The future of Australian property prices

Bet that would be NQ Lager so not a good deal..
Don't forget the 50Billion now owed on Cards as of December.

This doesn't sound to good...

About one in seven Australian homes bought in the past five years are worth less than their purchase price, according to RP Data.

This potentially has pushed owners into negative equity, that is, they now owe more to the bank than they can recoup through selling their home.

For another 42 per cent of Australian home owners, their property is now worth more than twice the purchase price, down slightly from 43 per cent in September.

...

“Of all people in negative equity, three in every four have owned their house for less than five years,” RP Data research analyst Cameron Kusher said. “It highlights the long-term nature of the housing market and investment. The first few years of owning a property are always the toughest because you don’t have much equity and aren’t paying off much of the principal.”

The greatest incidence of potential negative equity was in Queensland, where 11.7 per cent of homes were worth less than they were bought, followed closely by Western Australia with 8.5 per cent. Both states have had the weakest housing markets in the country since 2008.

In hard-hit far north Queensland 22.6 per cent of home owners were potentially in negative equity. Further south, 19.4 per cent of Gold Coast owners and 15.3 per cent of Sunshine Coast owners potentially owed more than they paid.

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http://www.afr.com/p/business/property/home_price_slide_hits_mortgagees_BmaryeS68IH3IJ2VjYJq8I# (subscription required)

Port Douglas market has collapsed, so cheap even I might move there and have money over for a Ferrari.

Melbourne prices are on the way down very evident now watch out for the property BS artists coming out with "what a great time to buy it is" reports.

Realestate.com.au has one such report done by "experts" out right now, scumbags they are even their own agent clients dont trust them.

This is so close to the truth it's not funny, but the sketch is -

McLovin said:

This doesn't sound to good...



http://www.afr.com/p/business/property/home_price_slide_hits_mortgagees_BmaryeS68IH3IJ2VjYJq8I# (subscription required)

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I agree that property prices are likely to fall further. But from your post 1 in 7 houses bought in the last 5 years are worth less.
That means that 6 out of 7 are worth the same or more than they were purchased for, I wouldn't have thought that.

Beej said:

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

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A Lol I agree

As for Keen he is right on debt but is blinkered to outside forces that might influence. As an example he was caught off guard when the GFC hit and he hadn't factored in that the government would simply stimulate the economy and keep everything going, oops.
Instead of only reading all these narrow view blogs by perma bears why not look at government policy/direction as well.
Our government is intent on imposing on us a carbon tax and mining tax to fill the coffers (more ability to stimulate the economy), we have room to double the population ('Big Australia' anyone), Asia had its financial crisis back in 97 and we are making more inroads with India, Korea and all those other nations that are emerging and going strong. Hey and all the Greeks are moving back here and they love buying property


The economy/Business has to turn to ****e before it gets worse (possibly on its way). Otherwise it's just slow steps down for housing imo. I'm in NSW though and everyone in my area seems to have started building Mcmansions again. I'm not bullish but even Harry Dent (for all you blog lovers) had us pegged for another Bull market in 2020 I believe. Star you should make Dent your new must read as he is all about the demographics.
Housing market = flat - slow decline

Starcraftmazter said:

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.

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Starcraft. Your making some pretty consistent and strong claims in relation to an epic end of days style property bust. Personally I think it would do wonders for you to actually go and have a look at some open homes. Even an auction or two. Might give you a better understanding of whats happening in your local area.

I know, your an unemployed student, so you might consider doing so a waste of your time. Consider having a look at areas that are affordable (based upon an approximate future wage for your chosen proffesion) Consider what would be affordable for you on your possible wage and go have a look.

IMO there is plenty of affordable housing out there for people to buy. Weve just bought a house and the P+I repayments are pretty much the same as rent. We need a place to live and its not unnaffordable.

Dont get me wrong, im no perma bull. In fact im not even bullish on property for the near and medium future. But I think your sentiment is a touch on the unrealistically bearish side. Inflation will continue, the monetary base will expand as it has continually done. This will flow through in time to assets.

I was flicking through a late 60's courier mail the other day that my father had. In brisbane the new suburb at the time was Mount Gravatt. Brand new house and land was selling for 6000 pounds.

I was flicking through a late 60's courier mail the other day that my father had. In brisbane the new suburb at the time was Mount Gravatt. Brand new house and land was selling for 6000 pounds. Before Decimalization? 14 Feb 1966


Some one want to work out the inflation plus say 35- 40 K in rates and Insurance and a throw in a bit more for repairs.

RandR said:

Starcraft. Your making some pretty consistent and strong claims in relation to an epic end of days style property bust. Personally I think it would do wonders for you to actually go and have a look at some open homes. Even an auction or two. Might give you a better understanding of whats happening in your local area.

I know, your an unemployed student, so you might consider doing so a waste of your time. Consider having a look at areas that are affordable (based upon an approximate future wage for your chosen proffesion) Consider what would be affordable for you on your possible wage and go have a look.

