The future of Australian property prices

[sydboy007]

I'm a bit the same . The reality is that the property market has roughly double every ten years and in that time frame sydney has well and truly under performed .
Cliff

Real price rises for Australian property is a very recent phenomenon

 

[young-gun]

Can someone please tell me where the hell the growth in property prices is going to come from? Other than moronic speculators and a bunch of people(which other than this thread on occasion appears to be the vast majority) that still think property prices will only go up from here? The good ol' days have past. Those with a lot of capital may do well for a short period.

We are marching, and have been for some time, into unprecedented territory on a global scale. Seems most have their eyes closed.

 

[Smurf1976]

We are marching, and have been for some time, into unprecedented territory on a global scale. Seems most have their eyes closed.

+1 And there are plenty of unique factors that we haven't experienced previously. Among them:

Development of China and other countries, greatly reducing the % of the world that is "undeveloped" and increasing that which is "developed".

Credit and other economic factors.

Demographics both Australian and overseas.

Oil supply (basically flat) versus surging consumption in previously undeveloped countries.

Transformation of the Australian economy from value added manufacturing to what is basically a traditional Third World model - the supply of raw materials for export plus a reliance on service industries.

The imminent surge rise in gas prices for most Australian states. This not only affects household bills but also manufacturing and to some extent electricity prices. So it affects practically every business and household in most Australian states.

Many things which used to be done either by government or "boring" privately owned monopoly utility companies are now privately run and are themselves a market.

An unsustainable reliance on one-off asset sales to fund ongoing government operations.

Changing consumer preferences. Anecdotally, it seems that many 20-something's aren't overly interested in owning a car or even learning how to drive one these days whereas various forms of electronic downloads are now a significant business. The desire to own a suburban house on a reasonable sized block also seems to be declining, indeed in the major cities many seem to have already given up on the idea completely.

Australia hasn't been involved in a major military war for quite some time. Sooner or later, that will probably change (when and with whom is hard to predict, but there have always been wars and most likely always will be).

The information economy. What used to be either unavailable or obtained only by a few with niche interests is now freely available to everyone. And yet much actual knowledge, as distinct from information, is perhaps less known today than ever before.

Climate change. A controversial topic, but if the climate is changing (for whatever reason) then that has massive implications in all sorts of areas.

Globalisation of everything from the supply chain to consumer purchasing. No longer does a rise in retail spending translate to a boom in the shops in your own town, state or even country. Not long ago if you wanted to purchase something from the US (for example) then most would only consider it if they were already physically travelling to the US for some other reason (eg holidays). Now you shop overseas whilst sitting on the bus (for example) right here in Australia.

And no doubt many more that I haven't listed. There are a lot of factors that are very different now to at any time in living memory.

 

[sydboy007]

Can someone please tell me where the hell the growth in property prices is going to come from? Other than moronic speculators and a bunch of people(which other than this thread on occasion appears to be the vast majority) that still think property prices will only go up from here? The good ol' days have past. Those with a lot of capital may do well for a short period.

We are marching, and have been for some time, into unprecedented territory on a global scale. Seems most have their eyes closed.

The debt levels of the household sector are just scary. Nearly a years GDP IRRC. Something like 1.2M landlords, so how a recession plays out when so many have negatively IPs, no idea, but I expect the fallout will be quite swift and brutal. Only have to look at how things played out in the USA / Spain / Ireland to see how quickly house price inflation can evaporate. It may be the least bad outcome for the country.

The big problem we all have is:

* Resi property is over priced

* Commercial property is fully priced and vacancy rates are starting to get quite high ~10% OZ wide.

* Share market is realtively fully valued with pockets of inflated prices (mainly due to the financial repression going on)

* Interest rates are artifically low so most forms of lending are barely worth it after inflation and tax.

About the only area I can see sort of worth investing in is the odd corporate bond, but I don't see that lastig too long as the hunt for a relatively stable income gets worse. Lots of TDs are goign to be rolling over and people lookign at 40% income drops

So with all that i can see why too many see the safety in bricks and mortar.

