The future of Australian property prices

[trainspotter]

The-Elusive-Canadian-Housing-Bubble-Summer-2010

an interesting article on the canadian bubble, which may have peaked, and the australian bubble appears to be perpetually growing

as much as i would absolutely love to own a property, i still have a huge reluctance to add to the bubble and bid on a property at levels 7.5+ income

i am inclined to think that despite the ability for australians to borrow vast sums of debt and be completely comfortable in inflating the bubble further, i have to abstain from that insanity..

cant say i am happily waiting for the inevitable collapse, as many friends and family have invested heavily in supporting the current bubble, and i think it will hurt big time when it finally peaks and falls.. which may be sudden or may well be decades long,, but blindly spending the largest sum of capital that most people loan on a property that in all likelihood will depreciate is not my idea of a wise move

ts or robots, am i seeing it all wrong? or can you explain what factors or arguments can be presented in convincing bears like me to invest in property right now?

Sorry Agentm .... we have given you many reasons, theories, motion of discoveries, charts, pie graphs, matrix's, and many more researched data over the last 137 pages. Even gave links to web pages where people far more cleverer than me and the Botman have elucidated the knowledge you seek.

But let me leave you with this gem - AVERAGE house price values have fallen for the first time in 17 months as interest rate hikes begin to bite. 0.7% ABS has quantified this FACT. a whopping 0.07%. Nevermind they have risen over 20% nationally.

ABS AND RBA figures also state that it is not 7.5 times wages either. I think it is about 5 times.

 

[Mr Z]

We have covered this before... the +20% is more like +10%.

GFC -8%, Post GFC +20% = Pre GFC + 10.4%

The other thing is that the ABS and RBA are not the be all and end all of stats, I mean seriously are the costs in your life moving at anything like the quoted CPI number? I for one would love to have my cost basis moving that slowly! They do gain a bias when it suits them... Mind you they can explain the bias with a nice statistical theory but that does not pull your health insurance cost down one iota! On the other hand it may just bump GDP numbers and reduce government cost basis for all the CPI related stuff... but nope, no incentive to skew numbers there!

Now the 5 times thing... can we find that somewhere? I have seen sooooo many different numbers!

What are that talking around 72K as an average wage? Gives 360K as a median figure using 5x? Christ mate... nowhere near here has that sort of number?!

Some city medians v implied earnings at 5x

Sydney 590K - 118K
Brisbane 480K - 96K
Perth 500K - 100K
Melbourne 500K - 100K
Darwin 530K - 106K
Hobart 340K - 68K

Avg 490K - 98K which is around the national median including country areas! Actually it is knocking on 500K I think.

Even taking household income in total the last number I have is around 66K median in 2008. This would imply a 20+% PA growth rate to hit 98K!?

Help me out here? Do you really think that 5x is real? and we now have a median household income of around 100K nationally?

I really need to see the numbers on this.

Mebe I am spectacularly ignorant! Long time since I have look that closely at this ratio, basically been taking what I read as about right.

I would expect a median household 2010 income of around 75K vs the median house price of around 500K giving a national ratio of 6.666666....... That is a high number for us so if we are to accept that as the new norm we really must come up with an excellent 'structural change' argument. None I have seen so far really convince me!

 

[trainspotter]

We have covered this before... the +20% is more like +10%.

GFC -8%, Post GFC +20% = Pre GFC + 10.4%

The other thing is that the ABS and RBA are not the be all and end all of stats, I mean seriously are the costs in your life moving at anything like the quoted CPI number? I for one would love to have my cost basis moving that slowly! They do gain a bias when it suits them... Mind you they can explain the bias with a nice statistical theory but that does not pull you health insurance cost down one iota!

Ummmm "That's a negative ghostrider, the pattern is full" ... The 20% is in regards to the June qrt 09 to June qrt 10

http://www.abs.gov.au/ausstats/abs@.nsf/mf/6416.0

Sorry the chart is only to 2007 ... feeling a bit insouciant today.

Another reason that the deflation will be just that is that the good old Aussies don't like NOT paying back the banks. The buggers hardly default. They will sell their Grandma before they miss a payment.

