.

But the indicies stayed flat

I should state this was in fairly premium areas, not just average suburbs.

I have never been able to explain this, apart from the role of gentrification in placing an upwards skew on indicies.

 

[Dr Doom]

I didn't say any of this.

I don't think wages that keep pace with inflation is the objective...thats why people are in this predicament in the first place. Wages need to keep pace with house prices or affordability suffers...this is what we're stating isn't it?

I think that's exactly what those who do not think it's a good time to buy a house at the moment are saying. Generally, what the pro argument is saying is that the conditions that have given rise to the gains of the last few years in each market will continue, when it is plain to see that each market has matured, plateaued, and is now waiting to see what comes next. Now if economic cycles count anymore then, as shown in the affordability stats, rising rents, rising interest rates, then sometime down the track then the odds are more skewed towards a cleansing recession to 'purge' the system of exuberant liquidity than to a continuation of rising house prices.