The future of Australian property prices

[Mofra]

interesting article on infrastructure in NSW from w/e Austrlian.... makes me wonder if it will have drag on Australian economy at some point.

http://www.theaustralian.com.au/nat...-load-of-rubbish/story-fn59niix-1225983250480

Cheers Dangerous, interesting reading - and I must say, excellent avatar & location as well

 

[nukz]

What, How can you justify that statement, how the hell would a correction in property prices mean Higher crime rate

It's not that hard to justify, when people on a large scale loose equity or go bankrupt crime rates will rise ushally around theft.

If things get really bad you will see things like looting and street violence.

This is not in any way a predition though lol

 

[Tysonboss1]

It's not that hard to justify, when people on a large scale loose equity or go bankrupt crime rates will rise ushally around theft.

If things get really bad you will see things like looting and street violence.

This is not in any way a predition though lol

I don't think so, i can't see my neighbors suddenly turning to petty crime because the value of the home they own has lost 10% of it's value.

If property prices stagnate for a while or fall 10% it does not mean there would all of a sudden there would be mass bankruptcies and foreclosures. I mean as long as you keep making your payments you would not even notice any shorterm fall.

You dooms dayers paint a picture of a property market where 100% of property owners have bought their properties right at the top of the market on 100% finance and are suffering mortgage stress.

This is simple not the case, You would probably find 90% of home owner have owned their property for more than 7 years and have build up alot of equity and their current mortgage interest payments are less than it would be to rent the home.

 

[nukz]

I don't think so, i can't see my neighbors suddenly turning to petty crime because the value of the home they own has lost 10% of it's value.

If property prices stagnate for a while or fall 10% it does not mean there would all of a sudden there would be mass bankruptcies and foreclosures. I mean as long as you keep making your payments you would not even notice any shorterm fall.

You dooms dayers paint a picture of a property market where 100% of property owners have bought their properties right at the top of the market on 100% finance and are suffering mortgage stress.

This is simple not the case, You would probably find 90% of home owner have owned their property for more than 7 years and have build up alot of equity and their current mortgage interest payments are less than it would be to rent the home.

10% drop i agree things won't change much, i was thinking something in the 50+% range like seen in parts of the US.

 

[Tysonboss1]

It's not that hard to justify, when people on a large scale loose equity or go bankrupt crime rates will rise ushally around theft.

If things get really bad you will see things like looting and street violence.

This is not in any way a predition though lol

Ha HA HA ,...

I just had a mental picture of Mrs Stevens busting the window of my car and hot wiring it to take the gran kids to preschool.

 

[Tysonboss1]

10% drop i agree things won't change much, i was thinking something in the 50+% range like seen in parts of the US.

It's not going to happen, the fundamentals are different. But even a large drop like that wouldn't mean foreclosures, it's not like they will do margin calls.

And most property owners would have over 50% equity anyway.

 

[satanoperca]

It's not going to happen, the fundamentals are different. But even a large drop like that wouldn't mean foreclosures, it's not like they will do margin calls.

And most property owners would have over 50% equity anyway.

That statement made me laugh, sure a 50% drop in prices would not see a wave of foreclosures, you have to be kidding it would be worse than the floods in QLD.

Cheers.

 

[Knobby22]

It's not going to happen, the fundamentals are different. But even a large drop like that wouldn't mean foreclosures, it's not like they will do margin calls.

And most property owners would have over 50% equity anyway.

Agree - it will take a 50% drop combined with a depression causing large unemployment (15% +).

 

[Tysonboss1]

That statement made me laugh, sure a 50% drop in prices would not see a wave of foreclosures, you have to be kidding it would be worse than the floods in QLD.

Cheers.

foreclosure would only happen if the borrower stopped paying the mortgage payments, and why would they stop paying the mortgage payments. Considering most home owners mortagage payments are less than they would have to pay in rent else where.

Interest rate rises would cause foreclosures more than a decrease in the quoted value of the asset.

 

[nomore4s]

You dooms dayers paint a picture of a property market where 100% of property owners have bought their properties right at the top of the market on 100% finance and are suffering mortgage stress.