IMO there is plenty of affordable housing out there for people to buy. Weve just bought a house and the P+I repayments are pretty much the same as rent. We need a place to live and its not unnaffordable.

Dont get me wrong, im no perma bull. In fact im not even bullish on property for the near and medium future. But I think your sentiment is a touch on the unrealistically bearish side. Inflation will continue, the monetary base will expand as it has continually done. This will flow through in time to assets.

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not jumping to stars defense, but i share similar views. and i guarantee you anyone in the US that had views of a doom and gloom property crash before it happened would have received similar posts to that of yours above. most are unable to come to terms with the idea of such a crash until its staring them in the face.

kincella said:

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....

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best call the US! if they realise all they need is a change of government and a bit of confidence im sure theyll jump on board, and property will boom again!.......

US have small prob here to sort out first:

How To Cripple the Real Estate Market in Five Easy Steps (March 19, 2012)


Central Planning has crippled the real estate market to "save" their core constituency, the banks.
If you were head of Central Planning (howdy, Ben!) and were tasked with crippling the real estate market, here's what you would recommend.

1. Choke the market and banking sector with zombie banks. Central Planning creates zombie banks in one easy step: it allows insolvent banks to mark their impaired "real estate owned" to fantasy rather than to market. This enables the banks to survive in a deathless state, propped up by free money from the Federal Reserve and lax regulations that enable fantasy accounting and all sorts of off-balance sheet trickery.

Zombie banks have no incentive to auction off their holdings of real estate with defaulted, underwater or otherwise impaired mortgages, for having the market discover the price of these properties would immediately reveal the insolvency of the bank as properties it held on its books at (say) $400,000 were actually only worth $200,000. Since the mortgage is (say) $350,000, then the bank would be forced to recognize a $150,000 loss (actually more with transaction fees, repair of the derelict property, etc.).

If the bank's entire portfolio of phantom-value properties was auctioned off or its price discovered by the market, the bank would be declared insolvent and closed.

So instead the zombie banks' impaired properties clog the market, unlisted, unsold, indefinitely held off the market until unicorns arrive and valuations return to bubblicious 2006 levels where the bank can unload them with no loss.

Since those valuations haven't arrived, millions of properties are being held off the market. This "shadow inventory" is well-known (tens of thousands of people are living rent and mortgage-free in homes that the banks have yet to even put in the foreclosure pipeline), so no one has any confidence that "the bottom is in." Confidence cannot be restored until the market clears the inventory and a real bottom is established.

This destruction of confidence undermines the entire market. Zombie banks create zombie valuations. Who can say valuations won't decline once the shadow inventory finally hits the market?

Keeping zombie banks alive via bogus valuations and shadow inventory of derelict and defaulted homes has another consequence: banks themselves cannot be confident that prices won't decline further, so it makes no sense for them to put capital at risk by issuing mortgages on real estate.

2. Have the central bank (the Federal Reserve) buy up $1 trillion in toxic, impaired mortgages. If these mortgages were such a great deal, then why didn't private buyers snap them up? Exactly: they were fetid garbage no private buyer would touch except at steep discounts that would have sent the banks into insolvency. (That isn't allowed in crony-capitalist State-run economies.)

The market was thus denied the opportunity to discover the price of all this mortgage debt, and this effectively destroyed the private market for mortgages. Literally 99% of all mortgages in the U.S. are guaranteed by the Central State. Suppressing market price discovery works just as well in the mortgage market as it does in the housing market.

3. Lower the rate that banks can borrow from the Fed to zero, and then pay the banks interest on all funds deposited at the Fed. I wish we had this option, don't you? We could borrow $1 billion from the Fed at zero interest, then deposit the $1 billion with the Fed and skim risk-free interest.

But the real-estate effect of ZIRP (zero-interest rate policy) is to lower the mortgage rate to such a low level that it makes no sense to take on the risks and unknowns of real estate valuations for such a paltry return. After all, what if the bank loans $300,000 on a $400,000 home, the value subsequently drops to $300,000 and the buyer defaults? The bank will lose capital it can't afford to lose dumping the property at auction.

Better to avoid the mortgage market altogether by refusing most applicants as risks--and given the high debt levels of most households, they may indeed be poor risks.

4. Try to prop up the housing market by giving poor credit risk buyers loans with only 3% down. This generates a new pool of ready buyers, but since the government is guaranteeing the loan, qualifying is easy and the buyers only have a few thousand dollars of skin in the game. This means defaulting is not very painful, especially if it takes the lender a few years to foreclose on the property.

The net effect of subsidizing poor credit risks to buy houses is that another pool of uncertainty is created, as these buyers are defaulting in droves, dumping inventory that had just been cleared back on the market. (The default rates of FHA loans is skyrocketing, and now the taxpayers will have to bail out the FHA.)

