The future of Australian property prices

[Mofra]

I heard a few fho at my work place sqeeling today when the raise was announced. Those that were foolish enough to take loans of 400 - 450 at the lure of the grant will have alot more sqeeling to do with future rises.

Bank affordability calculators are all set at 2% higher than the non-discounted standard variable rate. Still plenty of fat factored in for newer homebuyers.

This bear fantasy that 0.25%, 0.5% of a full 1% is enough to precipitate a crash to the entire market (even the more vulnerable outer suburban markets) is amusing.

 

[joeyr46]

Bank affordability calculators are all set at 2% higher than the non-discounted standard variable rate. Still plenty of fat factored in for newer homebuyers.

This bear fantasy that 0.25%, 0.5% of a full 1% is enough to precipitate a crash to the entire market (even the more vulnerable outer suburban markets) is amusing.

I agree I don't think interest rates will be the cause of the coming correction, just the fact we have too much debt. Of course we can go on a bit longer but judging by the mainstream media stories on property it feels like a major top.
Can't remember this many stories in papers and current affair programs about how housing is just going to keep rising etc
So called supply/demand
Can anyone tell me how many houses and units there are out there? because we know the population, all we ever hear is there is a short fall in the number of houses being built but not how many there are.

 

[gav]

Great news IR's up.

Fantastic our economy has survived the GFC and is on the path to recover

Hope to see them back around 5% by the end of the year.

Oh, forgot about all those teaser rates offered to FHB last year, they must start resetting soon.

Oh well, they did get free taxpayers money of KRUDD and the govnuts.

Cheers

Don't forget the value of their properties has gone up 10% already. And thats tax free profit too

 

[satanoperca]

Bank affordability calculators are all set at 2% higher than the non-discounted standard variable rate. Still plenty of fat factored in for newer homebuyers.

This bear fantasy that 0.25%, 0.5% of a full 1% is enough to precipitate a crash to the entire market (even the more vulnerable outer suburban markets) is amusing.

Interesting, you need to analyze the amount of indebtedness of mortgagee holders against income. Think you will find that how it was in the past is not how it is today. In the 90's rates raised above 10% but if this happened today many many would fold as their debt to income ratio has greatly changed.

Anyhow.

Let us not forget that many FHB bought on intro rates of around 4.5% last year, discounted for the first year. These are starting to reset.

Current variable rates from the majors seem to be around 6.8%. This would see a 50% increase in mortgage repayments. Even if they took the normal rate on average of 5.3% would still see an increase of

Hmmm 2% leeway from the banks when calculating the max mortgage amounts seems to have already disappeared for the many FHB's that bought with 90 LVR's and mortgage intro rates last year.

I would also challenge the validity of the assumption that the banks 2% leeway is fair and correct in today volatile economic community.

I for one have been surprized every time my wife and I have asked the banks how much we can borrow. It has always been greater than what we could reasonable expect to service unless we become air eating humans.

Cheers

 

[treeman]

Im not really living any bear fantasy since I am not in a position where it will make much difference to me.

It just amuses me when I hear 90% of the population around saying "wow property you can't lose and it will never stop going up" lol


I just cannot see it going much higher, who is going to keep buying out houses at 400 - 500k with average incomes of 60k. Once there is no fresh meat to keep passing the parcel down the prices will come to a halt.

If interest rates get too hot for those that rushed in, mixed in with the realisation that the dream of quick cash is gone, some selling might start.

I know everybody is saying, supply and demand - sure there might be lots of demand but if its not affordable then demand in itself won't matter.

Then I hear about overseas investors, with Aussie dollar strong as ever this just makes the investors capital weaker and lets not forget practically most other western countries are cheaper then Aus making them a smarter investment.

Don't get me wrong Im not trying to paint a picture of a great crysis, even if all these factors were to happen I doubt the housing market would totally crash, but no doubt correct to more affordable prices for the average Joe.

Probably alot of people will get angry at my reply because everybody seems to be rushing in the housing market trying to desperately secure what the media has painted as "the last chance ever to own the Aussie dream"

P.S If I was a non owner right now I would rather rent and save my money.

 

[MR.]

ASIA
http://www.google.com/hostednews/afp/article/ALeqM5hyB5z-lxr4bPS-fa2NIwI-MisffQ

Beijing has tightened lending, requiring buyers of second homes to put up a downpayment of at least 40 percent

In Singapore,.......... Home buyers are also now limited to borrowing up to 80 percent of the property's value, instead of 90 percent.

AUSTRALIA
http://www.investmentpropertycalcul...-its-loan-to-valuation-ratios-lvr/2010/01/21/

Westpac Banking Corporation has tightened its mortgage loan criteria ………. from 92 per cent to 87 per cent including two per cent for lenders’ mortgage insurance.

The Commonwealth, ANZ and NAB continue to promote lending of up to 97% (including insurance) for investment properties. Beijing's LVR is 60% for investment properties.

Bring on the global "guide lines". If our government's arn't ever going to step in!

