The future of Australian property prices

[young-gun]

My point was that why do you need the McMansion???? As a starter buy a two brm unit somewhere, something you can actually afford.
Why can't you get what so many of us are trying to say here? i.e. that your expectations of initially having the bloody McMansion are totally unrealistic, not to mention unnecessary!

*sigh* why cant YOU get what WE are saying here? i never said i want the mcmansion. This whole thing has been about unaffordability throughout! these so called mcmansions are MILES out of reach for any of us, this isn;t what we are aiming for! what is also out of reach is EVERYTHING else. if we do what you are saying we end up with somethng that is falling over. if we play it sensible and get something that is livable but cheap, we are still taking out HUGE loans. perhaps you all need to get the chip off of your shoulder towards gen y, and stop being so ignorant and admit that real estate was EASY for you, and thats that. "oh wow isnt this fantastic, i can buy virtually anywhere anytime and see astronomical growth!" your 2 bedroom unit idea that your so keen on isn't that cheap either. a 2 bedda at kallangur(a great suburb if you like paint tags on your front wall, and by no means close to the city) is still 350+, now this is a rough estimate before some clown jumps on here quoting a price of 340 as they seem to love doing. u may get some clapped out run down joke of a town house for less, which means you would constantly be repairing things which cost money$$ which makes it worth spending a touch extra initially to avoid these disasters.

you need to realise we are not all idiots, we have done research, we arent all trying for the 5 bedroom 3 bath with inground pool at paddington, and that some are on the right track, my original post seems to have just sparked everyones underlying issues with gen y, perhaps i need to refine it and sent out the wrong message which was not my intent

 

[young-gun]

There are a number of things you have to consider and allow for when making simple comparisons, like x times salary as a guide for house prices... not the least of which is the stage in the cycle of development/growth or recession of a particular area, better transport and services etc which allow for you to have the same convenience as your parents close to the city, but from a further distance where the house prices are lower.

Also the culture of the city has significantly changed such that whereas the center of the city used to be the center of business and social activity, the development of undercover shopping centers and malls with a large range of businesses under one roof has introduced the notion of satellite cities where you can get the convenience and service of most things much further from the traditional city center.

I don't know how old you are, but I'm assuming about mid 20's.

Obviously your parents were quite a bit older than you in 1999 when they bought that house. I'd say they worked and saved and waited for the right time in all the cycles of things to buy the house. There's a clue!

You demonstrate my point about want it, need it now mentality of some, particularly associated from surveys with gen Y.

You will not be able to do what your parents did and get the same results, for numerous reasons. All the things that make the world go around have changed and will keep changing.

I'd get the chip off my shoulder and start doing some simple maths, and logistic planning to see how you can best meet your life goals given the prevailing conditions and limitations.

ahh but you see the problem is you are all over complicating. the average family does not wait for the ideal cycle. the average family(not aware of economics, cycles or anything of this nature) buys for only a few reasons. they want something nicer, OR they HAVE TO. this is where demographics comes into play, easy credit may be a factor in booming prices, but if no one takes out loans then nothing goes up. my parents bought this place not because they had saved, not because it was the right cycle, but because they needed a bigger house for our growing family. this is the MAIN reason alot of people buy a new house in a boom period, that together with people who are switched on and are buying real estate as an investment.

people all behave the same(give or take a few years) get married, have kids, buy a house, have more kids, buy a bigger house, have these kids eat you out of house n home, get rid of the kids, downsize. agree?(with the few exceptions of no kids)

this is a simple example that works. and it is relative to almost every suburb on the northside. they have all seen similar price jumps(some more some less) things like public transport and all that you speak of are factors, but in a boom they have marginal impact. im not going to go too much into it as the post will go on forever and the final difference in price results won't be worth the effort. i do acknowledge that things like transport shops and schools do cause houses to inflate more.

i never demonstrated any such point of wanting everything right now. you misinterpreted.

