The future of Australian property prices

[c-unit]

Depends on what your perspective of positive is - from an investors point of view it's very positive. Largely the articles are commenting on a lack of affordability, lack of housing supply, rental being pushed up, etc. Most then infer from this that it's a housing bubble, further feeding the hopefuls that a big 'correction' is due to
take place and they'll finally be able to jump into property.

The thing is prices have been forever trending up, with small pockets of pullbacks or flat prices. This is the nature of this asset class. On balance prices will increase exponentially, as they always have and always will.

As they say, the best time to buy a house was yesterday. People should focus less on timing an illiquid, and ever increasing market and focus more on HOW to get in profitably and have appropriate controls in place to mitigate the effects of any stgnant periods.

So Australia is different?

 

[kincella]

KurwaJegoMac
thank you, for the positive response

"Thank you Kincella for sharing, as always it's a well informed and educated post. Of course you'll get flamed for it, most people don't like to be told that the great crash they've been waiting for is unlikely to happen. But hey, lets listen to the journos coz they obviously know what they're talking about since they publish articles in a newspaper"
..................................................................

I have broad shoulders, so being flamed on these blogs sites, is par for the course....
This property forum, is such a small community, compared to the rest of the population...
and for all I know, most of the bears could be 15 year olds, with nothing better to do...

a bit like in the heady days of the stock market boom....when there were about 250,000 kids with an average age of 11 playing the stock market....I mean really trading shares on the internet...and taxi drivers stopping at intersections to trade shares

ref; Bubble Man, by Peter Hartcher (an excellent read)

reading most blogs at the time....I used to scratch my head, and think ...what the....where is this rubbish coming from....I did not realise I was talking to kids, but wondered what the hell we were talking to.....
I figured at one stage, after seeing them playing the virtual world games, of stock and property markets....and reading their blogs on same...most lived in that virtual, unreal world...and they had applied that world to report, and comment on the real world....as if it were the same...
with blogging....just take most of it with a grain of salt....
most of us can recognise the difference. between the virtual world, and the real world....
cheers

 

[tothemax6]

So Australia is different?

It is. There are many large and tangible differences between the environment of the US sub-prime bubble, and the current Aus housing environment.

 

[wayneL]

The thing is prices have been forever trending up, with small pockets of pullbacks or flat prices. This is the nature of this asset class. On balance prices will increase exponentially, as they always have and always will.

House prices will increase broadly in line with currency debasement, which has been the policy for some decades now.

Exponentially? Agree that price rises have been exponential as a mathematical function of government policy viz, afore-mentioned currency debasement. This is what makes leveraged property investment a winner over the long term, provided said policy prevails.

When viewed as a value vector against other vectors such as wages, rental returns etc, exponentiality exists only in short periods of time where credit is expansionary. It cannot persist in broad markets without economic and social consequences and in fact never has done... and probably never will.

I believe this is the main thrust of the bear's argument. Perhaps there is hope from the property-less that there will be a crash, but house prices over the last decade have underpinned the whole western economy as they have exported actual productivity to China.

Ergo, gu'mints will bust their ass to support housing markets.

However my view is that the **** is in close proximity to the fan and no matter what efforts to keep the two separate, their remains a chance the two will come into contact.

FWIW

 

[c-unit]

It is. There are many large and tangible differences between the environment of the US sub-prime bubble, and the current Aus housing environment.

And there are many, many similarities.

All it took to pop the US bubble was an increase in interest rates. Sub-prime mortgages went first, and spread to "safer" mortgages. US Sub-prime = Australian FHBs in my opinion. Aussie FHBs used government incentives as their deposit, borrowed an amount they couldn't afford, pushing up prices to unsustainable levels (Melbourne up roughly 30% since the GFC ffs). Now, as rates are rising, the first signs of stress are appearing in the FHB market.

Keep in mind we have higher relative prices, higher relative mortgage debt than the US did at their peak. We also have negative gearing.

 

[schnootle]

On balance prices will increase exponentially, as they always have and always will.

Not a mathematician are we

 

[KurwaJegoMac]

Not a mathematician are we

I have a very strong grasp on mathematics, clearly you don't if you disagree that prices rise exponentially over time.

At a basic level, conventional wisdom states that house prices rise 7% yoy. Plot that across a timeframe of greater than one year and you have exponential growth.

Yoy growth IS exponential growth. Inflation, wages, population, energy consumption, food prices, etc ALL grow exponentially over time.

The fact that you're using a % to calculate growth means that when you track that growth over time you get an exponential function.

Plot a graph of house prices, inflation, median wage, whatever you want over the last 10, 20, 30 whatever years and you'll see what i mean.