 

[ftw129]

The churning of established residential housing stock at ever higher prices provides little economic benefit while driving up household debt and rents. Such investing is non-productive, an economic burden to society and needs to be curbed.

That would be established residential property, not your generalization. Shares are a form of business ownership, and many businesses produce something for profit that represent productive use of capital that generate economic activity, employment and benefit for society. There is no comparing the increasing profitability of a business and it's increasing share price to the non-productive use of capital deployed in churning established residential property.


That is a highly debatable and disputable statement. My point remains, regardless of the market, the churning of established residential real estate is unproductive use of capital and very costly to society as a whole.

Why we ever started to view teh family home as an asset, but that's the problem we have now. Household debt approaching GDP, sky high rents, an economy growing under mortgage debt and Government too afraid to remove negative gearing from current assets so it bleeds around $30B a yearfrom probably more productive purposes.

It will be fun till the music stops, and then it'll be like the late 80s where tens of thousands, probably hundreds of thousands this time, will be wiped out as the debt house of cards is blown over.

So, it's safe to assume then that when this inevitable collapse comes (that so many of you with such strong morals are waiting for) that you will not be jumping in on the feeding frenzy and buy as much as you possibly can... After all, such good people like yourselves need to lead by example right?

How very honorable. Good on you

 

[DB008]

Supply and Demand.

Not enough new dwellings built over the years (ie, shortfall), there is high demand = prices go up.

 

[FxTrader]

So, it's safe to assume then that when this inevitable collapse comes (that so many of you with such strong morals are waiting for) that you will not be jumping in on the feeding frenzy and buy as much as you possibly can... After all, such good people like yourselves need to lead by example right? How very honorable. Good on you

You can leave your assumption in the trash can of useless commentary where it belongs. Predicting a downturn is quite different from wishing for one. One wonders what high moral ground you're trying to occupy by attacking the assumed morals of others here, a judgement you make based on a few comments. This says more about your character than anyone else here.

 

[sydboy007]

So, it's safe to assume then that when this inevitable collapse comes (that so many of you with such strong morals are waiting for) that you will not be jumping in on the feeding frenzy and buy as much as you possibly can... After all, such good people like yourselves need to lead by example right?

How very honorable. Good on you

Not sure why morality is part of this discussion?

I think you can easily see most people in this thread don't see the economics of property stacking up as an investment as things stand. Very low yield, high holding costs.

Do I look forward to a property crash? Nope. Do I think we've been stupid enough to get ourselves into this situation and deserver what we get. Yes. Would I be tempted to invest in property if prices fell? They'd have to at least halve and then it would depend on what the yield was with that scenario playing out.

No on forced all the over indebted to take on too much debt. I never understood why someone wanted to sign up for a 25 year mortgage that consumes 30%+ of their income. Talk about stress and precarious financial position.

If we could go back to seeing the family home as shelter, not an asset, I think the economy would be much better for it.

 

[craft]

Not sure why morality is part of this discussion?

The morals of the high housing price is interesting – not at an individual level but the bigger picture.

Paying high multiples of earnings and the associated large interest burden that goes with that over a lifetime means the new generation are paying a much higher percentage of their lifetime income for shelter then those of previous generations. The beneficiaries are those who are leaving the market or downsizing and have enjoyed the run-up in prices over their lifetime.

It is effectively an intergenerational transfer of wealth, facilitated to some extent by the taxation arrangements put in place by the predominant voting bloc that benefit from that transfer of wealth.

To the extent the older generation does not consume the wealth that has been created by a younger generation paying too much to get into housing, but instead pass the house or wealth on – In the absence of death duties that tax that rentier wealth you face another moral challenge of creating a class distinction between those families that own housing and those that can’t break in due to the high prices.

A society without taxation warping the property market would see lower house prices and be much more equitable.

