The future of Australian property prices

[medicowallet]

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 ...

When I was a young medicowallet, you could buy a normal size house that needed work, and you and the owner knew its size, location and condition.

Now the "$%#$ boxes" are prices like the mcmansions for a lot of people.

It will come to an end.

I think I will be alive to see the worst of it.

House prices have gone down in real terms for quite a while, it could continue.

MW

 

[CanOz]

I was just looking at the prices in Ballarat today and i was quite surprised at them. I mean we're talking a piddley little rural city here...not a coastal town. A decent house in a good area in 350,000 and up.

When i left, these places were 250 and up...Thats not bad in 8 years.

For us we'll need to think a little defensive, not put too much borrowed money into our place. Leave that for the IP...

 

[Ves]

I was just looking at the prices in Ballarat today and i was quite surprised at them. I mean we're talking a piddley little rural city here...not a coastal town. A decent house in a good area in 350,000 and up.

When i left, these places were 250 and up...Thats not bad in 8 years.

For us we'll need to think a little defensive, not put too much borrowed money into our place. Leave that for the IP...

I was born and bred in Ballarat. Most of my family and friends still live there.

There's 100,000 people living there now. It's the fifth largest inland regional city in Australia. And it's growing fast.... recent Victorian Government planning suggests that they are targetting around 200,000 people to live there by 2050. There's plenty of room to expand, it's surrounded by farming land and plenty of potential for high-density residential in the city.

My 1BR Unit (which used to be a PPoR) that I hung onto as safety net incase I ever wanted to move back is only a couple of kilometres from the CDB. Almost fully paid off these days. I've had the same tenant for almost five years and raised the rent every year. Still 18 months on the latest lease to run.

 

[trainspotter]

ANZ will keep its home mortgage rates on hold following the Reserve Bank of Australia's (RBA) Melbourne Cup day decision to leave the cash rate unchanged.
The bank's standard variable rate remains at 5.88 per cent per annum, after the RBA's overnight rate was left at a record low of 2.5 per cent.

ANZ's small business lending rates are also unchanged.

Australia's banks have previously raised their lending rates when the cash rate has been left unchanged.

http://www.news.com.au/business/bre...tes-left-on-hold/story-e6frfkur-1226755817532

So does this mean wholesale funding is stagnant and the banks posting record profits can't use this as an excuse to raise rates?

THE Reserve Bank of Australia has made it clear that more interest rate cuts are possible, as the Australian dollar stays stubbornly high and amid concern that mining investment might fall at a faster rate.
The RBA has left the cash rate unchanged at a record of 2.5 per cent since cutting it from 2.75 per cent at its August meeting.

"It was appropriate to hold the cash rate steady but not close off the possibility of reducing it further should that be needed to support economic activity," the RBA said in its quarterly statement on monetary policy, released on Friday.

Reduce it further to get that AUD to drop below 90 cents and BINGO ! Velocity of money improves through the system and the cash starts flowing again. But but but what does that mean? Aaaahhh ... inflation opens up it's evil eye !

Unemployment is the key factor for the second coming of the RE bubble ... Bwahahahahhahaaaaaa

http://www.news.com.au/business/bre...te-cut-door-open/story-e6frfkur-1226755757857

 

[trainspotter]

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

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.macrobusiness.com.au/category/australian-property/

This is the only bubbly I like !

 

[Uncle Festivus]

Reduce it further to get that AUD to drop below 90 cents and BINGO ! Velocity of money improves through the system and the cash starts flowing again. But but but what does that mean? Aaaahhh ... inflation opens up it's evil eye !

Unemployment is the key factor for the second coming of the RE bubble ... Bwahahahahhahaaaaaa

http://www.news.com.au/business/bre...te-cut-door-open/story-e6frfkur-1226755757857

Yes a nice currency war would be good for no one but that's where we are so dropping rates further only hurts the savers and reduces discretionary spending as shown in the stats. Typical university bred economist ideology/theory by our central banksters?

Inflation? Exhibit A = housing = about the only thing benefiting from low rates? Low rates quickly negated by rising prices, net effect = society worse off! Good one Mr Stevens? Are you looking for a job at the US Fed?

Unemployment? Turning American = quality jobs going, being replaced by low quality part time.

It seems we are the only ones playing fair in global trade while our jobs go overseas and we let our farmers go out of business because of subsidised imports - let's start playing at their level and start imposing tarifs again!

Job creation in Australia's economy remains sluggish, with a big fall in full-time jobs during October being only partially offset an increase in part-time positions.

