The future of Australian property prices

[1q2w3e4r]

Havent worked it out have you!

Explain it to me, I'm curious as to how rising interest rates have a positive impact on housing prices.

 

[trainspotter]

The number of Australia home loans approved for investment purposes jumped to 34.1% of all mortgages in February, up from 27.1 per cent in August and the highest level of investor interest in the four-year history of the AFG mortgage index.

This has baffled the many analysts who have cautioned that the Australian property market is experiencing the formation of a bubble. It is even more worrying when looked at against the fact that loans to first time buyers fell from 20.9% to 11.3% during the same 6 month period.

AFG sales and operations general manager Mark Hewitt said:

"People had been sitting on their hands in relation to property investment," Mr Hewitt said. "They've been in and out of the share-market, but that's still seen as a bit risky.

"They have regained confidence in property being a sound investment -- that's the feeling we're getting."

Australian property prices fell nowhere near as much as those in say, the UK, US, Dubai or Latvia, and have rebounded more sharply than most as well. It is a fairly safe bet that it is this proven resilience that is now proving a draw to investors, with the absence of the bargains that are attracting investors elsewhere.

It is entirely possible though, that Australia's current heat could come to be seen as the pride before a fall, many markets that never saw a real (bubble pop) crash are now looking likely to overheat and crash in the months to come, which would be catastrophic for the markets involved. That said: Australia is a strong market, with strong demand fundamentals, and provided the banking system continues to regulate itself as it currently is it should be ok.

 

[tech/a]

Explain it to me, I'm curious as to how rising interest rates have a positive impact on housing prices.

Cost of construction rises as costs----normally wages are passed on---.
If Interest really rockets to curb inflation then its even worse for the non home owner as his money's buying power is eroded.

 

[trainspotter]

Interest rates are used as the lever to curb inflation. If inflation is going up means median houes prices are rising ........... DOH ! PLUS what tech/a wrote and some other factors thrown in like bracket creep and CPI as well to name a few.

 

[MR.]

Havent worked it out have you!

Ha, it’s always the way isn’t it. Some have the answers and others don’t.
You could have (instead of the warped comment) pointed out why higher interest rates cause higher prices with property, but no. The last post before your last post claimed that property will continue because of 2003 2004 2005 etc. and people were questioning them then so that’s the reason they are going to continue up and up. Great reason Tech!

I had my thoughts as to where you were going with your comment and didn’t bother. I think the prices at the development stages are not really the main influence with property prices in general. If costs of developments increase, no doubt, so does the land selling price. If costs are higher it may even deter investment in new developments restricting supply further.

As I haven’t worked it out and you are itching tell me.

Just noticed you just answered the question

 

[1q2w3e4r]

Cost of construction rises as costs----normally wages are passed on---.
If Interest really rockets to curb inflation then its even worse for the non home owner as his money's buying power is eroded.

Wages don't rise as fast as property prices. I get the argument for inflation leading to rising costs and therefore property prices, I think its artificial unsustainable growth however and doesn't flow down to Mum and Dad or Joe Blow down the street.

Wages haven't increased enough to curb the cost of housing increases. If you argue the point that property doubles every 7-10 years whatever, that's great. So does the guys house who lives next door to you. You don't actually gain any value over and above anyone else.

The way I see it, the Govt gave a whole bunch of people a leg up onto the property ladder who couldn't really afford it. That in turn gave everyone else a push up to the next rung of the ladder. All or the large majority of it is funded by debt.

 

[Beej]

History has shown many times that economic bubbles pop rather than slowly deflate.

Australia is not immune to this.

But that wasn't your original statement - you said "History has shown that managing a slow decline in real asset values relative to income is indeed difficult". History has shown nothing of the sort, especially not the history of the Australian residential real estate market.

 

[Beej]

Wages haven't increased enough to curb the cost of housing increases.

Actually they have - see these charts. One show the median house price to average household disposable income ratio - as you can see that has remained nearly constant for the past 8 years. The other chart plots the proportion of household income required to service the average mortgage since the 70s.

 

[1q2w3e4r]

Actually they have - see these charts. One show the median house price to average household disposable income ratio - as you can see that has remained nearly constant for the past 8 years. The other chart plots the proportion of household income required to service the average mortgage since the 70s.

Thanks for that, interesting chart, I've learned something new I don't know of too many people getting paid double what they did 10 years ago though

Its interesting as it would seem there is a disconnect between the data and people saying they aren't going to be able to pay their electricity bills when this increase goes ahead. Increased living expenses and travel (at least in Sydney) with all the toll roads is quite large.

I hope the rates continue to go up, it'll make the TD rate when we flick our place and look for land to build more attractive

There is something crazy going on in the housing market though, I know multiple people who have all sold their houses within 4 days of listing for over the asking price, that screams desperation to me.

 

[kincella]

hmmmm...this affect is often missing from the bubble argument....
and I suspect it can be interpreted as a black swan event...
something which happens, out of the blue, and then becomes the norm....

** the increase in single person and child free households continue to rise...
in inner city Brissy alone, the population has increased 50% to 100,000 people
it is becoming a copycat of melb and syd
whether they are renting or buying...its blowing the 'unaffordable issue' out the window...
single income families...****do not have dual incomes...
funny...since the inner suburbs are the most expensive, whether for renting or buying...

