The future of Australian property prices

[UBIQUITOUS]

My Modest 10% pa Growth Projections Over a 5 year Plan..
this post will give you an insight into the mind of a property investor....it will give similar results for home owners who intend to stay put while raising a family

lets look at how the figures stack up, growing at 10% pa over 5 years, for either a single house or a portfolio

a 300 k house, becomes 480k's = +180k
a 500k same deal becomes 800k = + 300k
1 million becomes 1,600,000 = + 600k
2 million becomes 3 million = + 1,000,000

now do you get the idea, just how easy it can be done...

Hahahahahahaahahahahaha......(pauses to wipe away the tears).....hahahahahahahahahahaha.

5 years? Is that all? Why not got the whole hog and extrapolate your numbers even further? That same 500k house will be worth $3.4million in 20 years. Meanwhile over half of the mortgage on that fibro house in Sydney's West will have been paid down buy renters paying $3.5k per week, which will of course have been funded by the average annual factory worker's wage rise of 10%pa. Even if the wages don't rise by that amount, its okay because as long as they wish they owned a house they will always find money to pay for it. Yep folks, quite simply supply is not meeting demand.

Does anybody have anymore tissues?

 

[wayneL]

]My [UModest 10% pa[/U] Growth Projections

I wouldn't call that modest.

 

[satanoperca]

Hi,

Just a simple question that somebody may be able to answer concerning RPdata figures.

RPdata currently shows the median price in Mebourne $450K +16.7% year to date.

Does this imply that the median price in Melbourne Dec 2008 was $450- 16.9% ($76K) = $373K

However their figure was $421 Dec 08 Melbourne Median. Far short of $373K.

Based on their data it shows a rise year to date of 6.5%.

Can anyone confirm the 16.7% rise that is being claimed.

Just after the facts, no boom or gloom theories.

Cheers

 

[Beej]

Hi,

Just a simple question that somebody may be able to answer concerning RPdata figures.

RPdata currently shows the median price in Mebourne $450K +16.7% year to date.

Does this imply that the median price in Melbourne Dec 2008 was $450- 16.9% ($76K) = $373K

However their figure was $421 Dec 08 Melbourne Median. Far short of $373K.

Based on their data it shows a rise year to date of 6.5%.

Can anyone confirm the 16.7% rise that is being claimed.

Just after the facts, no boom or gloom theories.

Cheers

The latest release (http://www.rpdata.com/images/storie...rismark_home_value_index_december_31_2009.pdf) has this note against the reported median values:

*The median price is the 50th percentile observation based on all pooled home sales over the three months to end November 2009. This is different to the medians reported by other parties for several reasons. First, where appropriate it includes all property types (ie, not just detached houses, like the ABS). Second, the median value reported by the likes of APM is calculated using a ‘stratification technique’, which is different to the simple 50th percentile observation used here. RP Data-Rismark’s previously reported ‘median values’ must also be interpreted differently These are the index values attributable to the RP Data-Rismark ‘hedonic index’ which was originally based at inception on median automated property valuation estimates (ie, the median of a statistical valuation of all capital city homes). The change in the index value over time reflects the underlying capital growth rates generated by residential property in the relevant region. These growth rates are not influenced by capital expenditure on homes, compositional changes in the types of properties being transacted, or variations in the type and quality of new homes manufactured over time. The RP Data-Rismark ‘median values’ are not, therefore, the same as the ‘simple median price’ associated with all homes sold during a given period. In future, we will report simple median prices to avoid any further confusion.

I'm not sure if that clears it up or not, but it would appear that they have started reporting a different thing now - basic median price, vs the RP-Data Hedonic index value in the past, so that's why the numbers don't seem to add up?

It looks like the prices reported are the "simple median", but the growth figures (+16.7% etc) are based on the hedonic index maybe?

PS: Your maths are not quite right! If the current Melbourne median is $450k ,and the price has increased by 16.7%, then the previous median should be 450/1.167 = $386k. Still doesn't match up though.

PPS: Don't forget also that RP-Data talks all dwelling medians (ie houses and units).

Cheers,

Beej

 

[satanoperca]

Thanks for the response Beej.

Still does not make sense. ABS has year on year for Sep of 5.9% for Melb. Must have been a huge quarter to rise it up to %16.

I will wait for the ABS figures to be released as RPdata seem to be playing games.

ABS results for the last qtr of 2009 out the 1/2/2009.

I will assume that they will differ to RPdata as usual.

