The future of Australian property prices

[Ves]

It is merely comparing the crashes the US and Japan have had with our own current experience. If you have trouble comprehending that, it is no reason to smear the names of good economists like Steve Keen.

This guy is a sensationalist, clearly making a living off dramatic claims that he can see a crisis coming. Ironically, most of his predications have been way off the mark. I guess, like any "good" economist, the more predictions you make, the more chance you have of finally getting that "big call" right that will immortalise you in economic folklore forever (much like the so-called miracle workers who predicted the GFC).

I am sure you will provide a concocted list of empirical evidence where he has been on the mark, true to your previous form.

edit: the gold graph of the last few weeks eerily resembles the housing graph. Panic stations?

 

[Mr Z]

Yes, I knew that 1% figure is a dodgy figure used to sell investment products, that's why I asked.

I don't think it is actually that dodgy a number and it is certainly near true for the sample that I know. Regardless even if it is 1000% wrong the outcome will be the same.

 

[Mr Z]

How about throwing up some credible evidence of this.

3% doubles your value in around 25 years. In real terms this is about what we have seen, in nominal terms it is greater... naturally. This is why real estate is a good investment MOST (not all) of the time, it is basically a very leveraged bet that inflation will continue. In a western economy this is about as certain as you get, aside from in debt super cycle deleverageing periods... which we are now in globally. The global real estate experience will visit our shores, we are not different and Keen is correct... it is all about the debt.

 

[Bill M]

Keen is correct...

Keen will only be correct if it happens. We have seen nothing like 40% real estate falls in Sydney. Until then it's nothing but pure speculation and fantasy.

---
Steve Keen wrong on house prices (again)

Like most of Keen’s predictions, such as the ‘best case scenario’ during the GFC being 11 per cent unemployment and a recession “more severe than 1990 and lasting 1.5 times as long” (unemployment peaked at 5.8 per cent while there was no recession), his 2008 projection proved way wide of the mark.

For the record, Australian dwelling prices are today 13.3 per cent higher than when Keen put his reputation on the chopping block, and 89 per cent higher than the level at which Keen expected them to be.

Link:http://www.switzer.com.au/the-experts/christopher-joye/steve-keen-wrong-on-house-prices-again/

---

 

[Mr Z]

Keen will only be correct if it happens.

DON"T PART QUOTE ME!

Keen is correct, it is all about the debt.

 

[Bill M]

DON"T PART QUOTE ME!

Keen is correct, it is all about the debt.

Don't part quote me either, I will believe it when I see it, until then it is business as usual.

 

[Starcraftmazter]

This guy is a sensationalist

How?

, clearly making a living off dramatic claims that he can see a crisis coming.

Well actually no, he makes a living off being a professor at the university of western Sydney and his research.

Speaking of his research, he recently got a large sum of cash to develop his world-leading debt deflation models which are the epicentre of his research. A true pioneer economist - easily the best in Australia.

Ironically, most of his predications have been way off the mark.

You mean like the GFC? That wasn't off the mark at all.

You are clearly a biased person.

 

[Beej]

How?

Are you old enough to remember 2008? He was all over the media - ACA, 7:30 report, 60 minutes, Lateline etc spruiking his doom and gloom, predicting his 40% crash in house prices etc. He even made a bet with then Macquarie Bank economist Rory Robertson about house prices that resulted in Keen having to walk from Canberra to Mt Kosciusko because he was so "hopelessly wrong on house prices"! LOL.

Well actually no, he makes a living off being a professor at the university of western Sydney and his research.

He sells books too, and raises money via his website - oh and he is only an "associate" professor by the way, at UWS - hardly the most prestigious position or the most prestigious institution for economic research around.....

Speaking of his research, he recently got a large sum of cash to develop his world-leading debt deflation models which are the epicentre of his research. A true pioneer economist - easily the best in Australia.

Well he does some interesting work and his theories are worth having a think about, but he also get's a lot of stuff wrong and is not seen as being all that great by most of his profession - mainly just by internet fan-boy's like yourself.

You mean like the GFC? That wasn't off the mark at all.

Well he kind of predicted some general aspects related to the GFC, but none of the specifics, but he was totally wrong about it with respect the Australian economy generally, and literally "hopelessly' wrong with respect to the GFC and Australian house prices.......he still has the T-shirt I think?

PS: For someone who claims to have researched a topic so well you make some pretty certain and outlandish statements! You remind me of many posters on this forum from back in 2008 who were just as certain as you about what was going to happen, giving out the same advice for the same reasons etc etc. They even posted the same charts you do!

