The future of Australian property prices

medicowallet · 5 March 2011

"his weekend looks like a carbon copy of last with a total of 534 homes from the 806 auctions selling resulting in a clearance rate of 66 per cent compared to last weekends 65 per cent.

Of the 272 homes passed in 154 of those were passed in on a vendors bid. Despite a third of homes not selling at auction many real estate agents reported strong sales returning sale prices well above reserve.

This weekend last year saw 252 auctions and a clearance rate of 88 per cent, the low volume a result of Labour Day, conditions that will be repeated next weekend."

66% this year, 88% last year

Please, I don't know what all this means, but why has the clearance rate dropped so much over the past couple of months?

Medicowallet

On a lighter note, caught some nice bream this week, had an absolutely fantastic time in my mate's 9 foot dinghy, complete with a few beers (not the captain), some roast chicken and a loud, plucky, slow 4hp 2 stroke. Quite ominous really, full throttle up the creek popopopopopopopopopop, at least we had oars as a fall back plan. I wonder if most boats popopoping along at the moment have a set of oars?

GumbyLearner · 5 March 2011

Join the queue for Melbourne's million-dollar suburbs
Christopher Gillett
Herald Sun
March 05, 2011 12:00AM

MELBOURNE will have 100 million-dollar suburbs by the end of 2014.

There are currently 44 suburbs with a seven-figure median price tag, Real Estate Institute of Victoria figures show.

By 2030, that number is expected to rise to almost 400.

http://www.heraldsun.com.au/news/vi...n-dollar-suburbs/story-e6frf7kx-1226016141661

Not New York, Hong Kong, Tokyo, Paris, London but...Melbourne!

Bill M · 6 March 2011

Tysonboss1 said:
In the early 70's My Grandfather died, and My grandmother sold his IP and banked the cash a bit over $3500 Because she could earn more interest on the cash than the rent provided. That $3500 produced enough interest to maintain her home and supplement her small pension, and she could live quite well.

Fast forward 30 years and the $3500 which she still has, earns about $200 a year, which is nothing, if you kept the house it would be paying over $14,000 per year and she would have a lump some of $350,000 in capital value.

Hi Tyson, here is another example of why realestate is a very good investment hedge against inflation. How to turn $2,000 into $1.06 million, seems like there was no shortage of bidders too. I wonder how much that $2,000 would be worth in a bank account today?

From The Daily Telegraph:

----
The Pardey St house, which sold in the now up-and-coming suburb of Kingsford, was bought by Ms Howarth's mother Isabel May for just £990 in 1943.

But thanks to the power of increasing property values the former secretary and bread deliverer reaped 1000 times that amount after a heated auction.

Fully Story Here
----

Garpal Gumnut · 6 March 2011

Bill M said:
Hi Tyson, here is another example of why realestate is a very good investment hedge against inflation. How to turn $2,000 into $1.06 million, seems like there was no shortage of bidders too. I wonder how much that $2,000 would be worth in a bank account today?

From The Daily Telegraph:

----
The Pardey St house, which sold in the now up-and-coming suburb of Kingsford, was bought by Ms Howarth's mother Isabel May for just £990 in 1943.

But thanks to the power of increasing property values the former secretary and bread deliverer reaped 1000 times that amount after a heated auction.

Fully Story Here
----

There was a guy called Lucius Brucillus had a mansion in Corinth in AD 23 , how much is it worth now?

Perspective mate.

gg

Bill M · 6 March 2011

Garpal Gumnut said:
There was a guy called Lucius Brucillus had a mansion in Corinth in AD 23 , how much is it worth now?

Perspective mate.

gg

You didn't answer the question, how much would that $2,000 in the bank be worth now compared to the massive increases of the house? Which wins? this is the argument.

Garpal Gumnut · 6 March 2011

Bill M said:
You didn't answer the question, how much would that $2,000 in the bank be worth now compared to the massive increases of the house? Which wins, this is the argument.

Tell that to someone in Christchurch, or some poor bastard in NSW, Sydney , who will pay $750,000 for a house in the western suburbs which he can buy in Townsville for $450,000 and which will be worth the latter in 12 months time.

gg

Tysonboss1 · 6 March 2011

Bill M said:
Hi Tyson, here is another example of why realestate is a very good investment hedge against inflation. How to turn $2,000 into $1.06 million, seems like there was no shortage of bidders too. I wonder how much that $2,000 would be worth in a bank account today?

From The Daily Telegraph:

----
The Pardey St house, which sold in the now up-and-coming suburb of Kingsford, was bought by Ms Howarth's mother Isabel May for just £990 in 1943.