Single-person households up in Brisbane
http://news.theage.com.au/breaking-...-households-up-in-brisbane-20100330-r99s.html

 

[kincella]

so why did 4 of your mates sell their houses, were they upgrading, cashing in and going out to rent, leaving the country

 

[1q2w3e4r]

so why did 4 of your mates sell their houses, were they upgrading, cashing in and going out to rent, leaving the country

Multitude of reasons, a few were (are upgrading) another was as a result of divorce. All got, or were told to expect vastly more than they were asking.

 

[UBIQUITOUS]

Actually they have - see these charts. One show the median house price to average household disposable income ratio - as you can see that has remained nearly constant for the past 8 years. The other chart plots the proportion of household income required to service the average mortgage since the 70s.

Great! Another chart from that unbiased think tank RPData
I wonder where they get their figures from.

 

[Go Nuke]

Great! Another chart from that unbiased think tank RPData
I wonder where they get their figures from.

Absolutely Ubiquitous!

That chart to me looks like ABSOLUTE :bs:

I'm reading about people losing bonuses, getting pay cuts, hours of work cut back and myself the overtime is gone and payfreeze for almost 2 and a half years now.

Income have not kept up with the avergae home loan.

The other chart plots the proportion of household income required to service the average mortgage since the 70s.

So does the chart factor in servicability when interest rates were going up and down?
Because surely there will be a gap forming anytime soon now.

The number of Australia home loans approved for investment purposes jumped to 34.1% of all mortgages in February, up from 27.1 per cent in August and the highest level of investor interest in the four-year history of the AFG mortgage index.

This has baffled the many analysts who have cautioned that the Australian property market is experiencing the formation of a bubble. It is even more worrying when looked at against the fact that loans to first time buyers fell from 20.9% to 11.3% during the same 6 month period.

Is the scary part about this that investors are using the new equity in their existing portfolios of properties to fund the purchase of more properties?

Talk about a house of cards if the bubble pops.
Its only the lack of supply that has saved our bacon thus far compared to the U.S and U.K.
Maybe thats Swans intention...keep the bubble growing by allowing more/same amount of imigration?
No, no...I'm sure thats because he doesn't want another wages blowout occuring. Heaven forbid it if I could get paid more money for my job.
Bring in more 457's to stop that from happening!

 

[Go Nuke]

Here look.....I'll show you how stupid graphs are sometimes...

 

[tech/a]

Wages don't rise as fast as property prices. I get the argument for inflation leading to rising costs and therefore property prices, I think its artificial unsustainable growth however and doesn't flow down to Mum and Dad or Joe Blow down the street.

Been answered

Wages haven't increased enough to curb the cost of housing increases. If you argue the point that property doubles every 7-10 years whatever, that's great. So does the guys house who lives next door to you. You don't actually gain any value over and above anyone else.

If you think like the majority and just own on property.
If you own 2,3,+ then your so in front of your neighbour its impossible for him to ever catch you.

The way I see it, the Govt gave a whole bunch of people a leg up onto the property ladder who couldn't really afford it. That in turn gave everyone else a push up to the next rung of the ladder. All or the large majority of it is funded by debt.

Of course its funded by debt.
Everyone of my properties are funded by debt and I get all the interest back as a tax deduction.
People pay my mortgages.
I claim just about everything other than clothes and food.
I get the CAPITAL GAIN.

 

[Macquack]

Everyone of my properties are funded by debt and I get all the interest back as a tax deduction.

You don't get "all the interest back" just because it is a tax deduction.

You get a tax benefit to the extent of your marginal tax rate.

 

[drsmith]

Regarding graphs and stats the March 2010 Financial Stability Review from the RBA is now available.

http://www.rba.gov.au/publications/fsr/2010/mar/html/contents.html

Of interest is graph 61 (Household Income and Interest Payments, p42). As expected interest payments as a percentage of household disposable income is trending up again as interest rates rise. This is from a trough that was above the late 80's peak. again.

Also of interest is the extent to which disposable household income has been proped up by government stimulus since the GFC. Household income from employers is still going backwards in real terms.

 

[Dowdy]

Cost of construction rises as costs----normally wages are passed on---.

I guarantee it wont!

You said it yourself - there will be fewer sales.

So in turn you'll have more builders competing for fewer jobs. When there is more competition in any field, prices drop to gain your business.

Fewer worker will be hired/more workers will be fired due to the lesser workload and ultimately you'll have cheaper houses.


BTW, most of the price of property comes from the land value.

 

[tech/a]

I guarantee it wont!

You said it yourself - there will be fewer sales.

So in turn you'll have more builders competing for fewer jobs. When there is more competition in any field, prices drop to gain your business.

Fewer worker will be hired/more workers will be fired due to the lesser workload and ultimately you'll have cheaper houses.


.

I'm happy to have a side bet.

I'm actually a Builder and have been for 30 yrs.
Your actually missing a very important aspect.

Demand.
Not everything is sold.
It aint going anywhere and never has.(Demand)

Still believe what you wish---I'll keep building and selling----same old same old.

This thread will remain the same for the next 10 yrs---same old same old.

BTW, most of the price of property comes from the land value

Really.
I have say 3000 square meters at say on the esplanade for 1.6 mill.
I can place 9 X 2 story 260 meter Apartment/Town houses on it.
I build them at $1500/ square meter.
I sell them for average of $950k each.

Id say your argument is pretty poor!