The future of Australian property prices

[Uncle Festivus]

I wrote this on the 7th November 11.21am.

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

Um, didn't the U rate increase to 7.3%?

 

[trainspotter]

Um, didn't the U rate increase to 7.3%?

Ummmmmm click on the link and read the article!

US employers added 204,000 jobs in October - an unexpected boost given that the federal government was partially shut down for 16 days.

Employers also added 60,000 more jobs in the previous two months than earlier estimated.

The data dragged the Australian dollar lower, despite better-than-expected industrial production data out of China, Commonwealth Bank currency strategist Peter Dragicevich said.

Explanation please ?

The Labor Department said that this was likely to be because many federal workers were counted as unemployed during the shutdown

http://www.bbc.co.uk/news/business-24870322

If you really want to get bogged down on semantics :- http://www.bls.gov/news.release/empsit.toc.htm

 

[trainspotter]

And they're off and racing ladeeez and generalmen ........

UNITS in Lilyfield in Sydney, Belmont in Perth and St Clair in Adelaide have recorded the highest price growth of all capital city suburbs with median prices rising as high as 50 per cent over the past 12 months.

The top 50 suburbs from RP Data reveals units in Lilyfield jumped by 50 per cent this year from a median sale price of $480,000 to a whopping $720,000 this year.

Units in Belmont in Perth were selling for $327,500 in 2012 but this year, their median sale price is $477,750 - growth of 45.8 per cent. In third position is Gregory Hills in outer Sydney, where apartments are currently selling around $489,900 which is 44.1 per cent higher than last year. Saint Clair in South Australia is next with units now 43.6 per cent more expensive at $405,000.

http://www.news.com.au/realestate/b...wth-for-the-year/story-fndban6l-1226757322138

*sniff sniff* smells a bit bubbly to me !

 

[Whiskers]

Two strong factors in the current market are:

1. first home owners at decade low levels (12.5%), and
2. record high lending for investment housing, apparently considerably more than half.

Both are a sign for caution for me.

But a bit of a dark horse that's likely contributing to the perception of a housing shortage, or more precisely driving over excitement with increases in some areas is that there may be far more houses left vacant, unoccupied than previously thought.

Some reasons are postulated for Melbourne here; http://www.abc.net.au/news/2013-11-05/vacant-housing-melbourne/5071460

Land tax hikes could create rent incentive

Mr Soos says many owners are holding onto empty properties because the net return from rent is so low as to make it not worth the time and effort, while the real profit is to be made from rising property values.

He says an increased land tax would discourage investors from holding empty properties.

"An increase in the land tax has the effect of reducing rental income and stunting out capital growth in the value of the land under these properties," he said.

"And if this is the case then it also acts as a withholding cost which provides an incentive for a landlord to actually tenant the property in order to gain an income to pay down the increased land tax."​

Another could be the large number of houses lost or still deemed inhabitable from wide spread floods in the last couple of years or even lost to fires and are facing long waits for insurance companies to payout on before repairing or rebuilding.

If there is a substantial amount of local and or overseas owned 'land banking' waiting for a capital gain, then a bit of a rising market could turn into an oversupplied market in a flash. I can point to quite a number of regional resort and tourism areas which suffered from over speculation of vacant land before and again just as the GFC was recovering. Especially those on the fringe have been sitting on the market for years and every now and then one cuts the asking price multiple times to as much as 30 to 40% off asking price as the Qld Building boost ended in 2012 and after a bit of a spurt in prices since fails to follow through.

Which brings me back to the foreign investment issue. The problem with our foreign investment is at present we don't keep a log of foreign owned property. But then the capitalists would not want such records to be kept. It would be a pretty hot indicator of trouble spots.

To blindly promote foreign investment without knowing how much and where it is and the effect it's having on the economy is to trust blind faith that everything will be all right... dumb.

We need a detailed foreign investment register, otherwise we have no idea how much of our land and housing is foreign owned, where that land is or what effect it has on land and house prices.

Add in our unique negative gearing tax scheme (which I admit to have exploited when younger) and the incentive to invest when there appears to be a price rise looming, further distorts the market dynamics as at present and costs the government billions of dollars in forgone revenue.

Apart from the global issues, the RBA monetary policy and our big banks protectionism... our internal structure such as the status of ownership and incentives such as negative gearing v first home owners or ownership per se, is unsustainable or at least unhealthy, even before the unknowns of foreign investment is considered.

