The future of Australian property prices

[So_Cynical]

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

Don't know about that....Labor's political future is fairly secure with the coalition in full self destruct mode.

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?

Some anecdotal opinion...i work with a few Indian guys who came here as students and payed big money for degrees in accounting and engineering, these guys work as casual labourers in a warehouse because they cant get jobs as engineers and accountants.

There all pretty pissed off about it and i get the felling that at some point they will give up and go home (there parents are all loaded) now if these guys and there situation is representative of the wider community, its not hard to see rental demand easing as they start to pack up and leave.

 

[wayneL]

Don't know about that....Labor's political future is fairly secure with the coalition in full self destruct mode.

Labor's future is in figuring out its own method of self destruction. Meanwhile, the Libs are "rebooting"

It is an impossibility for Labor's political future to be secure. Social Democratic tax and spend ALWAYS fails in the end.

 

[Dowdy]

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.

If the housing market pops, rental prices wont increase. I'm sure investor will try to increase their rent but people wont pay it. People are only willing to pay what they can afford. If they couldn't pay their home and lose it, what makes you think they can afford high rental. Worst case scenario, the government will put price ceilings on rent and that will cause all sorts of chaos and corruption in the rental market.

Melbourne doesn't have an oversupply, but an over debt which can be just as bad.
If the government clamps down on immigrants then there will be an oversupply

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

I think it's more arrogance. They believe it's their RIGHT to own a home, rather then the result of hard work and saving. These first home buyers getting a property in a new estate, rather then starting out in a small unit/flat, and buying everything on interest free.

 

[wibbly pig]

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

So were many North Americans and Europeans before their property bubble spectacularly popped. I think if you're depending on this then you're relying on blind faith.

 

[Beej]

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.

How is it "exceptionally simplistic" to consider several data points and the whole picture rather than focus on a single ratio (gross debt/GDP) and expect to find the explanation of past/present and future there?

Anyway my main point was to show how there are reasons why the "simple" debt/GDP ratio may have increased in the past 5-10 years, without it necessarily implying a corresponding change in actual household gearing or net debt levels. You have to look at the whole picture to get a read on that (household super, savings, finance structure/facilities used, distortions of the tax system that can promote the use of debt to reduce cost of items like cars and so on, plus of course assets owned as well as debt).

Cheers,

Beej

 

[So_Cynical]

Labor's future is in figuring out its own method of self destruction. Meanwhile, the Libs are "rebooting"

It is an impossibility for Labor's political future to be secure. Social Democratic tax and spend ALWAYS fails in the end.

I see warming denial is not the only issue your are in denial over. as long as Labor don't control the senate they cant self destruct....Labor's power base is the centre, the centre the libs rejected.

 

[wayneL]

I see warming denial is not the only issue your are in denial over. as long as Labor don't control the senate they cant self destruct....Labor's power base is the centre, the centre the libs rejected.

Oh, ripped a new one! Oh my! Your kindergarten arguing skills are amazing.

Unfortunately, ability to discern your opponent's actual argument is still at nursery school level. Keep at it though. One day in the distant future, with practice, you may be able to craft a straw man argument and people won't laugh in your face.

Until then, you shouldn't attempt this with adults. Although you may not realize it yourself, it is somewhat humiliating for you.

Just trying to help.

 

[Soft Dough]

How is it "exceptionally simplistic" to consider several data points and the whole picture rather than focus on a single ratio (gross debt/GDP) and expect to find the explanation of past/present and future there?

Anyway my main point was to show how there are reasons why the "simple" debt/GDP ratio may have increased in the past 5-10 years, without it necessarily implying a corresponding change in actual household gearing or net debt levels. You have to look at the whole picture to get a read on that (household super, savings, finance structure/facilities used, distortions of the tax system that can promote the use of debt to reduce cost of items like cars and so on, plus of course assets owned as well as debt).

Cheers,

Beej

I have 10 million in cash, and no other assets. my 4 neighbours have no cash and each have no other assets and housing loans of 2.5 million on houses "worth" 2.5 million,

but all is ok because they have no gearing as I have 10 million in cash.

that is why it is overly simplistic, and not a reflection of what can happen when people are overgeared into overvalued asset classes.

