If the journalist who wrote this understood compound interest they would realise that 10% growth per year gets her back to $900k in about 13-14 years, not 30.
IF they meant to include inflation, depreciation, outgoings etc. then they should have mentioned that.
Sorry mate. The journo wrote the bits in bold. The other bits in between were my musings. But yeah, you are right the compounding effect. Sorry bout that.
I think the main thing to take from the article, and others like it, is that the market for second homes (ie holiday homes) is struggling, particularly in QLD. This probably has something to do with less share market & company profits and less bonuses for financial sector workers, and already existing high debt levels. Captial depreciation is also a vicious circle.
But as an unintended consequence, going without the second homes on non-urban coasts may be supportive of home prices in urban areas. What I've noticed in my beachside suburb in Adelaide is that places being built there are all 'luxury' homes now. Three-storey beachfront mansions, often with pools, have become the norm. This upward expansion is also being seen in the leafier hills suburbs. And if you've got one of those, why do you need a holiday home?
Also overseas travel has become so much cheaper, that might be negatively affecting holiday home prices too. I think it is a generational shift too. Young people seem less keen to buy and upkeep holiday homes that they only use occasionally, preferring instead cheap luxury overseas holidays (to Bali/Thailand etc) with their shrinking leisure time.
I also think some of the median price drops in the cities can be partly attributed to the high-end luxury market. It seems every single new development is called 'luxury', even in poor outer-suburbs areas. I guess developers can maximise profits that way. But with the luxury market struggling, perhaps developers should consider sub-luxury places in the near future. Smaller cheaper places on each block, basically. I think this trend is already visible in inner-city apartments. Less massive penthouses, or whole-floor apartments. More tiny apartments. They also seem increasingly popular with changing demographics too (more asians/indians/young people).
I still don't understand why new developments in the outer suburbs are so up-market. Who, aside from Kim from 'Kath & Kim' wants to live in the best house in the worst street (so she can lord it over her neighbours), a mansion in a poor run-down area? They are given deceptively-attractive names with words like "Farm" or "Glen" or "Fern" or "Grove" in their titles. It doesn't disguise the fact that they are miles out of the cities, built next door to impoverished crime-ridden areas. Would have thought cheap tiny 'starter' homes would be a better bet in those areas.
Good article in the Adelaide Advertiser today about investing in RE in some of those areas. Lots of low-paying jobs, not enough to support a mortgage, but enough to pay rent and so yields are starting to look attractive. Depends on getting good tenants though, and not those 'from hell'.
The trouble with these new pretty-sounding housing estates is that they are mostly purchased by young families by going deeply into debt. You see it in the ads; young families with happy young kids enjoying the lovely amenities. Jump forward five or ten years and you'll see what these new estates turn out like. Lots of divorces (often due to financial troubles related to taking on too much debt) and then lots of children from broken homes roaming the streets at night. Then the amenities need maintenance but the developers fled years earlier. Same old story. Soon the estates start looking very similar to the poor surrounding suburbs they tried to differentiate themselves from.
What is also interesting in the earlier article is that some of the non-urban coastal properties were now being bought by FIFO (Fly In Fly Out) mining workers. Work a week on a remote desert mine, then spend a week off at your cheaply-bought luxury beach house. Not too bad a life (except mining camp life sux).
This has been my personal experience with my parents beach shack on Eyre Peninsula. Some other shacks there have been purchased by FIFO miners as PPORs. You can tell by the massive 4WDs and massive boats out the back. Miners earn great money, but most of them aren't great money managers. Bigger incomes = bigger debts, it seems. One back injury away from losing it all, most of them.
However this FIFO demand hasn't been enough to support prices of shacks there. Few years ago the shacks were selling for $300k. Now my parents said they'd sell theirs for $250k if they could. But they can't. No takers. I think this is due to the fact that despite earning big incomes, miners are unlikely to own holiday homes. They don't seem to have enough time off, and are already away from their PPOR for weeks at a time. Not many of them seem to pack up the kids for a beachside holiday. Most of them seem to live in beachside towns instead, near where they grew up.
My brother and I seriously considered buying the shack off our parents but decided against it. As it is old, it is constant need of maintenance mostly due to exposure to salt water at the beach. My retired father is permanently fixing things on it. He loves doing it, keep him busy, and he has the technical skills to do so. My brother and I don't, and have no desire to eradicate white ants or re-paint walls or re-concrete floors or replace old rain water tanks etc etc etc etc etc with our limited time-off. Would rather just relax at an Asian resort.
Sadly, when my parents do pass away, we'll probably just sell the shack as quick as we can (before it needs more maintenance) which will put downward pressure on surrounding shacks' values too I guess. But that seems to be the way things are headed. Heard some stories about investors buying deceased estates at below market value, then patiently waiting a year or two to sell at market value. Sort-of slow motion flipping.
I'm currently renting. Going forward, I am leaning towards buying a tiny studio inner-city apartment as a crash-pad for work during the week, and also buying a block on the coast not too far from the city to build a house to set my future family up in (strangely, my partner seems to love the idea
). A place where I can spend my weekends and eventual retirement. Then we could sell the city apartment, or rent it out for cash flow, or use it as our city crash-pad when we need to go there. Best of both worlds strategy. And with prices of both inner-city apartments AND coastal blocks "softening", it all seems to be falling into place. High savings, healthy investments, zero debt, property "softening" --- let the good times roll.
Oh yeah, as for the future of Australian property prices, I think it all depends on if US & Euro debt problems cause a China slowdown causing a commodity price crash. The world has never been more inter-dependant. We are in a global situation where there is too much debt that can't be repaid, except by money printing. So we're currently experiencing a deflationary depression where everything, including housing, will get cheaper. Whether they print vast amounts of money to re-pay all the debt and we enter an inflationary stagflation is completely unknown by anyone.
The biggest driver of house price increases anywhere (including China) is credit growth. It's growing slower in Aust now (+5% compared to much higher during the boom), and so house prices are now "softening" slightly (-4%). If international credit markets seize up again, like in '07, and credit growth stops and even shrinks, then property will collapse (just like it did in overseas markets where credit growth went into reverse). Lots less money being borrowed = lower prices for everything. Anything else impossible. But who really knows?
I read that South Australia's population increased by only 0.8% last year. Think that means about 12,000 more people needing about 5,000 more homes in a state of 1.6 million people living in around 600,000 homes already, with over 10,000 homes on the market already too. Not exactly a recipe for a boom either. And with the prices of student apartments here dropping significantly, I guess overseas student numbers might be decreasing too???
Looking at prices round Adelaide, if they were 25% cheaper they'd seem to be reasonably priced. So that's my prediction for the downside in total from their peak last year(2010), 25% less in 2014 on an inflation-adjusted basis. So around 15-20% less in actual dollar terms. So down 5% already, three more years of 5% drops and some inflation, me thinks. Based on anecdotes from many friends waiting for market to recover in order to sell, which will eventually lead to individual then mass capitulation. Bit of wishful thinking in there too