But thanks to the power of increasing property values the former secretary and bread deliverer reaped 1000 times that amount after a heated auction.

Fully Story Here
----

Yeah , So I think that more than prooves the point that over time Property is a good inflation hedge.

Now debate here would certainly rage that property is still in a bubble, But that argument only debates whether the property is worth the $1.06M or maybe only $800K, either way a $2000 invested in the 40'S in that suburb would have more than kept it's value in the face of inflation and provided a stable growing rental income over that time.

Tysonboss1 · 6 March 2011

Garpal Gumnut said:
Tell that to someone in Christchurch,

I would go as far as saying even a pile of rubble on a free hold block of land in a earth quake zone is still worth more than the $2000 cash investment.

Bill M · 6 March 2011

Garpal Gumnut said:
Tell that to someone in Christchurch, or some poor bastard in NSW, Sydney , who will pay $750,000 for a house in the western suburbs which he can buy in Townsville for $450,000 and which will be worth the latter in 12 months time.

gg

So you reckon a house in Sydney for 750K now will be worth 450K (a 40% drop) in 12 Months time........... I will revisit that statement in 12 Months, good luck with YOUR investments. 40% drop eh?

So_Cynical · 6 March 2011

GG is drunk...lol

GumbyLearner · 6 March 2011

Tysonboss1 said:
Yeah , So I think that more than prooves the point that over time Property is a good inflation hedge.

Now debate here would certainly rage that property is still in a bubble, But that argument only debates whether the property is worth the $1.06M or maybe only $800K, either way a $2000 invested in the 40'S in that suburb would have more than kept it's value in the face of inflation and provided a stable growing rental income over that time.

You spelled proves wrong. You have no nous, off the forum you go.

CamKawa · 6 March 2011

and who would have thought????

Auction rates fudged by failed campaigns

EMBARRASSED agents are covering up a growing failure to sell homes at auction by not telling reporting bodies about their failed campaigns.

Figures compiled by research agencies Australian Property Monitors and Residex over the past three weeks show that between 10 per cent and almost 50 per cent of auction results across Sydney went unrecorded.

The reason was embarrassed real estate agents wanting to avoid reporting of failed auction campaigns, said leading property analyst Louis Christopher, managing director of SQM Research.

"We are having a very high percentage of auction campaigns going unreported to the reporting bodies, and we strongly believe those unreported auctions are actually failed campaigns," Mr Christopher said

Read more: http://www.news.com.au/money/auctio...ns/story-e6frfmci-1226016477643#ixzz1Fl2x5gj4

mazzatelli · 6 March 2011

Tysonboss1 said:
Yeah , So I think that more than proves the point that over time Property is a good inflation hedge. ... [context: in response to an article about a property purchased in 1943]

Tysonboss1] [B]I have seen my grandmother lose her entire net worth to inflation[/B] said:
As I said earlier I have property inside my portfolio because I like the steady cash flow that will increase with inflation and the thought that I won't lose value on the capital (outside normal fluctuations) to inflation.

wayneL said:
It's been said hundreds of times - Credit is the ONLY fundamental.

white_goodman said:
this is true, watch the money supply, its a great indicator

In the context of residential property, there are 2 components being proposed that hedge against inflation - 1) capital value and 2) rental income.

Allow me propose a general theoretical scenario : that since the mid 90's, Australian residential capital value is predominantly correlated to credit and money supply, whilst before that, inflation accounted for the correlation [regime-switch].

If this is the case, would this make your Grandma's scenario and the article posted by Bill M, not as effective for people starting to hedge inflation from today [or post mid 90's]?

Residential rental income - yes a hedge for inflation.

When it comes to Investing I believe a low debt model is best ( but thats my opinion). that way it keeps the cashflow positive, you have less risk of having to be forced seller if rates skyrocket, and you are not putting as much hope on quick capital gains. Also I view property as an inflation hedged income stream, but as soon as you load up to much debt you start to lose your income to interest payments.

Excellent, that's better than hearing generalized statements - e.g. 90% LVR IP's as a hedge because it's property.

dhukka · 6 March 2011

Interesting, interactive graphic from the economist. link here

Update: Apologies, I just saw CamKawa has already supplied a link.

medicowallet · 6 March 2011

Tysonboss1 said:
Yeah , So I think that more than prooves the point that over time Property is a good inflation hedge.

Now debate here would certainly rage that property is still in a bubble, But that argument only debates whether the property is worth the $1.06M or maybe only $800K, either way a $2000 invested in the 40'S in that suburb would have more than kept it's value in the face of inflation and provided a stable growing rental income over that time.