 

[Trembling Hand]

Bring on the global "guide lines". If our government's arn't ever going to step in!

Oh god thats the solution. More government guide lines and regulations!!


To fix what? The previous actions of government to inflate the bubble?

Why do Aussies always want the government to solve problems in spite of all evidence that they just make it worst?

 

[Aussiejeff]

Oh god thats the solution. More government guide lines and regulations!!


To fix what? The previous actions of government to inflate the bubble?

Why do Aussies always want the government to solve problems in spite of all evidence that they just make it worst?

A: Because fawning media images of our pretty pollies slobbering all over... errr.... sorry.... "kissing" lots of babies, smiling & joking with pre-teen schoolers & promising to fix EVERYTHING make us all feel soooo warm & fuzzy inside?

Mmmmmm....

 

[MACCA350]

The Commonwealth, ANZ and NAB continue to promote lending of up to 97% (including insurance) for investment properties. Beijing's LVR is 60% for investment properties.

Bring on the global "guide lines". If our government's arn't ever going to step in!

Our government would never step in and force such a thing.........think of all the revenue they would loose. They have a direct interest in higher prices and higher transactions.
What we need in this regard is to break that government reliance on income from the housing sector.


On a side note, If you look at what portion of a property is increasing the most, it's the land. Problem, as I understand it, here is that the government has been slow to release and rezone land. What does become available gets snapped up by the major developers(usually before they are rezoned since they have inside info) who then drip feed it to the public to keep land values high.

What's the answer, I'm not an expert in the area, but I'd assume that an increase in the release of land - TO THE PUBLIC - should release some of that upward pressure.

Imagine if there were a flood of cheap($20-$50k) land available in new surrounding suburbs over the next few years. If Rudd wanted to stimulate things why not put those billions into developing new affordable suburbs to rebalance this seeming imbalanced of supply/demand. But then again that would never happen given my opening statement.

cheers

 

[awg]

On a side note, If you look at what portion of a property is increasing the most, it's the land. Problem, as I understand it, here is that the government has been slow to release and rezone land. What does become available gets snapped up by the major developers(usually before they are rezoned since they have inside info) who then drip feed it to the public to keep land values high.

What's the answer, I'm not an expert in the area, but I'd assume that an increase in the release of land - TO THE PUBLIC - should release some of that upward pressure.

Imagine if there were a flood of cheap($20-$50k) land available in new surrounding suburbs over the next few years. If Rudd wanted to stimulate things why not put those billions into developing new affordable suburbs to rebalance this seeming imbalanced of supply/demand. But then again that would never happen given my opening statement.

cheers

That would involve the govt in large scale public property development, something they seem to have largely moved away from over the last 30yrs.

It takes much money and patience to develop medium/large scale new developments, including surcharge for power, water, sewerage, and internal roads etc.

I have a distant family member who is a hugely wealthy property developer.

He buys land and holds it for years, all the time working to get it rezoned and developed. He wins most but loses some. He obviously needs deep enough pockets to pay the land holding costs for years, absorb the ones he loses, and then pay the development costs, which per block, are enormous.
Very many obstacles to overcome

My personal opinion is that prices will continue higher due to supply/demand,
and increasing cost pressures, until and if a credit contraction eventuates.

 

[Bigukraine]

Our government would never step in and force such a thing.........think of all the revenue they would loose. They have a direct interest in higher prices and higher transactions.
What we need in this regard is to break that government reliance on income from the housing sector.


On a side note, If you look at what portion of a property is increasing the most, it's the land. Problem, as I understand it, here is that the government has been slow to release and rezone land. What does become available gets snapped up by the major developers(usually before they are rezoned since they have inside info) who then drip feed it to the public to keep land values high.

What's the answer, I'm not an expert in the area, but I'd assume that an increase in the release of land - TO THE PUBLIC - should release some of that upward pressure.

Imagine if there were a flood of cheap($20-$50k) land available in new surrounding suburbs over the next few years. If Rudd wanted to stimulate things why not put those billions into developing new affordable suburbs to rebalance this seeming imbalanced of supply/demand. But then again that would never happen given my opening statement.

cheers

Just like to weigh in re developers trust me when i say it not to easy for them to obtain funding in this post gfc world and i know of some projects that have been mothballed because of this also councils require money held in trust for services now as well as an increase in lvr for projects funding,title costs and infrastructure makes it hard to develop. ps at current govt,council and infrastructure ,title costs $20-50k + would only cover th cost to make the land you would have to add holding costs of funding and initial cost of the project land plus profit. it is getting near impossable to produce land for under $100k these days (live in sa so info supplied re this state)

 

[MR.]

Oh god thats the solution. More government guide lines and regulations!!

Of course, let us not follow the path of the US.

To fix what? The previous actions of government to inflate the bubble?

No, to stop further property speculation due to these low interest rates.

Why do Aussies always want the government to solve problems in spite of all evidence that they just make it worst?