 

[robots]

I have 10 million in cash, and no other assets. my 4 neighbours have no cash and each have no other assets and housing loans of 2.5 million on houses "worth" 2.5 million,

but all is ok because they have no gearing as I have 10 million in cash.

that is why it is overly simplistic, and not a reflection of what can happen when people are overgeared into overvalued asset classes.

hello,

in your opinion, and with the opinions of most who have come to the property forums clearly being pie in the sky stuff

guess thats why most have disappeared

thankyou
robots

 

[robots]

If the housing market pops, rental prices wont increase. I'm sure investor will try to increase their rent but people wont pay it. People are only willing to pay what they can afford. If they couldn't pay their home and lose it, what makes you think they can afford high rental. Worst case scenario, the government will put price ceilings on rent and that will cause all sorts of chaos and corruption in the rental market.

Melbourne doesn't have an oversupply, but an over debt which can be just as bad.
If the government clamps down on immigrants then there will be an oversupply

I think it's more arrogance. They believe it's their RIGHT to own a home, rather then the result of hard work and saving. These first home buyers getting a property in a new estate, rather then starting out in a small unit/flat, and buying everything on interest free.

hello,

sounds more like jealousy because they are doing hard work, saving and putting in for the country which allows them to purchase a property

while others who dont purchase hit the internet, but hey, all follow the leader (dr keen) to see how its done

wasnt the government going to slash immigration the other year when the GFC hit? numbercruncher told us, oh didnt occur

thankyou
robots

 

[robots]

hello,

poster couple for the affordability campaign across the globe:

http://www.heraldsun.com.au/news/br...year-in-benefits/story-e6frf7jx-1225814032602

yeah right, handout crew

thankyou
robots

 

[Gerkin]

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.

http://www.dse.vic.gov.au/CA256F310024B628/0/1F19C83E83514824CA25751A00005C96/$File/Accessible+Victoria+in+Future+Fact+Sheet.doc

273,000 up between 01 on 06 census.

They have to live somewhere

 

[satanoperca]

Thanks Beej for your detailed response.

It does put a different perspective to the argument.

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

If by Beej's contribution we are at 20% LVR, what will be the limit. 30% 40% 50%. How much debt can society take on before it is unservicable.

Has the increase in housing prices been directly proportional to the rise in household debt?

I also agree with some of the poster that Steve Keen's opinions are a little extreme but they still are relevant to explore in regards to the future direction of property prices to prevent potential situation arising like in the US, Ireland, Spain & UK.

As yes we are different here, we have KRUDD at the helm.

 

[Gerkin]

Don't know about that....Labor's political future is fairly secure with the coalition in full self destruct mode.

Some anecdotal opinion...i work with a few Indian guys who came here as students and payed big money for degrees in accounting

and engineering, these guys work as casual labourers in a warehouse because they cant get jobs as engineers and accountants.There all pretty pissed off about it and i get the felling that at some point they will give up and go home (there parents are all loaded) now if these guys and there situation is representative of the wider community, its not hard to see rental demand easing as they start to pack up and leave.

Thats true, its because hese employers do not want an indian working for them, unless they are clearly the best. Usually the Indians hired in those areas are ones who have been here since they were children.

I've got a mate who has a very long and clearly Sri Lankan surname. He couldnt even get a graduate interview, he changed his surname and got heaps of interviews and a job with a pretty good firm.

You have to remember the client base that that these graduates will be working with, most of the time they cannot be hired as they do not have the interaction skills that a Australian would have.

Also, got a mate whose Indian, and from a very rich family who I met whilst I was over there. Hes got an accounting degree however doesnt want to work in that area, he would rather make his 50K in the pub/pokies that he works at. Anway the Fed Gov tried to deport him as he was working in an area that he wasnt trained for as per his visa, mind you 5 years later. Anyway, he stayed as he was captain of his cricket team (all aussies) and he proved to them he was part of the community, this is an example of anIndian student who chooses to stay because he enjoys life here in Australia as an average bloke who can enjoy a drink when he wants.

 

[robots]

hello,

yeah, they all want to race back to the punjabi region

thankyou
robots

 

[Gerkin]

If the housing market pops, rental prices wont increase. I'm sure investor will try to increase their rent but people wont pay it. People are only willing to pay what they can afford. If they couldn't pay their home and lose it, what makes you think they can afford high rental. Worst case scenario, the government will put price ceilings on rent and that will cause all sorts of chaos and corruption in the rental market.

