The future of Australian property prices

[UBIQUITOUS]

In the paper today, some snippets.
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SOARING Sydney property prices are killing off the great Australian dream. Latest real estate figures show the median house price in Australia's largest city has hit a record $600,000 and could reach $700,00o this year.


And there are predictions that house prices could rise another 20 per cent this year alone, which would push the median figure past $700,000.

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Full Story Here at This Link

[/quote]Property Planning Australia CEO Mark Armstrong said an increasing number of investors would enter the market in 2010, which would lead to prices "taking off".

"There is no doubt price growth in Sydney this year will exceed 2009 levels and we could see as much as 20 per cent growth," he said.

Off the cuff ramping with no evidence to back up what he has to say. Not surprised that he chose to ignore that fact that the boost in the FHOG grant was a catalyst last year. I wonder how long before the public realise that the rug is being pulled out from under them?

 

[prawn_86]

http://www.news.com.au/money/proper...ot-mortgage-bill/story-e6frfmd0-1225825092977

Media now reporting FHB as 'luring' yet when it was in place they couldnt encourage people fast enough to take advantage of it.

Why cant we just have an actual free market

 

[CamKawa]

Why cant we just have an actual free market

Because then prices would fall. Massive government intervention is the only thing keeping the Australian residential house price ponzi scheme going. The spruikers will sight other factors supporting prices but those factors are very minor.

 

[jbocker]

http://www.news.com.au/money/proper...ot-mortgage-bill/story-e6frfmd0-1225825092977

Media now reporting FHB as 'luring' yet when it was in place they couldnt encourage people fast enough to take advantage of it.

Why cant we just have an actual free market

Curious to know what would a free market look like?
The FHB grant I thought was more to offset the costs of taxes to buy / build a home. Why didn't they just not charge the tax in the first place for the FHB. The 'lure of cash' would have been negated somewhat, but I guess doesnt look as generous from a Pollies point of view .

Was there also desire to stimulate the housing industry with the FHBG?

I bought my first home many years ago, and it was stress big time back then too. It is part of the deal, buying a home requires a huge commitment. Those who have endured it should be talking to the new potential home owner what it is like, particularly when the Interest rates bite. I would advise that anyone taking on a loan add 3% to the rate and pay that from day one. Survive the first couple of years you have a strong chance of seeing it through.

 

[satanoperca]

Every ponzi scheme needs new entrants to keep it going, while allowing old participants to exit with their winnings.

The FHBG or FHVG was exactly that, "get on the ladder" was a term often used.

Falling property prices would have exposed a weakness in the Australian banking system that are heavily invested in the mortgage market.

The media which generates significant revenues from the RE market also does not want house prices to decline, reducing their revenue base.

The Govnuts cannot afford for price declines as it is as sacrilege as telling Christians of past centuries that God does not exist. Certain exile will proceed.

People only want to see what fits with their belief's, property should continually grow abate against any fundamental requirements of society and the economy.

I ask you this, if property prices have increased over the last 18 years, why has owe current account been in deficit for exactly the same time, given a decade of boom in the resources sector. Property growth outside inflation and population increase has been proportional to the rise in household debt.

Cheers

 

[Bill M]

I bought my first home many years ago, and it was stress big time back then too. It is part of the deal, buying a home requires a huge commitment. Those who have endured it should be talking to the new potential home owner what it is like, particularly when the Interest rates bite. I would advise that anyone taking on a loan add 3% to the rate and pay that from day one. Survive the first couple of years you have a strong chance of seeing it through.

Hello jbocker, you make some very good points and I would like to share my story with other readers. My wife and I bought our first house in Sydney on the Northern Beaches in the early 90's. (I had other properties before that time but they were only units or places interstate). Anyhow we took out a big mortgage to buy the place and we had a plan. I was working 2 jobs at the time and sometimes up to 70 to 80 hours per week. My wife was working full time too and attended evening college as well. We were working so hard and putting every $$ into our mortgage with one aim and that was to knock it on head as soon as possible and live in our property mortgage free. We knew the biggest expense in anyone's lifetime is their home and that had to be overcome. We did not holiday for 3 years during that time and eventually the mortgage was paid off.

I had tins of paint in the dining room for nearly 2 years before I got to use them because we were so tired working all the time. Nothing was easy then and nothing is easy now, it comes down to really hard work and commitment.

We paid 225K for that house and sold it 3 years later for 290K. If it was in it's original condition now as when we sold it, it would be worth 1 Million Dollars now. The new owners though did major renovations including a whole new second story. I think it is worth about $1.5 Million now.

In short nothing is easy but it is over for us and we live totally rent and mortgage free and that to us is very important.

I agree with you, people must factor in at least 3% mortgage rate interest increases and in the mean time work hard and pay it off as soon as possible.

 

[Dowdy]

Massive government intervention is the only thing keeping the Australian residential house price ponzi scheme going. The spruikers will sight other factors supporting prices but those factors are very minor.