Clothing and footwear have gone down thusly affecting CPI ... :

http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0

 

[Mr Z]

Nah... + 10% pre GFC is about right, give or take a smidgen.

Yeah look that ratio chart does not tally with any of their own numbers, I would like see a break down.

 

[Mr Z]

Also...

Your charts...

Chart 1 should worry you given the historic correlation. Price will always lag loans, I am thinking we are no where near out of those woods!

Chart 2 just kind looks like we are lagging again not really evidence we are out of the woods.

Chart 3 kinda suggests we had a bigger bubble withstanding the fact that we seem to carry a higher multiple generally.

My chart... if it where a stock the volume numbers look concerning, falling volume v rising price points to coming correction. The market is quietening down significantly, this normally points to a fast move coming up. Down or up? I can't make the case for up, aside from and big OS liquidity rush?! and the ask line looks like it is getting crowded, I think we need to see a resumption of more normal volume levels again before we can say cya to the woods.

 

[MR.]

Remember when Hawk hit the 'rich' by removing negative gearing? That lasted, what, all of 6mths... I was amazed that they thought it would have no impact! I have read here that people have that view currently... gobsmacking to me

July 1985 that Hawk government quarantined negative gearing interest expenses (on new transactions), so interest could only be claimed against rental income on existing and newly built houses, not other income. (Any excess could be carried forward for use in later years.) The result was a considerable dampening of investor enthusiasm.

September 1985, just two months later, the 50% capital gains tax was introduced. Before that no CGT existed. This would have contributed, with fewer landlords, rents rose. But did they? Some studies suggest rents only rose in Sydney and Perth. The other capital cities remained flat.

That NG change lasted near two years before it was abolished. The 50% capital gains tax, as you’d realize, remained.

Property speculation by the loss of tax revenue?
A tweaks overdue me thinks!


Yes, Spring is almost upon us. You can almost feel the excitement as vendors come outside after a cold winter ready to make their killing. The suspense is almost like the MCG on grand final day. You can feel it in the air. The grounds almost a thumping. Agents are polishing their hammers and counting their unearned commissions already. What a great place this is. This place of opportunity. Will more Australian property investors appear on the stats? The seminars are a running day and night and you bet that gold ya got stashed under the bed they will.

 

[singlefished]

R.I.P kimosabi, mr burns, medicowallet, numbercruncher, pepperoni, singlefished, Tom R, chops a must, dowdy, oh well

I am sure there are a few more we could name and shame Professor robots ... afterall it has been a few years or so of naysayers pulling it down. I am still waiting for this so called "bubble" to burst. More like a slowdown in velocity. The banks have already taken care of the wannabes.

But we have already agreed on this matter. Where is Professor Keen on this matter?

Walk tall robots ... walk tall.

RIP?
Addiction to persistent bickering about the property market on web forums can be cured.
You should give it a try and report back a month from now....

 

[Agentm]

Sorry Agentm .... we have given you many reasons, theories, motion of discoveries, charts, pie graphs, matrix's, and many more researched data over the last 137 pages. Even gave links to web pages where people far more cleverer than me and the Botman have elucidated the knowledge you seek.

But let me leave you with this gem - AVERAGE house price values have fallen for the first time in 17 months as interest rate hikes begin to bite. 0.7% ABS has quantified this FACT. a whopping 0.07%. Nevermind they have risen over 20% nationally.

ABS AND RBA figures also state that it is not 7.5 times wages either. I think it is about 5 times.

one down ... wow... that was pretty easy, just ask a simple question and get no answer,, so i get to claim TS as wiped out in this debate..

but it is a shame, as the 137 pages of this thread are pretty much just taking the p#ss out of people i think, and i really want to discuss the future of property as i will invest in the sector one day


TS.. i would have thought that given your dedication to this single thread, and the insults thrown at anyone who has an opposing view, that you may be able to deliver a few words of wisdom, just a brief summary of the 137 pages in a brief summation of whats so good about me buying into the bubble right now?

i guess i will have to miss out on an well informed answer and assume it cant be presented,,

so to anyone else out there.. here is my question again,,


as much as i would absolutely love to own a property, i still have a huge reluctance to add to the bubble and bid on a property at levels 7.5+ income

i am inclined to think that despite the ability for australians to borrow vast sums of debt and be completely comfortable in inflating the bubble further, i have to abstain from that insanity..

cant say i am happily waiting for the inevitable collapse, as many friends and family have invested heavily in supporting the current bubble, and i think it will hurt big time when it finally peaks and falls.. which may be sudden or may well be decades long,, but blindly spending the largest sum of capital that most people loan on a property that in all likelihood will depreciate is not my idea of a wise move


hoping for a reply and an interesting discussion on the future of australian property prices which is of extreme importance to me before i decide to buy..

