The Australian property market

[KIWIKARLOS]

Well we all know the yanks are screwed house prices are falling and troubles on the horizon. My question is how will this effect the Australian housing market.

Been a first home buyer only 1 year ago there is the thought that i may have bought at peak and am in for some loss.

But i've been reading up and there seems to be many differences between the US and Aus markets and im now thinking we will be spared the brunt of the problems in the US.

A few things i have considered is:
1. The fact that house prices "sydney" have been relatively stable for the last couple years and haven't been sinking rather just platued.
2. Australia has no foriegn debt
3. We are experiencing a commodities boom that will unlikely end (but may slow down) for the next 20 years. Thus giving our economy a steriod shot for quite a while.
4. We have inflation increasing but because our wage growth and economy is strong it appears that if controlled should have a minor effect on the market as a whole.
5. If there are probs in the world economy and our economy slows wouldn't the RBA be likely to lower interest rates thus increasing house prices or we let our economy slow and dont increase rates to curb inflation and house prices remain stable.

I understand the US consumer drives alot of global growth through consumption but i see alot of other potential consumers out there in developing countries.

One other thing i have thought is that perhapes if our economy does slow people may move from the booming mining centres as production slows and "come home" to other states with their pockets full of cash.

Any thoughts

 

[KIWIKARLOS]

One other thing is that from what I understand "subprime" lending wasn't ever as big as it was in the US and Aus lending standards are tougher.

Plus I know we have alot of personal debt but doesn't a steaming economy and high productivity and low job rate negate any problems that may come from this ? Although I still believe personal debt levels are unsustainable if we slowed down.

 

[eMark]

Without knowing where you bought, what you bought, or the type of loan you have, or even how much you paid, it's hard to determine your position.

But forget all of that.

The bottom line is (at least in the Eastern states), property has been DEAD since the end of 2003. Most of these states have gone through a retraction already, and now as we head through 2007 property is picking up again.

So when you say you bought one year ago, that will probably turn out to be a pretty good entry point. Have a look around you, property is beginning to go crazy again.

Regarding interest rates. I think the opposite. The higher the interest rates go, the less affordable housing becomes for the first home buyer, the more demand for rental properties. Thus with the current climate, there are not a lot rental properties out there, this appeals to the investor, which drive up demmand for investment properties, and therefore general house prices.

It's a very basic explanation, but I hope this helps. It's all part of the cycle.

My worth.

Well we all know the yanks are screwed house prices are falling and troubles on the horizon. My question is how will this effect the Australian housing market.

Been a first home buyer only 1 year ago there is the thought that i may have bought at peak and am in for some loss.

But i've been reading up and there seems to be many differences between the US and Aus markets and im now thinking we will be spared the brunt of the problems in the US.

A few things i have considered is:
1. The fact that house prices "sydney" have been relatively stable for the last couple years and haven't been sinking rather just platued.
2. Australia has no foriegn debt
3. We are experiencing a commodities boom that will unlikely end (but may slow down) for the next 20 years. Thus giving our economy a steriod shot for quite a while.
4. We have inflation increasing but because our wage growth and economy is strong it appears that if controlled should have a minor effect on the market as a whole.
5. If there are probs in the world economy and our economy slows wouldn't the RBA be likely to lower interest rates thus increasing house prices or we let our economy slow and dont increase rates to curb inflation and house prices remain stable.

I understand the US consumer drives alot of global growth through consumption but i see alot of other potential consumers out there in developing countries.

One other thing i have thought is that perhapes if our economy does slow people may move from the booming mining centres as production slows and "come home" to other states with their pockets full of cash.

Any thoughts

 

[kyme]

few things i have considered is:
1. The fact that house prices "sydney" have been relatively stable for the last couple years and haven't been sinking rather just platued.
2. Australia has no foriegn debt
3. We are experiencing a commodities boom that will unlikely end (but may slow down) for the next 20 years. Thus giving our economy a steriod shot for quite a while.
4. We have inflation increasing but because our wage growth and economy is strong it appears that if controlled should have a minor effect on the market as a whole.
5. If there are probs in the world economy and our economy slows wouldn't the RBA be likely to lower interest rates thus increasing house prices or we let our economy slow and dont increase rates to curb inflation and house prices remain stable.

I understand the US consumer drives alot of global growth through consumption but i see alot of other potential consumers out there in developing countries.

One other thing i have thought is that perhapes if our economy does slow people may move from the booming mining centres as production slows and "come home" to other states with their pockets full of cash.