This is what happens when you try to prop up the market with unqualified buyers and 3% down mortgages--those buyers bail out in huge numbers and the homes return to the inventory. The clearing of inventory was as phantom as the real estate valuations on the banks' balance sheet.

5. Load young people up with the equivalent of a mortgage in student loans. That insures that the majority of potential new homebuyers won't be qualified to buy a house--they're already indentured to the banks for student loans. Those fortunate few who get good-paying jobs will qualify for a mortgage when they're getting grey hair; most will never qualify, having been buried by impossible-to-default student loans.

OK,let's see how our Organs of Central Planning are doing: check, check, check, check, check: a perfect score! they're doing everything possible to cripple the real estate market.

Do they care? Of course not; the only goal is to keep the zombie banks alive, regardless of the cost to the nation. Great work, Ben, Barack, Timmy and the rest of the gang at Central Planning: thanks to your policies, the real estate market will never clear and therefore it can never be restored to health.

Glen48 said:

I was flicking through a late 60's courier mail the other day that my father had. In brisbane the new suburb at the time was Mount Gravatt. Brand new house and land was selling for 6000 pounds. Before Decimalization? 14 Feb 1966


Some one want to work out the inflation plus say 35- 40 K in rates and Insurance and a throw in a bit more for repairs.

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Compliments of the RBA Calculator: http://www.rba.gov.au/calculator/annualPreDecimal.html

In 1960 (Pre-Decimalisation) of 6,000 pounds would be the equivelant of $155,455.54 in 2011.

Total change in cost: 1195.5% at an average inflation of: 5.2%

This calculation excludes any other rates - i.e. taxes, fees

Glen48 said:

I was flicking through a late 60's courier mail the other day that my father had. In brisbane the new suburb at the time was Mount Gravatt. Brand new house and land was selling for 6000 pounds. Before Decimalization? 14 Feb 1966


Some one want to work out the inflation plus say 35- 40 K in rates and Insurance and a throw in a bit more for repairs.

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Now somebody should work out how much rent someone would have paid over the same time period, for an equivalent house in a similar suburb

sptrawler said:

Now somebody should work out how much rent someone would have paid over the same time period, for an equivalent house in a similar suburb

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Ok, so I checked the other thread.
Its Wednesday.
Bewilderment averted.

Thought this was quite an apt quote for the thread.

"Bread, meat, and vegetables were sold at prices greater than had ever before been known; while the wages of labour rose in exactly the same proportion. The artisan who formerly gained fifteen sous per diem now gained sixty. New houses were built in every direction; an illusory prosperity shone over the land, and so dazzled the eyes of the whole nation, that none could see the dark cloud on the horizon announcing the storm that was too rapidly approaching."

From Charles Mackay's Extraordinary Popular Delusions and The Madness of Crowds.

Does anyone else see parallels between today's China and John Law's Mississippi Scheme?

"The more things change, the more they stay the same." - Alphonse Karr

P.S. Anyone seen the movie "Margin Call" yet? Enlightening for the myopic proletariat.

Glen48 said:

Bet that would be NQ Lager so not a good deal..
Don't forget the 50Billion now owed on Cards as of December.

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AAAAAAAAhhhhhhhhhhh now the debt owed on paper is the issue finally.

The only argument for high house prices is "there's a shortage" .. If there was a shortage, why is it that anyone can log on, find a property, inspect it, then buy it? There's no competition, there are no long lines, people aren't on the streets. The problem is with affordability not availability. There is plenty more room to build out, and plenty more room to build up. Where do you think prices are going to go from here

High house prices are bad for our economy, despite our economic illiterate government believing that this is true wealth. With large amounts of money being tied up in repayments, there is less money to be saved, allocated, and put to work to create goods and services that actually grow our standard of living. Cornering a market and driving up prices of an asset class everybody needs doesn't grow our standard of living. If people were borrowing to buy all the fuel available and hoarding it from everybody who drives, pushing the price up, do you think we'd be better off as a society? Hell no.

Property investors need to take their losses and get over it, now that prices are high enough that they can only sell to each other, nobody new can come into the market and buy, there is no greater fool left, and when the bearish market sentiment spreads, the house of cards will fall and all of the imaginary wealth will vapourize. At least with Shares you are never in denial about what they are worth.

I spotted a new term in a real estate ad yesterday, 'price revised'. Surely they mean 'price reduced', I hardly think the price has gone up (Apologies is estate agents have been using this for years but it was the first time I'd seen it).

I agree, there is no shortage, it's a furphy.

Miss Hale said:

I spotted a new term in a real estate ad yesterday, 'price revised'. Surely they mean 'price reduced', I hardly think the price has gone up (Apologies is estate agents have been using this for years but it was the first tie I'd seen it).
I agree, there is no shortage, it's a furphy.

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They havent had to reduce prices for so long they've forgotten the use the term "reduced"

If there was a shortage, then stock on market wouldn't be at all time highs.