Meanwhile, youth unemployment and the number of people looking for more work remains high.

Figures from the Australian Bureau of Statistics show the jobless rate edged up slightly during the month.

It is now at 5.7 per cent.

The ABS has revised September's jobless figure from 5.6 per cent to 5.7 per cent, meaning the jobless rate has held effectively held steady for the past two months.

The figures reveal 27,900 full-time jobs were lost during October, while the number of part-time positions increased by 28,900.

 

[trainspotter]

Yes a nice currency war would be good for no one but that's where we are so dropping rates further only hurts the savers and reduces discretionary spending as shown in the stats. Typical university bred economist ideology?

Inflation? Exhibit A = housing = about the only thing benefiting from low rates? Low rates quickly negated by rising prices, net effect = society worse off! Good one Mr Stevens? Are you looking for a job at the US Fed?

Unemployment? Turning American = quality jobs going, being replaced by low quality part time.

It seems we are the only ones playing fair in global trade while our jobs go overseas and we let our farmers go out of business because of subsidised imports - let's start playing at their level and start imposing tarifs again!

OMG ... I actually agree with you for once UF ! (on most things anyways)

 

[Mr Z]

You are quite correct Trainspotter.

Interest rates are raised to pull up inflation.

Errrrrr.... NO! For gawd sake man...

 

[trainspotter]

Errrrrr.... NO! For gawd sake man...

Care to expand on the graphs already posted how it all correlates nto a velocity of money. If people/business/financial controllers/CBDO/BANKS/partnerships/corporations//unit trusts et al ... possible pressure off the AUD? GLENN stevens ... please call me. .

P.s. Pay ya bills ... asset rich ... cashflow poor is the new black. Waiting on money apparently?

 

[aster]

Yes a nice currency war would be good for no one but that's where we are so dropping rates further only hurts the savers and reduces discretionary spending as shown in the stats. Typical university bred economist ideology/theory by our central banksters?

Inflation? Exhibit A = housing = about the only thing benefiting from low rates? Low rates quickly negated by rising prices, net effect = society worse off! Good one Mr Stevens? Are you looking for a job at the US Fed?

Unemployment? Turning American = quality jobs going, being replaced by low quality part time.

It seems we are the only ones playing fair in global trade while our jobs go overseas and we let our farmers go out of business because of subsidised imports - let's start playing at their level and start imposing tarifs again!

I feel that the currency is hugely over-priced. It should be around 75 US cents but the resource boom amongst other things has propelled it to new heights before knocking it back a little bit to the mid-90s. It's still extremely high.

I do agree about interest rates though raising them would also strengthen the currency unfortunately. Also keep in mind that the gov't had another worry on their minds: the property bubble bursting. A slump in interest rates certainly helped ward this off.

Quality jobs are being shipped abroad in almost all Western nations. I think the "corporate betrayal of working America" could well go down in history as the waning point of America's global economic dominance. Not only jobs being carved out of the nation and chucked abroad just to save $$$, but also a strong decline in the percentage of the national budget drived from corporate tax.

Australia, on the other hand, has been the victim of constant daylight robbery over the years. It does not matter who is in power as there is too much money involved to change this. Australia's natural resources should have made it one of the richest countries in the world if the mining/resource sector was properly run by the gov't. Instead we spread our legs and basically gave it all away, in return for nothing else but... jobs to carry out the plunder. Let's go to Brazil and tell the locals, "Hey guys, can we have all of your wood? We'll pay you to cut down the trees and load them onto our ships, so we will be creating new jobs for you guys in return for raping your country of its resources. How does that sound?"

You want an example of how the mining/resource sector should have been run you need to look at Norway. On TV you hear a lot about Qatar's massive sovereign wealth fund that is investing everywhere from left to right, even picking up football clubs like PSG along the way, but in reality it is a tiny, little operation compared to Norway's sovereign wealth fund which is the biggest in the world. And this is a nation of just 5mln people. But run by a smart government, who treats its natural resources as the wealth of the nation, not something that others can come and grab simply with the promise of handing over a shovel and a paycheck.

 

[Macquack]

Australia, on the other hand, has been the victim of constant daylight robbery over the years. It does not matter who is in power as there is too much money involved to change this. Australia's natural resources should have made it one of the richest countries in the world if the mining/resource sector was properly run by the gov't. Instead we spread our legs and basically gave it all away, in return for nothing else but... jobs to carry out the plunder. Let's go to Brazil and tell the locals, "Hey guys, can we have all of your wood? We'll pay you to cut down the trees and load them onto our ships, so we will be creating new jobs for you guys in return for raping your country of its resources. How does that sound?"

