The future of Australian property prices

[satanoperca]

Thought this was an interesting article pertaining to the banks and mortgage lending.

http://www.theaustralian.com.au/business/mortgage-windfall-will-end-says-nab/story-e6frg8zx-1225882481763

The sudden windfall arose because Basel II enabled banks to hold less capital against more secure home lending due to lower historical loss rates.

"There are super profits in mortgage lending because the banks, with the transition to Basel II, took more than half the capital off the table and the margins never adjusted down to reflect that."

So they have been writing more debt and have required less capital to do so.

Dangerous if the market changes direction.

Shorts on the banks will remain on.

Cheers

 

[Aussiejeff]

The sudden windfall arose because Basel II enabled banks to hold less capital against more secure home lending due to lower historical loss rates.

Is he related to Basel Fawlty?

 

[sinner]

Until the supply problem is solved your not going to see a decline (Other than in areas of over supply) in house prices of any appreciable number.

Chronic undersupply of housing is just something bandied around by property spruikers. Certainly something that has been debunked quite easily over the last 2 years:

http://www.thirdwavegroup.com.au/tidal-report/tidal-report-20-mar-2010-the-myth-of-undersupply/
http://www.moneymorning.com.au/20100323/no-evidence-of-a-chronic-undersupply-of-housing.html
http://www.businessspectator.com.au...ge-myth-pd20100510-5B62B?opendocument&src=rss
http://cij.inspiriting.com/?p=458
http://www.crikey.com.au/2009/12/02/housing-shortage-two-parts-myth-zero-parts-reality/

Article after article after article (and only one of them by Steve Keen) using data from all over Australia to show plainly that there is no structural or chronic housing shortage.

On the other hand tech, do you have any references to back up your claim of this housing shortage?

I also put it to you tech, that London and many other cities in England had an actual chronic undersupply of housing unlike our manufactured undersupply of housing and that this did not stop home price decline in those cities and shires by one iota. In fact they still have a chronic undersupply and house prices declining 2.8%YoY. You can go look at the BBC "house prices" website for confirmation.

Easy credit spells excess demand. If there is an imbalance in supply/demand it is without a doubt due to the expansive monetary policy of the RBA and global central banks of the last 10-15 years.

But supply/demand holds nothing big to this issue IMHO. The issues now are:
1. Mortgage repayment stress due to interest rates
2. Leverage of the big 4 banks
3. LVR reductions by the big 4 banks (negative feedback loop)
4. "Greater fool" theory definitely running shorter and shorter on the pool of fools due to 3 - less and less fools paying a higher and higher price.
http://globaleconomicanalysis.blogspot.com/2010/02/pool-of-greater-housing-fools-in.html
5. The balance sheet of the RBA itself

Tulips used to be in high demand. Eventually a price is reached that nobody will pay - especially in an easy credit environment. House prices will go up until they don't. And then they won't.

 

[sinner]

PS: I am currently looking for a prospective new home to rent and I can definitely point out some areas of Melbourne with huge realtime supply overhang.

RE agents are offering 3 months discounted rent and similar to get people in the door of these places because there are soooo many of them.

 

[Trembling Hand]

PS: I am currently looking for a prospective new home to rent and I can definitely point out some areas of Melbourne with huge realtime supply overhang.

Oh? where you looking? I'm still amazed at the lineups come open for inspection around my place for rentals.

 

[Bushman]

PS: I am currently looking for a prospective new home to rent and I can definitely point out some areas of Melbourne with huge realtime supply overhang.

RE agents are offering 3 months discounted rent and similar to get people in the door of these places because there are soooo many of them.

Must disagree here. Friends of mine last week had to send a CV to a prospective landlord to even get on the short-list for a rental property in Richmond. Inner city Melbourne has huge pent-up demand for rental properties.

Sure if you are talking some of the new estates or apartment developments there is over supply.

 

[satanoperca]

No problem down here in the Docklands, plenty of rentals but they are hardly for the average income earner or could be deemed affordable.

Cheers

 

[Mofra]

PS: I am currently looking for a prospective new home to rent and I can definitely point out some areas of Melbourne with huge realtime supply overhang.

RE agents are offering 3 months discounted rent and similar to get people in the door of these places because there are soooo many of them.

Care to mention them? I recently had a vacancy, had another tenent in one week after it was vacant at a 22.8% increase in rent. The first tenant had been there for years and was an excellent tenant but wasn't paying that much under market rent at the review last year.

 

[satanoperca]

Oh? where you looking? I'm still amazed at the lineups come open for inspection around my place for rentals.

Great illusion by RE's. Have a 15minute window to have a look, hence people lining up. Not like the good old days of picking up the keys.

Available rentals in Richmond Qty 154. Make of it what you will.