 

[FxTrader]

The morals of the high housing price is interesting – not at an individual level but the bigger picture.

Paying high multiples of earnings and the associated large interest burden that goes with that over a lifetime means the new generation are paying a much higher percentage of their lifetime income for shelter then those of previous generations. The beneficiaries are those who are leaving the market or downsizing and have enjoyed the run-up in prices over their lifetime.

It is effectively an intergenerational transfer of wealth, facilitated to some extent by the taxation arrangements put in place by the predominant voting bloc that benefit from that transfer of wealth.

To the extent the older generation does not consume the wealth that has been created by a younger generation paying too much to get into housing, but instead pass the house or wealth on – In the absence of death duties that tax that rentier wealth you face another moral challenge of creating a class distinction between those families that own housing and those that can’t break in due to the high prices.

A society without taxation warping the property market would see lower house prices and be much more equitable.

+1

Exactly right Craft, the entrenched interests of property investors in particular are driving the market distorting taxation policies that will ensure a greater proportion of future generations will be forced to rent rather than own.

 

[ftw129]

FXTrader,

My point remains, regardless of the market, the churning of established residential real estate is unproductive use of capital and very costly to society as a whole.

The churning of established residential housing stock at ever higher prices provides little economic benefit while driving up household debt and rents. Such investing is non-productive, an economic burden to society and needs to be curbed.

Sydboy has already admitted he will take advantage of significant falls should they arise.

Would I be tempted to invest in property if prices fell? They'd have to at least halve and then it would depend on what the yield was with that scenario playing out.

Followed by

If we could go back to seeing the family home as shelter, not an asset, I think the economy would be much better for it.

How about you FXTrader? After doing a good job of convincing readers of how bad investing in residential property is, will you take advantage of significant falls when they occur? Let's say falls of at least 50%...

 

[See Change]

Hi Syd boy .

I've seen that graph before , linked from one of the regular D&G posters we have on Somersoft . Personal research and statistical curve fitting to support one persons theory . ( lies , damn lies and statistics ...) .

The reality is that prices were not flat from 1880 to 1950.

One thing I learn early on in my share trading days was to look at exponential charts . If he plotted that on an exponential chart the rise would be a straight line and certainly not as sinister as he would like to portray .

I'm not that interested in " adjusted Values " . When I buy a property , I'm not personally paying the full Price . I'm borrowing everything ( the deposits come from an LOC on my PPOR which I fully own ) so what the property costs me is the cost of the holding costs over the rent ) . My borrowings stay the same and the value of my properties go up . For example two units I bought just after the GFC have gone up around 500 K while costing me around 25 K to hold. The rent has gone up and with a fairly inexpensive renovation we can increase the rent to the point where we will have income coming in from these properties. We'll get around to organising that soon , but at the moment we've been busy buying more properties. Eventally my borrowings on those properties will be insignificant compared to their value and rental return.

Can someone please tell me where the hell the growth in property prices is going to come from? Other than moronic speculators and a bunch of people(which other than this thread on occasion appears to be the vast majority) that still think property prices will only go up from here? The good ol' days have past. Those with a lot of capital may do well for a short period.
We are marching, and have been for some time, into unprecedented territory on a global scale. Seems most have their eyes closed.

AS pointed out , prices go up because demand outstrips supply . Free market economics 101 . I'm surprised someone on a share forum needs to ask that .....

If as you suggest , the majority of people expect this ( however wrong you may feel they are ) then in all likelhood it's going to happen .

People are paying more for properties because they can afford too....

Sydney has only just started reaching new highs after 10 years of sideways movement.

Marching with their eyes closed . Yes ,there are many people doing that . I'm not . During the last boom I sold down many of the properties so when the GFC hit I had an LVR of around 15 % . When the GFC hit we were able to make cash offers to people who hadn't been that prudent .

Was it Buffet who said that wealth creation is the the transfer of money from the impatient to the patient . I'm patient . The business cycle is a reality and I'm happy to take advantage of it .