Any thoughts

I think you will find that Australia's overseas debt level is at record levels, albeit not in hands of federal govt. Like the US we are not a nation of savers, we borrow as a nation to support our lifestyle. Overseas borrowings has propped up our over the top increase in assett prices, especially housing. I can only see stagnation in housing prices for next few years at best. Interest rates will continue trending up worldwide as they return to more normal long term levels, we will follow in that regard. Having said that, If you bought your first house for lifestyle decisions and not looking for quick turnover I wouldn't be too worried.

 

[theasxgorilla]

Been a first home buyer only 1 year ago there is the thought that i may have bought at peak and am in for some loss.

It all depends on where you bought.

If you bought in the right place a year ago, then on the contrary, you bought into upward momentum due to demand outstripping supply. You are probably sitting on a buffer of increased positive equity...any weakness may only bring you back to where you started. My opinion is that I don't think Aust is going to see weakness in the next 5 years. And that sucks because I really want to buy a holiday house over there, but I expect I'm going to really have to have my finger on the pulse to buy any small dips. The trend will be up...just hope Sweden/EU can keep up, lest my kronors become worth less and less against the mighty AUD!

 

[Rafa]

I only bought my first property two years ago... so your not alone KIWIKARLOS.

2. Australia has no foriegn debt

Our foriegn debt is actually around 500 BILLION DOLLARS Close to 70% of GDP...
and rising at over 1 BILLION a month!!!

mainly cause we import heck of a lot more than we export, not to mention the money the banks lend us to pay for our houses is also borrowed from overseas...

No only is that the main cause of the pressure on interest rates... it also means that overseas happening will effect us.

Unfortunately, as recent events in the stock market illustrate... in this globalised 21st century anyway, we don't live on an island! Our boom times are not of our own making... neither are our bust times...

One thing in Australia's favour tho, is regardless of what people say.... housing in Oz is cheap... when you consider land size of blocks and the fantastic country that land belongs to

 

[nioka]

Our foriegn debt is actually around 500 BILLION DOLLARS Close to 70% of GDP...
and rising at over 1 BILLION a month!!!

mainly cause we import heck of a lot more than we export, not to mention the money the banks lend us to pay for our houses is also borrowed from overseas...

No only is that the main cause of the pressure on interest rates... it also means that overseas happening will effect us.

And in the process of running up that debt we have also sold off, to overseas interests, most of Australia's iconic companies and closed down the biggest part of our production. We have also helped a large number of primary producers towards peasantry. (and we call ourselves a clever country)

 

[Smurf1976]

2. Australia has no foriegn debt

Foreign debt is roughly triple now what it was in the mid-1990's. It's amongst the fastest growing things we have and it's rising rapidly both in absolute terms and as a percentage of GDP.

More alarming than the debt itself is the reality that it continues to soar amidst the commodities boom. We ought to be doing incredibly well at the moment but in reality we're borrowing to the hilt.

 

[KIWIKARLOS]

In regards to primary producers and the minerals boom i think that we have been lucky in regards to the commodities boom but we are still technically in the worst drought in 100 years so our agricultural output is significantly less.
If we had good agriculture on the back of minerals it may be different.

My question is what happens when foriegn debt hits 100% of GDP? does that mean people will start lending Aus less and our imports will slow.

In regards to ways to boost our exports or reduce imports there is little we can do labour is so cheap in asia it makes manufacturing impossible and we have nothing else to export.

I think e should start looking for new industries and opportunities such as exporting technology and education maybe renewable energy technologies to. But i can't see any way of curbing imports without slapping a few trade restrictions and tariffs on imported goods.

I for one am in favour of some industry protection here in Aus particularily with primary producers. Free trade is a joke when millions are willing to work for a fraction of the price you are particularily without environmental protection etc lacking in other countries.

 

[kyme]

Be careful what you wish for re industry protection. Think US political knee jerk reaction towards industry protection in 1930's was one of contributing factors to the great depression.
I think our primary producers are disadvantaged by some current overseas industry protectionism eg US, europe, japan etc. Not sure what you are proposing, more government handouts to our primary producers/fixed prices?. The end result of that would probably be increased costs to consumers, therefore increased inflation and therefore higher interest rates. I hate to think what our inflation rate/ interest rates would be without all those cheap asian imports we rely on these days. Maybe our society might be better off if we lived more within our means so we don't have to rely on cheap imports and supported our primary producers/ industry more. Money isn't everything after all.

 

[KIWIKARLOS]

Perhaps the Gov should consider launching a "buy Australian made" campaign. I'm not sure how this would go as far as WTO rules go and I imagine that even if the products were more expensive people would buy if there was a certain prestige/feeling that you were helping your country.

Sort of like the heart foundations "tick of approval" if marketed properly it could have a real impact.

 

[Temjin]

Like Kyme said, if you brought your house as a lifestyle decision and don't planned to move out anytime in the next 10 years, then you shouldn't be worried too much.

