The future of Australian property prices

[Agentm]

 

[nukz]

So in 1960-1970 we had higher population growth but affordable housing. How does this contrast to now where we have lower population growth and houses that are 8X our wages but at the same time being told prices will remain high because of population growth and a shortage of housing.

Nice graph, it looks like we have never really had a proper downturn, i always hear people say the early 90's we had a massive slump but i can't see any evidence of that.

 

[SusanW]

I can't agree with your comments about the margin... we are talking houses not a financial instrument. One or two silly sales don't reprice the market in quite the same way it can occur in a stock market.

I'd dispute it is only one or two silly sales. What research does 90% of the market do before attending an auction?

Auction strategy was a well covered dinner party topic, most people I know had it wired. Anyway... not such an issue, agents down here are not as smart as they really think they are.

Personally, I think auction strategy is overrated. A smart bidder just has to determine how much the property is worth to them, and start bidding below that, or not at all if others drive bidding beyond that. If a bidder doesn't win, someone else who has done more, or less, research, thinks it is worth more, end of story.

 

[Aussiejeff]

So in 1960-1970 we had higher population growth but affordable housing. How does this contrast to now where we have lower population growth and houses that are 8X our wages but at the same time being told prices will remain high because of population growth and a shortage of housing.

Nice graph, it looks like we have never really had a proper downturn, i always hear people say the early 90's we had a massive slump but i can't see any evidence of that.

I disagree. Get that calculator out & think again.

Over the 3 years from 1990-1992 (inclusive), Melbourne median house price DROPPED around 3% from $141,500 to $137,800 - a LOSS of -$3,700. However, with cash & Term deposit rates at the time at record +17%, that same $141,500 invested in a Term Deposit for 3 years at 17% (compounding) would have ended up being worth $226,628 - a GAIN of +$85,128!

That's a nett worth difference at the start of 1993 (when house prices started to recover positive momentum) of $85,128 - $3,700 = $81,428!!

Even deducting 331/3% Tax on the interest earned in the Term Deposit, it still comes out at $54,312 better off than if the same cash had been tied up in a PPOR.

IMO that IS a massive slump in relative REAL ASSET VALUE vs Term Depositors that would take over a decade for home owners to catch up on??? It's called "opportunity cost" - and those locked into housing as an "investment" in those 3 years paid a big price for that lost opportunity to make real gains.

Chiz,

aj

P.S. Excellent graph Agentm..

 

[Aussiejeff]

This should bring Probot$ out of his semi-detached retirement.....

http://www.thebull.com.au/articles/a/15928-housing-prices-set-to-fall-in-2011.html

RP Data research director Tim Lawless said the capital city property market peaked in May.

"Since the market started to cool in June the cumulative decline in dwelling values to the end of October has been less than one per cent across the capitals, suggesting a market that is slowing at a controlled pace," he said.

"Of course, the October data doesn't include any effect from the November interest rate rise, which we expect will have caused conditions to cool further."

Rismark International joint managing director Ben Skilbeck forecast weakness in home prices in the months ahead due to the impact of a rise in mortgage interest rates after the Reserve Bank of Australia raised the cash rate on Melbourne Cup day.

There is also a build-up of properties for sale, with 23 per cent more homes available for sale now than there were 12 months ago.

 

[MR.]

Thanks Susan.

So in 1960-1970 we had higher population growth but affordable housing. How does this contrast to now where we have lower population growth and houses that are 8X our wages but at the same time being told prices will remain high because of population growth and a shortage of housing.

Exactly! "HYPE" got it there. Both the government and/or the RBA failed to bring the hype under control.

Nice graph,

1999 isn't right on that graph. Property prices didn't double in four years because of any incorrect introduction of a 50% CGT.

 

[Mr Z]

Personally, I think auction strategy is overrated. A smart bidder just has to determine how much the property is worth to them, and start bidding below that, or not at all if others drive bidding beyond that. If a bidder doesn't win, someone else who has done more, or less, research, thinks it is worth more, end of story.