This is simple not the case, You would probably find 90% of home owner have owned their property for more than 7 years and have build up alot of equity and their current mortgage interest payments are less than it would be to rent the home.

This is probably something that does get overlooked. The market here is considerably different to the US because of the sub prime loans the US market was flooded with new owners who couldn't really afford to pay the repayments which was also compounded by the way the banks on-sold that debt, that hasn't really happened here. Sure there are people around that have over-extended themselves and that will feel the pinch if rates continue to rise but the only way I can see the market really dropping more than +30% is if we get mass unemployment.

 

[explod]

This is probably something that does get overlooked. The market here is considerably different to the US because of the sub prime loans the US market was flooded with new owners who couldn't really afford to pay the repayments which was also compounded by the way the banks on-sold that debt, that hasn't really happened here. Sure there are people around that have over-extended themselves and that will feel the pinch if rates continue to rise but the only way I can see the market really dropping more than +30% is if we get mass unemployment.

Maybe not as bad as the US but I can assure you that a lot of people in the last five years, before the recent tightening, obtained low doc loans here in Aus.

Remember some were even at "no down payment at all and we will give you a holiday thrown in".

So sure not the bloodbath of the US or the UK (some down 90% mind) but we could certainly be in for a pretty big storm.

And no clearance rate report for a month now tells me something is amiss.

Cuuummmooorn there botty, how about a good undoctored update on the clearance rates.

Anecdotally I hear that very few are turning up to a lot of the autions. Anyone else hearing that?

 

[Tysonboss1]

but we could certainly be in for a pretty big storm.

I for one would welcome a fall in property prices of 50%, but it is not even remotly likly.

Fluctuations in prices in any market is completely normal, so I definaetly would not rule out a fall of a smaller scale of say less than 20%. But any correction in the property market normally comes as a very slight fall and a period of stagnation(5 years).

But this would not affect property investment's viabilty for home ownership vs renting longterm or long term property investment full stop.

 

[sinner]

This is probably something that does get overlooked. The market here is considerably different to the US because of the sub prime loans the US market was flooded with new owners who couldn't really afford to pay the repayments which was also compounded by the way the banks on-sold that debt, that hasn't really happened here. Sure there are people around that have over-extended themselves and that will feel the pinch if rates continue to rise but the only way I can see the market really dropping more than +30% is if we get mass unemployment.

"Us doomsdayers", have pointed out repeatedly that the market doesn't require everyone to be overextended or to have bought at the top or whatever.

The point is rather, that a simple/sustainable and safe system whereby banks pay depositors 5% and charge their mortgage customers 7% to collect the spread is no longer in existence.

We now have a system which is highly complex with many connections between the different parts are tightly coupled and interdependent, sometimes in hidden ways. Complex and interdependent systems almost always break down in catastrophic and unexpected events as they grow more complex and more interdependent.

* The Australian banking system depends on foreign funding for about a third of their continued credit growth (some numbers suggest higher). The Commonwealth Treasury noted in the 2010 "Red Book" that reliance on short term foreign debt is a key risk. Massive global debt issuance continues (WalMart 30 year 0.5% anyone?!!! ) and resets on the old stuff are still rolling. Funding costs for our banks continue to rise and they wouldn't be getting a cent without the Treasury guarantee. How do we expect our banks to issue more and more debt to keep the current property trend rolling?
* Commonwealth Bank and Westpac both hold mortgages in excess of 50% of their loan books. At such high levels of leverage, the effects of a "normal" correction in values could be amplified.
* The AUD is running high on USD shenanigans and commodity demand rather than productivity or strong economics (over the last 10 years Australia has consistently shown lower productivity growth and higher inflation than comparable countries).
* Earnings estimates for the industrials sector were not looking good in the last quarter of 2010.
* China is starting a much more severe monetary tightening regime in 2011 for fear of a hard landing.

"Us doomsdayers" aren't saying that everyone is under stress or that everyone bought at the top or whatever. We are pointing out the old system which was sustainable and logical is gone, replaced with another that is large, complex, tightly coupled to many entities far beyond our control and growing at a fast pace for reasons that have absolutely nothing to do with people needing a place to live.

