Australian (ASX) Stock Market Forum

The future of Australian property prices

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Wysiwyg said:
So you want to prey on FHB's that can't afford to pay off their mortgage due to high interest rates?
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At what point did I mention preying on FHB? I put it simply so some could understand that this segment of the market will be the first to show any signs of weakness.

If you wish to attack anyone look no closer than the govnuts who will have created this problem at the cost of tax payers.

If FHBers bought without adaquate deposit and did not account for interest rates returning to normal at some stage or minor corrections in the property market and as a result have over extended themselves I have no sympathy at all. That is life, simply risk and reward. Take the loss on the chin and get on with it.

Cheers
 
robots said:
anymore tests coming up?
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Yes, the same one that saw property price revert late last year, 2009 and it was not the GFC but high interest rate rising slowing eating away at our debt ridden society.

So the test will be how will segments of the market handle rising interest rates in 2010.

I suppose of beloved Governuts could sell the whole of Australia to the highest bidder to keep prices rising at the cost of our children and grand children.

One again I will say, we need to be a country driven by innovation, efficiency and productivity. Creating high RE prices based on gratuitous amounts of debt does not benefit society now or in the future.

Cheers

Beautiful evening in Melbourne tonight
 
Robots, and here is another one for you...its the same old mantra...only a couple of us predicted the way it would play out...

Beware real estate boom:
economistNATALIE CRAIG AND MARC PALLISCO
December 13, 2009
extract only.......

AUSTRALIAN house prices are likely to boom for at least three years following a record month for auctions and sales of nearly $1 billion yesterday, according to a leading economic forecaster.

''This is only the beginning,'' warned BIS Shrapnel chief economist Frank Gelber.

''The market will continue to grow, maybe not at this frenetic pace, but we need to build more to satisfy demand and we're not doing that. By the time this is over in three or four years' time, we will have built momentum into a boom … and if we're not careful, a price bubble.''

(and this piece....do any of you recall, some of us have been expecting the investors to take over again...been saying that for ages....been there and done that...history repeats...)
extract.......
But Dr Gelber says it is upgraders and investors who are now fuelling demand, and it will take more than the 1 per cent interest rate rise forecast for 2010 to dampen their appetites.

He added that price rises were necessary in order to fuel much-needed construction.

But economist Alan Moran warned impending price rises would only worsen the situation for desperate first-time buyers.

http://www.theage.com.au/national/beware-real-estate-boom-economist-20091212-kppq.html

Chapel st is crazy...must be all the xmas shoppers......
I am buying bayside in 2010....no climate change worries for me...call me a sceptic....
cheers...:D
 
I have been working through the numbers of buying a house vs renting and just can't see how buying works out better.

Due to the desire to be close to work i've been looking at inner city melbourne on the north side. I also want to live in a nicer place as well.

To buy prices are like 350-450k for a 1br and 600-750k for a 2br place, then you have stamp duty and have to pay rates, maintenance and other outgoings. To break even after the 1st year you'd need about 10% cap gains and 5+% after that for the negative gearing and inflation.

To rent prices are about $300-400pw and $500-600pw so far less than interest in mortgage repayments.

Now the price of housing may go up 20+% and you make a lot of money but that's because of the incredible amount of leverage. A lot of individual shares would go up 20+% but no bank is gonna lend me even close to 90% to buy shares.

Maybe as an investment property it would work as the cashflow negativity might not be so bad as I can borrow 90% without mortgage insurance but I don't see how prices can sky rocket from here sustainably given the low rental yields and because it takes such a large percentage of couples incomes to service a mortgage these days.

I've been thinking that for about 6 years now so I'm probably wrong or maybe its because i see a home as a necessary expense not my castle.
 
suhm said:
I've been thinking that for about 6 years now so I'm probably wrong or maybe its because i see a home as a necessary expense not my castle.
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No offense but obviously you are wrong.
House prices almost doubled in those 6 years alone not just 20% you stated.