 

[Tink]

as i said i am in a position that i have already been out, built a house in the outter suburbs, payed a small fortune for it, only to sell it 14 months later as i failed to see the point in blowing so much money on sky high interest repayments.

for those of you that think this is typical gen y wanting everything brand new, ill have u know it was an investment strategy as i received the 21k from the government in doing so, 21 grand is alot fo money, but barely makes a dent in interest repayments.

Just out of curiousity, young gun, why did you sell that house? Why didnt you rent it out?
Wouldnt that have been a better option?
Just my opinion

I can understand what you are saying, but you have to remember the rates were up to 17% at one time, and though the houses might have been abit cheaper, was still alot to pay in mortgage repayments at that time too.

I think we all had to make sacrifices in one way or another.

 

[young-gun]

You forgot to mention that some actually will learn from the more experienced posters in this thread who use property as an income/investment deriving tool and others will remain internet experts beacuse they can google in 4 seconds the information they think is required to make them proficient in trading RE. :

haha another guy who 'made it with real estate'. congratulations. how many properties have you bought in the past 12-36 months? if any, how many of these have seen growth? as someone else just said, times are a changing, and they always will. investment strategies that worked for you guys WILL NOT work for us. its great that you hitched a ride on the tsunami that was the boom, but previous real estate strategies will not work for the next decade.

i have a plan in place. or a strategy if you will. so if you wish to give advice please post perhaps some of your own ideas for the future, and how you plan to attack RE. do you think there is a good buy time? a good sell time? will the market stagnate for the next 5 years? or perhaps see some growth? instead of throwing figures at another user to prove him wrong(which seems to be quite popular in this forum)to satisfy your urge to put gen y in their place, give us some of this advice your talking about. i dont know about anyone else by i signed up to this forum in the hope of getting information and advice and being able to voice my opinion on things.

at the end of the day anyone can spend hours on the internet pulling figures to support any form of argument. your probably going to suggest that i go back and read all your previous posts on this matter, and that i shall.

 

[young-gun]

Just out of curiousity, young gun, why did you sell that house? Why didnt you rent it out?
Wouldnt that have been a better option?
Just my opinion

I can understand what you are saying, but you have to remember the rates were up to 17% at one time, and though the houses might have been abit cheaper, was still alot to pay in mortgage repayments at that time too.

I think we all had to make sacrifices in one way or another.

absolutely, it is very hard to aim a post at every scenario as you can imagine. my main aim is those that had it easy eg bought cheap without really knowing it and then buying investment properties and capitalising on growth with ease, and then tell us to stop whining and pull our heads in.

the reason i didnt rent it out was because i would have had to find a place to rent. i would have been renting the house out for maybe 450(which was not a bad rental return) and then renting a unit for maybe 300 for something small but liveable, and not 55 minutes from the cbd. i went to an accountant, obtained a full list of things i could and could not claim including getting a surveyor through to get a depreciation schedule. and after crunching all the numbers i decided it was still not worth holding the property.

now in a boom the property would undoubtedly have been worth holding. but given i had only seen 20k worth of growth(if it could even be classed as genuine growth) in 14 months, the future for the house wasnt looking to crash hot.

thank goodness i did, as i would have at the very least lost that 20k gain since i sold only not long ago, as the market continues to deteriorate.

i understand others made sacrifices and it was hard in some instances depending on the situation. but please elaborate on the circumstances. was it hard because your husband was the only one working while you stayed at home? if this were the case(which is was largely only a decade or two ago) then 'hard' by comparison to today was not so hard. my dad worked, while mum stayed at home, and they were comfortable. as cost of living rose, and belts were tightened, my mother started working again at around 2000-2001. this wasnt to 'get-by', but to enable lifes little luxuries. this isnt the case today. alot of mums n dads both have to work just to get by, with little luxuries going by the wayside. children are thrown into day care, dads are working overtime and saturdays. unfortunately im moving onto a different topic and will stop it there as it wont match the thread topic.