Cheers

 

[Mofra]

Rents set to soar

Renters should prepare to pay more this year, as landlords pass on the costs of interest rate rises and tax increases to tenants, a research group says.

http://www.theage.com.au/business/rents-set-to-soar-20100113-m5dy.html

Interesting note about rental increases:

"Melbourne rents should resume their long-term upward trend and are expected to rise by to 5 per cent to 7 per cent, in line with their long-term growth rate,'' Mr Bell said.

If that is the long term rate, that outstrips both CPI and AWOTE

 

[MACCA350]

Good luck with that, I guess we'll see more people living on the streets..........but don't worry, it's all sunshine and lolliepops eh

Not all landlords need to up the rent to cover a mortgage, we've only had one increase in 9 years and that was about 3 years ago, BTW we're paying less than half what is being asked for equivalent rentals in our suburb.............and you wonder why we've been here so long

cheers

 

[UBIQUITOUS]

http://www.theage.com.au/business/rents-set-to-soar-20100113-m5dy.html

Interesting note about rental increases:



If that is the long term rate, that outstrips both CPI and AWOTE

What is interesting is that APM who came out this prediction, and the SMH are both owned by fairfax. I am surprised that they included these FACTS in the article.


"The Tenants Union of NSW said renters should be wary of predictions of rental increases especially from groups with a stake in the property industry.

Steep increases had been predicted in 2009 but had never eventuated, the policy officer, Chris Martin, said.

Sydney's average rental vacancy rate rose to a two-year high of 1.6 per cent in November 2009, according to the most recent figures from the institute.

The most recent data available from the Department of Housing, for the September 2009 quarter, showed rents for a two-bedroom flat increased from between 2.8 per cent to 6.5 per cent."

 

[Mofra]

Good luck with that, I guess we'll see more people living on the streets..........but don't worry, it's all sunshine and lolliepops eh

No, but people will still need to pay a premium for living in better suburbs.

re: "sunshine & lollipops" - robots been getting to you?

Not all landlords need to up the rent to cover a mortgage, we've only had one increase in 9 years and that was about 3 years ago, BTW we're paying less than half what is being asked for equivalent rentals in our suburb

I'm in a similar boat (actually, I'm paying about 60% compared to next door) - it's a contributing factor to owning only investment property & still renting where I live.

 

[Mofra]

What is interesting is that APM who came out this prediction, and the SMH are both owned by fairfax. I am surprised that they included these FACTS in the article.

Even Fox News pretends to be balanced

 

[satanoperca]

Double home owners' grant, real estate industry says

http://www.theaustralian.com.au/business/news/double-home-owners-grant-real-estate-industry-says/story-e6frg90f-1225819278802

They have just worked it out, bright sparks the RE industry. Give free handouts of your taxpayers money to keep the industry afloat.

Looks like RE is going the way of the Car Industry. Without govnuts assistance it cannot be sustained at these levels.

Parasites is the only word the comes to mind.

Cheers

 

[nunthewiser]

re: "sunshine & lollipops" - robots been getting to you?



.

I would like to point out that I Nunthewiser was the original perpetrator of the saying " sunshine and lollipops" here at ASF on the other property threads .

I have consulted my legal team and Robots will be handing over the keys to his St Kilda mansion on 1/2/10 as compensation for using said phrase in an out of context manner .

Thankyou.

 

[Dowdy]

I dont think we'll see Robots on here for awhile.
He's busy trying to work out the new Miki system

 

[Mofra]

I would like to point out that I Nunthewiser was the original perpetrator of the saying " sunshine and lollipops" here at ASF on the other property threads

My Sincerest Apologies, hell hath no fury like a nun scorned

I have consulted my legal team and Robots will be handing over the keys to his St Kilda mansion on 1/2/10 as compensation for using said phrase in an out of context manner .

Like you'd leave your Western Paradise anyway for anything other than a patch of land down in Tassie

 

[Mofra]

I dont think we'll see Robots on here for awhile.
He's busy trying to work out the new Miki system

He's in St Kilda - he'll have to learn to walk everywhere. Heaven knows driving around there is a nightmare.

Traffic (with affordability) is probably the only potential leveller that stops the inner city strongly outperforming middle suburbs.

 

[Temjin]

http://www.theaustralian.com.au/business/news/double-home-owners-grant-real-estate-industry-says/story-e6frg90f-1225819278802

They have just worked it out, bright sparks the RE industry. Give free handouts of your taxpayers money to keep the industry afloat.

Looks like RE is going the way of the Car Industry. Without govnuts assistance it cannot be sustained at these levels.

Parasites is the only word the comes to mind.

Cheers

Aren't we all surprised to hear that?

"The latest ABS housing finance figures show a direct link between the assistance and the number of first home buyers," REIV chief executive Enzo Raimondo said in a statement.

"There was an 18.6 per cent drop in the number of loans to first home buyers in November.

