The future of Australian property prices

[moXJO]

Are you so bullish because your a liberal voter?, one week before the election budget emergency, doom & gloom next minute huge boom -everywhere. in the famous words of our queen "*please explain*"?

Why are you important?

If you are too stupid to make property work, or too blind to see where NSW is at the current time don't bother quoting me. I'm not interested in guys who have no skin in the game and their head up their ass. And there is a lot of posters that fill the comfortable on my wage with pi$$ all investments, yet seem to have the all knowing opinion on everything they don't invest in. Good for you.

 

[KurwaJegoMac]

Are you so bullish because your a liberal voter?, one week before the election budget emergency, doom & gloom next minute huge boom -everywhere. in the famous words of our queen "*please explain*"?

You severely underestimate the power of sentiment. The herd moves as one and sometimes all they're looking for is one single excuse or trigger and BAM off it goes in a different direction.

 

[medicowallet]

You severely underestimate the power of sentiment. The herd moves as one and sometimes all they're looking for is one single excuse or trigger and BAM off it goes in a different direction.

The older I get, the more this becomes the driving force of my investments.

The only thing I need to get better at is jumping off the train or onto the train at the right time, but no matter what the fundamentals of the ride are, it is hard to stop a train that is driven by idiots.

MW

 

[Whiskers]

If you had $400k in cash to invest then yes, TDs may look more attractive but a property investor would view such an amount as an opportunity to borrow another 2 million from the bank to acquire more investment property.

One would have to expect that more money will sit in TD's than hit the property market in the near future with the prospect of rates rising again and shrinking yields @ ~ 4% for the last decade.

The conundrum atm is value with room for price rises for near or medium term capital gain are hard to find and despite low vacancy rates, rents (on average) have resisted moving up with prices to improve yields.

Together with the steady trend for gen Y to live in family home for longer and slight trend to higher density units over houses, it seems prices are facing strong resistance.

Then there are reports of heaps of unused commercial high rise that may be converted to more economical residential rentals.

Probably the most significant factor to influence future prices is the $A. If the fickle US growth falters with QE phasing out, and the USD falls... that will hit our household affordability and hurt the fed revenue again... only worse than with a mining boom like before.

 

[medicowallet]

Probably the most significant factor to influence future prices is the $A. If the fickle US growth falters with QE phasing out, and the USD falls... that will hit our household affordability and hurt the fed revenue again... only worse than with a mining boom like before.

Ok, so USD decreases (hence ours increases in relative terms). I assume you are thinking this indirectly affects "household" affordability, as I usually think increased dollar is good for purchasing imports... so please explain your thoughts to me..

I can make arguments that a decreasing dollar is good or bad for housing and vice versa. It is difficult to really have a good understanding of the dollar effect since Rudd the fool opened up foreign investment into our residential housing stocks more greatly (what an idiot)

MW

 

[Whiskers]

Ok, so USD decreases (hence ours increases in relative terms). I assume you are thinking this indirectly affects "household" affordability, as I usually think increased dollar is good for purchasing imports... so please explain your thoughts to me..

I can make arguments that a decreasing dollar is good or bad for housing and vice versa. It is difficult to really have a good understanding of the dollar effect since Rudd the fool opened up foreign investment into our residential housing stocks more greatly (what an idiot)

MW

Household affordability is driven by employment, debt levels and interest rates. Debt levels are still quite high, unemployment rising and expected to continue to keep rising in the near future just with fed budget cuts that translates into more unemployed, without allowing for additional from continued retraction of mining development.

Everyone knows interests rates are close to bottom if not there and realise any increases will bite into disposable income and affordability.

My estimate is that the only short term hope for a strengthening Aus economy and property market is further lowering of the Aus $. That will not happen as much as I'd have hoped because of US monetary and fiscal policy. They are about to sneeze again and we will get the cold this time because our Gov and RBA isn't effectively countering the US and FED moves to try to protect their economy. The USD hasn't really gained in it's own right, it gained on the back of QE (which must end eventually) and because other currencies in the USDX weakened more.

In short, because the Howard government pretty much sold off the family farm on top of the early mining boom to balance a big spending budget and Labor largely squandered the last of the minng boom... we are to a large extent, as they say, up the creek without a paddle, in terms of the gov providing increased spending to boost the economy this time.

High household debt, equity mostly flat or falling, unemployment rising and a broke gov means property hasn't got much upside, but lots of downside.

