The future of Australian property prices

[McLovin]

I agree that residential property is overvalued on most measures, but how and when it will correct is anyone's guess. Like most things, it's taking longer than logic would suggest, such that any fall in "real" value is being eaten by inflation anyway thus avoiding a significant drop in nominal values.

I always thought the property market would slowly deflate over say 15-20 years, unless there was a major shock to the economy. There has been a lot of one offs over the last two or three decades (women entering the workforce/large cohort of people entering household formation age/sustained low unemployment/sustained low interest rates/a multi decade rise in real wages without any real pause). None of those are going to be repeated anytime soon and like anything would you really want to buy an asset that has had those sort of tail winds behind it?

 

[satanoperca]

I agree with McLovin, but that is not to say that property will continue to go up.

Reasons that property will continue to climb for the next decade :

• Inflation >2%
• Population growth 2% - inner city properties will be in greater demand than outer, more so as there is less of them
• The economy is linked to continuing growth
• Govnuts rely on its income through stamp duties and rates
• Our desire for security
• SMSF can leverage up with property, many baby boomers believe bricks and mortar are a better investment that the returns on bank deposits
• IR's will stay low for the foreseeable future, any increase in IR's will break the camels bank. I see a greater chance of IR's going lower than higher
• Australians are addicted to property
• Foreign buyers have far greater purchasing power than Australians
• China will keep buying our dirt
• The govnuts will throw more stimulus at it if required
• Govnuts around the world will not let it happen
• Property has always been expensive at the time

[/LIST]

Reasons why property will stagnate over the next decade :

• We are in debt up to our eyeballs
• No more people in the household to fuel the debt, unless we can put our children to work from the age of 3
• The economy hits the skids, more likely an external shock from the global economy
• We find another planet to move to or aliens land and eat a few of us.
• The credit boom is over.
• The change the rules around negative gearing
• The govnuts free up land supply
• A broadbase land tax is implemented

Reasons why property may crash over the next decade :

• A external financial shock
• A black swan lands, eg massive earthquakes, a air borne killer virus, world war, meteor strike

I have been a bear for to long, time to wonder in the forest.

Cheers

 

[sydboy007]

http://www.macrobusiness.com.au/2013/09/perth-rental-vacancies-surge-on-mining-slowdown/

Perth landlords might be starting to worry - 1% increase in vacancies over the last year

 

[sydboy007]

http://www.macrobusiness.com.au/2013/09/the-history-of-australian-property-values-redux

As at the 30 June 2013, all capitals except Darwin were still “underwater” in real inflation-adjusted terms, with house values nationally around 5% below their June 2010 peak.

As argued previously on this site, the strong growth in Australian Australian housing values has been caused by escalating land prices, which roughly doubled as a percentage of GDP from the trough in 1996 through to the peak in 2010.

A key determinant of the boom/bust cycle in the land market is the availability of credit/debt used to fund housing. The ratio of household debt to GDP (the majority of which is mortgages) has more than quadrupled since 1988, rapidly accelerating during the 90s and 2000s. The ratio peaked in 2010 as did real housing prices, which is clearly no coincidence.

Despite mortgage rates falling to near record lows, the proportion of aggregate household income chewed-up by mortgage interest is still well above that of the late-1980s/early-1990s, when mortgage rates peaked at 17%. This is because of the inflated housing values and the corresponding high debt loads carried by Australian households.

 

[Smurf1976]

I always thought the property market would slowly deflate over say 15-20 years, unless there was a major shock to the economy.

Agreed that it will likely take a long time.

But for an owner occupier, as distinct from a landlord, that's double the time you're likely to own the one property and roughly a third of the time you're likely to own any real estate (unless you live substantially longer than average or buy a house the day you turn 18).

So for an owner occupier, I see it as a case of getting on with life and not worrying about the value of houses too much. Even if it does drop 50% that's only a real issue if you are selling and not buying another property, which generally wouldn't be a relevant decision in this timeframe for those not currently owning their own home (assuming they would mostly be under 40 and thus not likely to be a "last home seller" anytime soon).