The problem with government run ponzi schemes is that they can make them last indefinitely. After all, social security payments are a ponzi scheme but that ponzi scheme will continue forever since people don't fully see the effects.

People are starting to see the housing ponzi scheme and will probably last a few more years

 

[CamKawa]

Looks like Repo's are up. Can't be good for our government's sponsored ponzi scheme. Kev's going to have to prop it up with his credit card again. Come on Kev where are you?

Repossessions and mortgage stress soar

THE number of Queensland properties repossessed by lenders jumped 20 per cent in 2009, new figures show.

 

[Aussiejeff]

Looks like Repo's are up. Can't be good for our government's sponsored ponzi scheme. Kev's going to have to prop it up with his credit card again. Come on Kev where are you?

Repossessions and mortgage stress soar

THE number of Queensland properties repossessed by lenders jumped 20 per cent in 2009, new figures show.

Never fear! For sure, Krudd & his trusty sidekick Swan-ee are this very moment loading up a pile of rubber cheques into Elvis for rapid deployment to suffering Bananabenders.

Hooray!

 

[MACCA350]

Looks like Repo's are up. Can't be good for our government's sponsored ponzi scheme. Kev's going to have to prop it up with his credit card again. Come on Kev where are you?

Repossessions and mortgage stress soar

THE number of Queensland properties repossessed by lenders jumped 20 per cent in 2009, new figures show.

And up 60% from 2007 to 2009

"Last year, lenders took legal action to repossess 1638 Queensland properties, up from 1361 in 2008 and 1025 the year before, court records show."

That's just Queensland though, any figures for other areas?

cheers

 

[CamKawa]

I think this bloke is kinda bearish. Has some interesting points.

Australian Housing Bubble About to Burst, Market About to Crash

 

[satanoperca]

Camkawa,

Great article, not bearish just realistic.

Amazed that most people have a precondition that everything most grow continually at all costs both present and future.

Cheers

 

[Beej]

Yep - keep trying boys with all the same old "crash" arguments. Default rates are still minuscule - a 20% increase on a poofteenth of nothing is still pretty much a poofteenth of nothing.

In the meantime, ABS stats show house prices across Australia rose 13.6% in 2009 (http://www.abs.gov.au/AUSSTATS/abs@...A50B6B8CF85F0474CA25722900179E3F?OpenDocument). APM/Residex and RP-Data all showing rents increasing last year by 5% on average as well. So much for the crash.......

Attached is a graph that shows the cost of servicing the average mortgage over 30 years from the average household disposable income. As you can see, households are on average are no more mortgage stressed now that they have been historically through the 80s and 90s (with various ups and downs through all periods), and in fact the un-affordability peak of the late 80s boom was far worse for affordability than the more recent 2007 peak. Right now mortgage serviceability is at the same levels it was in the early 80s relative to average household incomes.

This to me does not suggest any great mortgage default wave coming to Australia, especially given the RBA has left interest rates for now, and are on the record stating that they see current levels of interest rates as "neutral" (partly because the banks did some independent tightening already for them!).

I've also attached a graph that shows the household disposable income to house price ratio. Again, while we clearly had a systemic shift in that ratio in the late 90s (due to prevalence of dual incomes, shift from high inflation/high interest rate to low inflation/low interest rate economy etc), if there was a bubble it already peaked 7 years ago and has been slowly deflating since. However, commensurate with this has been continuing rises in nominal house prices (which which picked up pace last year after a 3-4% fall in 2008 - Satanoperca that shows that no-one expects prices to grow continuously for ever, there are corrections from time to time but the long term trend IS up).

These charts demonstrate that there is no big bubble in AU residential real estate; it's business as usual from here for a while I think, and watch out for a possible construction boom kicking off mid this year.

Cheers,

Beej

 

[Beej]

I think this bloke is kinda bearish. Has some interesting points.

Australian Housing Bubble About to Burst, Market About to Crash

Camkawa,

Great article, not bearish just realistic.

Amazed that most people have a precondition that everything most grow continually at all costs both present and future.

Cheers

The problem with the linked article, is it forms a view based on the flawed Fujistsu consulting "mortgage stress" measure, which says that mortgage stress exists of a household is paying more than 30% of their gross income to cover the mortgage, regardless of what that income is. There are so many flaws with this I'm not sure where to start?? How about:

1) When people first buy their first home, their mortgage (and like the cost of servicing their mortgage) will be the highest it will ever be at any other time in the life of their loan, and their income will likely be the LOWEST it will ever be.

2) Banks typically use 30% of gross income as the crtiteria for what they will lend - which they consider conservative. So if you go and survey a bunch of recent FHBs, and declare them in "mortgage stress" if they have to use 30%+ of their income to cover the mortgage, then it's a foregone conclusion that you will get a large propertion "in stress" - in fact I'm surprised it's as low as 47%!