 

[sydboy007]

http://www.smh.com.au/money/investing/not-a-time-for-tax-losses-and-capital-gain-20131008-2v4rf.html

Only about a third of those who report to the Tax Office that they have an investment property make money.

Earlier this year, Cameron Kusher from RP Data looked at the Tax Office's negative gearing numbers for the 2010-2011 financial year, the latest available. He found the average annual loss for these investors is about $210 a week, or just under $11,000 a year.

But anybody buying a property today as a loss-maker, relying on capital gains to make good, should be very careful. It is likely that too many investors place too much importance on the tax breaks from negative gearing. The Reserve Bank warned recently that it expects growth in house prices to be more in line with income growth than a repeat of the earlier price boom.

 

[FxTrader]

Only about a third of those who report to the Tax Office that they have an investment property make money.

Earlier this year, Cameron Kusher from RP Data looked at the Tax Office's negative gearing numbers for the 2010-2011 financial year, the latest available. He found the average annual loss for these investors is about $210 a week, or just under $11,000 a year.

But anybody buying a property today as a loss-maker, relying on capital gains to make good, should be very careful. It is likely that too many investors place too much importance on the tax breaks from negative gearing. The Reserve Bank warned recently that it expects growth in house prices to be more in line with income growth than a repeat of the earlier price boom.

The problem with quoting such data is that it ignores the bigger investment picture and therefore injects a bias. The average annual loss number must be weighed in the context of all tax offsets associated with the investment. All factors considered, the question then is simply whether or not the property is cash flow positive or negative and to what extent.

If an investment property reports a profit, that simply means income exceeds expenses (e.g. positively geared). If 33% of property investors report a profit on their investment property that tells me they are quite conservative in terms of their gearing levels. If find such a number slightly surprising given how heavily property investment is promoted in Aus as a wealth creation vehicle.

Most of the property investors I associate with analyze the cash flow of any potential acquisition prior to making a purchase decision. Only focusing on the potential capital growth of a property is the mark of an amateur investor.

 

[sydboy007]

Most of the property investors I associate with analyze the cash flow of any potential acquisition prior to making a purchase decision. Only focusing on the potential capital growth of a property is the mark of an amateur investor.

Fully agree with you, yet NG seems to blind so many when it comes to an IP.

I find those stats quite scary, especially as averages generally hide the outliers. I'd like to know the median annual loss, and even better would be to know the 25% bands. The problem as I see it is for those with large losses that need to be funded by other income are in a precarious situation. Hours worked is still falling, yet more people are employed so not sure if that's a good or bad thing.

I just wonder what the tipping point is in terms of unemployment and low capital growth expectations. The wilder beasts are fun to watch as they gently graze, but stampedes for the exit can be pretty traumatic.

I'm sure with specialised knowledge and some capital behind you there's still pockets of value in the market, but in general terms how much longer can rental yields keep falling? How much longer can a real negative 5-6% yield be maintained in the residential market?

I thought in 2007 with interest rates going to 9% it would cause a shake out, then rates fell so rapidly post GFC, and home vendor grants propped up the market, now financial repression is encouraging further speculation.

 

[medicowallet]

Household affordability is driven by employment, debt levels and interest rates. Debt levels are still quite high, unemployment rising and expected to continue to keep rising in the near future just with fed budget cuts that translates into more unemployed, without allowing for additional from continued retraction of mining development.

Everyone knows interests rates are close to bottom if not there and realise any increases will bite into disposable income and affordability.

My estimate is that the only short term hope for a strengthening Aus economy and property market is further lowering of the Aus $. That will not happen as much as I'd have hoped because of US monetary and fiscal policy. They are about to sneeze again and we will get the cold this time because our Gov and RBA isn't effectively countering the US and FED moves to try to protect their economy. The USD hasn't really gained in it's own right, it gained on the back of QE (which must end eventually) and because other currencies in the USDX weakened more.

In short, because the Howard government pretty much sold off the family farm on top of the early mining boom to balance a big spending budget and Labor largely squandered the last of the minng boom... we are to a large extent, as they say, up the creek without a paddle, in terms of the gov providing increased spending to boost the economy this time.

High household debt, equity mostly flat or falling, unemployment rising and a broke gov means property hasn't got much upside, but lots of downside.

So indirectly, thanks for clarifying your thoughts.