Have you done many auctions?

 

[SusanW]

Have you done many auctions?

I've attended 10-60 auctions a year since the early 80s, in Brisbane, Sydney, and Melbourne.

Have bid at about 50, won 7 and been the underbidder at around double that.

I find a lot of bidders want to get a return on their emotional investment for an auctioned property. So they bid over their fair market value in the heat of the moment. I don't get excited anymore. I have my price and stop bidding when I hit it. Having a list of auctions to go to on the same day removes a lot of the fanfare associated with any one auction.

The only bidding strategies I think might have some psychological power are:

1. to start bidding early and bid up in large numbers 20-25k for a 400k property. This may stop others from going beyond their predetermined limit.

2. don't bid until on the market, and increase the price in large increments.

The worst thing I've done was give the opposition the impression I was unsure whether I would continue bidding, by moving up in 1k increments and stalling the auctioneer. That only encouraged several to stay with me.

 

[Mr Z]

I definitely will not bid until the auction goes live and you here those magic words.

I have seen a number of tactics work quite well, one that sticks in mind was a typical "quote it low (silly low) watch go" strategy by the agency. The guy who got it came in on the opening bid at a price that turned out to be within about 2K of the reserve price. You could see the people just walk away, the auctioneer did his best but that killed it, the crowd was stunned given the silly quote. Anyway he got it at his number in the end, the agents where none to happy. Rarely have I seen such a gambit pay such clear dividends, certainly turned the table. I think its the only one bid auction I have ever seen, it even threw the dummy for a loop, he'd probably been instructed to stop lower than the reserve, I think this guy nailed his top number...LOL

I had another as a vendor where the highest bidder refused to sign, wanted to negotiated lower.... in the mean time the agent lost the crowd. Jan was livid... needless to say the agents rivals where keen to fill the gap and did so after I called the whole thing quits. I was under the impression they had to sign up till that point.... fact is there was very little they could do or where willing to do. Needless to say the advertising bill was discussed for a long period of time.

All the fun of the theater...

When the market is good it ties a sale up in 4 weeks, I like that aspect.

I have lost count of the number of auctions I have been to, back in the 1990's it was feeling a little obsessive... but hey it was a good time to be an amateur developer, we learned a lot just watching the opens and the crowds.

 

[Mr Z]

I disagree. Get that calculator out & think again.

Over the 3 years from 1990-1992 (inclusive), Melbourne median house price DROPPED around 3% from $141,500 to $137,800 - a LOSS of -$3,700. However, with cash & Term deposit rates at the time at record +17%, that same $141,500 invested in a Term Deposit for 3 years at 17% (compounding) would have ended up being worth $226,628 - a GAIN of +$85,128!

That's a nett worth difference at the start of 1993 (when house prices started to recover positive momentum) of $85,128 - $3,700 = $81,428!!

Even deducting 331/3% Tax on the interest earned in the Term Deposit, it still comes out at $54,312 better off than if the same cash had been tied up in a PPOR.

IMO that IS a massive slump in relative REAL ASSET VALUE vs Term Depositors that would take over a decade for home owners to catch up on??? It's called "opportunity cost" - and those locked into housing as an "investment" in those 3 years paid a big price for that lost opportunity to make real gains.

Chiz,

aj

P.S. Excellent graph Agentm..

Around the S&L Crisis time there was some real panic selling, didn't last long but it was not pretty according to the agents I was talking to.

 

[MR.]

If you don't mind me joining your convo' If you are the vendor and you have something unique or really unique an auction is certainly worth consideration. Seen a few auctions go far beyond comprehension when two bidders go head to head on a real unique plot. If the sale was a private sale I just can't imagine the vendor coming up with a price anywhere near. A property must be unique to really benefit from an auction.