I agree, bloody good argument for the mining tax.

 

[Smurf1976]

I agree, bloody good argument for the mining tax.

To a significant extent the boom in mineral exports is simply killing other industries rather than being growth as such.

Eg the LNG plants in Qld are set to triple the price of gas in the eastern states (including SA) thus killing manufacturing and harming the services sector (since electricity prices will also rise). We get some jobs building LNG plants and poking holes into coal seams but it comes at a significant price both economically and environmentally. I'm not totally against it per se, but I am opposed to it on the scale it is being done that's for sure.

Much the same could be said for other resources too. We export massive amounts of iron ore and coal and yet the domestic steel industry struggles to survive. There's plenty more examples like that.

The relevance of all this to property prices is, of course, that we are replacing labour-intensive industries which paid good wages with comparatively minimal labour industries in different locations. Total wealth may not be decreasing, it may even be growing, but it is becoming concentrated into fewer and fewer hands as a result of all these changes. There's a big difference between a factory employing thousands directly plus supporting many more contractors, suppliers etc versus simply loading the resource onto a ship which employs very few people.

Timber is a classic case in point. You can log some forests and put the best timber into saw mills and the rest into pulp and paper. It's not hard to employ thousands of people doing just that, with most of the jobs created being in the mills and things supporting them rather than the forests. Then along came the idea of export woodchipping, a truly nasty idea. You take all that wood and put it through a chip mill that requires just 4, yes 4, people to operate it. That's partly why environmentalists (and indeed most people according to the opinion polls) get so upset about it - there's just no real benefit to the community in return for logging the forests thus raising the "what's the point of it?" question.

Creating a society where GDP goes up and a few people get rich whilst the majority are stuck in casual service sector jobs isn't a recipe for social harmony and it's not good for house prices either. Nobody's going to buy a $500,000 house with a casual job paying $20 per hour.

 

[Uncle Festivus]

Another angle.....of the bubble

The latest trend is Australians using their superannuation as collateral to buy residential property, as well as other forms of property. Residential real estate now accounts for 14% of so-called self managed super funds. That’s helped drive an 8% year-on-year increase in house prices in September.

Now I’m not sure if the practice of using superannuation or pensions as collateral to purchase property is used in any other country but the dangers are pretty obvious. Particularly when many developed countries, including Spain, are raiding pension funds to finance their QE programs.

Australia has added risks given the extent of its housing bubble. Demographia says the Australian housing market is the most expensive in the developed world, with property prices at 5.6x annual income, with 3x or below considered affordable. Meanwhile, The Economist magazine suggests Australia is the world’s fourth most expensive housing market, with prices 44% overvalued versus rents and 24% versus wages (which are undoubtedly grossly inflated).

The risks to Australia from the inflated housing market are systemic also. Housing assets of A$4.9 trillion are 3.3x larger than Australia’s GDP. Moreover, residential property represents more than 60% of the big four Australian banks total loan books. Given these banks have an average leverage of 20x (equity/assets), it would take less than a 10% fall in residential property prices for equity in these banks to be wiped out.

Source http://asiaconf.com/

 

[trainspotter]

Another angle.....of the bubble



View attachment 55202

View attachment 55203

Source http://asiaconf.com/

Interesting to note that our banks are some of the most profitable in he world? What does that tell you? I also note the US and UK with low ratios were the ones that suffered the most when their house prices fell through the floor !!! What does that tell you?

 

[Whiskers]

Another angle.....of the bubble

I find myself agreeing with that UF. The clue for me came back when the RBA and our big 4 banks and their economists started emphasising the need or desire to substantially increase local bank deposits (savings) and their (over) emphasis on the housing industry as our economic identity... and maintain monetary policy to support that with too high interest rate compared to the rest of the world.

The main argument that the markets drive the currency higher because of the desire to invest in the mining boom, for me is shallow and misleading. If the RBA maintained a lower cash rate the pressure on savings rates would be more down, the investment flow into Aus, into interest raising bank accounts would be lower and the income from that mining investment would be lower in overseas currency conversion terms as well, (higher in AUD) tempering the boom bust cycle better.

For me, the housing industry would not have overheated if they'd kept the rate lower, because the temptation to spend would not have presented as simplistically as some reckon with lower interest rates. The higher rate was the too the needed to increase their bank deposits.

