The future of Australian property prices

[robots]

hello,

what should i do to prepare?

i weathered the storm recently through the 9% interest rates and then GFC when interest rates went to the lowest in 40yrs,

and median prices fell approximately 5% and then BOOMED back over previous highs, easy stuff

many advised to get out of debt during that time, showed not to be a wise decision

thankyou
robots

 

[cutz]

what should i do to prepare?

Hi robots,

I take it that you're not over-geared so realistically all you need to do is sit tight, many are not in such a fortunate position and those are the ones I fell sorry for.

 

[robots]

hello,

no worries will sit tight and go with the flow man

thankyou
robots

 

[Soft Dough]

Well that sort of example can be created for anything where you are looking at a gross national statistic of course. So I really don't see your point. You are still fretting about a single stat - gross private debt/GDP, without considering all the other pertinent stats like assets and income. Even in your example, if the 4 neighbours with $2.5M in loans each (which you would be getting the interest on technically via the bank), all earned good incomes from export related activities such that they can easily service their loans, and own houses worth $5M each, then everybody wins. They live the lifestyle they want and will in the future have no debt. You perhaps choose to live more frugally, maybe not working at all but live off the interest that your neighbours in effect pay you through their export derived productive earnings. Bottom line is if the whole balance sheet adds up then your little neighbourhood nation example can get along just fine!

I love it how you forget that it is not my example that you are disregarding, as all I did is restate what you said, but using alternative figures. Plus you then changed the figures, eg tdoubled the value of the houses etc. and laughingly stated that people were working in jobs which are export related, which very few people are actually involved in.


It is similar to robots ridiculous post where he calculates the cap rate of houses, I just hope he was just joking and actually didn't believe his post.

btw robots, by what percentage do you think housing will rise by the end of 2010? or are you still just blindly following the herd? FYI the people who blindly followed the herd of the ASX200 during the GFC surely regretted their decisions.

 

[Beej]

I love it how you forget that it is not my example that you are disregarding, as all I did is restate what you said, but using alternative figures. Plus you then changed the figures, eg tdoubled the value of the houses etc. and laughingly stated that people were working in jobs which are export related, which very few people are actually involved in.


It is similar to robots ridiculous post where he calculates the cap rate of houses, I just hope he was just joking and actually didn't believe his post.

btw robots, by what percentage do you think housing will rise by the end of 2010? or are you still just blindly following the herd? FYI the people who blindly followed the herd of the ASX200 during the GFC surely regretted their decisions.

*Sigh* - Of course I deliberately changed the example to show that based on the stats you used, it could all be very rosy (hence my choice of using export income, low LVRs etc etc). Similar to how you can use the same example and paint a very gloomy picture if you presume no productive income and no export derived income and high LVRs. I'm sure across the national averages the reality is somewhere in the middle.

My point was (and still is) that you can't just look at a single number/stat/ratio in isolation and declare the inevitability of the world coming to an end - you need to look a little broader and deeper at the picture to understand what is really happening.

PS: Re the herds, the ASX200 and the GFC - are you talking about the people that sold during the panic and locked in all their losses? Or are you talking about people that didn't sell out prior to the crash and rode through the whole thing to date?

Cheers,

Beej

 

[Soft Dough]

My point was (and still is) that you can't just look at a single number/stat/ratio in isolation and declare the inevitability of the world coming to an end - you need to look a little broader and deeper at the picture to understand what is really happening.

PS: Re the herds, the ASX200 and the GFC - are you talking about the people that sold during the panic and locked in all their losses? Or are you talking about people that didn't sell out prior to the crash and rode through the whole thing to date?