We will sell down our first property somewhere between 1-3 years from now depending on how fast the market rises . We have purchased properties specifically with the aim of selling them to clear debt on our remaining properties . The aim at the end of the current boom is to have a portfolio completely paid off.

There will be another slump at the end of the next cycle . I'll be surprised if it's 40 % , but if it is I'll be on the sidelines waiting to buy.

The debt levels of the household sector are just scary. Nearly a years GDP IRRC. Something like 1.2M landlords, so how a recession plays out when so many have negatively IPs, no idea, but I expect the fallout will be quite swift and brutal. Only have to look at how things played out in the USA / Spain / Ireland to see how quickly house price inflation can evaporate. It may be the least bad outcome for the country.
The big problem we all have is:
* Resi property is over priced
* Commercial property is fully priced and vacancy rates are starting to get quite high ~10% OZ wide.
* Share market is realtively fully valued with pockets of inflated prices (mainly due to the financial repression going on)
* Interest rates are artifically low so most forms of lending are barely worth it after inflation and tax.
About the only area I can see sort of worth investing in is the odd corporate bond, but I don't see that lastig too long as the hunt for a relatively stable income gets worse. Lots of TDs are goign to be rolling over and people lookign at 40% income drops
So with all that i can see why too many see the safety in bricks and mortar.

Ever since I've become interested in investing I've seen people spouting their view on why various types of investing won't work . I've learnt not to listen to them and trust my own observations. There are always Doom & Gloom merchants , some more high profile than others.

Currently we're hearing about a property buble and how we will have a 40 % slump .

Do you remember Steve Keen ? Despite the Great Recession , prices only came back around 5 % .


Currently the world economy is getting back on track and I don't expect the next slump for a while . By then I'll be debt free or with a very low LVR and bullet proof .

In terms of a property bubble , as said my observations are the Sydney , which is the only hot market in australia at the moment is leading the charge , but has only recently set new highs .

What does the the RBA say ?

Last week, the Reserve Bank hosed down fears of a bubble as ''unrealistically alarmist'', saying prices were rising in line with incomes over the past decade

Another fear raised has been that the RBA may cap the LVR at which banks can lend money . NZ has gone done this path to a degree , but they haven't put a blanket cap , just put a restriction on how many loans can be done at higher LVR but their central bank has greater powers.

While generally debunking concerns of a property bubble ANZ Australian chief executive Phil Chronican said

if prices surged for a couple of years time and it concerned authorities, macroprudential policies could be appropriate.

If the Reserve Bank saw an asset price rise that concerned them, but otherwise wanted to keep interest rates low in order to stimulate other activity, they might look at whether they could in conjunction with APRA do something of that nature.
I don’t think we’re anywhere near that level of thinking at the moment

A two year time frame is fine by me ( any times ok actually ) . By then I'll have a low debt level and be looking for my next opportunity.

Another concern raised at the moment is the involvement of SMSF as being a factor in driving the Property . The reality at the moment 0.48 % of loans in property are within SMSF's... (

Guys , If you want to stay on the side line and winge about why prices shouldn't and won't go up , while they obviously are going up , Fine by me . All yours and my pontificating on this forum wont change what is in the process of happening . For me , the point of posting on a forum is to give back something in return for what other people gave me in terms of education ten years ago . If you want to listen .......

I always need people to pay the rents in my investments properties and the more Gen X'ers who invest in the share market or spend all their money on OS holidays or the latest 3 series rather than getting into the property market , the happier I am .

Now to the really important question for the weekend . After disposing of my swannies , can Freo go on and beat hawthorne . Go the Dockers

Cliff

 

[13ugs13unny]

I always need people to pay the rents in my investments properties and the more Gen X'ers who invest in the share market or spend all their money on OS holidays or the latest 3 series rather than getting into the property market , the happier I am .

Depends, that's from your point of view & how you see it.

