The future of Australian property prices

[sydboy007]

I thought Sydney property prices were didonkulous but try the belwo game on canadian housing

http://www.crackshackormansion.com/

 

[sydboy007]

http://www.macrobusiness.com.au/2013/09/misreading-housing-bubble-dynamics/

the below graph shows how far house prices have moved from the fundamentals

Just got to love that near hockey stick curve after the halving of CGT

Maybe we need to copy the way texas has been able to accommodate high population growth, income growth while mainting affordable housing

http://www.macrobusiness.com.au/2013/09/australia-must-look-to-texas-on-housing-policy

Imagine being able to buy a house in a major city for 3 tims the median wage? In Australia - tell them they're dreaming.

 

[sydboy007]

http://www.afr.com/p/markets/market_wrap/only_fools_ignore_bubble_trouble_tcMdVkWXAAWCs1PcK2SG9O

Residential property is the biggest source of household wealth and underlies the most important asset – home loans – held by Australia’s colossal and concentrated banking industry, which accounts for 30 per cent of the sharemarket’s value. There is $4 trillion of housing and $1.3 trillion of debt held against it. It is our most significant investment class…

…anyone not investing serious time contemplating housing hazards, including the prospect of destabilising bubbles, should wake up…

Capital gains exceeding incomes is OK, for a period. But with the major banks leveraged 80 times across their $1 trillion home loan books, one-third of all new mortgages approved with loan-to-value ratios greater than 80 per cent, nearly 40 per cent of loans accepted on an “interest only” basis, 20 per cent of borrowers fixing at historically low rates for only a few years, and the household debt-to-income ratio not far from its highs, there is little room for error…

You can ignore these threats like the US Federal Reserve did before 2007, or confront them and reduce the probability that history eventually repeats itself.

 

[medicowallet]

You can ignore these threats like the US Federal Reserve did before 2007, or confront them and reduce the probability that history eventually repeats itself.

The only ways I can think of to address these require bipartisan support to change regulation, which is not going to happen as there is too much to gain politically.

What we are guaranteed to end up with is a bust at some stage, which could be very bad, but the governments at all levels and of all types are too stupid to think about this.

MW

 

[Garpal Gumnut]

I pity anyone in a SMSF or privately geared in to property.

Many wiser than I are predicting the popping of an almighty bubble.

A house, is a house. Not an investment. It is to live, eat and sleep in, protect one from the elements and raise a family.

Houses have become tulips, whose price is decided by speculators and the madness of crowds.

gg

 

[tech/a]

Hmm $700k industrial site cost $310 k
Returns $5200 a month.

Better get rid of it then!

Sorry houses---how about apartments ?
Cost $200k
Retail $400k
Return $2300/mth better get rid of them to!

Don't feel too sorry!

 

[againsthegrain]

Hmm I wouldn't invest 400k to get a 2.3k return per month, get the same in a term deposit without rates, body corporate etc and not worry about losing value.

200k I'd think about it, but the thread is about future and current prices

 

[sydboy007]

I pity anyone in a SMSF or privately geared in to property.

Many wiser than I are predicting the popping of an almighty bubble.

A house, is a house. Not an investment. It is to live, eat and sleep in, protect one from the elements and raise a family.

Houses have become tulips, whose price is decided by speculators and the madness of crowds.

gg

Very true. I don't understand how as a society we came to view the basic need of shelter as an asset that HAS to increase in value above the inflation rate year in and year out.

The negatives on us at the individual and societal levels are massive.

It's rare for a bubble to fizzle. They usually pop in a devastating way

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The only ways I can think of to address these require bipartisan support to change regulation, which is not going to happen as there is too much to gain politically.

What we are guaranteed to end up with is a bust at some stage, which could be very bad, but the governments at all levels and of all types are too stupid to think about this.

MW

The sad fact is there isn't and probably never will be bipartisan support for the change we need.

NG has to be changed. CGT prob needs to be reverted back to full taxation.

Artificial land supply constraints need to be removed.

NIMBYs need to get over themselves and allow development.

 

[young-gun]

Hmm $700k industrial site cost $310 k
Returns $5200 a month.

Better get rid of it then!

Sorry houses---how about apartments ?
Cost $200k
Retail $400k
Return $2300/mth better get rid of them to!