Totally agree with your thoughts on Howard and the Labor govts too.. This is the problem with the country. It is controlled by the vote of the masses (many of which are clueless) and hence what is done is NOT what is best for the whole, it is done for what is the best for the voters, many of which have no clue as to what would be best for the country..... an example of this is the rollout of the NBN at the expense of rolling out infrastructure that would improve EXPORTS!! crazy isn't it.. but then again, there aren't many politicians who have ever run successful companies or whatever..

MW

 

[medicowallet]

I'm sure with specialised knowledge and some capital behind you there's still pockets of value in the market, but in general terms how much longer can rental yields keep falling? How much longer can a real negative 5-6% yield be maintained in the residential market?

I thought in 2007 with interest rates going to 9% it would cause a shake out, then rates fell so rapidly post GFC, and home vendor grants propped up the market, now financial repression is encouraging further speculation.

It will continue to be supported by:

1. A reserve bank which only has a weapon of interest rates that apply the same to business and personal loans.

2. Governments who continue to support negative gearing for property/shares.

MW

 

[FxTrader]

Roger Montgomery voices his concern about SMSF trustees being enticed to speculate on property...

 

[ROE]

Roger Montgomery voices his concern about SMSF trustees being enticed to speculate on property...

He is trend chasing again..
this is the current topic of the day, get it when its hot and get a bit of exposure
while ASIC and various authority throw a few headlines in paper he read

I remember him saying he got future gold contracts delivery when gold was hot...I wonder if that future is now

 

[McLovin]

He is trend chasing again..
this is the current topic of the day, get it when its hot and get a bit of exposure
while ASIC and various authority throw a few headlines in paper he read

I remember him saying he got future gold contracts delivery when gold was hot...I wonder if that future is now

I agree. I think he struggles for attention these days. The guy just repeats what's in the newspaper. I like how he sits in that big armchair like a grandfather dolling out Wether's Originals to his grandkids.

 

[Superb Parrot]

I am not taking sides here, just responding to Luci Ellis from the RBA http://www.thebull.com.au/articles/a/41475-rba's-ellis-downplays-housing-bubble-talk.html

You see, this time it is different, whereas a decade ago there was a bubble.

The earlier period was marked by rapid growth in credit and in housing prices, low and falling rental yields, household spending exceeding income, new housing finance products, easing lending standards, and "really, really strong" investor interest.

And the difference to now ??

 

[sydboy007]

I am not taking sides here, just responding to Luci Ellis from the RBA http://www.thebull.com.au/articles/a/41475-rba's-ellis-downplays-housing-bubble-talk.html

You see, this time it is different, whereas a decade ago there was a bubble.

The earlier period was marked by rapid growth in credit and in housing prices, low and falling rental yields, household spending exceeding income, new housing finance products, easing lending standards, and "really, really strong" investor interest.

And the difference to now ??

Probably slow credit growth, but then we're near the household debt ceiling anyways at something like 160% of income.

Don't worry, Joe Ponzinomics Hockey has the perfect recepie for ensure Australian proeprty prices only go in one direction.

Restrictive zoning laws, high immigration, viewing shelter as an asset class all play their vital role in Hockey Ponzinomics

 

[sydboy007]

http://www.macrobusiness.com.au/2013/10/rents-continue-to-decouple-from-population-growth/

possibly the massive amount of spare rooms are starting to be used

I suppose you can't leverage rent like you can property

 

[kid hustlr]

See Change must be popping champagne somewhere

http://smh.domain.com.au/real-estate-news/sydney-beats-700000-price-barrier-20131023-2w1la.html

 

[trainspotter]

Try a bit of evidence of reality

https://www.commbank.com.au/content...ffordability Report Mar Qtr 2013 - Final.docx.

What's this? Even the Unconventional Economist agrees that housing is becoming affordable?

http://www.macrobusiness.com.au/2013/05/housing-affordability-continues-to-improve-2/

 

[Whiskers]

Try a bit of evidence of reality

https://www.commbank.com.au/content...ffordability Report Mar Qtr 2013 - Final.docx.

What's this? Even the Unconventional Economist agrees that housing is becoming affordable?

http://www.macrobusiness.com.au/2013/05/housing-affordability-continues-to-improve-2/

But the reality is that is largely, if not completely driven by global conditions forcing the RBA cash rate lower and partial flow to home loan interest rates.

There is little or nothing on the domestic scene improving better housing affordability... especially when the RBA starts rising again.

I would qualify that by... maybe a bit of recession and then only for those with low debt levels and sound income.