The future of Australian property prices

[im sparticus]

So when I said 2-3% yield, I should have specified Net Yield and our numbers are in the same ball park based on current sale prices in Sydney. I personally find that unacceptably low. Regional centers as the original poster mentioned can have much higher yields than Sydney, and would then be less reliant on capital gains to be a worthwhile investment.

I agree with you on the gold bugs. I also think they are gambling on capital gains with no yield.

Historical averages on the stock market show firms with the highest P/E ratios under perform shares with the lowest P/E ratios. Same with high M/B compared to low M/B. So you are correct, the highest P/E on average will lose out compared to the lowest P/E firm. I expect the same trends in Real Estate, which is why I would prefer low P/E real estate, which is why I think on average Sydney is over priced.

Sorry i ment lowest p/e ratios dont always or usually win. I think your claim on historical averages of high p/es underperforming low p/es is faulse. rebuke me if you can!

anywho the point im trying to highlight is the effect of growth and anticipated growth on price and yeild expressed as a percentage of price.

 

[im sparticus]

Falling yields across most markets over the last quater, and not looking pretty over the last 12 months either.

I'd love to know what the median net yield is these days.

oh brother please tell me your not serious?? % falls might have something to do with prices rising I highly doubt weather rents have actually fallen which is what you seem to be implying.

 

[Macro Polo]

Sorry i ment lowest p/e ratios dont always or usually win. I think your claim on historical averages of high p/es underperforming low p/es is faulse. rebuke me if you can!

anywho the point im trying to highlight is the effect of growth and anticipated growth on price and yeild expressed as a percentage of price.

I'm pretty sure the body of evidence is heavily against you on this, which makes sense.

http://www.mebanefaber.com/2013/10/26/probabilistic-investing/

Or check out any of Robert Shillers work and so on, it all says the same thing.

 

[Uncle Festivus]

Start stocking up on the tin food and prepare a vege garden in the back yard mate ... it's all doom and gloom in property !

It all depends on whether all the vested parties continue the game?

Are things so bad to warrant IR's at 'emergency lows' or it's all beer & skittles from here on? We can't have it both ways - or can we?

It's eventually going to revert to mean...........

 

[DB008]

Off topic - interesting


London's cheapest suburb? It's Barcelona

London's Sam Cookney caused a stir recently when he argued property prices in the UK capital were so high it would be cheaper to live in Barcelona and fly to work every day. Here he tells The Local what inspired his thinking.

"It all started as a bit of a fun for a couple of friends," the London-based social media manager told The Local about his viral blog piece.

In his article, Cookney demonstrated he would save €387 a month by choosing to live in Barcelona and commuting with Ryainair to London four days a week for work.

To "compare apples with apples" he chose to line up Barcelona’s upmarket Les Corts district against London’s pricey West Hampstead.

Even after opting for a three-bedroom apartment in the Catalan capital over a two-bedroom option in London, and after adding in the costs of flights and train fares, the Spanish city still came out the winner.

The reaction has been astonishing with media outlets latching on to the story with its "surreal premise".

At the same time, plenty of commentators have taken Cookney to task over his sums, saying he hasn't factored in variables such as changing airline prices, or the toll that all that travel would take.

http://www.thelocal.es/20131030/welcome-to-londons-cheapest-suburb-barcelona

 

[im sparticus]

I'm pretty sure the body of evidence is heavily against you on this, which makes sense.

http://www.mebanefaber.com/2013/10/26/probabilistic-investing/

Or check out any of Robert Shillers work and so on, it all says the same thing.

Interesting sounds like an easy way to beat the index back the 100 lowest p/e stocks and fade 100 the highest of the xjo, good luck.

personally on average i also think capitals with lower % yields will also out perform regionals with higher %yields longterm.

 

[13ugs13unny]

It all depends on whether all the vested parties continue the game?

Are things so bad to warrant IR's at 'emergency lows' or it's all beer & skittles from here on?

View attachment 55036

'emergency lows' is the only driver IMHO of our economy atm, It doesn't seem to be retail, small business or manufacturing. Unless your the BHP's of the world digging holes and selling the contents offshore.

Real-estate from a bubble to a bigger bubble is what I see.

 

[trainspotter]

'emergency lows' is the only driver IMHO of our economy atm, It doesn't seem to be retail, small business or manufacturing. Unless your the BHP's of the world digging holes and selling the contents offshore.

Real-estate from a bubble to a bigger bubble is what I see.

