The future of Australian property prices

[FxTrader]

It's not a conspiracy. House prices do form part of the CPI equation which the RBA's uses in their interest rate settings! The last two quarters CPI rose 3.1% and 2.8% which is on the upper band...

...Too many people do think the sure way to make money above inflation is in property. Those low interest rates sure sucked more than a few investors into properties of late.

I am not suggesting RBA interest rate policy is a conspiracy, it's however guided by commonly held notion that manipulating interest rates is the proper tool for managing economic activity and inflation. If this idea was credible, then the U.S., with its extremely low interest rates should have a booming hyper inflated economy with skyrocketing price inflation by now.

I've always wondered, with respect to prices and inflation, what control does a central bank have over the rising price of commodities like oil, metals, fertilizer and other inputs of production? Answer, very little, other than make Australian goods more expensive and less competitive. What they can do is bring out their big club and smash consumers over the head with higher rates to drive down retail consumption to bring their measure of inflation (the CPI) down; this is a deception IMO.

Frankly I think central banks are largely useless and simply a self serving tool of the banking and finance industry. But they have been very successful at convincing a gullible public of the necessity of their continuing existence and importance.

As for low interest rates fueling property price rises, this is just one factor of many contributing to property demand. Affordable home prices are not aided by RBA rate rises.

 

[FxTrader]

Strange logic you employ. Why did home buyer enter into a property with such a large relative cost to his income that it stopped them from purchasing food on the basis of sequential rate hikes? If home buyer doesn't like it, they are advise to sell and rent instead.

Strange to you perhaps and I did't say it stopped people from buying food, just more expensive brand name products. Many home buyers don't factor the potentially large rising cost of a mortgage into their budget calculations. Unless they do this or fix their loan for a long period they get caught out. This is very common, and numerous stories in various media attest to this. And who wants to be forced out of their home into a tight rental market? Not a very sympathetic person are you.

Because any real focus on any of those things would probably collapse the market overnight.

Hardly, the reality is that changing local, state and govt policy is proving to slow and unresponsive to changing demographics.

This is weird speculator logic again isn't it? Why on earth buy a piece of land to subdivide it, when you know you can't subdivide it? On the assumption that you would be allowed to subdivide it?

I am not a speculator (in the property market), so the answer is no. You missed my point entirely and beat a straw man instead. The point was that there are vast tracks of land around me that are used for nothing more than horse grazing. Allowing some of this land to be subdivided would help ease the supply problem in this area.

 

[explod]

Hello Brothers, great sunny day here on the peninsula, garage sales and fetes all over the place.

Not sure that I saw the clearance rate posted up for last weekend.

Understand the good ole Confesssor was tied down somehow.

Anyhow reading the Financial Review down at the Library this morning stated that last weekend was 56%.

Sorry I was two points out there Brothers at 58%, but a bit hard as I understated it by one point the week before.

Its all taking my breath away, whew, oh well silver put in a great recovery the last week. So lots of cheers, pats on the back, with froth and bubles there comrades.

 

[MR.]

Anyhow reading the Financial Review down at the Library this morning stated that last weekend was 56%.

Sorry I was two points out there Brothers at 58%, but a bit hard as I understated it by one point the week before.

Thought it was Saturday's REIV we were looking at there explod!

Which still makes you 3% out last week and 1% the week before. But now you want to look at "revised" figures. That would make it 3% out last week (unless you supply a REIV link) and 3% the week before! Which way is it?

http://webcache.googleusercontent.c.../2010+auction+houses&cd=8&hl=en&ct=clnk&gl=au

 

[UBIQUITOUS]

Thought it was Saturday's REIV we were looking at there explod!

Which still makes you 3% out last week and 1% the week before. But now you want to look at "revised" figures. That would make it 3% out last week (unless you supply a REIV link) and 3% the week before! Which way is it?

http://webcache.googleusercontent.c.../2010+auction+houses&cd=8&hl=en&ct=clnk&gl=au

I bet they fudge them this weekend (again) and state something like ' clearance rates hold steady as buyers come to the fore'.

 

[medicowallet]

This week: 834
Last Weekend: 862
This time last year: 710
S Sold at Auction: 410
SB Sold before Auction: 90
SA Sold after Auction: 3

Passed in: 331
Passed in on vendor's bid: 215

Clearance rate: 60%

Can any professors here explain why it is less than thet 81% from last year?

 

[Dangerous]

There could be some auctions tomorrow (usually about 30 or so I think)

Forecast is number of auctions REIV report on the proceeding Thurs
The actual column is the clearance rate on the forecast number
Clearance is what REIV report as clearance

Weekend Forecast Reported Cleared "Clearance" Actual
13-14 Nov '920 '836 '508 61% 55%
20-21 Nov '1009 '834 '503 60% 50%

 

[Dangerous]

apologies could not edit last post

Summary on thurs REIV said there would be over a thousand auctions on each of the next four weekends. They have reported 834 today and calculated clearance on that.

cheers.

 

[explod]

Thought it was Saturday's REIV we were looking at there explod!

