The future of Australian property prices

trainspotter · 4 November 2013

Macro Polo said:
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.

WOW ...... you are not quite getting this are you? Show me where I said higher rates CAUSES inflation? Go and read and understand the 3 charts I posted. INFLATION FIRST = HOUSE COSTS RISING = INTEREST RATES RISING = GOOD FOR PROPERTY INVESTORS ........ in that order. I can't make it any more simpler!!

An astute property investor would be going hard into the market NOW ... BEFORE all of this happens as you would be getting in at the bottom of the cycle whereby property is CHEAP and money is CHEAP !!!

The trick is to get in and get out BEFORE the recession !! DOH !!

Yep ... finally making sense on the exposure of the banks to residential loans etc. Moody's has already rung the alarm bells on this one. APRA is onto it as well http://www.apra.gov.au/adi/Publications/Pages/Quarterly-ADI-Property-Exposures-statistics.aspx

Nothing new here ... move on.

P.S. In post 10880 I wrote the following: "Also means if rates are going up the only trigger the RBA has left in an attempt to slow inflation."

Macro Polo · 4 November 2013

trainspotter said:
WOW ...... you are not quite getting this are you? Show me where I said higher rates CAUSES inflation? Go and read and understand the 3 charts I posted. INFLATION FIRST = HOUSE COSTS RISING = INTEREST RATES RISING = GOOD FOR PROPERTY INVESTORS ........ in that order. I can't make it any more simpler!!

Why do I bother?

Interest rate cuts are good for housing.

Interest rate rises are good for housing.

Good luck with your investments.

trainspotter · 4 November 2013

Uncle Festivus said:
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!

'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.......

We been waiting for how long now UF? Heard it all before ... banks were collapsing now they having record profits. Prices of houses were to fall 40% ala Steven Keene style but now record highs pre GFC. WTF is going on Doomsday preppers unite ! Start stocking up on the tin food ... Waaaaaaaaaaaaahhhhhhhh !

kid hustlr · 4 November 2013

TS I think everyone in this thread has an idea of the economic cycle and how it has traditionally worked. People also understand how and why (atleast at a basic level) monetary policy is used.

The contentious issue(s) are:

1. whether this is in fact the bottom of the 'economic cycle' from an interest rate perspective.
and

2. Whether it is 'different' this time. When investors look at factors such as income to house price ratios or rent to house price ratios, there are many wondering even if it is the 'bottom of the economic cycle' is property really that strong of an investment?

trainspotter · 4 November 2013

Macro Polo said:
Why do I bother?

Interest rate cuts are good for housing.

Interest rate rises are good for housing.

Good luck with your investments.

Ditto.

Interest rate cuts are good for housing affordability.

Interest rate rising are good for property investors.

Luck has nothing to do with it.

againsthegrain · 4 November 2013

Macro Polo said:
Why do I bother?

Interest rate cuts are good for housing.

Interest rate rises are good for housing.

Good luck with your investments.

LOL join the rest of the gang, after all this is a guy that was thinking BIG and wanted to start a business swapping out peoples light bulbs for "more used" bulbs and pop 50c profit here and there.

There is no talking reason with somebody that clearly has not much knowledge about economy and finance when all they can do is being stuck on repeat using the same old articles and same old few points why property can never crash. At some stages reading the guys posts I have a feeling he is about to have a meltdown, very very edgy, but then who wouldn't be buying at the top and most likely being geared way too much.

You said it well, unemployment is at all time low, local business is best, huge wage raises are around the corner, interest rates are only going down from now on, its all happening. Don't forget the mass immigration of doctors and lawyers that are landing daily and buying up as soon as they arrive. Only fools are not rushing in now.

satanoperca · 4 November 2013

trainspotter said:
WOW ...... you are not quite getting this are you? Show me where I said higher rates CAUSES inflation? Go and read and understand the 3 charts I posted. INFLATION FIRST = HOUSE COSTS RISING = INTEREST RATES RISING = GOOD FOR PROPERTY INVESTORS ........ in that order. I can't make it any more simpler!!

Perfect explanation.

tech/a · 4 November 2013

You are quite correct Trainspotter.

Interest rates are raised to pull up inflation
Interest rates are dropped to stimulate.

The result of each gives rise to the opportunities you point to.

trainspotter · 4 November 2013

kid hustlr said:
TS I think everyone in this thread has an idea of the economic cycle and how it has traditionally worked. People also understand how and why (atleast at a basic level) monetary policy is used.

The contentious issue(s) are:

1. whether this is in fact the bottom of the 'economic cycle' from an interest rate perspective.
and

2. Whether it is 'different' this time. When investors look at factors such as income to house price ratios or rent to house price ratios, there are many wondering even if it is the 'bottom of the economic cycle' is property really that strong of an investment?