However, if you are buying on the basis that you want to turn it over in a few years for a profit, then yes, you should be worried because the money spent (interest payment, house maintainence such as rates, repairs, etc and any other expenses) may be better spent on investing elsewhere at a time like this.

 

[KIWIKARLOS]

It was a lifestyle choice just got married and was renting but I wanted a place that i could make my own. I was surprised actually we bought in May last year its a 3 bedroom townhouse with 2.5 dunnies and garage etc for $425K (people not from Sydney prob can't believe the price for a townhouse) but a few weeks ago another townhouse in my place sold for $437 K thats 3% in 1 year which isn't to bad.

But ill be looking to stay put for 5-10 years.

 

[numbercruncher]

It was a lifestyle choice just got married and was renting but I wanted a place that i could make my own. I was surprised actually we bought in May last year its a 3 bedroom townhouse with 2.5 dunnies and garage etc for $425K (people not from Sydney prob can't believe the price for a townhouse) but a few weeks ago another townhouse in my place sold for $437 K thats 3% in 1 year which isn't to bad.

But ill be looking to stay put for 5-10 years.

Thats actually terrible, but typical of the current market - once you subtract Interest, Realestate commissions, stamp dutys, rates, maintenance your looking at a massive loss.

Its even worse when you add that loss up and place the hypthetical amount into the stock market a year ago - or better still the entire amount invested in say BHP may last year would be like way over 600k plus dividends.

Hell the 425 in a bank account would be over 450k now.

Each to there own with investment thou, but like the others mentioned if Realestate isnt about making money or caring about losses it really doesnt matter.

 

[KIWIKARLOS]

hahahaha i didn't say it was my investment.

Besides the fact i have my missus sister currently livin with us which means my house is now also 45% investment property which gives me about 8 G a year in real return.

I keep money in my offset account about 30G started with and invest in the market. After tax i was 10% up last financial year (still learning) but so far this financial year im up 24% after tax in two months !

With the additional repayments and a few lump sums i've chicked into my home loan its down from 30 years to about 18 now after one year and i still have cash in the bank for market investment and holidays

 

[KIWIKARLOS]

PS you say 425K in a bank account or BHP is better. Of coarse it is but you show me one lender that will give me that much cash to put in a bank account or speculate in the market

I think if you spread your investments you can have a house (for lifestyle reasons) and a good return on investments. Enough to pay off your house in max 15 years and have fun along the way.

 

[numbercruncher]

Thats good Karlos, your doing well. (compared to many others (>: )

I wasnt having a dig or anything, I guess im just saying that on average realestate isnt all its cracked up to be.

Its a crazy ole' world when your actually better off renting and buying an Investment property for the tax advantages, I once knew some brothers in Sydney whom did that, bought Houses and just rented them off each other for the win ....

ANother example and i guess theres hundreds (but the media like to focus on the big wins to keep the game going!) I sold a House on the Gold Coast in 02' for 330k, its now worth 400k - So the guy who bought it after duty etc paid 340k and if he sold after realty fees gets 390k - Wow thats way less than bank interest, and had he bought $340k BHP back in 02 they would now be worth 1.2m+ plus divvies.

In short im just saying that i think realestate stinks worse than a sumo wrestlers back side.

 

[KIWIKARLOS]

totally agree with you mate.

I saw some figures the other day when reading about subrime mess that when inflation etc taken into account the US housing market on;y really increases between 0.4 and 0.7 % per annum and that it has always increased since the great depression the interesting thing is that they are now decreasing and technically that hasn't happened since the depression

I still believe the market is one of the best return investments but i entered in a bull market and haven't experienced trading patterns like this before so im still learning how to trade current conditions

 

[Kimosabi]

totally agree with you mate.

I saw some figures the other day when reading about subrime mess that when inflation etc taken into account the US housing market on;y really increases between 0.4 and 0.7 % per annum and that it has always increased since the great depression the interesting thing is that they are now decreasing and technically that hasn't happened since the depression

I still believe the market is one of the best return investments but i entered in a bull market and haven't experienced trading patterns like this before so im still learning how to trade current conditions

I'm not sure what data the guys were using for the article you were reading but this is a graph of the US housing bubble adjusted for inflation since 1890

 

[KIWIKARLOS]

Well you've just proven my point mate:

do the maths 100% gain in 116 years ! from 1890 to 1996
That equates to an average annual gain of 0.6%

Imagine what the gain pa would be if the investment time frame was from 1955 to 1995 Its 0% over 40 years!

Proving that realestate is one of the worst investments around. Also notice that with the other booms they have returned to just a fraction above their starting point after they run their course. That a huge loss if history repeats itself