Ummmm banks are posting record profits on "emergency lows" ? Hate to think how much raping they would be doing if rates begin to rise?

WESTPAC has announced a record $7.1 billion full year profit, and the bank expects improving consumer confidence to help it build on the result next year.
Westpac made a cash profit of $7.1 billion for the 12 months to September 30, an increase of eight per cent on last year's result.

http://www.news.com.au/business/breaking-news/westpac-posts-71b-profit/story-e6frfkur-1226752529883

NATIONAL Australia Bank chief executive Cameron Clyne has reassured investors the bank has no plans to change its capital management program after speculation the banking regulator had warned against paying bumper dividends due to new rules for banks considered too big to fail.

Reporting a record cash profit of $5.94 billion, Mr Clyne was quizzed by analysts about the upcoming capital charge, the level of which has not yet been revealed, for banks deemed “domestically systemically important”.

http://www.theaustralian.com.au/bus...apra-speculation/story-fn91vch7-1226750153131

ANZ Bank has lifted cash earnings by 11 per cent to $6.49 billion and will pay shareholders a bigger than expected dividend. The board believes that a full year dividend payout ratio of between 65 per cent and 70 per cent of cash profit is sustainable. In a result that beat analyst forecasts, the bank today said cash profits were $6.49 billion in the year to September.


http://www.smh.com.au/business/bank...cord-profit-20131029-2wclw.html#ixzz2jdCNNAcj

Sooooooo our banks are making record profits and offering 10 year fixed rates at 7.33%, RBA still has room to move either up or down depending on economy, inflation is under control, dollar is hovering around the 90 cents threshold, employment is steady, new government in to curb runaway spending and provide stability, house prices showing signs of recovering in CERTAIN areas. Bubble what bubble? :frown:

 

[trainspotter]

AUSTRALIAN capital city house prices rose 1.9 per cent in the September quarter, official data showed.
That followed a rise of 2.7 per cent in the June quarter.

In the year to September, the house price index rose 7.6 per cent, the Australian Bureau of Statistics said on Monday.

Economists had expected a rise of 2.2 per cent for the September quarter.

http://www.news.com.au/business/bre...rise-in-sept-qtr/story-e6frfkur-1226752670286

But but bit this cant be right as it is from news.com ...... no wait ....... Australia Bureau of Statistics. Surely they are wrong as well? Economists predict a 2.2% rise... Pfffffffffftttttttttt !

 

[Macro Polo]

Ummmm banks are posting record profits on "emergency lows" ? Hate to think how much raping they would be doing if rates begin to rise?

I think you have your intuition backwards. Banks earn from a spread between assets and liabilities - Higher rates don't necessarily mean higher spreads. Emergency low rates I'd assume has some effect on peoples willingness to take on more debt, though this is offset by the lower interest payments.

However, if rates rise from here I don't think it would be very healthy for continued property speculation and hence the banks main income source, rather the opposite. Spreads should not change AFAIK but speculative interest may wane.

 

[trainspotter]

I think you have your intuition backwards. Banks earn from a spread between assets and liabilities - Higher rates don't necessarily mean higher spreads. Emergency low rates I'd assume has some effect on peoples willingness to take on more debt, though this is offset by the lower interest payments.

However, if rates rise from here I don't think it would be very healthy for continued property speculation and hence the banks main income source, rather the opposite. Spreads should not change AFAIK but speculative interest may wane.

Banks were quoted as this:- "Higher borrowing costs" to justify as to why they did not trend with the RBA downwards. You can bet your last penny IF rates were to rise they would be using this excuse and some more clever theories/excuses as to why their rates are not in line with reality. Also shareholders want their divvies every year so if rates are rising then more people will deposit cash into said banks who in turn will lend it back to the punters at a HIGHER rate. It's called the velocity of money through the economy.

Too tired to go into spiel mode on this subject but needless to say if rates are increasing then it is a good thing for property "speculators". Have already posted as to WHY I believe this to be a fact and not an opinion. Pie graphs and charts etc along with links have been posted previously.

 

[Macro Polo]

Banks were quoted as this:- "Higher borrowing costs" to justify as to why they did not trend with the RBA downwards. You can bet your last penny IF rates were to rise they would be using this excuse and some more clever theories/excuses as to why their rates are not in line with reality. Also shareholders want their divvies every year so if rates are rising then more people will deposit cash into said banks who in turn will lend it back to the punters at a HIGHER rate. It's called the velocity of money through the economy.