Sure thing kid. Traditionally this has worked on an average of a 7-10 year cycle. Property is a long term investment.

1. Rates on hold til 2014 is a given. Banks offering 10 year loans at 7.33% already. Pretty confident the bottom has been touched and 2.5% is a stopping point for now reading the RBA's comments. House prices from ABS 7.6% increase YTD September - ABS figures not mine. Possible signs of RE increasing means only need job figures to fall slightly and away we go again. (all of this is my opinion only) DYOR.

2. Sure as **** is "different" this time. Banks want left testicle and insane amount of paperwork proving that you do not need the loan. 110% of sales figures is what they are asking for. Not easy to get credit with more scrutiny on the setup of the company/corporation/unit trust/sinking fund blah. Punters are not mugs anymore and read the fine print. Cooling off periods for when you sell off the plan .... MAN the list goes on. House price ratios to rental income to all of these charts and % of bovine excrement is not what property is about. People have to live somewhere ... simple as that.

I posted a link to a house in Logan that has the capacity to rent at $750 per week and was for sale at $389,000. Lets do some maths. $750 x 52 = $39,000 per annum. Lets say we borrow the lot and do not even haggle over price shall we and set this up for a 5 year fixed term at 5.95% = $23,145 in interest. Leaving $16,000 or thereabouts to spend on insurance/maintenance/land rates/fees and charges etc. Pretty sure that there would be money left over at the end of the day.

trainspotter · 4 November 2013

againsthegrain said:
LOL join the rest of the gang, after all this is a guy that was thinking BIG and wanted to start a business swapping out peoples light bulbs for "more used" bulbs and pop 50c profit here and there.

There is no talking reason with somebody that clearly has not much knowledge about economy and finance when all they can do is being stuck on repeat using the same old articles and same old few points why property can never crash. At some stages reading the guys posts I have a feeling he is about to have a meltdown, very very edgy, but then who wouldn't be buying at the top and most likely being geared way too much.

You said it well, unemployment is at all time low, local business is best, huge wage raises are around the corner, interest rates are only going down from now on, its all happening. Don't forget the mass immigration of doctors and lawyers that are landing daily and buying up as soon as they arrive. Only fools are not rushing in now.

Seriously mate ... why post in here if you have no clue as to what you are talking about. I don't know you and you certainly don't know me. I have never said that property can never crash. Quite the opposite in fact but due to your inability to comprehend the written word it does make it hard for me to write in crayon on a computer.

You are the weakest link ..... Goodbye.

trainspotter · 4 November 2013

"Strong auction results and rising house prices have begun to feed into housing construction activity, with solid growth in building approvals now pointing to an imminent turnaround in housing construction," Mr Colhoun said.

Who is Mr Colhoun you ask? Why he would be the chief economist for ANZ ... that's all.

http://www.theaustralian.com.au/bus...-three-year-fall/story-e6frg90f-1226752697219

Me thinks he is jumping the gun a bit myself ... one swallow don't make a summer.

trainspotter · 5 November 2013

THE Reserve Bank has kept official interest rates on hold for the third month in a row, paving the way for an interest rate rise as early as the first half of next year.

The chance the Reserve Bank Board would cut the cash rate below 2.5 per cent, a record low, were already slim but shrank to near zero yesterday after it emerged retail sales bounced back strongly in September the same time as capital city house prices were accelerating.

http://www.theaustralian.com.au/bus...w-of-25-per-cent/story-e6frg916-1226753480956

Rates rising will also depend on US fiscal policy and if they decelerate the quantitative easing measures taking pressure off the Aussie dollar. IMO ... DYOR

Uncle Festivus · 7 November 2013

One of three American economists who won the 2013 economics Nobel prize today for research into market prices and asset bubbles expressed alarm at the rapid rise in global housing prices.

Robert Shiller, who shared the 8 million Swedish crown ($1.31 million) prize with fellow laureates Eugene Fama and Lars Peter Hansen, said the US Federal Reserve's economic stimulus and growing market speculation were creating a "bubbly" property boom.

China, Brazil, India, Australia, Norway and Belgium, among other countries, were witnessing similar price rises. "There are so many countries that are looking bubbly," he said.

http://www.smh.com.au/business/worl...bubbly-global-home-prices-20131015-2vjh1.html

Australia, where housing accounts for about 60 percent of average household wealth compared with a global average of 45 percent, joins countries from Canada to Sweden to China seeing rapid price gains amid low borrowing costs that are sparking fears of a housing bubble. For now, constrained housing supply and demand from investors are driving prices higher, overpowering the downdraft from slower economic growth and a rising jobless rate. “It’s easy to see how bubble-like conditions could emerge,” said Saul Eslake, chief Australia economist at Bank of America...

http://www.macrobusiness.com.au/category/australian-property/

Whiskers · 7 November 2013

trainspotter said:
http://www.theaustralian.com.au/bus...w-of-25-per-cent/story-e6frg916-1226753480956

Rates rising will also depend on US fiscal policy and if they decelerate the quantitative easing measures taking pressure off the Aussie dollar. IMO ... DYOR

Also, their mid term elections. Apparently the far right tea party may have handed a good chunk of state and fed seats back to Obama's Democrats... or the Democrats at least, since not all Democrats are fans of Obama's policies. Not quite sure, but likely to translates into QE for longer, even if the Democrats get the numbers to raise more tax.

