The future of Australian property prices

[Fleeta]

excellent article.

The problem with today's market is that people look at the prices and think that's the way things are meant to be. Where there are markets in which higher prices justify higher prices, they always come crashing down

Yes, but when do we run out of 'greater fool's and why? I don't see why the current trend can't continue. Do people just decide wait, this can't go on - collectively??

 

[satanoperca]

RE prices are largely determined by

1) Availability of credit - mortgage
2) Avalability of money to service above debt
3) Return on Capital through rental income &/or capital growth
4) Government intervention

Any of the above can affect the price of property.

1) Banks reduce LVR's, interest rates go up, all reduce lending capacity
2) Unemployment +/-
3) Rental returns &/or CG become less than other asset classes
4) Who knows with the govnuts, they provide the most uncertainty in trying to determine future price action of RE.

Cheers

 

[jbocker]

Anyone seen any good correlations with property price medians for state capitals over the years against things like inflation rate; interest rates; asx200; or other factors.
I think I recall that when interst rates were high (16%) property prices were increasing (but it may have been when the interest rates slumped just after the peak interest rates - I think the increases actually escalated).
I see quoted "..always come crashing down". I am interested in what people think is a "crash" is in property value terms, my thoughts are 30 to 50% is a crash. I appreciate that this can easily happen in specific markets (eg mining town, ) but never in Aussie city median prices. Interested in your thoughts.

 

[satanoperca]

Would agree Jbocker.

A crash is a price drop of the median price of 30-50% would be a crash.
A drop of 10-20% would be a correction.

I for one believe that the next two reported qtrs of property statistics will show further gains. Only if interest rates increase over the next six months and unemployment stays the same or increases will a correction be seen.

 

[Mofra]

RE prices are largely determined by

1) Availability of credit - mortgage
2) Avalability of money to service above debt
3) Return on Capital through rental income &/or capital growth
4) Government intervention

Not sure if you meant to list these in order, but I definately agree with no 1 being the most important factor.

Bearing that in mind, it is interesting to see the Australian securitisation market strengthening (queue scaremongering & the assumption that Aussie & US CDOs/MBS's were issued under the same criteria):

http://www.theage.com.au/business/investors-warm-to-mortgage-debt-rba-20091118-ikx0.html

The Reserve Bank says there are ''signs of life'' in the Australian mortgage-backed securities market, but it is unlikely investor interest will return to the levels seen before the financial crisis.

''The future is looking brighter for securitisation, but I would not expect a return to the heady days of earlier this decade,'' said RBA assistant governor Guy Debelle in speech this morning.

 

[Mofra]

Worth noting the rate in the rise in rents too, houses & units:

http://www.theage.com.au/business/rents-rise-across-the-country-20091118-il2l.html

 

[lasty]

Would agree Jbocker.

A crash is a price drop of the median price of 30-50% would be a crash.
A drop of 10-20% would be a correction.

I for one believe that the next two reported qtrs of property statistics will show further gains. Only if interest rates increase over the next six months and unemployment stays the same or increases will a correction be seen.

Too many waiting for the crash so they can snap up the bargains.
The dirty little vultures.
Those vultures might get their wings clipped as panic buying starts and thats when you see a crash but the key point is where from?
It could be 10 or 20 pct higher from here. It could be from here.
thats the punt you take.

 

[Beej]

Too many waiting for the crash so they can snap up the bargains.
The dirty little vultures.
Those vultures might get their wings clipped as panic buying starts and thats when you see a crash but the key point is where from?
It could be 10 or 20 pct higher from here. It could be from here.
thats the punt you take.

Or, in cities like Sydney (where median prices fell in real terms by 20% between 2003 and 2008), the "crash" might have already happened (right under everyone's nose!), and prices may have bottomed out late last year/early this year The next serious correction for Sydney residential property therefore might be many years away.