Cheers,

Beej

Just because someone else has zero gearing does not help someone else geared up to the eyeballs,

just like the ASX200 herd who were geared up and who were forced to sell their investments.

btw you make it sound like selling out was a bad thing, I sold out at around 5700-5800 and have never looked back. Still mainly in cash waiting to buy robot's properties

 

[robots]

Just because someone else has zero gearing does not help someone else geared up to the eyeballs,

just like the ASX200 herd who were geared up and who were forced to sell their investments.

btw you make it sound like selling out was a bad thing, I sold out at around 5700-5800 and have never looked back. Still mainly in cash waiting to buy robot's properties

hello,

yes, waiting waiting waiting waiting

while i am riding the endless wave of glory (perhaps that may answer your question)

and the herd has been on the sideline thanks to people like yourself and the more they listen the worse the situation will be, but hey

thats life

thankyou
robots

 

[Beej]

Just because someone else has zero gearing does not help someone else geared up to the eyeballs,

just like the ASX200 herd who were geared up and who were forced to sell their investments.

btw you make it sound like selling out was a bad thing, I sold out at around 5700-5800 and have never looked back. Still mainly in cash waiting to buy robot's properties

All fine, but re gearing to the eyeballs and housing, firstly define "geared to the eyeballs?", and what makes you think that a large number of people are in this situation? What proportion of mortgage holders across the country does this represent, and is that estimate somehow based on the single debt/GDP ratio number that we have been discussing? Put some numbers on it and show us how you work this out. Do you think household income comes into assessing the level of risk faced by these people at all?

As for the stock market, you did well do sell out at 5700/5800, assuming you had been in for a while prior to that - well done! Nothing wrong with that move, or holding the cash since, especially if you intend to buy property sometime soon with the capital But what about the people who sold at 3100? Do you think they regret that decision now?

Just for a comparison, I have a diversified stock portfolio which I held through the whole thing. Currently with the ASX200 back around 4800, the value of this portfolio is now within 5% of it's value at the market peak of 6800, due to dividends (all reinvested) and the many discounted rights issues that occurred during the past 18 months. If I had sold at 5700, I'd be 15% down off peak value + cash return of say 7.5% (5%pa - so let's say 5% net after tax over 18 months), net result still 10% down from peak. So you and I probably got pretty similar outcomes so far from the ASX200 following 2 very different herds

The people that killed both of us though were those who sold at 5700 and then bought back in at 3100/3200 My old man did that with all his super (he's 70 and retired) and now has 50% more super than he had 18 months ago.

By the way in hindsight wouldn't it have been an awesome move if you had used your cash to get into say Melbourne or Sydney property in late 2008?

Cheers,

Beej

 

[Dowdy]

Hi robots,

No tall poppy syndrome here, I too own my piece of the aussie dream but I am very skeptical of a continuing boom.

The so called housing shortage seems like a load of baloney, it's a developers paradise around Melbourne at the moment, you just gotta open your eyes. High rise developments going up left right and center, it's like there's a scramble to get projects built before inevitable occurs.

Anyway I'm no guru, just putting 2 and 2 together.

Good luck with it all bro.

CNBC had a documentary on the other day called The Bubble Decade. First part talked about the dot com bubble and the second part talked about the real estate.

The aussie housing bubble hasn't popped yet but in the documentary they talked to (former) developers and right before the bubble popped they were trying to get their developments completed as quickly as possible as they could feel the tension in the air that things were about to go, as they said.

But this is paradise isn't it. This time it's different

 

[robots]

hello,

this would be like me telling you about child care

thankyou
robots

 

[Glen48]

Robots: after the cash you will be in the Fetal position on the floor you will need child care..

 

[robots]

hello,

oh yeah, finished man

thankyou
robots

 

[Beej]

CNBC had a documentary on the other day called The Bubble Decade. First part talked about the dot com bubble and the second part talked about the real estate.

The aussie housing bubble hasn't popped yet but in the documentary they talked to (former) developers and right before the bubble popped they were trying to get their developments completed as quickly as possible as they could feel the tension in the air that things were about to go, as they said.

But this is paradise isn't it. This time it's different

You don't think that the fact that the US massively over-built from 2002-2007 might explain why some US developers saw things the way they did near the end? Contrast that to Australia, where we are not building enough dwellings to meet under-lying demand due to strong population growth and demographic needs. In that respect, it "is different here". Of course there was also sub-prime and all that in the US, but let's not worry about that too much either! No two economies are exactly the same - shocking I know, but there you go!

PS: Actual new dwelling completions have since fallen well short of what was forecast in the below chart.