3) A household on $200k/year paying 30% of their income to service the mortgage HAS IT EASY. A household on $50k/year may be struggling a bit more. The point is, a blanket number like 30% is meaningless as the general cost of living is pretty much a constant for everyone, but every household has a different level of income available.

So the bottom line is if you think the AU market is in a bubble and going to crash on the basis of an article that uses that Fujistsu report/methodology to assess the level of "mortgage stress", then you are likely going to come to the wrong conclusion.... yet again....

CamKawa for example, you've been calling the crash for what - 3? Maybe 4 years here now? Longer even? How much have house prices continued to rise in that time? a 20-30% crash now would probably just get prices back to where they were when you first started calling the crash! But regardless, it is not going to happen, Not this year anyway.

 

[Taltan]

Beej

I'm pretty sure you'll find your graph is comparing the median house price to the mean incomes. That is a flawed comparision unless Macquarie's bankers need multiple homes. I'm pretty sure if you compared median prices to median incomes you would find the ratio has increased more.

With the nationwide median now at $390,000 I find it hard to believe that nationwide household income is at (390,000/4.5) $86,667

 

[Beej]

Beej

I'm pretty sure you'll find your graph is comparing the median house price to the mean incomes. That is a flawed comparision unless Macquarie's bankers need multiple homes. I'm pretty sure if you compared median prices to median incomes you would find the ratio has increased more.

With the nationwide median now at $390,000 I find it hard to believe that nationwide household income is at (390,000/4.5) $86,667

I believe the graphs are based on average GROSS household income (I think I wrote disposable in my original post which is not correct). I would think such analysis has to use average income as I don't think median figures for income are available? But despite Macquarie bankers etc the average the mean are not all that different when you look at income stats (but they can be a little different yes).

Regardless I think $86k would be about right for the average household with a mortgage? AWOTE for a single full time worker is $65k, so if you had one average full time earner + a partner working part time there's your $86k easy. I'll dig into the RP-data stats and try and find out exactly how they work out their household income figure though.

Cheers,

Beej

 

[gfresh]

Would be interested to see what the median income is actually.. I have a feeling the mean is pulled up by a number of $1m+ earners, of which their salary may be equal to 20 poor saps who have to live off $50k a year.

Put half above, and half below (the median) and may tell a different story.

 

[gfresh]

yup.. notice the near $100 difference between mean and median figures here.

http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6523.0Main+Features12007-08?OpenDocument

While the mean equivalised disposable household income of all households in Australia in 2007-08 was $811 per week, the median (i.e. the midpoint when all people are ranked in ascending order of income) was somewhat lower at $692 (shown as P50 in Table 1). This difference reflects the typically asymmetric distribution of income where a relatively small number of people have relatively very high household incomes, and a large number of people have relatively lower household incomes, as illustrated in the following frequency distribution graph.

S5. DISTRIBUTION OF EQUIVALISED DISPOSABLE HOUSEHOLD INCOME, 2007-08

 

[Trade wind]

The problem with the linked article, is it forms a view based on the flawed Fujistsu consulting "mortgage stress" measure...

Fujitsu, isn't that an air-conditioner? The property market could do with some cooling. But seriously, are you saying property is good value? Would you buy an investment property now?

3) A household on $200k/year paying 30% of their income to service the mortgage HAS IT EASY. A household on $50k/year may be struggling a bit more...

The median household income is around $65K a year - for all Australians not just first home buyers - with an average mortgage around $350K. In other words, most buyers are indeed "struggling a bit", and will be struggling a lot more if interest rates rise.

It is pretty obvious that the government's stimulus package overshot the mark. Slashing interest rates and pump priming property via the FHB grant has further bloated an already overheated market.

Rudd got it wrong, and interest rates should rise, but elections are won and lost in the swinging seats of the mortgage belt, aka "working families" (formerly the Howard battlers). Better to see Australia's foreign debt skyrocket than suffer the political backlash of rising interest rates.

We'll see, but even media financial advisers are now warning first home buyers to stay out the market. I can't see a crash but I'd suggest we need a correction. Remember the GFC?

 

[Sidamo]

These charts demonstrate that there is no big bubble in AU residential real estate; it's business as usual from here for a while I think, and watch out for a possible construction boom kicking off mid this year.

So Rismark are claiming it takes 25% of income to service a mortgage?

So, if median price for whole of Oz is $390k and assuming a 20% deposit (unlikely for FHB) that leaves a mortgage of $321k, which currently costs $2137.95 per month (ANZ), or $25,655 of after tax income per annum. Are Rismark claiming the median household in Oz has an after tax income of $102k??

Rismark are also claiming a median house prices of $540k for Melbourne or something, aren't they? Doing the maths would suggest an after tax household income of $140k in that case.

Smells to me like they're pulling figures out of their ****.