PPS I would really "research" your claims about Japan demographics vs Australia's if I were you as well.

 

[Starcraftmazter]

Are you old enough to remember 2008? He was all over the media - ACA, 7:30 report, 60 minutes, Lateline etc spruiking his doom and gloom, predicting his 40% crash in house prices etc. He even made a bet with then Macquarie Bank economist Rory Robertson about house prices that resulted in Keen having to walk from Canberra to Mt Kosciusko because he was so "hopelessly wrong on house prices"! LOL.

First of all; he was entirely correct about his predictions about a 40% drop in house prices. You seem to forget his time horizon.

Second of all, the bet he "lost" had nothing to do with his predictions - it was all media propaganda. Here is all of the evidence:
http://www.debtdeflation.com/blogs/2010/05/12/a-monkey-off-my-back/

He sells books too, and raises money via his website - oh and he is only an "associate" professor by the way, at UWS - hardly the most prestigious position or the most prestigious institution for economic research around.....

You're quite welcome not to buy his books nor donate money to him. However were you an actual economist, you would find his work extremely interesting.

Well he does some interesting work and his theories are worth having a think about, but he also get's a lot of stuff wrong

Please, name some of these things that you seem to know so much about.

and is not seen as being all that great by most of his profession - mainly just by internet fan-boy's like yourself.

Most of his profession are government lackies that wouldn't know a bubble if they were in one.

Well he kind of predicted some general aspects related to the GFC, but none of the specifics

There is no kind of about it. He understood the causes of the GFC and knew it would occur. He alerted others to it. End of point.

but he was totally wrong about it with respect the Australian economy generally, and literally "hopelessly' wrong with respect to the GFC and Australian house prices.......he still has the T-shirt I think?

In what way was he wrong?

PS: For someone who claims to have researched a topic so well you make some pretty certain and outlandish statements!

Disprove any of them - go ahead.

 

[McLovin]

Some of you guys (and girls?) really need to crack out some psychology books and research the term confirmation bias.

Thank God someone mentioned it.

 

[Mr Z]

Don't part quote me either, I will believe it when I see it, until then it is business as usual.

I addressed one of your questions...then I used your lead... you quoted me completely out of context.... BIG DIFFERENCE!

I made no comment on Keen's predictions, the comment I made was that Keens central tenet i.e. that the largest determinate of real estate price is credit/debt factors.... is indeed correct! This is all about the debt, Keen is correct in that.

You may also notice that I didn't comment on his 2010 Melbourne Cup pick!!!!! If you READ closely enough.

What is it? Don't you like that your precious real estate has only grown 3% PA in real terms?

Try addressing Keen's assertion that it is all about the debt, then you might get somewhere.

 

[sptrawler]

What I have trouble reconciling is the belief that housing will fall a further 40%. It doesn't make sense, unless there is a catastrophe in our economy and that seems highly unlikely.
Everyone is comparing us to Europe and the U.S and saying it has happened there so the same will happen here. I agree it usually does and to a certain degree it has and is happening right now.
But to think there will be a major crash, is relying on China, India and to a lesser degree SE Asia halting growth. The size and availability of our resource base and the relatively small population that it has to support is a very unique situation.
The restructuring of the manufacturing and retail sectors may cause house prices to slide further. However to expect starter house and land packges to drop to $150-160k I think is wishfull thinking.
That would mean the price of developed land with services would have to drop to around $75k and the house to around $75k. That would require the price of materials/labor to halve.
Also if wages, interest rates and rents remain similar everyone would be positively geared at 10% return.
For my kids sake I hope it does happen, but I wouldn't be relying on a massive house crash as my retirement plan.
I would definately have a plan B incase it didn't happen.
Inflation is a great leveler.

 

[explod]

I would definately have a plan B incase it didn't happen.
Inflation is a great leveler.

In monetary terms as we have traditionally recognised them I think you are on the right track in theory.

It is the diminishing value of paper money that is eating away at equity value and the rising costs (inflation) of food, fuel, clothing etc., as well as a growing value of our Aussie dollar. And our rich resources may well see this rise much more against other currencies.

In the long term, good land and your home will never be effected; but on the investment side, particularly that built on debt could be in a lot of trouble for some time going forward.

 

[Starcraftmazter]

All bubbles pop buddy - there are no exceptions.