A lot of that comes down to personal preference. Personally, I'd rather take the risk of losing some paper wealth, but not physical wealth (the house won't suddenly halve in size even though its' price might) than put up with renting for the next decade or two. Sure, there are good rentals and good landlords but there's an awful lot of hassles with renting at times too.

 

[medicowallet]

Agreed that it will likely take a long time.

But for an owner occupier, as distinct from a landlord, that's double the time you're likely to own the one property and roughly a third of the time you're likely to own any real estate (unless you live substantially longer than average or buy a house the day you turn 18).

So for an owner occupier, I see it as a case of getting on with life and not worrying about the value of houses too much. Even if it does drop 50% that's only a real issue if you are selling and not buying another property, which generally wouldn't be a relevant decision in this timeframe for those not currently owning their own home (assuming they would mostly be under 40 and thus not likely to be a "last home seller" anytime soon).

A lot of that comes down to personal preference. Personally, I'd rather take the risk of losing some paper wealth, but not physical wealth (the house won't suddenly halve in size even though its' price might) than put up with renting for the next decade or two. Sure, there are good rentals and good landlords but there's an awful lot of hassles with renting at times too.

Whilst I agree with your general message, if prices fall and unemployment rises, there will be quite a few who *will* have to worry, as Mr Bankman will come knocking and asking for keys.

It has happened before, and will definitely happen again.

The smart will ensure that their exposure is not too great, the young mums and dads will be the ones hurt (as is the way with most crashes)



- - - Updated - - -

Despite mortgage rates falling to near record lows, the proportion of aggregate household income chewed-up by mortgage interest is still well above that of the late-1980s/early-1990s, when mortgage rates peaked at 17%. This is because of the inflated housing values and the corresponding high debt loads carried by Australian households.

and some people who live in disneyland think that rates will stay low forever. They will not.

If our dollar stays low, inflation will increase, and rates will be forced up (look at petrol prices atm )

MW

PS where is Robots?

 

[Whiskers]

=sydboy007;795376
Despite mortgage rates falling to near record lows, the proportion of aggregate household income chewed-up by mortgage interest is still well above that of the late-1980s/early-1990s, when mortgage rates peaked at 17%. This is because of the inflated housing values and the corresponding high debt loads carried by Australian households.

I was in the negative geared rental market then and everything seemed easier than now.

I agree, and mentioned earlier, that price inflation has outstripped income and savings. I also believe our RBA should have lowered rates sooner, partly from the affordability perspective, but to allow generation of more savings. The RBA worries about stimulating demand too much by lowering too much, but in hindsight they should have realised by now the dynamics of the housing market was changing radically and in all the circumstances we saw in hindsight how incentives like the Qld $10,000 building boost scheme failed to stimulate first home ownership or new home building quite miserably while our savings rate increased slightly, but as you say it's still under pressure.

Despite the property spruikers (warning issued by ASIC) best efforts property prices have not increased in proportion to interest rate cuts, because of the changing dynamics of home buyers, economic uncertainty and trying to increase savings... the RBA should be lowering faster if it was more focused on the competitive and comparative interests of the country than just the banking system.

A lot of the problem is to do with the difference in the terms of operation for our RBA compared to the US FED and others and the core differences in their charter, especially relating to how they manage risk to the financial system and determine what is in the best interests of the country.

 

[sydboy007]

I agree, and mentioned earlier, that price inflation has outstripped income and savings. I also believe our RBA should have lowered rates sooner, partly from the affordability perspective, but to allow generation of more savings. The RBA worries about stimulating demand too much by lowering too much, but in hindsight they should have realised by now the dynamics of the housing market was changing radically and in all the circumstances we saw in hindsight how incentives like the Qld $10,000 building boost scheme failed to stimulate first home ownership or new home building quite miserably while our savings rate increased slightly, but as you say it's still under pressure.