Too tired to go into spiel mode on this subject but needless to say if rates are increasing then it is a good thing for property "speculators". Have already posted as to WHY I believe this to be a fact and not an opinion. Pie graphs and charts etc along with links have been posted previously.

Right, so I read your rates rising = good for property speculation post earlier. I guess the RBA should be raising the OCR to 10% instead of cutting it to 2.5% if they really want to get a housing boom going? I'm being facetious, but clearly this would be terrible for house prices and would sharply cut discretionary spending and the amount people would be able to spend on rent given the rise in unemployment that would be involved. It would probably be deflationary also. I'm using an extreme example to prove a point here, I know.

Believing it to be a fact that rising rates will be good for property investors does not make it so, it is your opinion that your opinion is a fact - just like everyone else.

 

[robz7777]

Banks were quoted as this:- "Higher borrowing costs" to justify as to why they did not trend with the RBA downwards. You can bet your last penny IF rates were to rise they would be using this excuse and some more clever theories/excuses as to why their rates are not in line with reality. Also shareholders want their divvies every year so if rates are rising then more people will deposit cash into said banks who in turn will lend it back to the punters at a HIGHER rate. It's called the velocity of money through the economy.

Too tired to go into spiel mode on this subject but needless to say if rates are increasing then it is a good thing for property "speculators". Have already posted as to WHY I believe this to be a fact and not an opinion. Pie graphs and charts etc along with links have been posted previously.

Bank record profits are a result of them having a monopoly on lending in Australia.. Since 07 they have enjoyed increased domestic funding (cheaper = higher clip on the way through to borrowers) rather than borrowing from overseas..

If rates are rising people are more likely to keep their money in (risk-free) cash than to put it into an IP which is guaranteed to lose them money every year (assumes high levels of gearing).. Also have to take into account stagnant employment rates, subdued retail and ongoing global worries..

 

[trainspotter]

Right, so I read your rates rising = good for property speculation post earlier. I guess the RBA should be raising the OCR to 10% instead of cutting it to 2.5% if they really want to get a housing boom going? I'm being facetious, but clearly this would be terrible for house prices and would sharply cut discretionary spending and the amount people would be able to spend on rent given the rise in unemployment that would be involved. It would probably be deflationary also. I'm using an extreme example to prove a point here, I know.

Believing it to be a fact that rising rates will be good for property investors does not make it so, it is your opinion that your opinion is a fact - just like everyone else.

Be as facetious as you like. Please don't limit yourself to reading only a few of my posts over the last few weeks either. Higher interest rates means inflation. Inflation means house prices are going up. Rents will increase blah blah blah = FACT. Cant make it any simpler than this. I am also using a very simplified version to make it clearer.

Try some of these charts that will explain what the factors on monetary policy actually is.

 

[trainspotter]

Bank record profits are a result of them having a monopoly on lending in Australia.. Since 07 they have enjoyed increased domestic funding (cheaper = higher clip on the way through to borrowers) rather than borrowing from overseas..

If rates are rising people are more likely to keep their money in (risk-free) cash than to put it into an IP which is guaranteed to lose them money every year (assumes high levels of gearing).. Also have to take into account stagnant employment rates, subdued retail and ongoing global worries..

I concur with this statement of FACT. I also said that if rates are rising then people will place "CASH" into the bank to receive a risk free return. No argument here. The bank will then lend it to "property investors" who may or may not be highly geared.

Not so sure on the domestic funding statement?

Australian banks lend billions of dollars to Australian home owners every year. They don’t hold sufficient deposits in savings accounts from clients to cover these loans, nor do they obtain sufficient funding from the RBA. Instead, they obtain funds from the global wholesale money markets, in particular from Europe and the USA.
For some banks and other financial institutions it has been reported that up to 40% of their mortgage funding comes from overseas money markets.

In the case of the non-bank lenders, it is considerably higher.

The money markets of Europe and the USA are not affected by interest rate changes by the RBA, so when the RBA cuts rates by 0.25% it does not mean that the banks are suddenly obtaining their entire mortgage funding at 0.25% less.

http://www.moneybuddy.com.au/home-loans/understanding-the-interest-rate-game

 

[trainspotter]

THE Reserve Bank has raised fresh doubts over banks’ justification for raising mortgage rates outside of official moves, saying lenders have benefited from a ‘‘significant’’ drop in the cost of borrowing.
ANZ sparked a political backlash after it raised mortgage rates last week by 0.06 of a percentage point, blaming higher bank funding costs.