The run of the mill Qld auctions just seems to be different to down south. Why I don't know. They definitely are not as common. Most up here are private sales. Seen a few auctions up here in QLD and I can't work out if the bidders are scared or what! Many which go to auction here seem to be just to lock in the "vendors bid" so it can then be marketed further as "it was passed in at $$$ at auction"

Susan, your views are similar to many here regarding the "future" but you claimed you purchased a couple of properties earlier this year. With all those auction attendants in the past I'd say you must have a few properties still under your belt. Would you elaborate further on your position if its not too intrusive and what your intentions are!

 

[MR.]

S&L Crisis time

S&L? Mr Z please!

got it "Savings and Loans!"

 

[Mr Z]

By all means!

Yes... crazy to watch two egos slog it out, but yes I have seen some bold developments really hit the money.

Down here the common wisdom is to sell in spring but I have done very well selling in the autumn to winter via auction. If the property you are offering is good you will get the late summer sales that have not repurchased and find themselves looking at the lean pickings of an off season market. On one occasion I bought a property that had been passed over late in the traditional selling season. It was badly presented, anyway bought it, I toyed with plans, priced the development and then got cold feet. I had too much on and the margin was not looking like what I had hoped for. I resold the same house via auction 5 months later with a minimal clean up (mebe spent $500) and got 135K more. The primary difference was the method of sale and the season, since that experience I tended towards the off season. It, in my experience, has been well bid with truly motivated home seekers about to be turfed from their house sold in the summer.

 

[Mr Z]

S&L? Mr Z please!

got it "Savings and Loans!"

Solly... I will type with a septic accent next time!

 

[robots]

hello,

oh gidday, fantastic day

everyone must of skimmed over this today, oh well:

http://www.theage.com.au/business/property/home-prices-tick-higher-20101130-18ei4.html

oh yeah but in real terms (which MrZ has trouble understanding and explaining) its all no good, finished, forget about it

i reckon Keen should walk again for the trauma he has caused to people who wanted to buy a home, they just got SOLD a line by a spruiker, oh well

thankyou
professor robots

 

[robots]

hello,

yeah right Deposit Rates were 17% for three years, man the cash rate dropped 4% in one year alone

but hey, put your money in cash thats okay, its about on par with most industry super funds,

better if you could buy and also put the extra away

thankyou
professor robots

 

[sinner]

hello,

oh gidday, fantastic day

everyone must of skimmed over this today, oh well:

http://www.theage.com.au/business/property/home-prices-tick-higher-20101130-18ei4.html

oh yeah but in real terms (which MrZ has trouble understanding and explaining) its all no good, finished, forget about it

i reckon Keen should walk again for the trauma he has caused to people who wanted to buy a home, they just got SOLD a line by a spruiker, oh well

thankyou
professor robots

Is the ABS release that the article is about supposed to be impressive with avg 2% declines per quarter over the last 3 quarters? Steve Keen "cost" (assuming you mean opportunity cost because not buying a house doesn't cost anything) potential investment property investors all of 3% over 2 years if they started paying attention in Sep 2008?



For those that bought in Sep 2008 with an eye to flip in Sep 2009, I only have the rude finger.

 

[MR.]

in real terms (which MrZ has trouble understanding and explaining) its all no good, finished, forget about it

I would like you to explain why property will now maintain growth in real terms if MrZ can't.


My simple answer: I don't see why property will now keep up in real terms. If over the long term it keeps with inflation what has it done recently? Over shot! Look out if she doesn't keep up in real terms, why? Yields which are laughable in most cases!

Interesting the US (Oh yeah, which is nothing like our market) has rental yields near double ours and they find themselves in a property correction. Over supply perhaps vs undersupply.

 

[Mr Z]

oh yeah but in real terms (which MrZ has trouble understanding and explaining) its all no good, finished, forget about it

Unarmed men should not pick fights.

Sure Bot's whatever rings your bell!

 

[robots]

hello,

i thought we might of been able to able to get part 37 of the "real terms" explanation for a bit of entertainment tonite

oh well, hehehehehehehehehe

just amazing the amount of research people put into such a poor performing asset class, oh well

thankyou
professor robots