House prices to stagnate for 'years'

[Kimosabi]

Goodbye Housing Bubble



Boom Bust - UK housing bubble set to burst



www.ablemesh.co.uk/thoughtsboombust.html

Some of the music sucks, but anyway, you'll get the message...

 

[YChromozome]

but a more reasonable comparison would be the actual yearly interest cost as a percent of income.

As you can see, its easy to say the house was cheaper when looking at multiples of income, but during a booming inflation economy, interest rates were often high.

The RBA also publishes Debt to disposable income ratio for Households (B21) which detail interest payments to disposal income of which is housing.

A graph looks like this :

It doesn't go back as far as 1975, it starts at 1979, but the blue line shows interest payments (housing) vs disposable income.

In 1997 the average Australian household spent 3.8% of disposable income on housing payments. In December 2007, it was 9.7%, or a 150% increase. . .

You can also see from the graph that the difference between the red and blue lines is the other household debt - revolving credit, personal loans etc. It hasn't increased anywhere near the rate housing debt has.

 

[Kimosabi]

Interesting article from news.com.au

Economy buffers mortgage crisis

May 15, 2007 09:55am
Article from: AAP

• US mortgage default rates hit all-time high
• Australian situation 'different' - Costello
• Keeping unemployment, inflation down 'main priority'

AUSTRALIANS should not be concerned about rising interest rates fuelled by a surge in mortgage defaults in the US, Treasurer Peter Costello has said.

US mortgage default rates hit an all-time high in the first quarter of 2007.

Mr Costello said he would continue to closely monitor developments in the US, but the Australian situation was different.

"There's been a large default (rate) in the United States and it's of concern to the Americans,'' Mr Costello told Macquarie Regional Radio today.

"The default rate in Australia is much, much lower than it is in the United States ... In fact, we have one of the lowest default rates in the world. But we do watch what happens in the American economy.

"It's the world's biggest economy and it can have effects here.''

Mr Costello said his primary concern in Australia was keeping unemployment and inflation down.

"We do like to keep an eye on the international developments but the important thing for us, really, is to keep inflation low, keep the prices down, make sure that we run strong economic management ... consistent with keeping people in jobs and people in homes and businesses successful,'' he said.

"That's what we like to see.''


http://www.news.com.au/business/story/0,23636,21733895-462,00.html

Good to see we don't have anything to worry about, now where are those mortgage papers...

 

[WaySolid]

This thread started back in 2005.

Since then in Adelaide (Where the instigator of the thread lives).
Average prices have risen 20-35%.

Sadly this will be a similar case (No 20-30% rewind in pricing across the board) for those who wait and wait and wait for the "right" time to enter the housing market.

Ive said it before and I'll say it again.
There is NO BETTER TIME to enter the realestate market than NOW.

Just be smart in the way you enter it.(be creative).
That doesnt mean all can afford to enter the market either.

It is interesting isn't it? All of this energy devoted to how the bubble is going to burst, meanwhile you and I have been making money in real estate.

Quoting newspaper articles to support a view only leaves me underwhelmed though, unless the journalists have studied more history than me. You can feed your confirmation bias on anything these days, just use 'The Google' as Dubya would say.

I'm comfortable with the idea that you can be a fool and be wealthy.

 

[WaySolid]

The RBA also publishes Debt to disposable income ratio for Households (B21) which detail interest payments to disposal income of which is housing.

A graph looks like this :

It doesn't go back as far as 1975, it starts at 1979, but the blue line shows interest payments (housing) vs disposable income.

In 1997 the average Australian household spent 3.8% of disposable income on housing payments. In December 2007, it was 9.7%, or a 150% increase. . .

You can also see from the graph that the difference between the red and blue lines is the other household debt - revolving credit, personal loans etc. It hasn't increased anywhere near the rate housing debt has.

Data is often pure but what conclusions to draw from it might be the challenge.

The house to white good ratio is sky high by historical standards, the same for the house to car ratio, have you seen what those things used to cost in the 60's and 70's? I submit that there will be nothing special happening in terms of mean reversion here

The China Price is encouraging appreciating asset inflation as when your fridge and plasma TV cost so little of your weekly wage you can afford more of a mortgage, also there is the ocean of credit which doesn't hurt.