Mining doesn't directly benefit anyone, so I fail to see how or why it would save the bubble from popping.

 

[sptrawler]

All bubbles pop buddy - there are no exceptions.

Mining doesn't directly benefit anyone, so I fail to see how or why it would save the bubble from popping.

Your reasoning is sound SCM, however I can only go from experience and limited financial knowledge.
There is definately a housing bubble and the slide will continue, it is where the slide and the inflationary rise of disposable income intersect that I think about.
I know my wages in the same position tripled over the last 15 years, I heard on the radio the other day the average wage of teachers will be nearly $100k. Most tradesmen I know in the non mining sector, that are on wages are earning $100k. Council workers are on $70k with O/T.
It won't take long, if inflation cpi and interest rates stay low, for the slack to be taken up.
In Perth outer suburbs an established 3 bed 1 bath on 700m2 is selling for $250-300k. If by your reasoning, they will go down another 50% that will make them awefully cheap.
The suburbs about 10-15k's out entry prices are around $350-400k, but realistically these are 2nd home buyer areas.
Again I can't see them going down another 50%, not unless interest rates start and climb appreciably. I remember when I purchased my second house the interest rate was 19%, now that would certainly put everything in a tail spin. But I can't see that happening.
I know the average loan is high but is that due to peoples expectations exceeding their income. Maybe people will have to go back to buying a starter home first rather than buying what in reality should have been their 2nd or even 3rd home. Maybe a lot of people will have to take one step back, which would probably put them where they in reality should be.
That's one problem with the have to have it now and won't take second best mentality.

 

[Starcraftmazter]

By my reckoning, the bubble in house prices has dragged up wages reluctantly. If house prices are not rising (as they can't) - so there is no reason for wages to rise further. This is cemented by the fact that these wage rises have made us internationally uncompetitive which is causing us to lose jobs.

House prices fall and wages will fall in line with them.

 

[sptrawler]

By my reckoning, the bubble in house prices has dragged up wages reluctantly. If house prices are not rising (as they can't) - so there is no reason for wages to rise further. This is cemented by the fact that these wage rises have made us internationally uncompetitive which is causing us to lose jobs.

House prices fall and wages will fall in line with them.

We agree, it is just we are looking from different ends of the tube.
We are uncompetitive in the sectors that are being hammered. We will always be competitive with raw materials, because most of ours are sitting on the surface therefore costs are minimal.

By the way, do you think houses are expensive, or do you think houses that you would like to own are expensive?

To buy an older home in an outer suburb for $250k will cost $425/wk @7.5% interest. That is still probably too high, take that house down to $200k and the payments are $340/wk that is the same as rent.

 

[Starcraftmazter]

By the way, do you think houses are expensive, or do you think houses that you would like to own are expensive?

Personally, and I do not lie, I would not like to own a home. Or at least at this stage - maybe in 10 years or so, if prices come down enough.

So to answer your question, I haven't really been looking. I just use the median prices for property and the median wages as a gauge to how overpriced property is - so I take the most general case.

 

[Logique]

ACT prices could do with some easing.

Student ordered to quit his 'home' on lake
By Stephanie Anderson, Canberra Times
March 20, 2012
http://www.canberratimes.com.au/dom...-to-quit-his-home-on-lake-20120319-1vg0h.html
"..A student who has been living on the waters of Lake Ginninderra has been given orders to move on by the ACT government.
William Woodbridge, a University of Canberra student, has been living on the homemade raft for six weeks, since tiring of Canberra's rental market and the increasing costs of living in university accommodation.."

 

[sptrawler]

Personally, and I do not lie, I would not like to own a home. Or at least at this stage - maybe in 10 years or so, if prices come down enough.

So to answer your question, I haven't really been looking. I just use the median prices for property and the median wages as a gauge to how overpriced property is - so I take the most general case.

Thats what I have been getting at SCM, some areas have already been hammered and if you buy well it will only cost the same as rent. Secondly buying investment property at the moment is like a smorgasbord, there are a lot of business people being hammered, furniture shops etc. These people have investment properties that they have to move, not nice but hey. Some are in great locations and are positively geared.
The problem with median prices is, it is a reflection of houses that are selling, not a reflection of houses on the market.

Don't keep yourself out of an appreciating asset if you don't have to. I remember when I was young(here we go) houses were around $25-30k, I don't think they will go back to that and I'm 56. Trust me in 10 years they WILL be dearer than they are now.
An old bloke once told me, God's not making any more land or coastline or river front.