Understand yoy growth and the exponential function and you understand how silly it is to scream and cry that prices are 2 times what they were x years ago or 3 times y years ago.

 

[Tysonboss1]

Not a mathematician are we

You do understand that anything that increases at a steady rate such as inflation will increase exponentially. So yes both house prices and rents will increase exponentially regardless of any short term correction

 

[schnootle]

I have a very strong grasp on mathematics, clearly you don't if you disagree that prices rise exponentially over time.

At a basic level, conventional wisdom states that house prices rise 7% yoy. Plot that across a timeframe of greater than one year and you have exponential growth.

Yoy growth IS exponential growth. Inflation, wages, population, energy consumption, food prices, etc ALL grow exponentially over time.

The fact that you're using a % to calculate growth means that when you track that growth over time you get an exponential function.

Plot a graph of house prices, inflation, median wage, whatever you want over the last 10, 20, 30 whatever years and you'll see what i mean.

Understand yoy growth and the exponential function and you understand how silly it is to scream and cry that prices are 2 times what they were x years ago or 3 times y years ago.

Of course, discussing price rises in absolute terms is irrelevant. I thought it was fair to assume prices rises on this forum referred to something of a inflation adjusted figure. No one cares how much their house is worth in 30 years in dollars, they do care how much it is compared to their wage. yoy growth against inflation is what is impossible in the long term.

 

[kincella]

Really,

Last time I flew out of Melbourne I did notice massive parcels of undeveloped land as far as the eye could see, same with Perth, Sydney, Brisbane.

hmm....traps for players.....
most of that 'undeveloped land' you noticed, along the east coast, is either grazing and pasture for the animals.....the food bowl....or crops....again the food bowl........
as you fly further inland, with less water and drought areas, its more likely grazing...beef, sheep etc...another food bowl, but over a greater area, due to less food or water on the ground....
it may look undeveloped to you, but in fact it is developed for the purpose it is used for.....
just because the landscape is not dotted with thousands of houses....does not mean it is not being used in a meaningful manner....
or do you think all our food is imported from overseas, or comes from a little vegetable market at the back of Werribee

if you really believe the whole of this continent could be opened up for housing, at what price would you expect to pay for it....
almost no work out there to support you, for tens of thousands of kilometers.....then the building materials, the cost to transport it out there would cost more than the house was worth, a local council will not build a road to access your remote property, nor provide any energy or telephones.....the list goes on...
thats the reason 90% of the population squeeze into the cities.....all amenities are there, established and provided for you, together with an abundance of work to choose from, and lifestyle choice....
I notice Syd and Melb constantly in the top 10 most liveable cities in the world...there is a reason for that standing.....low crime rates, low terrorism risk, huge lifestyle choices....the list is endless about how good it is here....even includes how good it is for the lower economic groups.....I guess compared to other places world wide, this is almost heaven....

I cannot understand why more people dont venture out to explore the regional areas....that is another heaven

 

[Bill M]

that argument is retarded, Sydney cbd also has a land shortage if u look at it that way... i know northern beaches folk dont realise theres a world outside that north of the harbour bridge

Most people that build a new house in Sydney dont build it in the northern beaches?

I don't know what is wrong with you blokes. This is what adds4 wrote:

this notion of a land shortage is just crap

and I responded by saying that in some areas there is no more land and there isn't, simple as that. Where can I buy land in Manly or Collaroy for example? You can't, you must buy existing dwellings which you must pay a high price for the privilege to live there. Some people have been born and bred in an area and will pay a high price to live there. They could not entertain the though of living heaps of kilometres away from their job, friends and family. They are areas in high demand and short supply. They simply can't make more land in some areas. Do you guys understand this? There is plenty of land in the rest of Australia but not in some areas. SHH

I cannot understand why more people dont venture out to explore the regional areas....that is another heaven

Hello kincella nice to see you back. I did just that, live in a nice suburb 100 kms North of Sydney and rent out my Northern Beaches unit. Nice and relaxing up here and I just sit back collecting the rent, nothing beats it. It's great to be retired.

 

[kincella]

Bill M...thank you
I have a similar problem, relaxing with the spoils....it was not always so easy...recall the long days, and the hard slog, working when my mates were partying...
but that all seems so long ago....
you make a plan and basically stick to it....if it is a good plan, you reap the rewards....
and make some adjustments along the way...
if its a goal worth having....its worth the effort...
I must admit to being a goal driven person and then a workaholic for a period, (whilst changing my life to achieve some goals).....I just have to figure out what to do with all this free time now...
cheers, and enjoy the spoils

 

[againsthegrain]

I just have to figure out what to do with all this free time now...
cheers, and enjoy the spoils

Not going to parties and sleeping with 20yo women

 

[jet328]

I really like the idea of the new houses, just north of Melb city....not in the heavily treed, fire risk areas though, 2 mins to the toll/freeways, 20 mins from the city and work...
20+ square metres, 4 beds 2 baths etc, huge living areas....below $300k's

Do you mind me asking where this is?