 

[FxTrader]

If property prices stagnate for a while or fall 10% it does not mean there would all of a sudden there would be mass bankruptcies and foreclosures. I mean as long as you keep making your payments you would not even notice any shorterm fall.

A fall in price will likely result from further mortgage interest rate rises. Household debt levels combined with higher interest rates will pressure borrowers to sell and increase unsold inventory as is now occurring in WA. As prices fall the threat of negative equity looms for many recent purchasors. My guess is that many highly geared investors will flock to exit some of their property portfolio in such a scenario since negative equity was probably not considered a likely event in their wealth creation strategy.

You would probably find 90% of home owner have owned their property for more than 7 years and have build up alot of equity and their current mortgage interest payments are less than it would be to rent the home.

I use to believe this as well but home equity stats tell a different story. Home equity has been steadily declining, almost certainly due to the price boom in housing since 2002. Given that most of the mortgage payment is interest in the first half of the loan period, little equity is accrued except for hoped for price appreciation. In the case of investors, many gear to the hilt and have little equity other than the price appreciation achieved through rising valuations (paper wealth) which they then use to purchase their next IP.

 

[Mofra]

Maybe not as bad as the US but I can assure you that a lot of people in the last five years, before the recent tightening, obtained low doc loans here in Aus.

Low doc lons in Australia were 80% LVR lends though, vastly different to the US model.

In any case, I think some of the discussion here is backwards, talking about falling equity and its effect on unemployment. I think the reverse is much more accurate - the delinquency rate is much more aligned to the unemployment rate than it is to RBA interest rates.

 

[nukz]

Remember some were even at "no down payment at all and we will give you a holiday thrown in".

This is true my first place i got on 105% which was quite easy to obtain i wish i had a holiday thrown in as well lol

As far as equity in home and in-debtedness the last 5 years of first home buyers would have to take the cake. If there was ever a housing slump they would be hit the hardest.

I would put this down to new estates and appartment/units, as they are the most likely purchases by first home buyers.

 

[greebly24]

Is there still a housing shortage in Australia?

http://www.smartcompany.com.au/econ...ngs-points-to-price-falls-in-2011-expert.html

44% more properties for sale across Australia than a year ago.

Some of my assumptions:
Aust population = 22,500,000
Population growth @ 1.7% = 382,500
Divide by 2.7 persons per household = 141,660 homes required.

328,270 residential property listings in Dec 2010.

Does that really mean there's an extra 186,000 homes across Australia that won't be needed next year? Or do we have 500,000 Asian students to fill them? Plus all the new homes being built? Am I missing something?

 

[nukz]

Is there still a housing shortage in Australia?

Well up untill late '06 and early '07 people in Vegas and California where still being told there was a housing shortage(I know its not really relevant). This is quite a common line by estate agents and REIV type institutes.

 

[Tysonboss1]

A fall in price will likely result from further mortgage interest rate rises. ]

Time will tell,

I am Happy to wait and see, As I said I would welcome a price fall of 50%, However as I said it's unlikly so I will not be holding my breath.

Price fall of 20% and a few years of stagnation would be nice, but again not as likly.

 

[Dowdy]

You dooms dayers paint a picture of a property market where 100% of property owners have bought their properties right at the top of the market on 100% finance and are suffering mortgage stress.

This is simple not the case, You would probably find 90% of home owner have owned their property for more than 7 years and have build up alot of equity and their current mortgage interest payments are less than it would be to rent the home.

I highly doubt that last comment

90% of home owner have owned their property for more than 7 years

The last 10 years a large chunk of the market were FHB, fulled by easy credit and government grants and with todays FHB spending habits, it's next to impossible that they OWN their home.

What will happen if prices fall is that the so called investors will be in negative equity and together with the already extremely low yield and were only relying on capital growth will sell their property. This will create an oversupply - which i've always said, there was never a shortage anyways but it will be obivious to the market and sprukers

There are so many factors that will contribute to an oversupply scenario - FHB defaulting, overseas investors retreating.

Really the question shouldn't be why it will fall but what factors will contribute to an obvious oversupply that the RE agents can't hide