TBH I think the current interest rates are reducing incomes more than increasing savings. I'm also sick of providing money at barely above CPI rates. The financial repression is probably doing more harm than good. We have to find some other way to get the AUD lower than bloody negative real interest rates.

Unless the ultra restrictive building practices in Australia are wound back then the issue of affordability will never be addressed.

The below graph makes me wonder if the liberaisation of financial markets was a good thing for the country.

 

[Quincy]

I agree with McLovin, but that is not to say that property will continue to go up.

Reasons that property will continue to climb for the next decade :

• Foreign buyers have far greater purchasing power than Australians
• China will keep buying our dirt

The following article lists what I see going on in and around where I live and is the reason, I believe, why there is a current surge in sales and increased prices in both Sydney and Melbourne.

I know one Chinese woman in my area (friend of a friend) with PR status who has purchased over 20 properties for overseas family and friends (all cash purchases - no Bank loans).

http://www.news.com.au/realestate/c...before-next-boom/story-fncq3era-1226704103879

Chinese migrants are helping friends and family in China to skirt Australia's foreign investment rules by purchasing established homes on their behalf, agents have told News Corp newspapers.

And Chinese developers are swooping on run-down commercial properties in Sydney and Melbourne to "land bank'' and redevelop as apartments during the next boom.

Foreign buyers snapped up one in every eight new properties built this year - up from one in 20 properties in 2011, National Australia Bank research reveals.

So great is the international demand - fuelled by a falling Aussie dollar and Beijing's ban on buying more than one property - that some developers are now marketing new units exclusively to offshore buyers.

"We're hearing that a lot of developers now aren't even marketing in Australia,'' NAB senior economist Robert De Iure said yesterday.

"They're marketing them in Hong Kong, Singapore and China and we're not even getting a look-in.''

Andrew Taylor, the Australian founder of Chinese property website Juwai, said Sydney, Melbourne and Brisbane were the most popular cities for Chinese househunting - but "Perth is really climbing fast''.

He said established homes were more popular than apartments bought off-the-plan.

But Mr Taylor said Chinese migrants were buying properties on behalf of family and friends living in China.

"Many international buyers will use their family and extended networks to purchase property in Australia,'' he said from Shanghai.

"If they have a relative who is a permanent resident, there is no restriction in purchasing a property.''

 

[sydboy007]

The following article lists what I see going on in and around where I live and is the reason, I believe, why there is a current surge in sales and increased prices in both Sydney and Melbourne.

I know one Chinese woman in my area (friend of a friend) with PR status who has purchased over 20 properties for overseas family and friends (all cash purchases - no Bank loans).

http://www.news.com.au/realestate/c...before-next-boom/story-fncq3era-1226704103879

I suppose the only good things from this is that at least some of the pain will be siphoned out of Australia should the crash come.

Will be interesting to see what these foreign buyers do if the AUD does a free fall to 60c or even 50c like it has done before. That's pretty heft currency losses for them, on top of any price falls due to increases in unemployment.

 

[Tyler Durden]

Question is, where are the Chinese getting all their money from?

 

[againsthegrain]

Question is, where are the Chinese getting all their money from?

Slave labour, sweat shops you name it. The sad reality is from a country with such a big population and huge gap between the rich and the dirty poor. The 1% that take advantage of a whole population of people who are born into poverty and debt is still a huge number. The sad thing is if they buy everything out here guess who will be the new generation of workers for them and their kids .... you guessed it our kids

 

[ROE]

The following article lists what I see going on in and around where I live and is the reason, I believe, why there is a current surge in sales and increased prices in both Sydney and Melbourne.

I know one Chinese woman in my area (friend of a friend) with PR status who has purchased over 20 properties for overseas family and friends (all cash purchases - no Bank loans).

http://www.news.com.au/realestate/c...before-next-boom/story-fncq3era-1226704103879

In a few years you see articles that friend, relatives or who ever has the properties in their name and the actual owner want to sell and get their money they can't ..