Don't feel too sorry!

Tech, you are one of very few that can afford to build/develop at these types of costs. Your situation isn't very relevant to the broader public, and likely most on this forum.

I re-engaged my interest in property recently. Every time I start researching and get down to the nitty gritty there is just so few good opportunities out there for people just trying to break into the market to make some money. Hats of to those like yourself that are in a position to capitalise on the next couple of years, and I'm not being sarcastic.

The only game that can be played by new starters IMO is renovate and flip, and you have to be SO careful and diligent when playing in the outter suburbs or you'll get burnt so easily. GG hit the nail on the head. Property has become a a speculating disaster, with negative gearing all the rage and the unsuspecting still being pulled into the market with low rates and sweeteners, I think we could be in for a shock down the track. Taking longer than I anticipated.

 

[tech/a]

The broader public would---I suspect understand there is a time and place for each investment.
Now is not the time for property speculation.

 

[sydboy007]

Some wonderful pearls of wisdom

Mind you, if you buy a property through a DIY super fund you get the best of both yield and capital gains because the tax is much lower.

And you can use your boss's compulsory salary-sacrificed contributions, another tax break, to pay all the expenses.


Read more: http://www.smh.com.au/money/property-and-shares-go-head-to-head-20130921-2u6pj.html#ixzz2fZFODLSJ

He should know better than to be so simplistic about buying property within super.

 

[young-gun]

The broader public would---I suspect understand there is a time and place for each investment.
Now is not the time for property speculation.

I don't think the broader public has ANY idea what they are doing, or they wouldn't be 'investing'(and i use the term VERY lightly) in vehicles that are losing them money. 4 guys at work now own 'investment' properties. The best case scenario is the one paying out only$50 a week out of his pocket. Robert kiyosaki said it best when he said that 'if you don't have the capital, all you get it the real estate deals that no one else wants', and for good reason.

Some wonderful pearls of wisdom

Mind you, if you buy a property through a DIY super fund you get the best of both yield and capital gains because the tax is much lower.

And you can use your boss's compulsory salary-sacrificed contributions, another tax break, to pay all the expenses.


Read more: http://www.smh.com.au/money/property-and-shares-go-head-to-head-20130921-2u6pj.html#ixzz2fZFODLSJ


He should know better than to be so simplistic about buying property within super.

It amazes me how these guys speak of population growth as if it's the catalyst to rocketing house prices. who's to say these people contributing to population growth have the money to drive prices higher? They will most likely just contribute to heat in the rental market, which will cause more investor stupidity and drive prices even higher.

If I were to buy even a small apartment (1-2 bedroom 1 bath) on the outskirts of brisbane, say in the area of strathpine(by no means a glamorous suburb) we would be looking at approx 220k or more. Meaning a deposit of approx 44k to avoid the sting of $10,000 mortgage insurance. Most in my generation simply do not and will not have this sort of money to sustain prices let alone push them higher. Hell some are still at uni working 2 jobs just to eat, and once done will be on 60k a year with a hex debt.

I just want to know where the money will be coming from to push prices much higher than they are now, with the exception of cashed up chinese investors, and some speculators here at home.

 

[Bill M]

I just want to know where the money will be coming from to push prices much higher than they are now, with the exception of cashed up chinese investors, and some speculators here at home.

You forgot to mention the southerners. Plenty of people selling up the family homes in Sydney and Melbourne for big money and then buying decent homes in Queensland for half the money. It is a great idea in my opinion and it can boost your retirement funds quite a lot which would provide for a decent retirement.

 

[Judd]

You forgot to mention the southerners. Plenty of people selling up the family homes in Sydney and Melbourne for big money and then buying decent homes in Queensland for half the money. It is a great idea in my opinion and it can boost your retirement funds quite a lot which would provide for a decent retirement.

A similar thing happened in the UK. Retired owners in the South of the UK and in the London area, sold up their property and moved to the North - Hull and the like. Problems emerged in that the unemployment in the area was already high (the South of England became an unaffordable region for those on welfare or low incomes), they bought no specific business with them and now the are authorities are finding that the demand for health and other services is increasing rapidly.

You never really know the outcome of unintended consequences until much, much later it seems.