NOTE - interest rates havent been over 8% since jan 92. high rates indicate high inflation which inturn indicates there is alot of money getting around, its all relative. i understand it had alot to do with the dollar floating but how this affected interest rates i havent researched, most likely in a roundabout way to how i just stated.

 

[trainspotter]

haha another guy who 'made it with real estate'. congratulations. how many properties have you bought in the past 12-36 months? if any, how many of these have seen growth? as someone else just said, times are a changing, and they always will. investment strategies that worked for you guys WILL NOT work for us. its great that you hitched a ride on the tsunami that was the boom, but previous real estate strategies will not work for the next decade.

i have a plan in place. or a strategy if you will. so if you wish to give advice please post perhaps some of your own ideas for the future, and how you plan to attack RE. do you think there is a good buy time? a good sell time? will the market stagnate for the next 5 years? or perhaps see some growth? instead of throwing figures at another user to prove him wrong(which seems to be quite popular in this forum)to satisfy your urge to put gen y in their place, give us some of this advice your talking about. i dont know about anyone else by i signed up to this forum in the hope of getting information and advice and being able to voice my opinion on things.

at the end of the day anyone can spend hours on the internet pulling figures to support any form of argument. your probably going to suggest that i go back and read all your previous posts on this matter, and that i shall.

HAHA another young guy who held property for 14 months and thinks he knows it all.

I have and do trade in real estate for a living. Over the past 3 years I have purchased 4 blocks of land, 1 x 3 bedroom unit (neutrally geared) and built a comercial warehouse (returning 18%) for lease and 3 "spec" homes that all sold for above 20% return. In this time I have sold ONE commercial property as the price was REDONKOLOUS that they offered me. YES ...... I have scaled back from where I normally trade up to 5 deals a year.

I started small with a 3 x 1 (IN THE RIGHT AREA) as my PPOR ....... I lived in it for SEVEN years to attain enough equity (as well as paying OFF the mortgage as fast as I could with every spare cent) This was my investment strategy ..... PROPERTY IS LONG TERM IN A DEPRESSED MARKET !!!!!!!!!!!!!!!! Don't like it??? Then get out of the kitchen.

Tsunami boom???? Ummmmmmmm this is the usual cycle of RE IMO

Take your own advice and go and read 330 pages and 2 and a half years of explanations from the people who are actually out there doing it for a living.

 

[Mr Z]

PROPERTY IS LONG TERM IN A DEPRESSED MARKET !!!!!!!!!!!!!!!!

How the heck do you rationalize that?

 

[trainspotter]

How the heck do you rationalize that?

HEYYYYYYYYY Mr Z ..... long time no see.

Rationalisation: If you own property in a DEPRESSED market then the likelihood of selling to realise profit is minimal so therefore you would be better off long term and taking either the tax deductibility (if you can afford it) or deriving an income stream from it (if it is positively geared)

 

[Mr Z]

I took it that you where suggesting that the last decade or two has actually been a depressed market... I would be very interested in hearing the whys of that idea.

I'm looking around at commercial and seeing some good yields, no where near 18%. I'm assuming that the only way to attain that is to build. What I am not liking is the quality of the tenants at the higher yields... anywhooo! I'm also noticing that properties with high quality tenants and long leases are having to 'meet the market' and effectively up the yield in order to get a bid. That leads me to assume that commercial finance is generally tight at the moment, I guess that may be different if you are a proven performer.

Young-gun has a point, boomer demographics have distorted this housing market and the age bubble in the population is introducing stresses and risks that we have not seem before. In defense of the boomers it was not as easy as YG assumes simply because lending standards where much tighter back when. Getting into property still involved (at least in Sydney) saving a hefty deposit, borrowing from family, lending all you could from the bank and eating beans for five years. The only real difference now is the LVR's are way up and you can get way more money that you once could on relatively modest means.