Which still makes you 3% out last week and 1% the week before. But now you want to look at "revised" figures. That would make it 3% out last week (unless you supply a REIV link) and 3% the week before! Which way is it?

http://webcache.googleusercontent.c.../2010+auction+houses&cd=8&hl=en&ct=clnk&gl=au

They are not numbers I study at all but just enjoy the banter on this thread and would not at all be concerned or surpised to be out 10% either way. So 3% or so near to the number two weeks running is probably a good fluke.

 

[Agentm]

as expected. the sunday age prints what i have telling my mates all week will be a safe 60% clearance rate.. the all important psychological 60 threshold remains..

and presto.. there it is!!

175 no results!!

and as usual, the hidden figures and bulldust prevail, like last week, when they postured an typical above 60% clearance rate in the sunday media, from an actual of 56% when those dastardly "no result" were put into the equation..

LOL

i tip a 55% actual for melbourne for this weekend going by the usual pattern..

back to the latte sipping developas to make a mockery of you all on this very entertaining thread..

hype up the bubbles and sip that latte.. lol

 

[Dowdy]

Interesting article I came across

Treasury sounds the alarm on 'property bubble'

A SENIOR Treasury official has sounded the alarm over Australia's property market.

He has warned that the prospect of a sudden and dramatic drop in prices is "the elephant in the room" and should not be ignored by the Federal Government.

http://www.news.com.au/money/property/treasury-sounds-the-alarm-on-property-bubble/story-e6frfmd0-1225956971546

 

[SusanW]

There is little doubt that recent price growth in property (in some areas) is unsustainable but predicting a crash or collapse in prices is scaremongering.

And outright denying a crash is greedmongering.

The GFC did not cause a crash in house prices here, for a variety of reasons, so what cataclysmic event are the doomsayers predicting that would precipitate such an outcome I wonder, more RBA rate rises perhaps?

FX, why do you think there's an undersupply of dwellings?

In Brisbane, current listings are up 50% on last year. Why are 50% more people trying to sell property this year than last if there's undersupply?

Melbourne's auction volume is at an all time high and clearances historically weak. That does not support low supply, high demand.

Did the population, employment rate, or average wage decrease by 50%? no.

If there's undersupply, why aren't the banks lending to developers?
If our economy is as strong as the RBA and Treasury say, why aren't the banks lending to small business?

Even if housing supply/demand was better matched in your mind, would that reduce bank funding costs or China's demand for Australian commodities?

The last RBA rate rise was 25bp. Which banks raised their rates by only that much?

My view is property prices are most controlled by cost and availability of credit. 40-50% of that credit is now by necessity foreign sourced. and those creditors are strongly influenced by global risk on/off climate.

Can you explain why Australia's cash rate is so high compared to the rest of the world's when our economy is tied to China's world strongest GDP growth?

Personally, I don't believe there will be a crash in prices, unless global credit contracts significantly. However, as many are suggesting, credit conditions may easily see a repeat of the 1990s or worse.

 

[nukz]

Under-supply is a myth created by real estate agents and the property bulls, there are places in South Yarra & Melbourne(CBD) that have been for sale for at least 5 months now. These property's i know off because they where for sale just after i sold my property's.

If you have a look in your area you will most likely notice houses that have been for sale for extended periods of time now. I was down visiting parents place the other day in Mornington and there are 2 houses in their street up for rent that have been trying to get tenants for around 8 months now.

 

[Dangerous]

Under-supply is a myth created by real estate agents and the property bulls, there are places in South Yarra & Melbourne(CBD) that have been for sale for at least 5 months now. These property's i know off because they where for sale just after i sold my property's.

If you have a look in your area you will most likely notice houses that have been for sale for extended periods of time now. I was down visiting parents place the other day in Mornington and there are 2 houses in their street up for rent that have been trying to get tenants for around 8 months now.

I spent some time using ABS figures to ascertain whether or not there is a shortage.

since 1984 for every 2.47 increase in population a "new dwelling unit" has been approved. In the last few years it is 4:1. What is interesing is that there has been between 85,727 and 130,914 since approvals have been tracked in 1984. The average is 106,750 new dwelling units approved per annum. (I realize that not all approvals would result in new dwellings but assume this would be a very small percentage.)

My view is that there has been an oversupply of housing for many years in Australia and things are about right now - where are all the people living in a tent because of the shortage? Strong demand has been confused with undersupply.

The reason why rental vacancies are now healthy is because since 2006 we have averaged pop. increase of 403,000. From 1982 to 2004 the average increase was 226,000. (2005 jumped to 292,000 and I have excluded that).

The concerning thing is that the promoters of the undersupply theory would, or should, know the stats I have outlined above.

The only undersupply here in Melbourne is on those red and white auction flags.

 

[MR.]

since 1984 for every 2.47 increase in population a "new dwelling unit" has been approved........ The average is 106,750 new dwelling units approved per annum. (I realize that not all approvals would result in new dwellings but assume this would be a very small percentage.)

From 1982 to 2004 the average (population) increase was 226,000.

Since an average of 2.6 people live in each house hold (ABS), your figures suggest that between 1982 and 2004, 87,000 new units were needed but 106,750 were approved. ie: 20,000 surplus approvals per year x 12 years = 240,000 surplus approvals.