 

[So_Cynical]

Do you mind me asking where this is?

I think he's dreamin...even Craigieburn is 300K+

 

[adds4]

In most cases, if the house where bought for its purpose of being a home, house prices are irrelevant because you buy to live, not buy to pick the bottom and top of the property market. If the house purchase is for living, anythime you buy a house is the right time.

I just think people in melbourne and syndey, need to wake up and come to adelaide, where you can still buy a house less than 10km from the city under 400k, and have the same job opportunities. The traffic is less, 600sq blocks are nearly the norm still, good services and a functioning govt (how bad is the one in NSW). As a state we are poor at highlighting our liveability, every survey has adelaide as the best city to live in for lifestyle in Australia. And the best part is we dont have a housing shortage, we are building more than we need, thats why prices have remained low

i would like to know what the difference the same house built for 200k in one suburb or town compared to one thats exactly the same for 400k. House prices are always determined by how much someone is willing to pay.

The best way to have afforable housing for all, is to not allow deductions for house investing. Those deductions (money) saved by the govt, can be put into public housing. The problem is the govt is too scared because there would be a flood of houses on the market, and it would take too much time to build or buy the amount needed. Ordinary people buying a house against someone that can use it as a tax deduction is not fair. Its easier for an investor to buy a house than a fhb

 

[kincella]

obviously the ones I was looking at in June 2010 have been snapped up....sold out
no more 4x2 left at that price, but you can still get a 3 bdr for under 300k's....

it is normal for the developer to offer big discounts on the first homes in a new estate, so as time goes by, the discounts expire and the rest is history....

as it is, I only looked at Wallan, there are surrounding suburbs that could be of interest in the price range...over to you

http://www.realestate.com.au/buy/pr...1?includeSurrounding=false&source=refinements

 

[Mofra]

All it took to pop the US bubble was an increase in interest rates. Sub-prime mortgages went first, and spread to "safer" mortgages. US Sub-prime = Australian FHBs in my opinion.

Have you actually looked at the difference in lending practices between here & the US? Sub-prime being compared to PPOR purchases (where there is little difference in credit standards between FHBs and people buying their 10th property) are chalk and cheese.

Filtered for property within 50kms of a coastal area, our property is not as overpriced as many of the broad-brush stats suggest, and a period of stagnation whilst inflation pushes wage growth with further close that gap.

 

[cutz]

hmm....traps for players.....

Thanks for the detailed response kincella but mine was just a tongue in cheek comment playing on the fallacy of the so called "Australian Property Shortage". This is something that may appeal to the NG seminar set but fortunately there is no such thing as a property shortage is Australia. Prices in inner cities have been pushed up by the fact that people are now willing to take on bigger risks, nothing more nothing less, the fact that we have had years of low interest rates have pushed things along, double digit rates are distant memory, for many not even a memory.

The fact of the matter is there are huge parcels of undeveloped land within easy reach of the CBD near major freeways, I don’t know why I even mentioned CBD because most people don’t even work there.

Within Melbourne there are countless ex industrial/commercial lots sitting vacant just ripe for high density development.

 

[kincella]

C Unit....I am afraid if you rely on the wrong information...you have no hope of understanding the market...
the sub prime were the ninja loans....to people with ...no income, no jobs, no assets...
in fact it was Barack Obama as a lawyer that brought in the NINJAS loans...using the concept of racial discrimination as the excuse....so the banks and lenders were forced to give unemployed people loans....

moving on...interest rates played a part in the bust.....but the bust was inevitable, if people were allowed to buy houses, they could not afford....had no hope of meeting the committments....
but there was a get out of jail free card, they could throw the keys back and walk away...
that is not the case here...
plus we had the high interest rates....or didnt you notice....up to 10% by August Sept 08....
and our house prices plunged with the higher rates.....to 3% drops
all those newbie stock guru's in the US, were counting on their paper profits to pay for the houses, they borrowed against the house and the stocks...they lived like millionaires....with the paper profits in tow....when the music stopped, no profits....zilch
plus most of the so called cities in the US are nothing more than regional towns here in OZ, with a population of 100,000 at best....
people gave up their day jobs...to play the stock market, and the property market....
like sheep, they all lined up, for the trip over the cliff...
all looking for the easy money, the easy way out.....that is not how one accumulates assets or wealth