It could be useful in this thread to consider the different regional markets separately; As has clearly been seen in the past 11 months, every city/region can and often does march to their own tune. I have a very different outlook/expectation for property in different cities/regions across the country.

Mofra - good article on rising rents! There were many adamant predictions made last year that rents would stagnate and fall from 08 onwards. I also note in the latest ABS wage price index which tracks hourly rates of pay excluding bonuses (http://www.abs.gov.au/ausstats/abs@.nsf/mf/6345.0?OpenDocument), that average hourly rates have continued to rise through the Sep 09 quarter - up 3.4% y/y nationally. Curious to see the next batch of average full time earnings stats.

So pushing house prices higher we have: rising rents, rising wages, rising consumer and business confidence, an unemployment rate that appears to be peaking/leveling off, with actual employment and total hours worked now growing a little as well. Countering these factors we have rising interest rates (from a very low base), and FHB stimulus withdrawal/reduction. The question should be when will an equilibrium be reached?

The only factor I can see coming that could place real downward pressure on house prices is if interest rates really get cranked up fast and hard (variable mortgage rates of 9%+) and we start seeing a rise in defaults and forced sales, especially in the low end of the market. Watch western Sydney and outer Melbourne closely for signs of this trend emerging (if it does).

Cheers,

Beej

 

[shortlist]

Let's see what a few years of interest rate rises do.

 

[Mofra]

I also note in the latest ABS wage price index which tracks hourly rates of pay excluding bonuses (http://www.abs.gov.au/ausstats/abs@.nsf/mf/6345.0?OpenDocument), that average hourly rates have continued to rise through the Sep 09 quarter - up 3.4% y/y nationally. Curious to see the next batch of average full time earnings stats.

Worth noting AWOTE (specifically, FTAOTE) is also up again, although the lowest annual figure available is 4.4% from May 07 to May 08 (annual increases by most recent quarter are 6.0%, 5.6%, 4.9%, 4.4% & 5.0%).

Hopefully inflation & earning power don't continue to be confused on this thread.

 

[robots]

hello,

oh yeah, top data out today on rents

more fantastic news for owners and surely helps underpin the current situation, just amazing

cycled into the city again this arvo and just great seeing all the new australians out while others just put it all in the too hard basket

thats life though, great place we in, up up and away

thankyou
doctor robots

 

[nunthewiser]

Hi Robots.

I too went for a ride today but on an old freshly rewired chopped up sporty ....... I rode from north of the city all the way around tarcoola beach and out to the airport and then back. On the way i had to break a padlock on a shed one of my ex ladies owned as she could not find the key and needed to get her chainsaw out..........

I saw quite a few properties that have been listed for over 12 months and i wondered if they would need to lower there prices if they actually wanted to sell them .

I also rode out to my newly purchased "distressed sale" block and took a few photo,s , while i was there i met another guy that bought a block about 500 metres up the road but he paid a bit more than me , he seemed a bit peeved that i bought it privately and that he didnt even know it was for sale at the time ......... I didnt have the heart to tell him that i paid 2/3 of the price he did and got more land.

After leaving there i rode like the wind to the Geraldton beach hotel for a quick bourbon and to catch up on the goss around the joint , i was surprised to see numerous guys i know that were supposed to be at work today but through a lack of work they had to spend the day in the pub telling people about it instead.

Anyways thats life and yes it was a great day riding around free as a bird and living life.

Sunshine and lollipops my fellow rambling brother.

 

[robots]

hello,

fantastic post Nun, thats the sort of analysis which much of the print and online media miss out on

riding the roads on the chopper, big apes, full throttle out in the open, helping out the public, supporting the economy

paradise,

thankyou
doctor robots

 

[nunthewiser]

No apes m8 .......there for them nasty biker types..... prefer the straight bars actually .....

Lots of movement up here on newer listed blocks and houses that are priced right BUT the older overpriced listings staying stagnant as there seems to be a new price level agreed on currently up here.........