But minutes from this month’s Reserve Bank board meeting, published yesterday, said the banks’ cost of wholesale debt had fallen in March, capping further falls in previous months.

The minutes said bank funding costs had dropped ‘‘significantly’’ since the start of the year. Long-term debt was 50 basis points cheaper, helping ‘‘alleviate the pressure of higher funding costs in coming months.’’


Read more: http://www.smh.com.au/federal-polit...ate-excuses-20120417-1x5uk.html#ixzz2jdnzpbvB

Sooooooooooo me thinks that when rates start rising the "spread" will be "significantly" higher

 

[Uncle Festivus]

I concur with this statement of FACT. I also said that if rates are rising then people will place "CASH" into the bank to receive a risk free return. No argument here. The bank will then lend it to "property investors" who may or may not be highly geared.

'The bank will then lend it to "property investors" who may or may not be highly geared.' They would like to but if the cost of money is rising why would "property investors" take the 'riskier' path?

It's a perfect storm brewing, although several decades in the making and it's not just limited to Aus. The economic models by which our financial system operates, if you could call them that, have become more and more reliant on the cheapness of money to continually create the same effect in the real economy, and that usually shows up in the hard asset that the general population doesn't need too many brain cells to get into - property.

So the storm is

• interest rates at record lows,
• lot's of money printing going on around the world,
• baby boomers selling the family home and travelling or downsizing,
• migration that is not supported by infrastructure

The cost of promises - anyone under 40 would not have a clue about economic downturns because rates have only been falling since the last recession? Now we are at the bottom there's only limited outcomes from here on in, none of them good? Enjoy it while you can.

 

[Macro Polo]

Be as facetious as you like. Please don't limit yourself to reading only a few of my posts over the last few weeks either. Higher interest rates means inflation. Inflation means house prices are going up. Rents will increase blah blah blah = FACT. Cant make it any simpler than this. I am also using a very simplified version to make it clearer.

Try some of these charts that will explain what the factors on monetary policy actually is.

Look, you are confusing correlation and causation. Higher rates do not cause inflation - the causality runs opposite. High inflation induces the RBA to raise rates, at which point inflation stops and often a recession occurs. You should expect rising rates to stop inflation, not to cause it, hence it is bad for house prices. This should not be a contentious point...

Also, on the wholesale funding costs - do you think there won't be an increased risk premium for loans to Aussie banks who are heavily exposed to Australian property if rates start rising or property begins falling? Nobody wants to lend to banks that have an impaired asset side of the balance sheet, a rate induced recession will see higher delinquencies and asset write-downs for banks. I wouldn't make the assumption that funding costs will remain fixed because this is essentially assuming credit analysts don't really care about being compensated for risk.

 

[trainspotter]

'The bank will then lend it to "property investors" who may or may not be highly geared.' They would like to but if the cost of money is rising why would "property investors" take the 'riskier' path?

It's a perfect storm brewing, although several decades in the making and it's not just limited to Aus. The economic models by which our financial system operates, if you could call them that, have become more and more reliant on the cheapness of money to continually create the same effect in the real economy, and that usually shows up in the hard asset that the general population doesn't need too many brain cells to get into - property.

So the storm is

• interest rates at record lows,
• lot's of money printing going on around the world,
• baby boomers selling the family home and travelling or downsizing,
• migration that is not supported by infrastructure

The cost of promises - anyone under 40 would not have a clue about economic downturns because rates have only been falling since the last recession? Now we are at the bottom there's only limited outcomes from here on in, none of them good? Enjoy it while you can.

Banks job is to lend money ...... not keep it under their pillow

The future of pessimism has never looked so bright ! Simply put ... "they gotta live somewhere" UF

 

[Uncle Festivus]

Banks job is to lend money ...... not keep it under their pillow

The future of pessimism has never looked so bright ! Simply put ... "they gotta live somewhere" UF

It's not pessimism it's reality - house prices at or close to record highs + interest rates at record lows - it's a no brainer bubble just waiting to go POP!

Home values rose to a record high last month led by strong growth in Sydney and Melbourne, according to new housing data.

Figures released today by RP Data Rismark show capital city values peaked during September above the previous high set during the 2010 property boom.

A housing bubble may be on the horizon.

The spike in values is likely to prompt further concern Australia’s housing market may be heading towards a property bubble as historic low interest rates prompt borrowers, particularly investors, to surge back into the market.

'A housing bubble may be on the horizon.' - so it's still ok to load up on property, it's not officially a bubble yet??

Good stuff there Macro Polo.......