Uncle Festivus said:
http://www.smh.com.au/business/worl...bubbly-global-home-prices-20131015-2vjh1.html

http://www.macrobusiness.com.au/category/australian-property/

The high % of household wealth that housing accounts for is something that our fiscal and monetary policy makers don't seem to be addressing very well. The impasse between Labor and the RBA over coordination of policy likely set us back in getting a competitive edge as a population as distinct from the economic identify of the country and it's major players.

With no substantial manufacturing to counter the lows of the mining cycle, the winding back of what we have and rural industries increasingly destabilised by government policy, must make us more prone to unemployment/lower income led house price stress.

Could it be the recent rises in some areas are more the result of pent up demand released by enthusiasm, maybe over expectations of economic growth from the change of government?

trainspotter · 7 November 2013

Whiskers said:
Also, their mid term elections. Apparently the far right tea party may have handed a good chunk of state and fed seats back to Obama's Democrats... or the Democrats at least, since not all Democrats are fans of Obama's policies. Not quite sure, but likely to translates into QE for longer, even if the Democrats get the numbers to raise more tax.

Seriously? If Obama gets stronger it means his policies are working which means QE will ease as unemployment is dropping !

The high % of household wealth that housing accounts for is something that our fiscal and monetary policy makers don't seem to be addressing very well. The impasse between Labor and the RBA over coordination of policy likely set us back in getting a competitive edge as a population as distinct from the economic identify of the country and it's major players.

WTF are you talking about? Our identity as a country has exactly what to do with % of household wealth?

With no substantial manufacturing to counter the lows of the mining cycle, the winding back of what we have and rural industries increasingly destabilised by government policy, must make us more prone to unemployment/lower income led house price stress.

Got any proof of this bold statement? When did the government destabilise rural industries and by WHAT policy exactly?

Could it be the recent rises in some areas are more the result of pent up demand released by enthusiasm, maybe over expectations of economic growth from the change of government?

Nup ... it's called lower interest rates and CHEAP housing prices. Has F@CK all to do with enthusiasm for a change in government. FHB will buy an established property. The owner of said property will then go and buy a larger property and then that previous owner will go and buy a more expensive property and .... no wait ... you might learn something.

Whiskers · 7 November 2013

trainspotter said:
Seriously? If Obama gets stronger it means his policies are working which means QE will ease as unemployment is dropping !

No denying he will continue to lower unemployment, but the expected swing to him is more in rebut or retaliation of the Tea Party shutting down government to try to not increase debt limits more than anything else.

The question is how much increased debt and tax rates will counter the effects of lower unemployment.

WTF are you talking about? Our identity as a country has exactly what to do with % of household wealth?

Simply if our wealth is substantially more than our home we have more flexibility and resilience to tough economic times. If you loose your job you are more likely to loose your home.

Got any proof of this bold statement? When did the government destabilise rural industries and by WHAT policy exactly?

Labor's slashing of the live export trade was a big one. The upcoming issues of foreign investment and takeover of such as GrainCorp for example with the new government is another. There is an old and true saying in the country... when farmers are doing well the country towns do well. Graincorp, as an example, is already issuing retrenchment advice for staff in rural centres where their business was based in anticipation of centralising the business in Sydney and a couple of locations in NSW after the takeover.

These sort of policies impact heavily on not only the economy but property prices for rural businesses and the towns that rely on them.

Nup ... it's called lower interest rates and CHEAP housing prices. Has F@CK all to do with enthusiasm for a change in government. FHB will buy an established property. The owner of said property will then go and buy a larger property and then that previous owner will go and buy a more expensive property and .... no wait ... you might learn something.

But that's the point, people are increasingly realising houses aren't cheap, that it's a major investment... substantially more so than many other countries. It could be also said that with the centralisation of much business and government agencies again, it's forcing too many people to compete for limited space in the capital cities. Aus is one of the most centralised populations in the world, despite the abundance of land.

FHB'ers are loathe to get in the market, we've come through a phase where we built bigger and more expensive houses... to what appears to be more people scaling down their houses and moving to smaller houses or apartment style accommodation and in the case of potential FHB Ã©rs tending to live at home for longer.

trainspotter · 7 November 2013

Whiskers said:
No denying he will continue to lower unemployment, but the expected swing to him is more in rebut or retaliation of the Tea Party shutting down government to try to not increase debt limits more than anything else.