This stuff repeat so many times in so many countries I am surprise people haven't learned -

Legally there is nothing they can do...I am surprise people that stupid hand over money to title they don't owned

 

[satanoperca]

Slave labour, sweat shops you name it. The sad reality is from a country with such a big population and huge gap between the rich and the dirty poor. The 1% that take advantage of a whole population of people who are born into poverty and debt is still a huge number. The sad thing is if they buy everything out here guess who will be the new generation of workers for them and their kids .... you guessed it our kids

Exactly, the USA conquers by War

The Chinese conquer by trade.

As for the slave labour, it is we who buy their products, without foreign demand for cheap goods where would they be.

Cheers

 

[satanoperca]

I suppose the only good things from this is that at least some of the pain will be siphoned out of Australia should the crash come.

Will be interesting to see what these foreign buyers do if the AUD does a free fall to 60c or even 50c like it has done before. That's pretty heft currency losses for them, on top of any price falls due to increases in unemployment.

I know of several successful business men in Malaysia who have been buying properties in Australia over the years. They park their money in property in Aus when the exchange rate is low, when it goes up, they sell the properties and move the money back to Malaysia. They are less concerned with the increase in property and more concerned following the exchange rates.

As for the dollar dropping to 60c, that would see us totally stuffed. Retail would get smashed, local manufacturers that all use imported materials totally killed off, transport costs around Australia would sky rocket.

Somehow I think the RBA would jump in like they did last time to prevent it happening.

While I agree Aus property seems high on every metric, it is still the best and safest place to live.

From my understanding the Chinese don't need to buy extensive amounts of property in Aus, just $5M in the bank and you have residency. Ten of thousands of Chinese would have that cash.

Before people make comments on China, spend some time there, the people are amazing and the countries growth is incredible, they will rule the world one day.

 

[prawn_86]

I know of several successful business men in Malaysia who have been buying properties in Australia over the years. They park their money in property in Aus when the exchange rate is low, when it goes up, they sell the properties and move the money back to Malaysia. They are less concerned with the increase in property and more concerned following the exchange rates.

No offense but that sounds like a extremely poor way to invest in currencies. The holding costs and entry and exit costs for property is huge. If they are looking to play the currency markets there are other way way way more efficient means of doing so

 

[See Change]

.... Sigh .....

Came over here to find out what people thought is the direction of the stock market and the longest post is on property .

Well Australian property prices are going up . Lead by Sydney and Perth ( ? Peaked in Perth ) .

Sydney is hot and the herd's hoof beats are beating in various other markets . We've just bought property in Brisbane

I'd bet my house on it ..... Actually three houses , two town houses and numerous units Geared up and not looking for any more buys at the moment .

So what is happening in the stock market ...

Cliff

 

[satanoperca]

No offense but that sounds like a extremely poor way to invest in currencies. The holding costs and entry and exit costs for property is huge. If they are looking to play the currency markets there are other way way way more efficient means of doing so

No offense to me, as I don't have the 10 of millions they have to play with.

Cheers

 

[Smurf1976]

.... Sigh .....

Came over here to find out what people thought is the direction of the stock market and the longest post is on property

What's the problem with that?

Nobody ever said you need to read every thread on the whole forum. I don't see a problem at all with a property thread on a stock forum - just only read the stock ones if you aren't interested in broader economics or property investment.

As for why it's the longest, that's easy to answer. There's a separate thread for every stock on the ASX versus one property thread covering every city, suburb and town in Australia.

 

[medicowallet]

.... Sigh .....

Came over here to find out what people thought is the direction of the stock market and the longest post is on property .

Well Australian property prices are going up . Lead by Sydney and Perth ( ? Peaked in Perth ) .

Sydney is hot and the herd's hoof beats are beating in various other markets . We've just bought property in Brisbane

I'd bet my house on it ..... Actually three houses , two town houses and numerous units Geared up and not looking for any more buys at the moment .

So what is happening in the stock market ...

Cliff

an account opened in 2005.

Resurrected now.

how is it Robots?

MW