 

[robots]

hello,

oh yeah, no worries Nun sorry for mentioning the apes

good evening and welcome to any new members and guests who maybe reading for the first time,

some more research i conducted today, from an online joint:

http://www.theage.com.au/executive-style/luxury/melbournes-20m-mansion-20091119-inlm.html

just the humble home, has that joint doubled every 7-10yrs brothers?

city update tomorrow as I didnt get there this arvo, apologies

thankyou
professor robots

 

[Luscord]

Further to that, in my opinion you can adapt a little bit of the volume analysis approach in share markets to real estate markets.

I like it! I have never seen volume analysis/research on property, although I have done some myself.

The massive volume and price spike in 2006 was followed by higher prices on decreasing volume in late 2007 signaling (what I thought was) the end of the road for property. Another recent price high on lower volume again will confirm the property bulls are all but wiped out.
When taking into account: Current household debt, current debt to mortgage ratio, and rising interest rates - I believe there is a strong possibility of a severe correction. Add to that the very real possibility of a slowdown in china (bust)...not something I would like to think about. Of course that is only my opinion.
Would like to know if anyone has seen any volume analysis on property.

 

[Macquack]

some more research i conducted today, from an online joint:

http://www.theage.com.au/executive-style/luxury/melbournes-20m-mansion-20091119-inlm.html

professor robots

Melbourne's $20m mansion
641 Orrong Road, Toorak

Have to laugh, some sucker pays $20 million and then discovers there is a bus stop being constructed at their door step. Have a look on www.maps.google.com (street view).

Bloody public transport using peasants probably just devalued the property by at least a million bucks.

 

[Wysiwyg]

Melbourne's $20m mansion
641 Orrong Road, Toorak

Have to laugh, some sucker pays $20 million and then discovers there is a bus stop being constructed at their door step. Have a look on www.maps.google.com (street view).

Bloody public transport using peasants probably just devalued the property by at least a million bucks.

One on both sides of the road now. I'm sure buses won't be a problem but it perplexes me why people want to live in the city when they can afford a huge piece of coast with cleaner air and more nature. Must be happy hunting grounds or some other tribal mechanism.

 

[jbocker]

Future of Aussie property prices. I would theorise that property prices will still increase in future, but nothing like what we have seen in most states, over the last 5-7 years. The main driver for the increases in the recent past, would be cashed up 'baby boomers' earning their peak dollars and accessing massive equity. As they transition to retirement along with the fallout of the GFC boomers will be spending (investing) far more modestly.

The other influence on prices in the recent years is the 'triple boom' where employment/work in housing, mining and oil have ALL been going gang busters. I have never seen all three boom simultanously, having worked in the resources industry most of my life when mining was 'up', oil was 'down' and vice versa and housing seemed to be independent of both (but confess to not watching that closely). While there could be busts in these sectors - it appears that Aus has been let down far more gently than nearly all other nations, (start to appreciate our title "lucky country"). Add to this our banks seemingly have proved quite resilient to the greater GFC.

So why not a big drop in house prices with boomers tuning out and potential employment busts in mining etc, mainly that the GFC has whacked our super and shares and people probably may stay with good old bricks and mortar. House prices increasing but quite modestly for the next few years.

Well thats my crystal balling on things, always interested in others theory, discussion opinion or challenge.

 

[Beej]

Worth noting AWOTE (specifically, FTAOTE) is also up again, although the lowest annual figure available is 4.4% from May 07 to May 08 (annual increases by most recent quarter are 6.0%, 5.6%, 4.9%, 4.4% & 5.0%).

Hopefully inflation & earning power don't continue to be confused on this thread.

Aug 09 figures released yesterday - OTE up 5.2% y/y, total earnings up 4.6% y/y (those are the seasonally adjusted numbers). Incidentally average OTE are now over $1200/week ($62.5k/year) and total average earnings are $1248/week (about $65k/year).

Cheers,

Beej