The future of Australian property prices

prawn_86 said:

I think you mean most city folk. I know thousands of people who are happy living inland near a river/lake/other body of water.

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Yes, but isn't that the sort of folk one would expect to find ... in a city? I thought we were talking about building a proper city inland here. You know, one with skyscrapers and the like.

Perhaps I've misinterpreted what was suggested, though.

Nyden said:

Yes, but isn't that the sort of folk one would expect to find ... in a city? I thought we were talking about building a proper city inland here. You know, one with skyscrapers and the like.

Perhaps I've misinterpreted what was suggested, though.

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If there was a large body of water nearby (like a lake or river) i dont see why anyone would be opposed to living inland

joeyr46 said:

I knew that, just glad we could help
As someone else said I also thought Stamp duty supposed to be scrapped after GST can you recall if that was correct or not

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I did remember hearing something about it, however if it were to be scrapped, it would have to be made up elsewhere.

Gerkin said:

I did remember hearing something about it, however if it were to be scrapped, it would have to be made up elsewhere.

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Whats that got to do with the price of eggs?
If there were no stamp duty on houses the market would be more free flowing.

jancha said:

Whats that got to do with the price of eggs?
If there were no stamp duty on houses the market would be more free flowing.

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We were referring to taxes an Government revenues from the last few posts.

jancha said:

Whats that got to do with the price of eggs?
If there were no stamp duty on houses the market would be more free flowing.

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Why would it be more free flowing it is just another cost factor like inspections application fees and conveyancing fees and if only a small deposit mortgage insurance

joeyr46 said:

Why would it be more free flowing it is just another cost factor like inspections application fees and conveyancing fees and if only a small deposit mortgage insurance

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Conveyancing & inspection costs don't add up to 30k for one thing.
When buying a property where your jobs sends you for eg. you have to consider the 30k in stamp duty. Say things didn't work out with the job & you had to sell & move on. You would lose 30k unless you picked up a bargain.
I think less people would rent & more would buy which in that case it would free up the market.

Nyden said:

Yes, but isn't that the sort of folk one would expect to find ... in a city? I thought we were talking about building a proper city inland here. You know, one with skyscrapers and the like.

Perhaps I've misinterpreted what was suggested, though.

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Waste of time and thought. A decent city to take the strain off Melbourne for example needs to be on the sea and have a deep sea port. Shipping access gives the grunt required to sustain it.

Portland in Western Victoria joined to Warrnambool would do the job and what a lovely bit of coast and rich land nearby too. When I sit in the chocking traffic on the Monash Freeway I think of the concept all the time, why does the penny not drop on a few more.

jancha said:

Conveyancing & inspection costs don't add up to 30k for one thing.
When buying a property where your jobs sends you for eg. you have to consider the 30k in stamp duty. Say things didn't work out with the job & you had to sell & move on. You would lose 30k unless you picked up a bargain.
I think less people would rent & more would buy which in that case it would free up the market.

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Yes from that point of view and then to sell there is the agents fee$15000 plus depending on price $500000 property stamp duty legal fees and etc and commission thats approx 10%
2 things stand out first the state governments can't afford there to be even a slow down in sales let alone a fall in prices
secondly if someone is forced to sell and accept an offer say 10% lower than they paid they are $100000 out of pocket roughly
Dont know that it would free up the market but it certainly is in our best interests as a society for us all to own our own home and not give the wasteful state governments money

Aussies $1.2 trillion in debt

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Reserve Bank figures show mortgage, credit card and personal loan debts now stand at $1.2 trillion, up 71 per cent from just five years ago

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http://au.news.yahoo.com/thewest/a/-/national/6623991/aussies-1-2-trillion-in-debt/

Property boom has been a direct result of a massive increase in private debt.

How much more debt can Aussie households take on before it goes pop?

2010 will certainly be a interesting year for this asset class.

What will the govnuts do to keep the market afloat?