How many people can pick the right shares? Overall, it's safer to go with Property.
 
overule said:
No offense but obviously you are wrong.
House prices almost doubled in those 6 years alone not just 20% you stated.

How many people can pick the right shares? Overall, it's safer to go with Property.
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I disagree - this is a trap many fall into.

Your principal place of residence should be recognised as an expense - NOT an asset. Here is why
First, you earn no income from your PPR. Second, it costs you money to live in it - yet, you pay tax on the property (Stamp duty, rates, etc). Lastly - you see NO real increase in value. If you sell your property - when you buy another one, you pay the same increased prices. You are actually no better off, unless you downgrade.

The right investment property will leave you out of pocket for the first year only.
The out of pocket cost of buying an investment property and renting will barely be diffent to buying your own house in the first year.

:2twocents
 
Investor82 said:
Your principal place of residence should be recognised as an expense - NOT an asset. Here is why

First, you earn no income from your PPR. Second, it costs you money to live in it - yet, you pay tax on the property (Stamp duty, rates, etc). Lastly - you see NO real increase in value. If you sell your property - when you buy another one, you pay the same increased prices. You are actually no better off, unless you downgrade.
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No - you do effectively earn income from your PPOR - it's the equivalent of the rent you would otherwise have to pay (this works the same way as the principle of opportunity cost). The net income is the equivalent rental cost/value, less the expenses you mention. Any analysis that ignores this is flawed, as for 99% of us, we only have two alternatives, own a PPOR or rent.

As for being no better off with increased prices, you said it yourself - that capital can absolutely be realised if you downgrade, so therefore is it is very very real, especially to someone who may be planning their retirement. And even if upgrading, you are still better off, given the alternative is to rent, and given that whether you owned or rented that property prices will still have gone up; so by owning your PPOR you could afford the 'better' property whereas if you had been out of the market you likely could not (as you had no exposure to the property market to hedge against future price rises).

Cheers,

Beej
 
overule said:
No offense but obviously you are wrong.
House prices almost doubled in those 6 years alone not just 20% you stated.

How many people can pick the right shares? Overall, it's safer to go with Property.
Click to expand...

I meant 20%+pa, also house prices doubling in 6 years is a return of around 12% a year, is good for a less risky investment. The thing is the return for housing is not 12% a year. You have your stamp duty, negative gearing, maintenance, insurance, rates, land tax, selling agent fees and whatever renovations that have been done. That would reduce your return by around at least 2-4%pa, so your real return is something <10%pa.

That is still ok but its not exactly stellar but I don't see how housing is not a risky investment (I lived for a year in the UK 3 years ago and the people there were saying how property was a safe investment because it never really goes down in price) and given a 10% drop in price would wipe out my equity and i don't have enough money to not be putting all my eggs in one basket.

I also just don't see how the price increases can be repeated in the next 6 years given interest rates are at their lowest in a generation, FHB were given their deposits handed to them and even though lending criteria has tightened people are still borrowing to the hilt unless there is some serious inflation.
 
Beej said:
whereas if you had been out of the market you likely could not (as you had no exposure to the property market to hedge against future price rises).
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Beej - in my post I was only refering to two alternatives, not the third which you have included here. I agree - you are better off being in the market than out of it (be it PPR or investment).

Though I disagree that 99% of the population can't afford an investment property. Most just dont know how to afford it. Just like everyone can make money in the stock market, most just dont know how to (consistently).

I'll give you the opportunity cost part, which yes, needs to be considered. However is only applicable for your first investment property :D

I have never looked at my annualised figures on a % basis, however would guess that for your standard property (over the last 10years) I think it looks about right (10-12%). I budget on doubling prices every 7-10years with neutral gearing within 12-18months and positive within 3 years.
The right property can also return significantly higher % returns with some good searching, and some hard work (same as shares I guess).
 