Melbourne doesn't have an oversupply, but an over debt which can be just as bad.
If the government clamps down on immigrants then there will be an oversupply



I think it's more arrogance. They believe it's their RIGHT to own a home, rather then the result of hard work and saving. These first home buyers getting a property in a new estate, rather then starting out in a small unit/flat, and buying everything on interest free.

There is no oversupply of housing in Melbourne. And if the housing market goes pop, you wil see some people selling. These people have to live somewhere, therefore they will become renters. At this time
there will be the same amount of houses. Now these people will be prepared to pay rent, so instead of paying say 800 bucks a week onto there mortgage they will now be paying 400 a week rent. I didnt say that rent will increase. I said that renal yields wouldincrease as property prices drop, and rent stays the same thus briging up the yield.


I'm one of these people who are building in a newish estate, I'm not arrogant and I have every right in the world to spend my money and borrow as much as I want to. I have saved very hard and have been working full time since I graduated Uni. You are just stereo typing these people in these areas

 

[Gerkin]

I think it's more arrogance. They believe it's their RIGHT to own a home, rather then the result of hard work and saving. These first home buyers getting a property in a new estate, rather then starting out in a small unit/flat, and buying everything on interest free.

Further to the above post. I would like to get some opinions on what an acceptable level of debt is.

Lets use a debt to household income ratio.

Therefore a $300,000 debt, to a household net income of $80,000 is 3.75

My question is what do you think is acceptable and sustainable?

I'll post my say best 5 mates ratios after I get some answers

 

[Dowdy]

I'm not arrogant and I have every right in the world to spend my money and borrow as much as I want to.

Do you see the irony in what you just said....

I have saved very hard and have been working full time since I graduated Uni. You are just stereo typing these people in these areas

Yes i was stereotyping. If you saved alot and put 20% down then you can afford your home and hopefully afford the repayment and i wish you well but if you put anything less then 20% and buy everything on credit/interest free and live pay check to pay check and eat out all the time etc. then maybe you should look again at being a home owner

Further to the above post. I would like to get some opinions on what an acceptable level of debt is.

I believe in the saying It's not what you earn, it's what you save. So what is the acceptable level of savings, the question should be.

A 20% down payment with enough cash/liquid investment reserves to last 3-6months.

People always going on about acceptable level of debt, yet you get people who earn 6 figure salaries with not a cent to their name, living pay check to pay check

 

[Gerkin]

Do you see the irony in what you just said....

Yes I see it, but it doesn't change the fact that I still have the right to do it as a responsible member of society.


Yes i was stereotyping. If you saved alot and put 20% down then you can afford your home and hopefully afford the repayment and i wish you well but if you put anything less then 20% and buy everything on credit/interest free and live pay check to pay check and eat out all the time etc. then maybe you should look again at being a home owner

Yep, did 20%, plus the Gov gave me 32K, what a government


I believe in the saying It's not what you earn, it's what you save. So what is the acceptable level of savings, the question should be.

A 20% down payment with enough cash/liquid investment reserves to last 3-6months.

People always going on about acceptable level of debt, yet you get people who earn 6 figure salaries with not a cent to their name, living pay check to pay check

Thats a fair point about savings, but it still if interest rates went sky high and youve got two couples, both with debt of 400K, income of 120 and 70. Im pretty sure the ones on 120K will be in a lot better position, they might have to cut spending, however they still can afford there mortgage, the other ones might not be able to.

Therefore, Let me ask again, what do you think an acceptable level of debt is?

 

[wayneL]

Further to the above post. I would like to get some opinions on what an acceptable level of debt is.

Lets use a debt to household income ratio.

Therefore a $300,000 debt, to a household net income of $80,000 is 3.75

My question is what do you think is acceptable and sustainable?

I'll post my say best 5 mates ratios after I get some answers

It varies according to the income strata. What might be acceptable and sustainable to a person on an assured income of $200k would not be acceptable to someone on $40k.

Traditionally the ratio has been somewhere between 3 and 4. Long term, this has shown to be about right IMO.