The future of Australian property prices

[Mr Z]

I am interested in real gains! The nominal price of housing can go anywhere, just ask Robert Mugabe, it all depends what government does with our money. I suspect they will battle to keep a reasonable price level just because it is politically desirable and because will not "challenge" the financial system with a big hurdle to negotiate. BUT that will mean unreasonable inflation and an environment where an unused refrigerator's capital gains will outstrip a house! Don't laugh, in the past some people in Brazil resorted to buying and keeping new white goods over trusting the money or banks

We are challenged on the demographic front, so is China. Resources are currently the smaller part of our economy, while it is logical to expect it to grow it will not be smooth and the shift from our current mix will not be seamless.

In the end it is all about credit and how we can grow it OR how we can't. When the blue line hits zero housing is in deep trouble, we are already feeling the impact as we approach zero. Note the impact of the personal credit contraction on retail so far, note how it tends to lead business.



Read this if you are interested, it is Ray Dalio's take on how it all works and while it is not classic Austrian School it is a practical real world view that has guided him to making billions with Bridgewater Associates.

View attachment A Template For Understanding.pdf

Yeah I know it says copyright etc at the end but they post it in the public domain here...

http://www.bwater.com/Uploads/FileM...-for-understanding--ray-dalio-bridgewater.pdf

It is all about debt in the end! It is as natural as breathing in and breathing out, expansion must eventually lead to retrenchment.

 

[Mr Z]

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.

Catching a falling knife?

 

[Bill M]

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.

That is exactly my real estate investing experience also.

Catching a falling knife?

OK Mr Z no problem. You can stick to your methods and I will stick to mine, no need for me to go on about Keen any more, I certainly don't consult him when I make property decisions. We long term property investors have heard it all several times before, I hope you do well in the future.

 

[sptrawler]

Catching a falling knife?

Well I suppose that is true statement.
However those who caught the C.B.A falling knife at $26 in 2009 I suppose did better than the ones who let it go expecting it to fall further.
I know they will fall again and recover and fall again but does that mean you do nothing?

 

[Starcraftmazter]

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.

Aren't the the houses selling the ones currently on the market? Or did you mean the ones that are not selling? Their price I imagine would be determined by those which are selling.

I don't disagree there are areas - especially in Qld which have had some pretty big falls, but I do think they will fall even further.

It is not unreasonable to say that not the entire country will plummet all at once, some areas will definitely be leading, and Melbourne looks to be the first capital where property prices will plummet due to the oversupply issue there.

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.

I really doubt there is any property that you can just buy at the moment and consider it a safe investment that will only go up. Doesn't matter the location, it just goes against all the evidence.

Some areas may be cheap relative to the most recent past, but they can get cheaper...and cheaper...and cheaper.

Land is a finite resource, but Australia is a very sparsely populated country and most of it is very low in residential density. Hong Kong is 82 times smaller than Tasmania yet has 1/3 of Australia's entire population. With that density, you could fit Australia's entire population into an area 1/3rd the size of Sydney. Food for thought.

 

[Mr Z]

We long term property investors have heard it all several times before, I hope you do well in the future.

Debt super cycles can be larger than your life experience and certaintly exceed most peoples investment careers. You have not experienced this before unless you lived the 1930's. This is a once in a life time market condition for most people.

I'm an ex-property investor and developer so I guess I have heard all you have!

Yes I do intend to do well in the future BUT this will be hard to negotiate correctly even if you take the time to understand what is happening. This will not be an easy course to navigate for quite some time.

 

[wayneL]

Possibly reductio ad absurdum or something like that, but the price of housing is what people are willing to pay... and along with availability (and cost) of credit are tied up a whole bunch of psychological factors... fear of loss, via a vis fear of missing out, cultural lexicon as it applies to housing etc.

Things will have to seriously turn to shyte before there is a real housing bust in Oz.

My money is on an extended plateau with a few bumps along the way... with real bargains here and there if you're Johnny on the spot.

 

[Mr Z]

I know they will fall again and recover and fall again but does that mean you do nothing?

I guess that is determined by your time frame and ability to hold the investment and the alternates that you feel comfortable holding. I guess that equation works differently for everyone depending on capital, ability, temperament etc. Personally I'm saying more liquid and trading assets at a MUCH higher frequency. When the time is right I am looking to get back into commercial real estate but that will be a while IMO. For now I just don't know but there are some major events I want to see ticked off before I move, things like Japans up coming debt crisis, the US muni bond market train wreck, the eventual Euro breakup (lets call it a rearrangement!), China's new leadership and how they look to be dealing with the demographic wall that country is hitting... it is going to be an action packed 5 years or so and that is without nature turning the volume back up to 10 on the odd occasion.

Stay nimble?! I think... for now.