2005 population increased was 292,000
2006 to 2010 population increase was 403,000 on average.
Therefore:2005 - 2010 the total population increased by 2,300,000.

2005 to 2010 using your average of 106,750 units being approved = 640,500 new units.
Added to the surplus units of 240,000 = 880,500 units.

So with the population increase above average totalling 2,300,000 over the last 6 years does 880,500 approvals house them at 2.6 people per household? Yes at 2.61

As you pointed out "things are about right now" it appears so! However, "not all approvals would result in new dwellings" so on these calculations there is an undersupply.... Is it enough to sustain the prices of 8 million homes?

 

[SusanW]

since 1984 for every 2.47 increase in population a "new dwelling unit" has been approved. In the last few years it is 4:1. What is interesing is that there has been between 85,727 and 130,914 since approvals have been tracked in 1984. The average is 106,750 new dwelling units approved per annum. (I realize that not all approvals would result in new dwellings but assume this would be a very small percentage.)

We did a similar analysis last year. chart below. It compares cumulative population growth with cumulative new dwelling commencements. If you divide the former by the latter, that gives the cumulative new residents per cumulative new dwelling. Note it is under 1.7, while the official average household size is around 2.5.

That indicates enough dwellings are being built.

 

[MR.]

http://www.smartcompany.com.au/econ...tralia-s-average-household-really-shrink.html

people occupying dwellings will ease over the 25-year period from 2.6 people per household to around 2.4-2.5 people.

0.1 people x 8,000,000 homes = 800,000 people looking for new dwellings. Divided by 2.5 people per dwelling = 320,000 additional new dwellings needed over 25 years. 12,800 on average per year.

Is it enough to sustain the prices of 8 million homes?

 

[FxTrader]

FX, why do you think there's an undersupply of dwellings?

I never said there was. My main point concerned land release and urban planning. There is very little land available in Melbourne's outer east where I live, this is simply a fact and due primarily to govt policy. Land prices here reflect the imbalance in supply and demand with price expectations riduculous at the moment. I would like to see prices come down but not with RBA intervention in the market with their blunt instrument.

In Brisbane, current listings are up 50% on last year. Why are 50% more people trying to sell property this year than last if there's undersupply?

Without a survey who knows with any certainty, perhaps they are tired of living in Brisbane. Or perhaps many owners want to lock in capital gains since the RBA is hell bent on clubbing them with rate rises to supress price growth.

Melbourne's auction volume is at an all time high and clearances historically weak. That does not support low supply, high demand. Did the population, employment rate, or average wage decrease by 50%? no. If there's undersupply, why aren't the banks lending to developers? If our economy is as strong as the RBA and Treasury say, why aren't the banks lending to small business? The last RBA rate rise was 25bp. Which banks raised their rates by only that much?

Sorry, but you make no apparent point or substantiated assertion worth commenting on with these mostly rhetorical questions.

Even if housing supply/demand was better matched in your mind, would that reduce bank funding costs or China's demand for Australian commodities?

Yet another rhetorical question. I have one for you, does the RBA rate rise have any influence on the cost of such things as energy, food production and goods and services? Yes, it puts upward pressure on them. These rate rises only serve to smash consumer spending and drive down consumption by making goods, services and financing etc. more expensive in the name of managing to a CPI measure.

My view is property prices are most controlled by cost and availability of credit. 40-50% of that credit is now by necessity foreign sourced. and those creditors are strongly influenced by global risk on/off climate.

Credit availability is a factor for sure and easy and irresponsible credit was not a significant feature of the lending landscape here as it was in the U.S.

Can you explain why Australia's cash rate is so high compared to the rest of the world's when our economy is tied to China's world strongest GDP growth?

Yep, that self-justifying, all knowing, all powerful and largely unaccountable arm of the finance and banking industry called the RBA. A propaganda machine operating at peak efficiency. Why not let the market decide what the cost of money should be instead of the RBA?

Personally, I don't believe there will be a crash in prices, unless global credit contracts significantly. However, as many are suggesting, credit conditions may easily see a repeat of the 1990s or worse.

On this point we can agree.

 

[MR.]

Note it is under 1.7, while the official average household size is around 2.5.

That indicates enough dwellings are being built.

Required dwellings have been out pacing population growth for 30 years by more than 50% ??? Should this be questioned?

The population has increased by some 7.3 million in the past 30 years. We would now have some 1.5 million empty homes if 2.6 people on average live in each of them!

However, in 1982 more people lived in each household and was an average of 3.

http://www.fahcsia.gov.au/about/publicationsarticles/research/facssheets/Documents/facssheet6.pdf

That's 0.4 people per household looking for a new dwelling from 1982 which is approx' 800,000 new dwellings!

So are there 700,000 empty homes additional to the early 80's?
That's 1 additional empty in 12.

Additional Holiday homes and holiday units perhaps?

 

[Uncle Festivus]

Yes, there is no reason why we can't get returns of 10% per year ad infinitum - so long as the Manic Money Makers continue to Fund the Ponzi?
Chart created from RBA Table B02 - Bank 'Assets' ie loans........in Millions.