Cheers,

Beej

 

[So_Cynical]

PS: Actual new dwelling completions have since fallen well short of what was forecast in the below chart.

Cheers,

Beej

Beej is that a US or Aust chart...and a link please to where you found it.

 

[Beej]

Beej is that a US or Aust chart...and a link please to where you found it.

AU chart - from Chris Joyes blogs here: http://www.businessspectator.com.au...ment&src=blb&is=property&blog=concrete detail

Cheers,

Beej

 

[So_Cynical]

Thanks Beej

Some interesting reading on that link and googling Dr David Gruen the chart author.

Here,s another one of his charts (and comment) from this document.

http://www.treasury.gov.au/document...s_Economists_Annual_Forecasting_Conf_2009.pdf

Combined with lower interest rates, the introduction of the First Home Owners Boost in October 2008 saw a huge rise in finance commitments by first home buyers (Chart 6).

So it would seem obvious that its these people, the recent first home owners who are the most at risk when it comes to falling house prices, and i imagine its also obvious that its these people being forced to sell that would drive the overall market lower.

Because people not selling or under any pressure to sell have little or no impact on prices, as we recently saw in the stock market crash...Now if we consider for just a moment that with interest rates raising and the economy hitting a short term peak, if there's any broad event that gives us a little knock backward and these FHO start selling and have to sell at a loss.

Then its easy to see how the banks will just stop any marginal lending and that will accelerate the fall...because the recent rises are unquestionably based on handouts and easyish credit (rising, holding prices)

No matter how you try and dress up the recent housing debt numbers...its still a matter of you just putting a positive spin on a negative (for housing) event....there's just no way around that.IMO

 

[robots]

Thanks Beej

Some interesting reading on that link and googling Dr David Gruen the chart author.

Here,s another one of his charts (and comment) from this document.

http://www.treasury.gov.au/document...s_Economists_Annual_Forecasting_Conf_2009.pdf





So it would seem obvious that its these people, the recent first home owners who are the most at risk when it comes to falling house prices, and i imagine its also obvious that its these people being forced to sell that would drive the overall market lower.

Because people not selling or under any pressure to sell have little or no impact on prices, as we recently saw in the stock market crash...Now if we consider for just a moment that with interest rates raising and the economy hitting a short term peak, if there's any broad event that gives us a little knock backward and these FHO start selling and have to sell at a loss.

Then its easy to see how the banks will just stop any marginal lending and that will accelerate the fall...because the recent rises are unquestionably based on handouts and easyish credit (rising, holding prices)

No matter how you try and dress up the recent housing debt numbers...its still a matter of you just putting a positive spin on a negative (for housing) event....there's just no way around that.IMO

hello,

what negative event is that?

the medians BOOMING above the previous highs

thankyou
robots

 

[So_Cynical]

what negative event is that?

Robbie your kidding right? You think the FHO debt binge is a positive when looking at the housing big picture...not the auction clearance rates.

FAMILIES have plunged dangerously into the red - for the first time owing more in household debt than the entire economy earns in a year...The record credit binge – fuelled largely by the first-home buyer's grant – means every adult, on average, owes more than $74,000.

"It shows we are living beyond our means."
Mortgages account for almost 90 per cent of annual GDP, up from 17 per cent in 1990.

http://www.news.com.au/couriermail/story/0,1,26527418-952,00.html

 

[SM Junkie]

I will watch with interest because I'm not certain that FHB will start selling when interest rates start to rise. Lending criteria is so much tighter now and I'm sure the banks have only lent to FHB who will be able to weather any downturn.

I'm not a FHB, but I know even when I went for another mortgage, I had to provide so much more information then previously. I think property is sound at the moment and I'm afraid I just don't get all this doom and gloom.

 

[Gerkin]

Alot of first home buyers/builders in my area (melbournes north east) are people who live with there family until they buy. They earn good money but have stayed at home because of there european heritage, mind you 2nd and 3rd generation. I think these people will be fine if interest rates do rise.

My concern for the prooperty market is in Melbournes West, Point Cook, Wyndam Vale. The demograpic is different, alot of immigrants in these areas, and the median incomes in these areas are lower than other FHB areas.