Resi still looks at risk to me on the average numbers, sure you can pick winners and do deals etc but broadly speaking I'm still in the cautious camp.

 

[young-gun]

HAHA another young guy who held property for 14 months and thinks he knows it all.

I have and do trade in real estate for a living. Over the past 3 years I have purchased 4 blocks of land, 1 x 3 bedroom unit (neutrally geared) and built a comercial warehouse (returning 18%) for lease and 3 "spec" homes that all sold for above 20% return. In this time I have sold ONE commercial property as the price was REDONKOLOUS that they offered me. YES ...... I have scaled back from where I normally trade up to 5 deals a year.

I started small with a 3 x 1 (IN THE RIGHT AREA) as my PPOR ....... I lived in it for SEVEN years to attain enough equity (as well as paying OFF the mortgage as fast as I could with every spare cent) This was my investment strategy ..... PROPERTY IS LONG TERM IN A DEPRESSED MARKET !!!!!!!!!!!!!!!! Don't like it??? Then get out of the kitchen.

Tsunami boom???? Ummmmmmmm this is the usual cycle of RE IMO

Take your own advice and go and read 330 pages and 2 and a half years of explanations from the people who are actually out there doing it for a living.

usual cycle my ****. this boom is unprecedented and is bigger in magnitude than anythng seen before. fueled by demographics and very easy credit. i never claimed to know it all. your strategy is typical to just about anybody who invested in RE in the past 20 years. once again it is not applicable to todays circumstances. as you said yourself you have scaled back. in my situation by and hold would have worked, if i held it for 15 years, i may have seen it start to bounce back. property is almost always long term unless your renovating and flipping.

im curious about your 'neutrally geared' apartment. you obviously dont have an 80% loan on this or i highly doubt you would be getting enough income to cover cost. which leads me to believe you funded this from previous investments in the property market.

i dont know anything about commercial real estate. and am not questioning the fact that you are obviously accomplished in the RE game, but your current view on where real estate is and where it might be heading seems to be somewhat blurred by your previous success.

 

[young-gun]

In defense of the boomers it was not as easy as YG assumes simply because lending standards where much tighter back when. Getting into property still involved (at least in Sydney) saving a hefty deposit, borrowing from family, lending all you could from the bank and eating beans for five years. The only real difference now is the LVR's are way up and you can get way more money that you once could on relatively modest means.

Resi still looks at risk to me on the average numbers, sure you can pick winners and do deals etc but broadly speaking I'm still in the cautious camp.

please understand i am not of the belief that it was easy for all. but for a large portion between certain years it is evident that you simply couldnt go wrong no matter what you did, or purchased, share market included. as you stated, much caution is now required when considering RE, unfortunately there are alot of people my age still being told that real estate cant fail, and they will be burnt something fierce.

 

[trainspotter]

usual cycle my ****. this boom is unprecedented and is bigger in magnitude than anythng seen before. fueled by demographics and very easy credit. i never claimed to know it all. your strategy is typical to just about anybody who invested in RE in the past 20 years. once again it is not applicable to todays circumstances. as you said yourself you have scaled back. in my situation by and hold would have worked, if i held it for 15 years, i may have seen it start to bounce back. property is almost always long term unless your renovating and flipping.

im curious about your 'neutrally geared' apartment. you obviously dont have an 80% loan on this or i highly doubt you would be getting enough income to cover cost. which leads me to believe you funded this from previous investments in the property market.

i dont know anything about commercial real estate. and am not questioning the fact that you are obviously accomplished in the RE game, but your current view on where real estate is and where it might be heading seems to be somewhat blurred by your previous success.

Good luck in your endeavours young-gun.

 

[young-gun]

Good luck in your endeavours young-gun.

haha aww come on, you cant just stop there?! i may appear stubborn and argumentative, but if i just accept everything that is written without questioning people where would that leave me? believe it or not i do take a little of everything that someone says on board(and not just what suits me)

lets go down this track -

your 23, engaged, no kids, have a small house deposit, no other debts. steady job making lets say 70k a year with overtime. what would you do in the current climate overrrrr...lets say the next 5 years? granted a 5 year plan may be a bit ambitious given the current uncertainty, and a strategy has to be able to adopt new economic conditions, but disregard that for now.

 

[Mr Z]

please understand i am not of the belief that it was easy for all. but for a large portion between certain years it is evident that you simply couldnt go wrong no matter what you did, or purchased, share market included. as you stated, much caution is now required when considering RE, unfortunately there are alot of people my age still being told that real estate cant fail, and they will be burnt something fierce.

Yes you could go wrong and I know people that did, in RE and stocks, you are using 20/20 hind sight. Things are always clear and safe once you are looking in the rear vision mirror.

People will look back on this period and say that the moves to make where obvious.... the trouble is that it is not that easy in real time. I think I have things right at the moment but call me in twenty years and I will most assuredly tell you how you couldn't go wrong in this decade

Anyway... I agree resi looks out on a limb, but then it has looked that way for a while. I don't like the grants that have enticed young people into property that they probably should not have purchased BUT ---> IIWII! For now it looks like we are in a situation where all resi needs is a catalyst send us properly south. I'm not certain where I think that is coming from although I can think of a few triggers. Sans catalyst it will probably still labor under its own weight for the foreseeable future --> but that is JMO.

 

[young-gun]

Yes you could go wrong and I know people that did, in RE and stocks, you are using 20/20 hind sight. Things are always clear and safe once you are looking in the rear vision mirror.

People will look back on this period and say that the moves to make where obvious.... the trouble is that it is not that easy in real time. I think I have things right at the moment but call me in twenty years and I will most assuredly tell you how you couldn't go wrong in this decade

Anyway... I agree resi looks out on a limb, but then it has looked that way for a while. I don't like the grants that have enticed young people into property that they probably should not have purchased BUT ---> IIWII! For now it looks like we are in a situation where all resi needs is a catalyst send us properly south. I'm not certain where I think that is coming from although I can think of a few triggers. Sans catalyst it will probably still labor under its own weight for the foreseeable future --> but that is JMO.

good point, unfortunately the failings of those are not quite as evident, nor their stories as readily available as those that did well.

and yes these grants have helped people into the market that shouldn't be there yet. This has helped to sustain prices somewhat, but they have begun slipping again, as higher interest rates have brought these people to the realisation of " we cant sustain these repayments"

can you please talk about what 'triggers' you might expect would cause such a move?

 

[FxTrader]

your 23, engaged, no kids, have a small house deposit, no other debts. steady job making lets say 70k a year with overtime. what would you do in the current climate overrrrr...lets say the next 5 years? granted a 5 year plan may be a bit ambitious given the current uncertainty, and a strategy has to be able to adopt new economic conditions, but disregard that for now.

Given that scenario I would rent and keep saving unless rental prices increase to the point where owning becomes an attractive option again. Even then, an investment property (not PPOR) may be a better option.

Lest we forget the title of this thread yet again, the FUTURE of property prices over the next 5 years does not look promising in general with significant price falls already occurring in some markets (e.g. WA and QLD). There is no point investing in property now unless you believe the next 5 years will at least see capital growth exceed inflation and ownership costs in a given area. There is no insurance like a put option to protect you from downside risk in the property market and downside risk is greater now than at any time over the last decade IMO.

 

[McLovin]

Clearly your myopic view of RE is misguided by your own sense of comprehension of the matter at hand. Prices WERE NOT CHEAPER back then. You really need to do some research before posting.

In 1991 the average median house price was $121,125 http://www.econ.mq.edu.au/research/2004/Abelson_9_04.pdf

In 1991 the average income was $17,614 http://www.abs.gov.au/AUSSTATS/abs@.nsf/0/66B7AF146D7F99E3CA2575010014EAF3?opendocument

So therefore this would be 7 times the average income in 1991. So what has changed?