I hope it’s not “all evidence” of making things worse!
Since the free market didn’t get to run its course governments now better step up to the plate since things are perceived to be returning to “normal”.

Our government would never step in and force such a thing.........think of all the revenue they would loose. They have a direct interest in higher prices and higher transactions.
What we need in this regard is to break that government reliance on income from the housing sector.

You may be right, and the RBA is independent from the government for a reason. Which will it be? Which will cause the least grief? What's the carry trade really doing to our economy?

 

[Mofra]

Interesting, you need to analyze the amount of indebtedness of mortgagee holders against income. Think you will find that how it was in the past is not how it is today. In the 90's rates raised above 10% but if this happened today many many would fold as their debt to income ratio has greatly changed.

Anyhow.

Let us not forget that many FHB bought on intro rates of around 4.5% last year, discounted for the first year. These are starting to reset.

Current variable rates from the majors seem to be around 6.8%. This would see a 50% increase in mortgage repayments. Even if they took the normal rate on average of 5.3% would still see an increase of

Hmmm 2% leeway from the banks when calculating the max mortgage amounts seems to have already disappeared for the many FHB's that bought with 90 LVR's and mortgage intro rates last year.

I would also challenge the validity of the assumption that the banks 2% leeway is fair and correct in today volatile economic community.

I for one have been surprized every time my wife and I have asked the banks how much we can borrow. It has always been greater than what we could reasonable expect to service unless we become air eating humans.

Cheers

It's a fair & reasoned response, however there are a few factors I believe are in homebuyer's favour:

a. AWOTE has been increasing at above inflation rates for years so anyone who has bought greater than 12 months ago could reasonably expect to have an even greater income to service the existing debt

b. Lending ratios are much tighter than they were just 3 years ago

c. Many homebuyers maintain normal repayments during a honeymoon period to reduce the principal

d. Our delinquency rates are still amongst the lowest in the Western world.


In all honesty I don't see rates as the driving factor in homeowners falling into arrears - the employment rate (and the less accurate under employment rate which is just as important IMO) is a much greater factor - the majority of delinquencies I had seen during my time in finance were due to unemployment.

 

[Go Nuke]

a. AWOTE has been increasing at above inflation rates for years so anyone who has bought greater than 12 months ago could reasonably expect to have an even greater income to service the existing debt

Sorry I can't agree with that.
I haven't seen a pay increase for 2 years now apparently due to the GFC (thx Tyco). So my ability to service a loan has actually decreased dramaticaly over that time with the rise in costs of everything else.

My partner is in a similar boat.
Bonuses and O/T goneski.

As someone who is getting ready to buy a block of land and build I do think interest rates rising is going to send the FHB to the wall...and very soon.

They were suckered into the market with low interest rates and high property prices reletive to income.
There might be some cold comfort for them though because they might be able to sell their property and still come out at the very least debt free.
Unless they all start to default at the same time and the market gets flooded with properties from distressed homeowners.

MACCA350, I think your right about the land being released too slowly.
We have a contract on a block now and were lucky to get that. Everything we hear now from the developer and people walking through display villages is that there is no more land coming up for release and everything that was available was gone very quickly.

Worse still the developers are now reducing the size of the blocks to make up for the extra costs the government keeps slugging them with.

At Noth Lakes here in QLD I see house and land packages on a 312sqm block of land!!

I just cannot see it going much higher, who is going to keep buying out houses at 400 - 500k with average incomes of 60k. Once there is no fresh meat to keep passing the parcel down the prices will come to a halt.

+1 to that!
But keep in mind, the "average" might be $60K but I bet the "median" income is closer to about $48K.
I personaly don't know that many people on $60K or more.
The government likes using those figures to make it out like we are all doing so well.

 

[wayneL]

In the US:

Second wave of mortgage blow-ups due.

Any effect on AUS?

 

[So_Cynical]

In the US:

Second wave of mortgage blow-ups due.

Any effect on AUS?

Scott Pelley reports on the mortgage crisis that's far from over, with a second wave of expected defaults on the way that could deepen the bottom of the U.S. recession.............14 December 2008

 

[MR.]

31/3/2010 the US Fed stops buying mortgages.
If correct, it is a worry with further loan resets due, as per the prediction in the above video.

30/4/2010 is the end of the US 1st time home owners grant of $8000-.

The Future of Australian Property Prices?

 

[Mofra]

Sorry I can't agree with that.
I haven't seen a pay increase for 2 years now apparently due to the GFC (thx Tyco). So my ability to service a loan has actually decreased dramaticaly over that time with the rise in costs of everything else.

My partner is in a similar boat.
Bonuses and O/T goneski.

That may be the case for yourself and your partner, but the weight of statistic evidence is differs from your personal circumstances. FTR I have had increases in salary every year for the past few years, including upgrading salary upon changing jobs.

 

[>Apocalypto<]

Re: The future of Australian property prices


up, up, up and more bloody UP! :1zhelp:

 

[James58209]

From the Herald Sun :

CBA tightens screws on lending

Is this the beginning of the credit crunch we had to have?