The question is how much increased debt and tax rates will counter the effects of lower unemployment.

More employment means more people to tax which means the velocity of money will increase through the system. Economics 101 Tea Party shot themselves in the foot by destabilising the system. The workers are the ones that suffered. DOH !

Simply if our wealth is substantially more than our home we have more flexibility and resilience to tough economic times. If you loose your job you are more likely to loose your home.

Ummm .. If you have a home to live in and it is currently 65% of your wealth then you would be far more resilient to tough economic times? Or would you have us all living in a cardboard box but we have plenty of cash in the bank !! If you have plenty of equity in your home the bank will not foreclose for missing a payment. Also means when tough economic times hit and property prices fall then there is enough "cartilage" to be able to handle these kinds of fluctuations. BTW - "loose" and "lose" are a very basic typo for the young players. :

Labor's slashing of the live export trade was a big one. The upcoming issues of foreign investment and takeover of such as GrainCorp for example with the new government is another. There is an old and true saying in the country... when farmers are doing well the country towns do well. Graincorp, as an example, is already issuing retrenchment advice for staff in rural centres where their business was based in anticipation of centralising the business in Sydney and a couple of locations in NSW after the takeover.

These sort of policies impact heavily on not only the economy but property prices for rural businesses and the towns that rely on them.

Get with the times buddy ... Australia does not live off the farmers back anymore Country towns have been dying since the world changed from growing stuff to mining stuff. Not just this governments policies either. Also owning farms have gone from being passed from father to son for generations. It is big business now who owns the majority of farming entities. Economy of scale I think they call it.

But that's the point, people are increasingly realising houses aren't cheap, that it's a major investment... substantially more so than many other countries. It could be also said that with the centralisation of much business and government agencies again, it's forcing too many people to compete for limited space in the capital cities. Aus is one of the most centralised populations in the world, despite the abundance of land.

Houses have always been a major investment. And they have never been cheap to the FHBers !! I was one of those once and I chose to put the noose around my neck and pay off a mortgage. BUT I chose not to get the BIG house with all the trimmings. I bought what I could afford at the time. Ya got to start somewhere. I think the reason most people live in such an urban environment has something to do with the LACK OF WATER ...

Together with sub-tropical regions and the mountain high plains, they form the rangelands, where rainfall is too low or unpredictable or where terrain is too inhospitable for sustainable cropping or timber harvesting. The rangelands amount to 70 per cent of Australia's land surface. By far the largest part is arid or semi-arid.

http://www.csiro.au/science/arid-land-sustainability ..... CSIRO nonetheless?

FHB'ers are loathe to get in the market, we've come through a phase where we built bigger and more expensive houses... to what appears to be more people scaling down their houses and moving to smaller houses or apartment style accommodation and in the case of potential FHB Ã©rs tending to live at home for longer.

Got any evidence?

Whiskers · 7 November 2013

TS, I can understand what you are trying to say, but detaching from yourself a bit...

The short answer to your last comments is most people are not 'you' (or me) are influenced by different things and do things differently... especially those who have never been or anticipate being self employed.

On the issue of arable land... step out of thinking from an Aus perspective and consider why the rest of the world is wanting us to relax our foreign investment and ownership rules for land in particular... land banking and profiteering mainly from urban land development and a food production source they can't do in their own country from rural land. They then bring in their own workers to work the land and process the goods and the problems for Aus economy escalate from there. They effectively supplement the needs of their own economy with an effective sequestration of part of our land for their own exclusive use.

Again not against foreign investment per se, but the slogan that they can't take away the land is dumb. They take away the productive output from the land and tend to strip the land bare of nutrition before divesting it back to local ownership... like Rupert Murdock became famous for stripping the guts out of businesses and flogging them off as a hollow shell that was devoid of real worth.

We just need better controls of foreign investment of land and key infrastructure.

It's true that more farms are company owned, but the company is still family owned in most cases. It is still their livelihood and one of the few things we have going for us... to produce all our own food and dig up minerals.

You don't have to have much imagination to see the trouble ahead if too much of our key strengths are eroded away by foreign ownership. Mines close up for a rainy day or until overseas owners can import cheaper labor, the same for good residential and arable farm land.

trainspotter · 7 November 2013

Off to the bottom of the garden to talk to the fairies ... cat ya !

medicowallet · 7 November 2013

tech/a said:
You are quite correct Trainspotter.

Interest rates are raised to pull up inflation
Interest rates are dropped to stimulate.

The result of each gives rise to the opportunities you point to.

But it depends where the inflation is.

It is not as simple as that, nor is the effect guaranteed, hence interest rates may need to go very high to stop "inflation" and no matter how they go they might not stimulate enough.

If inflation rises, and house prices are stagnant, then you lose...

MW

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