Cheers

 

[sinner]

Oh? where you looking? I'm still amazed at the lineups come open for inspection around my place for rentals.

I have been looking everywhere, just as a matter of curiosity.

Must disagree here. Friends of mine last week had to send a CV to a prospective landlord to even get on the short-list for a rental property in Richmond. Inner city Melbourne has huge pent-up demand for rental properties.

Gee it sounds like I said "I can definitely point out ALL areas of Melbourne with huge realtime supply overhang" ...but I didn't.

Anywhere west of Footscray is a really good example of huge realtime supply overhang. I will leave it to curious readers and enquiring minds to think about the demographics and what a complete lack of demand for housing in Melbournes only real expansion zone means.

On a completely unrelated note, here is co-founder of GMO Jeremy Grantham calling the Australian housing market a time bomb on June 16.
http://www.news.com.au/money/proper...rket-a-time-bomb/story-e6frfmd0-1225880221197
Cliffs notes of the article:

*Australia, UK only two housing bubbles left
*Would need to fall 42pc to return to trend
*"As soon as rates go up, the game is over"

 

[Trembling Hand]

Available rentals in Richmond Qty 154. Make of it what you will.

exactly!! as the biggest suburb in Melbourne with very high density thats a tiny amount would you not agree?

 

[satanoperca]

exactly!! as the biggest suburb in Melbourne with very high density thats a tiny amount would you not agree?

Dont agree or disagree I have not all the information at hand.

Eg Number of rental properties in Richmond, how many have been on the market and for how long etc

Did a search on Richmond and surrounding areas and returned 1664 available properties. Again this information is pretty useless without knowing total number of rentals in the search area.

Cheers

 

[Bolle]

Wonder if this is Robots at work:

http://www.thecourier.com.au/news/l...at-property-sells-for-12-million/1864851.aspx

I know he's set his sights on the Rat lately...

 

[kincella]

well some of us just would not even look at Richmond....regardless of how many rentals are there.....mainly awful little workmens cottages from a bygone era...you could not swing a golf stick in the living room....
its still a working class suburb...and looks that way..
it would be lucky to offer 10% of the whole area, as well, worthy of a rental for most people....probably more like old footscray....

on the other hand, the kids offer a higher than asking rent, just to nab a place in Toorak...
its suburb by suburb, nothing equal or comparable, most are miles apart, in the question of what is a nice suburb, then look at each street, one street is good, the next is bad ...they are not all equal....
good luck with lumping the whole of melb together as if it were just the one suburb

 

[Trembling Hand]

LOL..... Toorak... I prefer to surround myself with the living and those not nursing their hip replacements.

 

[Bushman]

its still a working class suburb...and looks that way..
it would be lucky to offer 10% of the whole area, as well, worthy of a rental for most people....probably more like old footscray....

on the other hand, the kids offer a higher than asking rent, just to nab a place in Toorak...

Mate no-one under 35 would rent in Toorak. You obviously are not Gen Y or X.

Richmond has pockets around the council estates that are still 'working class'. The rest has been seriously gentrified and one of those awful mining cottages you speak of wenty for over $1m the other day.

Lol, Toorak!

 

[wayneL]

Don't you just love thinly veiled snobbery?

I like both suburbs for different reasons... there ain't nuttin' wrong with Richmond.

 

[satanoperca]

LOL..... Toorak... I prefer to surround myself with the living and those not nursing their hip replacements.

Couldn't agree more.

Toorak has some f---king ugly homes. People may have money but dont have style and taste in that suburb.

Cheers

 

[sinner]

More debunking of the Australian housing undersupply myth using home utilisation and unoccupied dwellings data as well as puts to rest the "underlying demand" argument.
http://www.unconventionaleconomist.com/2010/05/debunking-australian-housing-shortage.html

Meanwhile, a new paper released by the RBA today puts the limelight back on the banks balance sheets:
http://www.smartcompany.com.au/property/20100622-commercial-property-outlook-uncertain-rba.html

Bad loans in the commercial property sector are a greater threat to financial institutions than mortgage stress and the outlook for the sector remains uncertain, a new Reserve Bank of Australia paper argues.
The message comes as another property expert says the commercial market will continue to struggle this year as secondary markets trail behind recovery in primary developments, such as office buildings and shopping centres.

...

The paper notes that CRE loans are more concentrated in construction loans than housing lending. Imbalances can build, the pair argues, because construction lags last longer, and borrowers in CRE markets don't have the same disincentives to default compared to residential buyers.

 

[UBIQUITOUS]

Couldn't agree more.

Toorak has some f---king ugly homes. People may have money but dont have style and taste in that suburb.

Cheers

Toorak is soulless and doesn't even look nice. Any of the suburbs next door are head and shoulders above Toorak when it comes to vibrancy and looks - especially Malvern and Hawthorn.