It seems most of our inflation that they keep talking about in general terms in the media is imported inflation like fuel prices would not be so expensive with a lower AUD. On the other side of the equation imports would not have been so cheap for so long so there is a general levelling out of the available or disposable household income to roughly the same net effect.

The main difference is there would be more business activity, our mining, agriculture, tourism and manufacturing would be more profitable to build real earnings and wealth into the wider economy for the longer term at the cost of some initial short term reduction to savings and term deposits which as you point out, the banks have got hold of control of too much of our economic destiny.

I can't see them avoiding further cuts to resuscitate the real bread and butter parts of our economy, to make more from mining income and continue to promote resource development as well as stabilise agricultural, tourism and what manufacturing industries we have left.

Unfortunately, or probably more fortunately, I expect we will not be seeing a return to huge wide spread windfall gains in property, but more stagnation for longer. I expect the Banks including the Big L Liberal philosophy at the RBA are acutely aware of the sensitivity of the economy despite the public emphasis the put on the reasons for not cutting harder sooner as indicated by trying to talk down the AUD rather than having to cut and the big 4 banks deposits loose their attractiveness.

The qualification to all this is of course the steady availability of land for new construction, unhindered by foreign investment 'land banking' and the like.

 

[maffu]

Interesting to note that our banks are some of the most profitable in he world? What does that tell you? I also note the US and UK with low ratios were the ones that suffered the most when their house prices fell through the floor !!! What does that tell you?

Risk and Return are always tied together. The Australian banks have the higher returns, and that may be due to them taking on the highest risk (via an undiversified lending portfolio).

Depending on the year of the data, the UK and US would have probably had ratios closer to Australia before they crashed, which shows what would happen to the Australian banks if property prices were to drop here.

 

[Uncle Festivus]

Interesting to note that our banks are some of the most profitable in he world? What does that tell you? I also note the US and UK with low ratios were the ones that suffered the most when their house prices fell through the floor !!! What does that tell you?

Depends what you mean by 'profit'? As is the case globally, the perception is that all has recovered so they can reduce the loan loss reserve requirements and book it as a profit? The underlying revenue growth figures are average at best?

New analysis from PricewaterhouseCoopers shows Australia’s big four banks posted collective underlying cash earnings in excess of $27 billion, despite a rise in annual costs and only moderate revenue growth.

Accounting firm Ernst & Young also released a comprehensive report on in which suggested the sector may be at a “tipping point” for growth and commended the banks’ ability to deliver returns in a difficult environment.

 

[trainspotter]

Risk and Return are always tied together. The Australian banks have the higher returns, and that may be due to them taking on the highest risk (via an undiversified lending portfolio).

Depending on the year of the data, the UK and US would have probably had ratios closer to Australia before they crashed, which shows what would happen to the Australian banks if property prices were to drop here.

"Don't put all your eggs in the one basket" is what I believe you are alluding to. Not sure on the risk factor you mentioned? Australia has the least amount of default mortgages (exception of Canada at 1.44%) with a 5 year average of 1.56%. Just like the Japanese pride themselves on who can pay the most tax, Aussie mortgage belt borrowers will sell their grandmother before defaulting to the bank.

 

[trainspotter]

Depends what you mean by 'profit'? As is the case globally, the perception is that all has recovered so they can reduce the loan loss reserve requirements and book it as a profit? The underlying revenue growth figures are average at best?

Accounting firm Ernst & Young also released a comprehensive report on in which suggested the sector may be at a “tipping point” for growth and commended the banks’ ability to deliver returns in a difficult environment.

So the big 4 banks maintain a 27 billion dollar underlying profit and are commended for doing so with a feathery warning that the sector "maybe" at a tipping point for growth? Damn straight they are at a tipping point for growth. It's their freaking job to lend money and to MAKE money for the shareholders. As they know that residential mortgage delinquency rates are very low in Australia they will then take larger risks either with commercial transactions (talking 100's of millions here in one dealing ie cbd buildings) or risky trades (thinking JPMorgan's $6.2 billion in losses from its 'whale trades' in 2012).

THAT is when it is going to get interesting !

 

[trainspotter]

I wrote this on the 7th November 11.21am.

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

THE Australian dollar continues to be weighed down by strong US jobs data which support the case for tapering US quantitative easing sooner rather than later.

http://www.news.com.au/business/aus...ong-us-jobs-data/story-fn6t6wad-1226757073987

Hmmmmmmm ... what would I know : Just need that pesky dollar to get under 90 cents and we are away again !

:horse: