The future of Australian property prices

[CamKawa]

People rely on higher and higher LVR to fuel increasing prices. Also, the way LVRs work means that 90 -> 80 makes a HUGE dent in what someone can borrow, just as it made for huge increases on the way up.

You can see the effect of that in the latest Housing Finance figures. Looking a little bit bearish aren't they.

 

[kincella]

hi there all,
just wondering, hows it all going with the housing.....whilst waiting for the crash.....
looks like the banks are making it hard for the kids, with the higher LVR.s etc
thought the RBA went too hard as usual with all the rate rises.....the real test for the economy commenced in January, after Xmas and will struggle through for the next 6 months.....
expect some turmoil in this an election year....
who knows whats coming in the may budget....
I have been surprised with the Melb market, news out from last weekends auctions, what with people paying 100-150 k's higher than estimated.....must be those pesky foreigners....

I miss my friend Robots....I do hope he is happy and well

I saw this article today....I thought it was funny...
I posted it on another site..........just a copy... hope you get a laugh
.........................................................................
TIC...this is a great article....
on a serious note.....maybe its not as far fetched as some might think...
since the current govnuts have been providing a tent city for the extra visitors on xmas island.....recently

Government launches First Tent Owners Scheme due to crippling house prices
CHARLES PURCELL
March 11, 2010 - 10:50AM

extracts only...............
He would also pass legislation so that housing prices in Sydney drop by law down to their 1990 levels. Anyone who tried to sell a house at more than six times the average wage, would, in the Roman tradition, be sold into slavery, or exiled to a tiny island (such as New Zealand

http://www.theage.com.au/opinion/po...-to-crippling-house-prices-20100311-q02j.html

 

[joeyr46]

Hi Soft Dough,

A 90% LVR would seem very risky, no wonder banks are cutting back (as they should!)

Do you really believe in the ponzi scheme - a home is clearly an asset? What sort of fall are you predicting and where?

I do believe that prices are high - a good time to sell. A collapse is a bit far fetched though (a period of stagnation more like it) and your desire for one is frankly quite disturbing?

Why is a home clearly an asset I would have classed it as a consumption item,
A 2nd house would be an asset,but the first house is just like your car (there for your use). Cash is an asset until you use it and of course you can raise cash against the house then the house becomes a liability.
As for ponzi scheme, for homeowners no they just want their own home but those buying homes to rent out and borrowing way too much to be paid by the renter hoping to sell and make a capital gain then that is similar to a ponzi scheme were the previous investors only get paid if new investors come to the party.
How far a price correction? hard to say but there are ways that we can get an idea. Over decades (not just the last few years ) a reasonable price for a house was 2.5 to 4 times average earnings (dependant on which city and how close to the city and of course quality of house etc) So we could start looking at say $150000 to $240000 roughly if wages dont go up substantially.

 

[satanoperca]

Hi Kincella,

Nice to see ya posting again.

Can you explain why ?

thought the RBA went too hard as usual with all the rate rises..... [/url]

I see it the other way. RBA went to hard reducing rates to low and encouraging people to leverage up instead of deleveraging as the world economies struggle to grow under the weight of debt.

Property investors and owners have seen an extraordinary return on their investment over the last year. Melbourne +15%.

Cheers and have a nice evening.

PS. Please read new signature. Bulls are part of the ying and yang of the debate.

 

[UBIQUITOUS]

Why is a home clearly an asset I would have classed it as a consumption item,
A 2nd house would be an asset,but the first house is just like your car (there for your use). Cash is an asset until you use it and of course you can raise cash against the house then the house becomes a liability.
As for ponzi scheme, for homeowners no they just want their own home but those buying homes to rent out and borrowing way too much to be paid by the renter hoping to sell and make a capital gain then that is similar to a ponzi scheme were the previous investors only get paid if new investors come to the party.
How far a price correction? hard to say but there are ways that we can get an idea. Over decades (not just the last few years ) a reasonable price for a house was 2.5 to 4 times average earnings (dependant on which city and how close to the city and of course quality of house etc) So we could start looking at say $150000 to $240000 roughly if wages dont go up substantially.

Property is an asset. However, a mortgage is a liability. Rent is an expense.

 

[trainspotter]

hi there all, just wondering, hows it all going with the housing.....whilst waiting for the crash ..... I miss my friend Robots....I do hope he is happy and well

What hapened to robots? I too miss his effervescent retorts.

No doubt he has gone to Utopia on the profits that he has made from real estate in Banana Republic.

 

[joeyr46]

Property is an asset. However, a mortgage is a liability. Rent is an expense.

Agreed property is an asset but a home is a consumption item just like your car boat or furniture and yes they do have a value and when you go to a bank you can put them in the asset column
I guess it depends on your description of asset or consumption items, I suspect we'll have to agree to disagree on this one

 

[MR.]

supply/demand.
cheers

Excessive income leads to excessive property prices.

I transferred near 4 years of monthly "new" and "established" dwelling sales from the ABS to a spread sheet and chart.

Looking at the chart:
- Why did property demand increase once the stock market crashed? Transfer of money from stocks to property perhaps as I've mentioned before?

- Why did property demand decrease in October last year? I thought it would have carried through to December when the Gov' grant expired?

I added near 4 years of monthly interest rates to the spread sheet chart. I then tripled each rise and fall in "interest rates" to make the changes more visible on the chart.

Top line = Interest rates. Middle line = Established dwellings. Lower line = New dwellings.



Sept 07 – Beginning of interest rate rise - 8.05% to 8.3%, New dwellings started dropping quickly in demand, 7 months later April 08 the interest rate was peaking at 9.35%, demand for both Established and New dwellings were dropping fast.

Oct 08 – Beginning of interest rate drop after stock market crash – 9.45 to 9.3, right away demand for property increased, 4 months later Feb 09 the interest rate had dropped to 5.65% with demand for properties rising.

Oct 09 – Beginning of interest rate rise – 5.5 to 5.74, New dwelling demand dropping right away like the other two changes, Jan 2010 the interest rate is 6.65%

With all the ifs and buts about supply and demand in property, the conclusion appears to be simply:

Interest rates = Demand

The RBA controls property prices.

The Gov' may not need to step in if all the banks followed Westpacs lead! Thought the CBA said they wouldn't be following Westpac's lead?
http://www.creditmart.com.au/news-detail-Other-majors-reject-Westpac-‘s-LVR-tightening-9092533.htm
ie: CBA now requesting 20% deposits instead of 10% for investment properties.

.

 

[MACCA350]

Interesting graph there MR.
Would like to see a house price trace in there also if you could

What region are those sales numbers for?

cheers

 

[UBIQUITOUS]

Funny how this news was slipped in way down the page on the SMH. They can't avoid publishing negative news, so why not put it somewhere that it's not attention grabbing

Do were have a chartist who can explain the trend in clearance rates please?


http://www.smh.com.au/nsw/record-nu...s-gloss-off-auction-prices-20100311-q1lc.html

Record number of homes for sale takes gloss off auction prices

SYDNEY'S auction market has lost some sheen.

It seems the enthusiastic early-bird vendors got the buyers, but as the market moves into its pre-Easter rush it is becoming more difficult.

The slight decline in the market comes under the weight of a record 2860 houses and units listed for March auction.

The early March results still hover at a respectable 70 per cent clearance, but it is down on the 75 per cent February success rate, and the 85 per cent achieved during January.

The northern beaches has recorded the most sudden reversal with its clearance rate halving from 60 per cent in February to 30 per cent so far this month, according to Australian Property Monitors.

The lower north shore has dipped from 83 per cent in February to 67 per cent.

The drop is also evident in the south-west, where the sale rate slipped from 59 to 38 per cent.

''The decline in clearance rates in the south-west region is consistent with the expected slowdown in the first-home buyer segment after the removal of the government boost and the four rate rises since October,'' the Australian Property Monitors economist Matthew Bell said.

''A lot of purchasing was brought forward, and this seems to be having an effect on 2010 clearance rates.''

 

[MR.]

Interesting graph there MR.
Would like to see a house price trace in there also if you could

What region are those sales numbers for?

cheers

I'd like to see a house price trace also. I imagine it lags the ABS dwelling sales.

The region from the ABS I believe is Australia Wide.
http://www.abs.gov.au/AUSSTATS/abs@...sues&prodno=5609.0&issue=Dec 2009&num=&view=&

 

[Mofra]

I see it the other way. RBA went to hard reducing rates to low and encouraging people to leverage up instead of deleveraging as the world economies struggle to grow under the weight of debt.

Property investors and owners have seen an extraordinary return on their investment over the last year. Melbourne +15%.

Rates are no longer the only instrument that is used to curb lending though - the government itself now has a second lever, the capital requirements for banks & lending institutions. Unfortunately for savers, the government now can curb credit without the need for RBA intervention (or unwittingly alter the market by adding 12 month capital guarantees)

 

[Mofra]

I do believe that prices are high - a good time to sell. A collapse is a bit far fetched though (a period of stagnation more like it) and your desire for one is frankly quite disturbing?

I'd class stagnation as a fall in real terms for many property holders, although the debt deflation will still help those who are geared.

 

[kincella]

I agree with MR.........firstly the departure from the stock market to the safety of bricks and mortar, then the interest rates profound impact on the market.

Regarding the FHB scheme....it was boosted by an extra $7000 to $14000 for old homes and to $21,000 for new homes.....half of that boost ended Sep 30, the balance Dec 31....so you should see a drop by Sep 30, and the same time the interest rates went up.....
interest rates have been hiked 4 times in the past 6 months....a repeat of the rate rises in 2008....when our govnuts said our economy was immune from the rest of the world....until the sudden realisation in Sep 08, that in fact we were not immune...

The govnuts then repeated that rubbish again a year later...Oct 09....about the same time Obama was saying there were green shoots everywhere....
The only real green shoots out there, are the real thing, the grass shoots after the big rains we have seen since Jan.....some locations started seeing rain in Nov....after years of drought....
I could be very wrong.....but looking around my local shopping centres, there are a lot of empty shops, some closed before xmas.....most stayed waiting for the xmas rush , which never came...now since closed.

The only thing out there has been the rorting of the insulation scheme, the rorting and rip offs in the school building scheme, and now we find out about the hot water rip offs......the govt figures for building and construction, is basically about the school building....not much else going on out there...

have a look here, you will not find the truth in the LSM...lame stream media...

http://blogs.news.com.au/heraldsun/andrewbolt/index.php/

Anyone notice none of the state govnuts nor the feds, are interested in building homes, or public housing, to house the poor......Brumby made a promise today,,,,but thats because it is an election year.....so good luck with waiting for the govnuts to do anything to bail anyone out......

The only thing I see that could shatter some of the higher inner city prices....is if the foreigners have a crisis back home, and sell the inner city pads.
The outer suburbs are alive and well, with more than enough affordable homes, to cater for most tastes.
Now of course I could be way out....but I believe the GFC has legs, and a W shape....it will have an impact for most of this year.
btw what happened to robots.... was it a self imposed abstinence ?

 

[TOBAB]

Agreed property is an asset but a home is a consumption item just like your car boat or furniture and yes they do have a value and when you go to a bank you can put them in the asset column
I guess it depends on your description of asset or consumption items, I suspect we'll have to agree to disagree on this one

HI Joey 46,

Most assets are consumed in some shape or form. Very simply the use is accounted for by what is called "depreciation" This is an expense. By defintion a car, boat, furniture, watch are ALL assets. If you consume something within an accounting period (usually a month) it is an expense. A house if never a liability the debt on the house is and the house is collateral.

 

[kincella]

I wonder how many of these jobs are still there.....since the insulation rort was stopped........................
***note the retail jobs layoff...............what stimulous will continue to prop up the next quarters numbers......oh, almost forgot....it will be all the electricians inspecting the million houses....to see if a, they are faulty, or b, if any work was actually done....apparently the rorters just gave the govnuts an address, and it was paid out..............there was no insulation done there... how cools is that............

I can smell interest rates will not keep rising.....they may even take another fall.....but the economists see it the opposite....
like they estimated a rise of 2% in figures reported about something this week, but results fell 8%...they were out by 10%

extract only................................
Men seeking full-time work had won most of the jobs created since last October, with an additional 76,000 full-time positions. Full-time employment for women has fallen by almost 14,500 in that period.

Mr Meer said the employment of full-time men was being driven by construction with the Government's schools and public housing stimulus programs providing most of the growth.

"As the benefit of fiscal stimulus has shifted to construction and away from the direct boost to consumer spending, the resulting slowdown in retail and related spending has seen demand for these traditionally more female-dominated industries wane and hours worked cut," Mr Meer said.

The only jobs growth for women in February was in part-time positions.

http://www.news.com.au/business/men-win-big-in-jobs-recovery/story-e6frfm1i-1225839849830

 

[Beej]

More good news.

Where is Robots?

http://www.heraldsun.com.au/business/cba-tightens-screws-on-lending/story-e6frfh4f-1225838448648

Only 10% change in LVR's or 50% change in borrowing capacity.

Cannot see those investors flooding back to the market as everyone predicted.

This year is going to be fun.

Keen-o-nomics eh?? The problem with your theory is that the LVR for investment loans doesn't matter that much too investors as they usually get the difference from another loan/LOC against their PPOR or other property where they have plenty of equity.

Cheers,

Beej

 

[James58209]

Keen-o-nomics eh?? The problem with your theory is that the LVR for investment loans doesn't matter that much too investors as they usually get the difference from another loan/LOC against their PPOR or other property where they have plenty of equity.

OK, so it's just investors pushing the prices up then? First home buyers and government bribes have nothing to do with it?

http://www.keenwalk.com.au/wp-content/uploads/2010/02/IMG0029_613062.PNG

 

[aleckara]

Keen-o-nomics eh?? The problem with your theory is that the LVR for investment loans doesn't matter that much too investors as they usually get the difference from another loan/LOC against their PPOR or other property where they have plenty of equity.

Cheers,

Beej

I would have to agree with this statement to an extent. I think changing this value a year and a half ago would have caused a major price fall or stagnation (depends on how much of the market is first home buyers or investors). Different suburbs also will have different sensitivities to this figure as different proportions of FHB's to investors.

Overall however the LVR affects how much equity needs to go into homes. As a country I'm sure with house prices the way they are we are below the 80% threshold so yes still plenty of room for investors to jump onto the bandwagon as per usual. All it means of course is that things will get harder for FHB's - as always though. The person who gets in last; well they don't have much chance.

During the GFC the market had very little investors so LVR was highly important back then. Hence the governments intervention to boost confidence in the property market; adding confidence to investors. Once investors were borrowing again no need for the FHBG.

 

[kincella]

Beej is correct, in my case across all properties....I have 70% equity....
so as an investor its easy for me to use the equity in another property to meet the 20% deposit...or equity....and I never ever take loan mortgage insurance.....what a joke that is, you pay to protect the bank, if you default...

now back to my theme today.....
credit card spending dropped 22 % last month back to 2005 figures

so no retail therapy going on there....consumers are not consuming....not on their cards....they look like they are being safe....having to pay for the 4th rate hike in 6 months....they are not going to lose their shirts, or their houses...
Credit card transactions slump 22pc From: AAP March 12, 2010 12:14PM

THE total value of credit and charge card transactions, including advances, fell by 22 per cent in January, Reserve Bank figures released today show.
Australians spent $17.1 billion on their credit and charge cards, compared to $22 billion in December.

While transactions typically decline in January after December's Christmas rush, this was the biggest monthly fall since January 2005.

Total credit and charge card balances outstanding declined by 1.6 per cent to $46.1 billion from $46.9 billion.

Balances outstanding rose by 5 per cent over the past 12 months, compared with an average annual increase of 1 per cent for the preceding five years.
http://www.news.com.au/business/bre...tions-slump-22pc/story-e6frfkur-1225839987374

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