 

[UBIQUITOUS]

TS.. i would have thought that given your dedication to this single thread, and the insults thrown at anyone who has an opposing view, that you may be able to deliver a few words of wisdom, just a brief summary of the 137 pages in a brief summation of whats so good about me buying into the bubble right now?

Careful Agent, or TS will follow you onto a thread where you hold stock (but he doesn't) and start goading you there, as he has tried to do to me on TZL. It is a sad that he takes discussion on such a broad asset class SO personally, that he feels that he has to behave in this manner.

TS, I really think you should take a bit of a break from posting, because you are only coming across as a bit of a troll. There is no need to be so antagonistic on a forum for adult discussion

No problemo dude. All glory to you if you can rip the scab off this one and not even flinch ! You must clank when you walk.

Your commitment to TZL is admirable to say the least. I really do hope you do well so that way you can place all your money into property and join the "darkside" with me.

Use the force UBI ... use the force.

Just wondering .... how do you find people to take up the shares you are letting out?

P.S. If you wrote with as much passion in the property thread and gave clear and concise reasons similar to what you are doing in here then I am pretty sure my resentment levels would be a lot lower.

 

[Mr Z]

Thanks MR... I certainly remember it hitting rents but then I was in Sydney at the time.

 

[trainspotter]

Personally in my opinion I reckon the property price for Australia for the long term is down nationally overall. Not the raving lunatic harbringers of doom and gloom style but more of a deflation than a massive POP. 3 - 5 % would be realistic terms.

This being said there will be places that will suffer Chernobyl style meltdowns. Ipswich in Brisbane for one is going through "mortgage stress" right now. DYOR.

Also there will be isolated pockets that will keep ticking over and returning modest returns. Pick places on the coast that are not entirely overheated and maybe have a future plan of infrastructure type projects in front of them.

I know this is sitting on the fence style of running commentary and not really telling everybody what they don't already know. The truth is we really will not know for another few years as the market levels out. Lotsa factors to consider from outside influences that will determine whether it is flight or fight time for the RE housing regime of Australalia. (no that is not a typo ... announciate it in your head)

Please read post # 2672 as well.

WHY OH WHY would you buy now Agentm? How many times do I need to write this Agentm? This discussion has been done to death over 137 pages. I have agreed with all and sundry that it is on the backslide for crying out loud?

In your own words you have called it an "insane bubble" so why would you risk getting on the plane if you have a fear of flying??

You have picked me right Agentm ... I am neither a stalker nor a troll.

Goad all you like and call it a "scalp" if you must.

I have pointed out how I make money out of RE and it is not for everyone as they do not have the capacity of manufacture like I do.

Thank you UBI for your concern ... I thought you said you would be doing me a favour and not repsonding to my posts? I thought we had an accord on this matter? AND YES I did come into your stock world of TZL and asked you about the state of play and what strategies you are using there. AND I also congratulated you on your endeavours ... if you need to take this as some bitter and twisted perforated bowel syndrome then so be it. I can't help you anymore.

Post #573 in the TZL thread I wrote this "Originally Posted by UBIQUITOUS
I have averaged down since $4, with over half of my shares being acquired around 40cent. I now have close to 1 million shares, at an average of about 60c. This pyramiding is a strategy which will work for me .

Good luck UBI ! May the force be with you on this one. I mean this sincerely BTW. I hope you do make good ...... truly.

Quick maths lesson .... 1 million shares at 60 cents is $600,000 AUD right?"

 

[Mr Z]

Quick maths lesson .... 1 million shares at 60 cents is $600,000 AUD right?"