Gen X'ers I believe prefer the share market as it is more liquid. The Sydney property market has plateau'd and as you stated, soften somewhat, but I think it will stick around that scenario for sometime to come. As an Xgener I think another property boom being repeated is unlikely, even though I own my own.

Rent yields in Sydney have declined due to enormous amount of new stock being constructed, and Gen X'ers have plenty to chose from, and the LAFHA {living away from home allowance has been abolished.}

If you own property as an xgener they're probably better to be considered as existing future bricks&mortar super funds, where Xgeners like me will rent them out as we downsize into one bedders or studios inner city like baby boomers have done.

Nothing wrong with property, but as a Xgener I feel a mix of cash. shares, and the home you own or rent to be a good mix, without running the risk of been shafted by higher interest rates in the up cycles as we were several times in the past{we've learnt our lesson}.

 

[See Change]

The Sydney property market has plateau'd and as you stated, soften somewhat, but I think it will stick around that scenario for sometime to come.

Rent yields in Sydney have declined due to enormous amount of new stock being constructed, and Gen X'ers have plenty to chose from, and the LAFHA {living away from home allowance has been abolished.}

.

Sorry Bugs but what planet are you on . ALL of the current commentary on the property market is concerning about whether Sydney is in a bubble. ( it's not ) Plateaux .....Softening ....who mentioned that

Softening rents ...We've just had a vacancy . increased the rent $ 50 / week and gone straight away .

People having plenty to choose from ... not any where I've heard about in sydney.

Just bought a house in turramurra and we've rented it for $20 / week more than it was renting previously . Gone within a week.

Are you for real or are you still trying to work out who framed roger ...?.

If you're going to contribute to this debate , getting you basic facts wrong undermines any credibility you think you might have had

Cliff

 

[sydboy007]

The morals of the high housing price is interesting – not at an individual level but the bigger picture.

totally agree with you. But i felt the comment was at the individual level.

The whole transfer of wealth is why it gawls me to see pensioners with huge illiquid assets receiving full pensions, while below median wage earners are barely able to pay the rent and utilities to have the money left over for food and the odd luxury that makes life worth living.

But we have the tax system we have and until there's enough anger to take on the vested interests that are doing quite nicely from the status quo things wont change

 

[sydboy007]

Sorry Bugs but what planet are you on . ALL of the current commentary on the property market is concerning about whether Sydney is in a bubble. ( it's not ) Plateaux .....Softening ....who mentioned that

Softening rents ...We've just had a vacancy . increased the rent $ 50 / week and gone straight away .

People having plenty to choose from ... not any where I've heard about in sydney.

Just bought a house in turramurra and we've rented it for $20 / week more than it was renting previously . Gone within a week.

Are you for real or are you still trying to work out who framed roger ...?.

If you're going to contribute to this debate , getting you basic facts wrong undermines any credibility you think you might have had

Cliff

I live in Erskineville Sydney. Go back 12-18-24 months and i'd rarely see a fore rent sign on a property in the area. They'd get advertised on line / agent and be rented out that quick no use putting up a sign. Last 6+ months I've noticed properties with for retn signs out front for quite some time.

You like proeprty and have done well, that's fine, but you can't argue with the fact that part of the great wwonderful property boom was the halving of interest rates, the increase in double incoem families, and the advent of banks pushing credit onto anyone they could.

All those tail winds are gone, and now I see a future where the demographics move against housing

 

[See Change]

I live in Erskineville Sydney. Go back 12-18-24 months and i'd rarely see a fore rent sign on a property in the area. They'd get advertised on line / agent and be rented out that quick no use putting up a sign. Last 6+ months I've noticed properties with for retn signs out front for quite some time.

You like proeprty and have done well, that's fine, but you can't argue with the fact that part of the great wwonderful property boom was the halving of interest rates, the increase in double incoem families, and the advent of banks pushing credit onto anyone they could.

All those tail winds are gone, and now I see a future where the demographics move against housing

I don't know erskinville personally so can't comment . One observation though is that agents like advertising themselves and will often leave signs up for a while after somewhere has sold or rented as ongoing advertising.