How will the govnuts pay back the stimulus and how will this effect consumption and the greater economy?

Cheers

Yeah satanoperca,

It's a very unsettling situation, personally i think we are sitting on a knife edge.

No crash and the debt situation will keep spiraling out of control, a crash happening now will also cause significant destruction, maybe even a few banks will feel the pain.

But I can see how easy it is to get caught up in it all, the property market is appearing to defy gravity and what's the bet that many have been sitting on the sidelines waiting for a property market correction now giving up and jumping in.

Interesting times indeed.

satanoperca said:

http://au.news.yahoo.com/thewest/a/-/national/6623991/aussies-1-2-trillion-in-debt/

Property boom has been a direct result of a massive increase in private debt.

How much more debt can Aussie households take on before it goes pop?

2010 will certainly be a interesting year for this asset class.

What will the govnuts do to keep the market afloat?

How will the govnuts pay back the stimulus and how will this effect consumption and the greater economy?

Cheers

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but we are different.

We have a prime minister who will continue to bail out housing as his political future depends on it.

Okay, if the debt bubble popped, what will happen to the rental property market.

As there is net + migration to Melbourne, the rental market will still be quite demanding as these people have to live somewhere. Therefore the rental yields cold possibly be forced up?

There is a complete difference to America. They had an oversupply of housing. Melbourne doesn't.

Also, when interest rates hit that 8.5% some 18 months ago, it only forced some people to sell, so if it hits again or go higher, it will get rid of the botom tier of people only.

Australians are very proud when it comes to keeping there property.

Gerkin said:

As there is net + migration to Melbourne, the rental market will still be quite demanding as these people have to live somewhere.

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Where is the hard evidence that migrant inflow is contributing to the housing bubble, sure the REIV uses this line as an explanation to why house prices are spiraling out of control but where is the evidence ?

Perhaps rampant speculation coupled with easy credit is the major contributing factor.

Take care out there, sometimes we seek what we wanna hear.

satanoperca said:

http://au.news.yahoo.com/thewest/a/-/national/6623991/aussies-1-2-trillion-in-debt/

Property boom has been a direct result of a massive increase in private debt.

How much more debt can Aussie households take on before it goes pop?

2010 will certainly be a interesting year for this asset class.

What will the govnuts do to keep the market afloat?

How will the govnuts pay back the stimulus and how will this effect consumption and the greater economy?

Cheers

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Ah yes that article is a good one - quotes our old friend Associate Professor Steve Keen, who is actually a lecturer at UWS, not UNSW as the article states.

Regardless, when looking at debt, shouldn't you also look at assets?? (Ie compute level of gearing, as you would for a company/stock you were looking at), and also revenue/income, which tells you the capacity of people to service their debt?

Assets: Australian households own just under $6B worth of assets (property, superannuation, shares, cash in the bank). So the current household debt level of $1.2B gives an average LVR of just over 20%. Most would actually consider that pretty conservative if you were looking at a company. In fact super alone at $1.2T could pay off 100% of our private debt in an instant if we needed it to. As for income, Australian households earn something around $700B per year in income. That's more than enough income to comfortably service the current private debt isn't it? Even at 10% interest the interest bill would be $120B/year = 17% of total household income? At current interest rates it takes less than 10% of our income to cover interest on average.

Additionally,gross/nominal private debt in modern times is likely to have been inflated due to structural factors that actually cause many people (myself included) to "appear" to carry more debt than is the reality. For example, currently I have a novated lease vehicle through my employer, that counts as private debt on the RBA books. The reality is that I only have finance on the new car I bought for tax purposes as it ends up making the car cheaper vs paying with cash due to distortions in our stupid tax system in AU. Next year I'll pay the lease residual in full. In the meantime the cash is sitting in the bank, meaning from a balance sheet perspective the net loan figure goes to zero, yet the gross amount (value of the car) still counts in the 100.4% of GDP RBA figure that everyone likes to get all panicy about!