A big rise in owner-occupied housing finance commitments to take advantage of the historically low interest rates this year. Expect that trend to come back to average as we resume the inevitable rise of financing costs to battle inflation and the easing of additional government assistance from Jan. 2010 for first home buyers.
The number of finance commitments for the construction of dwellings for owner occupation (trend) rose 3.9% in October 2009 compared with September 2009, following an increase of 4.3% in September 2009. The seasonally adjusted series rose 9.2% to 8,016, the highest level since August 1994.
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Thanks for the above graph.

So up until 2008 finance for the construction of dwellings for owner occupation was relatively flat, slight trend upwards.

2008 saw interest rates peak around 9% and resulted in a significant trend down.

Then another reversal upwards on the change of two variables :
1) FHBG doubled - seems to had quite an impact
2) Rapid reduction in IR's to 50 year historical lows

Result a doubling in construction finance.

This is fantastic from a supply point of view with more new homes to become available from 2009 and into 2010. Hopefully reducing the shortage so often spoken about.

But here we are again and the above two variables are changing once more back to pre 2008 levels, will this result in the trend changing once again and what impact will this see on prices.

Cheers
 
satanoperca said:
If FHBers bought without adaquate deposit and did not account for interest rates returning to normal at some stage or minor corrections in the property market and as a result have over extended themselves I have no sympathy at all.
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The lending calculators tend to assume rates are 2% higher than the non-discounted SVR at the time, so there is a fair bit of fat built into affordability calculations. Given AWOTE is running at > 5% annually, there does seem to be a bit of leeway in the (likely) event of rising interest rates provided the rises are reasonably gradual.

The unemployment rate is the more pertinent measure IMO - some areas have a high proportion of employment concentrated in one or two industries, so a large number of people losing their job at once, concentrated in a single area, would spell disaster for that area's house prices.

Outlying areas that you've mentioned would be more suseptable as well IMO as FHBs tend to use the majority (or all) of their cash reserves in acquiring the property in the first place, so can't survive as long without employment.
 
hello,

thanks Kincella, Victoria doing well as usual thanks to ever body helping out, doing their bit for society

Government letting fellow humans from around the globe join our wonderful community

can always put your money else where if you dont like the deposit rates offered by banks, also debentures and associated type investments (hahahaha beware the small print)

thankyou
robots
 
Latest (November) figures from Residex. Looks like QLD is becoming the cheapest of the states yet again... Looks a bit similar to late 90's, early 2000's where Sydney and Melb did well, a few years before QLD really took off again. Will be interesting to see if that gap widens, to say Melb being $100k more than Bris.

http://www.residex.com.au/newsletter/source2009_12bMC.html

Going on their figures at least:

House Median

1. Sydney - $617,500
2. Melbourne - $532,000
3. Perth - $492,500
4. Brisbane - $459,500
5. Adelaide - $392,500

Unit Median

1. Sydney - $432,000
2. Melbourne - $403,000
3. Perth - $392,000
4. Brisbane - $363,500
5. Adelaide - $304,500

Also interesting to see price rises tapering off (with the exception of those whacky Melbournians) last month.. interest rate rises finally starting to kick? Or the dropoff in FHB? GDP also lower than expected last quarter, slowed down from last figures also.

2010 will be slower and less growth focused than people expect IMO, after this "relief rally" has worn off.
 
Just an update from my area of investment, the Northern Beaches in Sydney. We decided to rent out our 80 sqm unit. The agent had the unit open for inspection for 15 Minutes. By the end of the day we had an application in and the tenants moved in last Saturday. I got a 6 Month lease and $420 per week rental. There are no shortage of tenants wanting to rent property in my area.

Just recently they sold a weatherboard 3 br house up here for over $1.4 Million. There is no more vacant land left around this area and this can only mean one thing, that prices will be going up. More people and less supply. Here is a link to some recent activity in my area.

----------------

"Doyle Spillane also sold a classic weatherboard home at 177Ocean St, and only 50m from the beach, recently for a sum believed to be considerably more than $1.4million."

Full story here: http://manly-daily.whereilive.com.au/real-estate/story/why-everyone-wants-to-get-in-on-the-ocean-st-narrabeen/
 

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