EASY CREDIT ...... you could get a house and land package deal with $500 deposit and a job. Financiers would loan you 95% LVR and compound the interest and the LMI into the loan taking borrowings past 100%.

But you know all of this because you have studied and trade in RE .......

The ABS pdf you linked to says average weekly total earnings in 1991 was $596/week. How does that equate to $17k/year?

 

[Mr Z]

can you please talk about what 'triggers' you might expect would cause such a move?

Number one at the moment would have to be a proper China slow down. All the elements seem to be there for them to take a pause and shake some of the imbalances in their economy out. That would impact sentiment down here greatly IMO. ATM I'm looking toward 2013 as the danger year and I expect a few compounding issues with both Europe and the US across this time... specifically a resurgence of the sovereign debt issue as the flaws in this fix become apparent and problems of a similar nature in the US muni bond markets. For now it looks like we might get some plain sailing but by mid to late next year things very much look like they will be on the slide again.

I really don't know for sure but the idea of a China lead Australian recession is becoming a very realistic possibility to me. Having said that understanding China is a challenge in an of itself, getting that call right in terms of timing is hard enough without forecasting its impact on Aussie houses!

In terms of this global credit bubble ---> We have jumped off the sky scraper roof, the optimists among us are saying, so far, so good. The pessimist are screaming we are all going to die! I suspect that the fire brigade are at the bottom with a catchers net... but that the result of that will not be pretty, fair or something you'd want to try twice. No we are not going to die but some of you will need new undies.

Life... ain't it grand?

 

[young-gun]

Number one at the moment would have to be a proper China slow down. All the elements seem to be there for them to take a pause and shake some of the imbalances in their economy out. That would impact sentiment down here greatly IMO. ATM I'm looking toward 2013 as the danger year and I expect a few compounding issues with both Europe and the US across this time... specifically a resurgence of the sovereign debt issue as the flaws in this fix become apparent and problems of a similar nature in the US muni bond markets. For now it looks like we might get some plain sailing but by mid to late next year things very much look like they will be on the slide again.

I really don't know for sure but the idea of a China lead Australian recession is becoming a very realistic possibility to me. Having said that understanding China is a challenge in an of itself, getting that call right in terms of timing is hard enough without forecasting its impact on Aussie houses!

In terms of this global credit bubble ---> We have jumped off the sky scraper roof, the optimists among us are saying, so far, so good. The pessimist are screaming we are all going to die! I suspect that the fire brigade are at the bottom with a catchers net... but that the result of that will not be pretty, fair or something you'd want to try twice. No we are not going to die but some of you will need new undies.

Life... ain't it grand?

i share very similar views to those you have discussed above, but surely our housing market isnt entirely dependent on the performance of the world economy? there must be some underlying factors here at home holding prices at current, other than just sentiment? or is it wholly based on whether the world forces us into recession that we will see it plummet? i have no doubt that global issues will have a huge affect on our market, especially in regards to foreign investors, but to what extent i am unsure of at this point.

mr triguboff(Meriton) is the first to admit in some instances upwards of 50% of his apartment sales are to foreign investors, however is beginning to decline rapidly. this to has contributed to the perfect storm, and the government should have been far more strict regarding this issue imo.

 

[satanoperca]

The main contributor to a decent fall in Oz RE will be unemployment.

As stated by myself on more than one occassion is that a 10% fall from peak median national prices is only a healthy correction, above that and we might just see a crash.

But while unemployment is low and people are still confident that there is plenty of work around to keep paying their mortgage and I cannot see a rush to the gates and a significant drop in prices.

Could we see a real slow down in the Oz economy due to global events, hell yes, will it happen, more than likely yes, when will it happen. I could be in the grave before it does.

Cheers