Yike's.... and I thought my spec positions where brave! That is going out of the park if you connect

 

[robots]

Hello,

good afternoon everyone, oh yeah great discussion

gee many out to get you TS,

we all trolls arent we, me you and all the other fans

agentM, buy for tomorrow brother, 5yr 10yr or 40yr down the road

pump the repayments for 4-5yrs, bit of growth here and there

but first concentrate on getting a good wage/job as this is the key man, so easy, risk free $ every week, go somewhere for 8hrs do a few tasks

then go home, soooo easy man and its in your hand

thankyou
professor robots

 

[UBIQUITOUS]

Yike's.... and I thought my spec positions where brave! That is going out of the park if you connect

I expect it will. The technology and upside was good enough to tempt Mark Bouris out of his 'mortgage man' comfort zone to become chairman of a tech company. And we all on this thread should know good Mark Bouris is in small business.

Under his leadership, the company at 27 cents last week was a far better proposition than at its high under the former board of $7.20. I expect a share price in the hundreds of dollars (if the technology isn't sold off at an earlier date).

Anyway, this is a property thread and its all about leveraging yourself to make money and without much grey matter needed.

 

[trainspotter]

Hey robots .... I obviously deserve it with my fervent high squealing pitch that we should all rush into buying property NOW like lemmings off a cliff and making 500% returns on our money in 6 months.

Yeah right ...... Pffffffftttttt !

Or my obviously insulting repsonses when I ask people to give a reason why they think property in Australia is going to fall 40% A' LA Steven Keen style rather than just blasting a headline from some notable rag of a paper shouting on the front page.

At least Mr Z had some very critical information and an opinion as to why he holds his beliefs. Factual and relevant information BTW. Has certainly made me look over my shoulder a bit more than I used to.

 

[Agentm]

Hello,

good afternoon everyone, oh yeah great discussion

gee many out to get you TS,

we all trolls arent we, me you and all the other fans

agentM, buy for tomorrow brother, 5yr 10yr or 40yr down the road

pump the repayments for 4-5yrs, bit of growth here and there

but first concentrate on getting a good wage/job as this is the key man, so easy, risk free $ every week, go somewhere for 8hrs do a few tasks

then go home, soooo easy man and its in your hand

thankyou
professor robots

thanks robots,

but can you answer the question? why am i buying into a peak of a bubble again? if it goes down by 40% over a decade, wont it be pretty lousy return?

can you present some pro's for taking a huge leap into the peak of the bubble? - other than making a developer real happy


cheers

btw, i apologise to ts about the scalp comment.. i received a infraction for that and i was not aware i was offending, i meant it tongue in cheek..

 

[robots]

hello,

no worries AgentM, i normally run question & answer after 7pm but the moderators have just given me permission to kick it off a bit early which is fantastic

firstly, we in no bubble in Australia, Sinner has presented data indicating compound return is just some 2.2% for property, so not bubble

yes certainly, think of the next 30-40yrs of your life and grab something you can afford, lock it in and forget about it

plenty of second-hand places around

please keep them coming

thankyou
associate professor robots

 

[trainspotter]

thanks robots,

but can you answer the question? why am i buying into a peak of a bubble again? if it goes down by 40% over a decade, wont it be pretty lousy return?

can you present some pro's for taking a huge leap into the peak of the bubble? - other than making a developer real happy


cheers

btw, i apologise to ts about the scalp comment.. i received a infraction for that and i was not aware i was offending, i meant it tongue in cheek..

Sure thing Agentm ... if it goes down 40% over 10 years it would definitely qualify as a "lemon" ..... the thing is and this is what we have been typing in here is that it also depends where you buy the property, how much you are geared for, the condition of the property (new/used/renovator), how secure your job is, what your goals are etc etc.

I recommend NOT to buy property as an investment tool thinking you are going to make a quick buck out of it. YOU ARE NOT. Property is now a long term hold with a negative trend. If it is to be your PPOR then it is going to be long term anyhow (one would hope)

It is a HUGE financial commitment and it is very risky stuff if bought incorrectly (just like shares) The escape route of onselling when mortgage stress hits is getting very narrow about now. The vendors are backing up at the gates getting ready to offload their properties that are non performing. I reckon any astute property investor right now would be going through his portfolio and weeding out "potential" underwaters. Look at anything that has got less than 10% equity in as a BIG risk. Sell it and get out whilst you still can.