Also you need to compare the first house Jan Somers bought (a little wooden box basically) with what first home buyers expect today... It's normally a bit different as the expectation to reality ratio is also sky high these days. Housing affordability crisis indeed, come let me show you some places in Brisbane that cost less than 150k.

In the end I retain the general view that at decent P/E (sub 20 especially) multiples and desirable locations; residential property is an excellent place to be investing at the moment in this country, much as it has been for the last 150 years.

 

[tech/a]

Clearly W/S most who post on this thread in particular those who wish to support the veiw of an impending doom scenerio---arent involved in property.

Fear quite possibly may see this stance solidified in more than housing investment for most of these posters. Infact its seen in the Imminent doom and Panic,XJO is Crashing and many other like threads.

 

[Kimosabi]

Data is often pure but what conclusions to draw from it might be the challenge.

The house to white good ratio is sky high by historical standards, the same for the house to car ratio, have you seen what those things used to cost in the 60's and 70's? I submit that there will be nothing special happening in terms of mean reversion here

The China Price is encouraging appreciating asset inflation as when your fridge and plasma TV cost so little of your weekly wage you can afford more of a mortgage, also there is the ocean of credit which doesn't hurt.

Also you need to compare the first house Jan Somers bought (a little wooden box basically) with what first home buyers expect today... It's normally a bit different as the expectation to reality ratio is also sky high these days. Housing affordability crisis indeed, come let me show you some places in Brisbane that cost less than 150k.

In the end I retain the general view that at decent P/E (sub 20 especially) multiples and desirable locations; residential property is an excellent place to be investing at the moment in this country, much as it has been for the last 150 years.

No problemo boys, just keep blowing those bubbles...

 

[wayneL]

...also there is the ocean of credit which doesn't hurt.

This is the crux of the whole argument. While the credit/economy relationship my be a chicken and egg conundrum, one thing is for sure...

Loose credit => Rising prices
Tight credit => Contracting/stagnant prices

Credit in Oz is still very loose. However:
in the States it is now tightening
in the UK, Prime is tightening while sub-prime is loosening

While there is loose credit, there will always be some muppet willing to hock themselves up to the friggin' eyeballs, because re "only ever go up"... a fallacy some are only beginning to discover... a fallacy many discovered in the early 90's.

NB (Loooong term they may of course go up, but servicing a ludicrous mortgage in the meantime, when equity may be negative for a time, has shown to be crushing at times)

 

[WaySolid]

I was going to say 'I too can post funny You Tube videos', which require little involvement and thought from me.. But turns out I can't, not sure why.

Anyway here is my funny you tube video:

http://www.youtube.com/watch?v=dGvw6WpHSF4

I only took an interest in this thread as I have become aware of how toxic information can be, just mosey back to the first post in this thread and imagine you were basing investing decisions on that information.

I wanted to add some input based on my amateur historical research and real world experiences, that was my only motivation, I certainly don't feel smart for all the CG I have experienced in property, grateful but not smart.

Your investing results will cut like a hot knife through butter when it comes to idle speculation anyhow.

Bye and good luck!

 

[WaySolid]

Clearly W/S most who post on this thread in particular those who wish to support the veiw of an impending doom scenerio---arent involved in property.

Fear quite possibly may see this stance solidified in more than housing investment for most of these posters. Infact its seen in the Imminent doom and Panic,XJO is Crashing and many other like threads.

Just noticed this post, yes I suspect that is the case, it's usually a different perspective when you are uninvolved.

My understanding is it's more likely that a bull market rolls over rather than crashes, and you really need exquisite timing to provide anything but robust longer term results for buy and hold.

Accumulate quality assets and keep repeating, a formula that has worked fairly well for some time.

Rolling 5 and 10 year nominal forward returns for the XJO accumulation index in the 1980's. Note how very accurate your timing would have to be to nail negative returns once you extend your time frame to 5 years.

 

[wayneL]

Clearly W/S most who post on this thread in particular those who wish to support the veiw of an impending doom scenerio---arent involved in property.

Fear quite possibly may see this stance solidified in more than housing investment for most of these posters. Infact its seen in the Imminent doom and Panic,XJO is Crashing and many other like threads.

That's an assumption that is not necessarily correct.