NO

the real question should be

is $1000000 invested in residential property now, a better proposition than $1000000 in cash, over the next few years.

And WHY?

I'm firmly in the camp who believes residential property has only one way to go over the next few years, and that is DOWN (I consider sideways as down)

Why?

Because Like GG, I have been around for long enough to experience the last property downturn (which was not long ago) as opposed to some of the currently active spruikers in this thread, who probably do not even know the name of the prime minister before John Howard.

Property is ridiculously overpriced, and there is a limit to how much the next fool is prepared to pay, either they wake up or the bank can't fund it, and I think we have reached both.

Tysonboss1 · 6 March 2011

mazzatelli said:
Allow me propose a general theoretical scenario : that since the mid 90's, Australian residential capital value is predominantly correlated to credit and money supply, whilst before that, inflation accounted for the correlation [regime-switch].

To measure the extent of any bubble, I suppose you would have to take the price of the target market in the mid ninties, add to that the compounded effect of inflation, as well as the growth in households over that time (because yes the population in oir capital cities has grown and at the same time the number of people in each house hold has shrank ( more single person and single parent households)).

The market I know the best is Brisbane, The area I invest in has gone up in value by about 150% in 10 years, some people here are saying this is a bubble, but if you look at a few facts you will see that if there is any froth or bubble it is much small than people would suggest, to suggest that the entire 150% growth in prices is related to a speculative bubble is crazy, that would mean that over that 10 year period there was zero growth in households and zero inflation, but both these things are untrue.

- Between 1993 and 2001 most of the brisbane maket was in stagnation, so a decent part of the boom that happened after 2001 was a correction relating to the pent up effect of inflation on prices,

- during 1998 through to 2010 brisbane had very large migration figures and it's population was growing, this effected the growth in demand for dwellings and would have put upward pressure on land prices.

So if look back at the bigger picture (atleast in the brisbane markets I have studied) you can see it is actually a 150% growth figure over the space of 18years, Inflation of 3% alone should make a property double every 20 years, So when you include that along with the population growth that has occurred it doesn't really leave much room for this bubble to live in.

Tysonboss1 · 6 March 2011

medicowallet said:
NO

the real question should be

is $1000000 invested in residential property now, a better proposition than $1000000 in cash, over the next few years.

Well it really depends of the time frame, By all means try and time the market. If you have read my posts back a few pages I said that property may have so froth in it. But the longer the time frame ( when compared to cash ) the less important that froth is, Unless it is a massive amount of froth.

For example say that in 1943 you over paid by by 50% and bought that property for $3000 instead of $2000, Time has surely covered up your mistake.

But as I have said I have no idea where the market will go, I never do, I don't really care which way the market goes, I prefer both the property and stock markets going down.

And I am not banking on quick capital gains when I have spare cash to deploy into property I will just look for investments that make sense when compared to their rental earning power, and if I find one I will make the investment and if over the years my rental return grows with inflation and I see my capital base grows along with inflation + any extra 1%pa for population growth I am happy.

Property investing is a cinch, so I would never bank on it earning 40%pa, why should it. Property should earn just enough to keep investors interested in putting funds into it and supplying housing infrastructure, a basic rental return of about 4% that grows with inflation and capital protected from inflation does this for me.

Tysonboss1 · 6 March 2011

mazzatelli said:
Allow me propose a general theoretical scenario : that since the mid 90's, Australian residential capital value is predominantly correlated to credit and money supply, whilst before that, inflation accounted for the correlation [regime-switch].

.

One could say that inflation itself is predominantly correlated to credit and money supply.

mazzatelli · 6 March 2011

Tysonboss1 said:
One could say that inflation itself is predominantly correlated to credit and money supply.

So both are one and the same, and have the same impact on residential house values?
IOW instead of directly hedging inflation with property, I can hedge inflation via mortgage/credit instruments, since they are all correlated?

With your other post mentioning a bubble - I am not analyzing/inferring anything regarding that - this is from a hedging perspective. If your asset is say driven by two variables, one which has a larger effect on your asset [e.g. credit & money supply, whether you agree or not] and it also drives the other variable e.g. inflation [multicollinearity, I'll leave the debate about causation aside], then is it worth using that asset to hedge the smaller effect?

Rental income, is separate, and I have already stated my view on that - so please don't bring that in.

explod · 6 March 2011

Tysonboss1 said:
One could say that inflation itself is predominantly correlated to credit and money supply.

It is about the devaluation of paper money. Houses going up is merely a match to the falling value of money.

A problem now, (not so much here yet), is that paper money is devaluing faster than property is going up.

However good land will hold its tangible value in the long term.

The future of Australian property prices

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