 

[kid hustlr]

If I were to buy even a small apartment (1-2 bedroom 1 bath) on the outskirts of brisbane, say in the area of strathpine(by no means a glamorous suburb) we would be looking at approx 220k or more. Meaning a deposit of approx 44k to avoid the sting of $10,000 mortgage insurance. Most in my generation simply do not and will not have this sort of money to sustain prices let alone push them higher. Hell some are still at uni working 2 jobs just to eat, and once done will be on 60k a year with a hex debt.

FWIW I feel like someone on 60k a year (even with a hecs debt) could afford a 220k property. If that's a dual income situation (ie long term bf/gf or husband + wife or brothers or w/e) then they could pay off a 220k place in <10 years easily.

 

[Garpal Gumnut]

FWIW I feel like someone on 60k a year (even with a hecs debt) could afford a 220k property. If that's a dual income situation (ie long term bf/gf or husband + wife or brothers or w/e) then they could pay off a 220k place in <10 years easily.

Only problem is that it may only get $110k in 10 years time.

Then again they could trade up to something now worth $800k for $400k.

Interest rates may be 17% by then though.

gg

 

[sydboy007]

It amazes me how these guys speak of population growth as if it's the catalyst to rocketing house prices. who's to say these people contributing to population growth have the money to drive prices higher? They will most likely just contribute to heat in the rental market, which will cause more investor stupidity and drive prices even higher.

http://www.macrobusiness.com.au/2013/09/misreading-housing-bubble-dynamics/

Another interesting aspect of the US housing market is that underlying demand was running strong in the years leading-up to the bust. Unemployment was low, the US economy was motoring along, credit was readily available, and a record 1.7 million households were formed in 2005 – 500,000 more than the long-run average of 1.2 million household formations per year.

The surge in household formations led to numerous suggestions that the US was facing a housing shortgage, especially in areas where strict land-use regulations were in effect, such as California.

The rest is history. The US housing bubble popped, the economy tanked, and the rate of household formation fell to around half the long-run average (see below chart), leaving a vast oversupply of homes, even in severely supply-restricted markets like coastal California.

With the huge amount of spare rooms available, I can see a lot of Gen y and late Gen X heading back to the parents home if things turn south. When a single bedroom apartment in Sydney can set you back $500+ a week it doesn't take too big a drop in income to turn that unaffordable.

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Interest rates may be 17% by then though.

gg

Now now GG. We all know interest rates will always be lower under a Liberal government

 

[McLovin]

With the huge amount of spare rooms available, I can see a lot of Gen y and late Gen X heading back to the parents home if things turn south. When a single bedroom apartment in Sydney can set you back $500+ a week it doesn't take too big a drop in income to turn that unaffordable.

The problem is that Australians don't even know what a recession is anymore. I don't think the property market is going to surge ahead despite what the pundits may say. I bought my place a few months ago, the other day I had a RE agent door knock and tell me that it would be worth at least 15% more than I paid for it. Around here it's mainly owner occupiers. Because the yields don't stack up for most investors.

 

[sydboy007]

The problem is that Australians don't even know what a recession is anymore. I don't think the property market is going to surge ahead despite what the pundits may say. I bought my place a few months ago, the other day I had a RE agent door knock and tell me that it would be worth at least 15% more than I paid for it. Around here it's mainly owner occupiers. Because the yields don't stack up for most investors.

I dare say the yields haven't stacked up in over a decade.

Borrow at 1 to 2% more than the gross yield, which means you are probably around 2% over the net yield.

Crap investment IMHO.

I'll stick with minimal gearing and 6% grossed up returns. Nothing like be a debt free home owner (2 years 3 months but who's counting ).

 

[McLovin]

I dare say the yields haven't stacked up in over a decade.

Borrow at 1 to 2% more than the gross yield, which means you are probably around 2% over the net yield.

Crap investment IMHO.

I'll stick with minimal gearing and 6% grossed up returns. Nothing like be a debt free home owner (2 years 3 months but who's counting ).

Yields are pretty low around here (Paddington, Sydney). On a $1m house (if you can find a house for under $1m!) you'd be lucky to pull in $900/week. That's fairly typical though, as you slide up the price scale the yield falls away. It's the reason property investors stick with low value property.