 

[WaySolid]

This is the crux of the whole argument. While the credit/economy relationship my be a chicken and egg conundrum, one thing is for sure...

Loose credit => Rising prices
Tight credit => Contracting/stagnant prices

Credit in Oz is still very loose. However:
in the States it is now tightening
in the UK, Prime is tightening while sub-prime is loosening

While there is loose credit, there will always be some muppet willing to hock themselves up to the friggin' eyeballs, because re "only ever go up"... a fallacy some are only beginning to discover... a fallacy many discovered in the early 90's.

NB (Loooong term they may of course go up, but servicing a ludicrous mortgage in the meantime, when equity may be negative for a time, has shown to be crushing at times)

Agreed.

 

[tech/a]

Clearly W/S most

Not all.

 

[robots]

hello,

most property owners are sitting on around a 10% return per annum over the last 10yrs, isn't that the long term trend?

if you go out to 20 yrs things are around the same, so where is the bubble?

sure some have excelled more and others not excelled so much,

its loud and clear though that things are good

thankyou

robots

 

[YChromozome]

most property owners are sitting on around a 10% return per annum over the last 10yrs, isn't that the long term trend?

if you go out to 20 yrs things are around the same, so where is the bubble?

Actually, long term houses don't increase anymore than inflation, otherwise they become un-affordable and out of reach.

Yale economist, Robert J Shiller has a US real home price index dating back to 1890. Sure there are booms, followed by busts, but prior to this decade house prices over the 100 years had not gone up much more than inflation.

Dutch economist, Piet M. A. Eichholtz created a real house price index for one street going back 400 years. It was the same outcome, house prices over those 400 years didn't increase much more than inflation. Sure, again there were plenty of booms, but they were always followed by busts.

If house prices rise more than inflation, they become un-affordable.

 

[CanOz]

Actually, long term houses don't increase anymore than inflation, otherwise they become un-affordable and out of reach.

Yale economist, Robert J Shiller has a US real home price index dating back to 1890. Sure there are booms, followed by busts, but prior to this decade house prices over the 100 years had not gone up much more than inflation.

Dutch economist, Piet M. A. Eichholtz created a real house price index for one street going back 400 years. It was the same outcome, house prices over those 400 years didn't increase much more than inflation. Sure, again there were plenty of booms, but they were always followed by busts.

If house prices rise more than inflation, they become un-affordable.

Great post YC...when you think about it...its just supply and demand....like everything else!

Cheers,

 

[robots]

hello,

any changes on the property prices this week, another week passed, faithful still hanging in there for the bust

around 3 months form the 2 yr anniversary, anyone post a count down clock

thankyou

robots

 

[tech/a]

Actually, long term houses don't increase anymore than inflation, otherwise they become un-affordable and out of reach.

Yale economist, Robert J Shiller has a US real home price index dating back to 1890. Sure there are booms, followed by busts, but prior to this decade house prices over the 100 years had not gone up much more than inflation.

Dutch economist, Piet M. A. Eichholtz created a real house price index for one street going back 400 years. It was the same outcome, house prices over those 400 years didn't increase much more than inflation. Sure, again there were plenty of booms, but they were always followed by busts.

If house prices rise more than inflation, they become un-affordable.

As an investor in ANYTHING.

Its the constant challenge to find outlier moves in the vehical of investment.
Recognise the potential----take advantage of it---maximise profit and minimise risk..
Property/Shares/Art/Coins/Commodities---whatever your choice.

I think most here miss the point of sound investing.

In a nut shell

(1) Most can recognise opportunity.
(2) Few know how to take advantage of that opportunity.
(3) Fewer again actually DO SOMETHING with the opportunity.

 

[YChromozome]

Recognise the potential----take advantage of it---maximise profit and minimise risk..

I couldn't agree more. As a director of a company, we sold our rental property assets in February to minimise risk. We are very happy with our returns over the years.

At the end of 2003, we were cautious with property being overvalued by 51% based on Fundamentals. The warning bells were ringing. Now the alarm bells are ringing and we have moved that money into other assets and reduced all exposure to the residential property market.

 

[robots]

hello,

another great weekend coming up chromo for property holders

open for inspections are insane at the moment, so many people, many bidders

great stuff across australia

thankyou

robots