We are in for a correction for sure. As to the extent of it only time will tell. Depends on interest rates, bond rates, "real inflation", lots of factors to be considered. IMO we are in for a very testing time in property in Australia.

Ipswich in Brisbane right now is hurting (1538 homes on the market) already gone backwards 13% due to dodgy developers spruiking (present company excluded of course) fantastic RoR's. Most of WA stagnating or declining.

Everywhere else is flatlining.

Only Melbourne and Sydney seem to be bucking the trend ATM

Sorry about the infraction Agentm.

 

[Agentm]

Please read post # 2672 as well.

WHY OH WHY would you buy now Agentm? How many times do I need to write this Agentm? This discussion has been done to death over 137 pages. I have agreed with all and sundry that it is on the backslide for crying out loud?

In your own words you have called it an "insane bubble" so why would you risk getting on the plane if you have a fear of flying??

You have picked me right Agentm ... I am neither a stalker nor a troll.

Goad all you like and call it a "scalp" if you must.

I have pointed out how I make money out of RE and it is not for everyone as they do not have the capacity of manufacture like I do.

Thank you UBI for your concern ... I thought you said you would be doing me a favour and not repsonding to my posts? I thought we had an accord on this matter? AND YES I did come into your stock world of TZL and asked you about the state of play and what strategies you are using there. AND I also congratulated you on your endeavours ... if you need to take this as some bitter and twisted perforated bowel syndrome then so be it. I can't help you anymore.

Post #573 in the TZL thread I wrote this "Originally Posted by UBIQUITOUS
I have averaged down since $4, with over half of my shares being acquired around 40cent. I now have close to 1 million shares, at an average of about 60c. This pyramiding is a strategy which will work for me .

Good luck UBI ! May the force be with you on this one. I mean this sincerely BTW. I hope you do make good ...... truly.

Quick maths lesson .... 1 million shares at 60 cents is $600,000 AUD right?"

ts. i actually do respect your opinion, and i was asking a genuine question. i dont agree on your opinions on keen or grantham, i tent to think that the governments desire to inflate RE prices with lockdown of the suburbs and the policy of immigration has had a lack of foresight, sure it lock value into the RE market, but every bubble needs to deflate. i find it hard to subject myself to a massive investment into an inflated market, regardless of its form.

my view is that the current developers dream run is great for the economy, but is the 7.5 income prices in melbourne right now going to esculate perpetually? are we all going to get wages increases and be able to afford to inflate this bubble more? is this insane market going to just rise for decades to come?

i look at the pressures on wages to increase and dont see it happening, i cant see world wide growth, i see contraction.

if i was to buy now, will i be real happy in 10 years when i have paid off this loan, that the prices have dropped by 40%? or am i to expect a 100% rise again in the next decade?

 

[Agentm]

hello,

no worries AgentM, i normally run question & answer after 7pm but the moderators have just given me permission to kick it off a bit early which is fantastic

firstly, we in no bubble in Australia, Sinner has presented data indicating compound return is just some 2.2% for property, so not bubble

yes certainly, think of the next 30-40yrs of your life and grab something you can afford, lock it in and forget about it

plenty of second-hand places around

please keep them coming

thankyou
associate professor robots

the prices imho are in a bubble, canada, china and australia imho have them..

if the average prices were 3.5 to income, i would be thinking different, but if the prices are not in a bubble as you say, then income must be way way deflated in australia.

its not as though there is any land shortage, imho the policies and desire to protect the banks and lock down the 2 major cities is totally one sided, profits for developers and banks for sure, as well as for the local concils collecting rates.. but the stress on the economy is what also concerns me, sure we can rely on high profits from miners to pay the pensions, but real spending is being absorbed by the bubble imho.. at 3.5 income i would be happy.. but 7.5 is off the dial, less and less can afford the jump into RE, and its hardly like switzerland here where they protect the rental market..

i still cant see the pro's of jumping into a bubble that will be pressured to deflate over the coming decade(s)