Same goes for credit cards. People like me pay for everything on credit, earn FF points, get 55 days interest free, then pay the balance in full. I'd average anything from $3k up to $10k+/month in CC "borrowing" due to this - as I also put all my business travel expenses and so on (which are re-imbursed in full) on the card as well.

Similarly, for the past 10-15 years I have always maintained various equity manager loan accounts (for significant amounts) against my properties. Even if these are actually at zero balance (as they often have been), the full amount still counts in the national debt figures, and in other cases there have been loan accounts that maintain a high loan balance, but have associated and very healthy offset accounts, but again the cash in the offset accounts (as an asset) are not included in the gross debt figure being discussed, so the gross debt is counted in the RBA number, rather than the net (Ie, loan outstanding minus offset account cash). Also, I never actually discharge my mortgage facility, even when they are technically paid off in full, and even when I've moved PPOR etc (you change house, keep the same loan), as that way I just keep the loans going and have capital available for other purposes (say renovation projects or other investments) when required at the stroke of a few keys on the computer, without the need to apply for any new loans. I am sure many people operate in a similar fashion. This approach can be very conservative, in that the net debt position (based purely on cash in the bank vs loan account values only, not even counting asset values) can often be zero, even with that large gross debt number "on the RBA stat books" causing people like Steve Keen to fret. In the past only the very wealthy had access to such finance structures from the banks, but this is not the case any more, and I see that as a "good thing" if used wisely.

So I just don't buy the Steven Keen "panic" about current private debt levels. I think there are benign systemic issues such as those I provide examples of above, in the way finance has changed in modern times, that are in part the reason why the gross numbers have grown in the past 5 years.

Cheers,

Beej

Soft Dough said:

but we are different.

We have a prime minister who will continue to bail out housing as his political future depends on it.

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His political future does depend on it. when the bubble bursts there is no way we have the funds to bail out people caught in it
The worst thing is he guaranteed bank deposits and allowed banks to lend recklessly mainly into mortgages (because there safe)instead of into self liquidating loans which produces something for the economy.
as Satan says we are probably past the point of no return but just when it becomes apparent to the mainstream is anyone's guess

Beej said:

Assets: Australian households own just under $6B worth of assets (property, superannuation, shares, cash in the bank).

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Are you using US Billion (1,000,000,000)? That would seem exceedingly low, just $714 per household. This assumes 21M people and average household size of 2.5 people. English billion would seem more correct, but still seems a bit high at $714K per household

Beej said:

Assets: Australian households own just under $6B worth of assets (property, superannuation, shares, cash in the bank). So the current household debt level of $1.2B gives an average LVR of just over 20%. Most would actually consider that pretty conservative if you were looking at a company. In fact super alone at $1.2T....

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Beej, I'm confused by your figures. If total assets is $6B and that includes super, how could super be a higher figure of $1.2T?

bellenuit said:

Are you using US Billion (1,000,000,000)? That would seem exceedingly low, just $714 per household. This assumes 21M people and average household size of 2.5 people. English billion would seem more correct, but still seems a bit high at $714K per household

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bellenuit said:

Beej, I'm confused by your figures. If total assets is $6B and that includes super, how could super be a higher figure of $1.2T?

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Sorry total household assets should be $6T (not $6B - just a typo on my part) - thanks for pointing that error out! In summary:

Total private debt: $1.2T
Total private assets: ~$6T
Total private income: ~$700B

Cheers,

Beej

Beej said:

Regardless, when looking at debt, shouldn't you also look at assets?? (Ie compute level of gearing, as you would for a company/stock you were looking at), and also revenue/income, which tells you the capacity of people to service their debt?

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You can, but some asset classes in Australia are at historically high levels eg housing, and your argument is exceptionally simplistic and does not take into effect a snowballing effect whereby people with high LVR are forced to sell, dropping prices and causing the next level of asset owner to sell etc.