"The number of first home buyers will continue to drop as the assistance continues to be reduced," he said.

Isn't it extremely obvious, even to the uneducated, that there is a DIRECT LINK between the assistance and the number of first home buyers!!! By saying that is almost an insult to the intelligence of common Australian.

But when do we stop there after we doubled the first home buyer grant again? Say the same thing, there is a direct link, so it shouldn't be stopped and should be tripled again!

I remembered that I once say the first home buyer grant will most likely be extended and increased after it ends in 2009. (for political reasons!) Looks like it will happen soon. Paradise forever! Hurray!

 

[kincella]

Way back in the dark ages, when I bought my first home, there was no such grants, bonuses or incentives....
I paid out my ex, raised 2 children, paid off my first home on a single wage....it was not easy, it never has been...
ask your parents, grandparents etc.....
buying your first home has not been easy for any generation....
all the noise about the current situation.....
today they want the first home in the most expensive places....not in the cheaper outer suburbs, like most of us had to...
what makes the kids think things are any different.....
there are plenty of affordable houses out there........
you all have choices....
I think some are happy to rent...and so they should be, just be happy with their decisions....
but some feel the need to justify why they rent....and hence raise the argument about housing being expensive....
in my case it was a roof over our heads.....and we had a good life....

the other point that gets missed is the cost....you either buy, or rent...there is no free ride for your whole life....
I have done the calculations over the years....on a 300k loan using 7% interest expense, and capital growth for the houses of 10%...
it works out the home owner walks away with closer to 300k cash after 10 years, after deducting the interest cost....the renter has nothing to show for their rent costs of 158,000 assuming they paid the 3% as rent on the same costs.....

 

[satanoperca]

buying your first home has not been easy for any generation....
all the noise about the current situation.....
today they want the first home in the most expensive places....not in the cheaper outer suburbs, like most of us had to...

I totally agree with your statement. Example was shown on the news this week with a young FHB couple complaining/winging about further interest rate increases. Boo hooo. They were filmed in front of their two garage, two story brand new houses, most likely 4 bedrooms 2 bathrooms with no kids. What was even more disturbing was when they were filmed inside, all new furniture. Talk about wanting everything now. I have no sympathy for this group of home owners, they have had the lowest interest rates in 50 years, they should be grateful and govnuts handouts.

I have done the calculations over the years....on a 300k loan using 7% interest expense, and capital growth for the houses of 10%...
it works out the home owner walks away with closer to 300k cash after 10 years, after deducting the interest cost....the renter has nothing to show for their rent costs of 158,000 assuming they paid the 3% as rent on the same costs.....

While I can see your argument, if it was to be a far comparison the following should be considered.

Ownership 7% interest p.a + 1.5 % outgoings( insurance/rates/maintenance) = 8.5%
Rent 3% no outgoings
If the renter was treating the situation like for like the renter should be putting the difference 5.5% into an investment, term deposit, shares or even a investment property. Approx $16,500 pa. over ten years with a return of 4% = $206K no taxes taken out.

So the renter does not end up with 0. Unfortunately most renters do not do this.

Can you also provide some evidence that property has on general seen a 10%increase p.a over the last 10 years. I not disputing this figure, just wondering if it is factually correct. I would have thought 5-7%p.a would be more accurate.

Cheers

P.S My calculation does not take into account the important aspect of inflation that benefits the mortgagee over time nor does it take into account rental increases.

 

[UBIQUITOUS]

I have done the calculations over the years....on a 300k loan using 7% interest expense, and capital growth for the houses of 10%...

Did I not give you enough "Haha's" in post 381 at the top of this page? Here's a few more....Hahahahhahahaha.

Perhaps you can provide evidence of this mystical property market with gives 10% capital growth over the long term?

 

[MACCA350]

and capital growth for the houses of 10%...

Looking at REIV 5 year median from $370-480k that works out to about 5% pa compound capital growth

Though using the same REIV medians and you baught in Dec 04 and sold in Mar 09 using the same median figures $370-405 you'd have pulled less than 2% pa compound capital growth over a 4.5 year period.

So where does this 10% pa growth expectation come from, what period of time?

Here's a real long term example:
Property bought 90 years ago 3.6km from Melbourne CBD for 12k pounds(1963 Australia changed to Dollars at an exchange rate of 1pound=2dollars) so for simple sake we'll make the buy price $24k. Property sold in 2008 for $795k

That's a long term compound capital growth of about 3.97% pa
From Here(graph 4, source ABS) we see the 100 year(1900-2000) actual average inflation rate is 4.5% pa

So...........does that mean that the property is actually worth less than it was 90 years ago

cheers