 

[kincella]

I noticed an exodus of people from the city, to sea, tree change places from 2000 to about 2005/05...they were early retirees, and self employed, small business operators..

they sold up their expensive city houses, cashed in their chips, purchased comparable houses in the country for half the price, and stashed the rest in the bank....

these people had little or no super, which was only compulsory from 1986...
so even if they were employees, there was not much there...
then they watched what super there was, get trashed with the tech wreck....
the property market was supposed to have been in the doldrums, because everyone was focused on the stock market...
so off the went in droves, buying up property

these people had paid between $10,000 to $100,000 for those city houses....they were paid off, there was no debt....and they sold them from $600 to $1 million
kids are gone, living costs now minimal....and they are enjoying life in the country

kids now brag of a country retreat...or holidaying with the olds....

some of these early retirees are finding life a little boring, twiddling their thumbs, so they are starting up new business, part time work....to keep them active....not so much for the money...

there is no confidence out there under labor,...but there is a pent up demand, people want their lives back, to how it was under the liberals...
just watch Qld start to bounce, after the election this week....
but Qld's have other problems with the floods, in regard to housing...

confidence will only be restored in the economy, when federal labor is ousted.....

will you be ready for the change in sentiment...

if you need some clues why house prices have not dropped, in Vic and NSW , it is because they changed political parties, and confidence was returned...

disregard political interference in the economics of a country, or state, at your peril....

 

[Glen48]

The only thing governments can do is give bribes to sucker to help vendors sell their houses, this distorts the true market, over seas forces call the shots soon IR will start to rise regardless of the RBA.
Once the US housing market stop tanking wait 5 yrs and then buy at present USA is still going down

 

[Starcraftmazter]

if you need some clues why house prices have not dropped, in Vic and NSW , it is because they changed political parties, and confidence was returned...

Actually they have dropped in line with the other capitals.



Sydney had the smallest fall because of the stamp duty exemption for FHBs until this year. You can see the finance spiked around Q4 of 2011 and has dropped back down this year - although I do not have that graph handy.

People do not buy or not buy houses because a certain party is in their state parliament, it has a lot more to do with affordability and the perception of future capital gains or losses...

 

[wayneL]

People do not buy or not buy houses because a certain party is in their state parliament, it has a lot more to do with affordability and the perception of future capital gains or losses...

Yes Kinc, One must not forget that the UK had its bubble under Labour and now struggling under the Tories.

Sorry, it's nothing to do with Liberal or Labor.

The only fundamental is credit.

 

[sptrawler]

Sorry, it's nothing to do with Liberal or Labor.

The only fundamental is credit.

Correct and the fact people are paying it down as quickly as possible.
Baby boomers downsizing and deleveraging from shares, investment properties to term deposits.
Business people offloading investment properties to get liquidity into their businesses and to make them a sellable proposition.
IMO everyone will still be talking about the property bubble popping when it is all over.LOL

 

[Starcraftmazter]

IMO everyone will still be talking about the property bubble popping when it is all over.LOL

That's it isn't it - once everyone is dooming and glooming, that's when I will buy

 

[drew70]

That's it isn't it - once everyone is dooming and glooming, that's when I will buy

the cab drivers and the hairdressers are already dooming and glooming

 

[sptrawler]

the cab drivers and the hairdressers are already dooming and glooming

That really sums it up, 5 years ago they were at bbq's telling everyone how many investment properties they had.

 

[sptrawler]

Actually they have dropped in line with the other capitals.



Sydney had the smallest fall because of the stamp duty exemption for FHBs until this year. You can see the finance spiked around Q4 of 2011 and has dropped back down this year - although I do not have that graph handy.

People do not buy or not buy houses because a certain party is in their state parliament, it has a lot more to do with affordability and the perception of future capital gains or losses...

That post shows what I was saying about averages.
It says the average fall in Perth is 4.6%, well in this weekends paper there was an official government sales figures.
Shelley a riverside suburb within 7k's of the city centre down 24.4%
Mt Pleasant riverfront suburb within 5k's of the city down 19.9%
Mt Lawley inner city up market character home area down 15.4%

What skews the figures is the lower end of the market is holding up in affordable suburbs.

 

[Starcraftmazter]

What skews the figures is the lower end of the market is holding up i.e suburbs where prices are below $500k.

I don't think the figures are skewed - the average is the average, RP Data also compares like for like houses, so it is quite accurate.

Furthermore, you must understand that the price drops in a waterfall sort of way. Top tiers drop first, then middle tier, then bottom tier. Every tier must drop because the one above it now costs the same as it, and thus there would then be no reason to buy it - so it must drop.

So of course, with any housing crash (or downturn), it is the top tier - the most expensive properties which are the first to record significant drops. And then the drops trickle down to the lower tiers.

 

[sptrawler]

I don't think the figures are skewed - the average is the average, RP Data also compares like for like houses, so it is quite accurate.

Furthermore, you must understand that the price drops in a waterfall sort of way. Top tiers drop first, then middle tier, then bottom tier. Every tier must drop because the one above it now costs the same as it, and thus there would then be no reason to buy it - so it must drop.

So of course, with any housing crash (or downturn), it is the top tier - the most expensive properties which are the first to record significant drops. And then the drops trickle down to the lower tiers.

On that basis then there should be some real bargains when the bottom rung drops 60% as you are predicting. That should make my retirement a wonderfull experience.

 

[drew70]

It does sound good.. In Cairns they will be giving you a 1 bedroom unit free, with every case of beer purchased..