The reality is that property has been doubling every ten or so years for a long time .

We moved to Sydney in 69 and the preceeding year property had gone up significantly . My parents paid the really expensive price of 25 K for a house that he could have bought closer to 15 k the year before . ( someone paid mid 1's for it a few years ago and bulldozed it for land value. ) . There have been booms in the 70's . 80's etc on an ongoing basis . In the recession we had to have Prices where booming while rates were soaring . every one was buying as the rates went up so they could lock in before they went up further .

In the late 80's prices doubled in little over one year . Our friends bought in Concord west in the 90,000's . We rented it off them while they were over seas and two years later we bought a Sh... hole two streets away for 205, OUtside toilet .. cracks in every wall and warped ceilings . Went sideways for next seven years .

Most of the booms I've been though didn't have the reason of double incomes , low rates or banks pushing loans.

As a newly graduated Professional in the mid 80's the banks wouldn't lend me money. When we bought in the late 80's the banks wouldn't lend us money until we got a small loans for our parents to help with the deposit > I know many people who had to do the same , and most of those people help their kids out now. If not , you can get loans for 95 % LVR now , where as we could only borrow at 80 % so some things are easier.

There are always reasons why not to invest.

I will be incredibly surprised if we see property in Sydney back to the level it is now and I expect it to go up around 50 % in the next 3-5 years and double in the next ten. I won't be surprised if that's conservative in time frame.

You will always get individual properties that sell very cheaply in a pull back for individual reasons. Stats say that around 1/3 of sales are under duress , but as a market as a whole , unlikely.

Cliff

 

[Bill M]

Rent yields in Sydney have declined due to enormous amount of new stock being constructed, and Gen X'ers have plenty to chose from, and the LAFHA {living away from home allowance has been abolished.}

This is not true. I currently own an IP on the Northern Beaches of Sydney and I have been renting it out for 4 years now. Every year the agent advises me to raise the rent so I do and the unit has never been vacant. In that 4 year period I have had 3 tenants, the last one just signed another 1 year lease and is commencing her 3rd year there. On the northern beaches there is very little stock to rent, just ask anyone who wants to rent a place how hard it is to find a place. Right now a mate of mine is renting a self contained converted garage in Brookvale for $285 p/w. Rents are continuously on the way up and so are prices.

 

[See Change]

Don't expect the brakes applied any time soon

One aspect to think about is that the Government will be relying on increasing property prices to boost the economy , peoples confidence wealth & spending will go up . The government aren't going to cut the deficit by cutting spending , b ut by increased income. The property industry is a prime mover in the economy . So what shares should you be buying ...

Treasurer Joe Hockey told reporters in Canberra that he was not worried about a housing bubble and rising prices should help generate new construction.

“The most important point at this stage is that there is confidence back in the real estate market in Australia,” Mr Hockey said.

“Rising house prices actually help to make marginal property development viable. And there is a shortage of supply out there and what this will do is make supply more readily available.”

Mr Abbott also welcomed rising property prices.

“Don’t forget … if housing prices go up, sure that makes it harder to get into the market, but it also means that everyone who is in the market has a more valuable asset,” he said…

“I would be confident that the Reserve has got its eye on housing prices and will appropriately manage the level of interest rates.”

There are more people in the market , than trying to get in .....


Cliff

 

[ftw129]

totally agree with you. But i felt the comment was at the individual level.

It was.

The whole transfer of wealth is why it gawls me to see pensioners with huge illiquid assets receiving full pensions, while below median wage earners are barely able to pay the rent and utilities to have the money left over for food and the odd luxury that makes life worth living.

sydboy007, I'm just trying to figure out what you're (and a few others) intentions are. You play the violin for the poor regular Aussie battler that just wants to put a roof over their heads for their family yet you openly admit you'll happily participate in the exact same thing that you're preaching against.

What exactly are you trying to achieve here?