 

[trainspotter]

And yet you still dont get it?

 

[Whiskers]

And yet you still dont get it?

What!.. that Obama will decrease unemployment and the AUD will fall and hey presto our property market is up and away!?

I wonder if you see the US unemployment rate being more positive than it really is. In the detail there is a similar problem here in Aus... the more fundamental problem of less workforce participation and low to flatish household income.

A looming spoiler is also our mining boom not falling away as some, including the RBA originally anticipated. What would you do when the government introduced a super profits tax? I expect most would bring forward development and maintenance etc to avoid the extra tax in the first year. The consequence of that is likely increased production and profitability in the second and third years as available tax minimisation measures decrease.

What is that going to do for local industry? Probably not a lot for employment and personal income as more production will likely be more mechanised. Since the majority of mine production is foreign owned most of the profits will go overseas, but we might collect a bit more mining tax until and if it is repealed. Then what of the pressure on the AUD/USD? If the carbon and mining tax are repealed could that see a flood of investment back into our economy and the AUD rise again before we know it, drive up imported inflationary pressures and the RBA itching for an excuse to raise rates again, thus killing off sustainable, organic internal driven growth in our economy?

If the current rises are driven more by investment lending as it seems and if the capital gains and or rent revenues are not met it will turn back into a selling market quick smart.

There is not a substantial lack of supply of land, not even developed land generally. There may be in certain areas where employment and or lifestyle preferences attract people, but there are plenty of less expensive housing opportunities further out in regional areas and interstate where people will migrate to when the cost differential becomes significant, as they did in the 1990's.

For me the real issues are going to be affordability, a widespread growth in income, especially disposable income and a shift in monetary and fiscal policy as mentioned above, to foster home ownership more than investment.. then the RBA's fear of an overheating property market will be lessened due to less speculators in the market.

 

[trainspotter]

More white noise from another internet hero. You have missed the boat. Next please

Try actually doing something for a change. Go and buy/build something instead of pontificating from a position of armchair theories and extruding palaver onto the great unwashed masses.

I have posted where 50% gains have been achieved in a 12 month period. I have posted as to WHY I do what I do and given valid reasons as to WHY this is happening as well as given enough information to evidence that 28% is an achievable result. And yet you still don't get it?

More action and less talk is required.

 

[Whiskers]

More white noise from another internet hero. You have missed the boat. Next please

White noise: a signal that contains equal power within any frequency band with a fixed width.

Yes that's what we need, more opinion power (white noise) about the economy in the same 'frequency' as, and to drown out more of the vested self-interests like realestate.

Try actually doing something for a change. Go and buy/build something instead of pontificating from a position of armchair theories and extruding palaver onto the great unwashed masses.

Yes, you do seem to do what you do quite well... BUT, with all due respect TS, the future of the Aus economy is much more than just about you or me. You really are quite intolerant of people who express a different opinion aren't you! :

The overemphasis on realestate (or any single aspect of the economy) as the measure of the strength of, or what's best for our economy is the great extruding palaver being pontificated on the Aus population atm.

I have posted where 50% gains have been achieved in a 12 month period. I have posted as to WHY I do what I do and given valid reasons as to WHY this is happening as well as given enough information to evidence that 28% is an achievable result. And yet you still don't get it?

Not everyone needs to "buy/build" something for a better and stronger Aus. On the contrary, we need more people to be involved in working smarter... as in creativity to make something new out of little more than and idea plus a few of our natural resources tickled together with a bit of local manufacturing afforded some degree of national interest protection and 'sell' things overseas. That is what the US and Germany did, apart from realestate, to build up their manufacturing base to be world economic powers.

The short critique of your case for the betterment of your business as opposed to the betterment of the wider economy is best exemplified by people with vested interests in property having too much influence controlling fiscal and monetary policy to the detriment of longer term sustainable, organic, internal growth in the economy from manufacturing while better protecting the big things Aus has going for it... agriculture, tourism and mining.

More action and less talk is required.

On the contrary... in critical times like this after massive fiscal and monetary policy, knee-jerking a mash of good and bad policies and another hung government for at least 7 months, a bit of quality 'talk' to negotiate the impasse on major obstacles to improving our economy would be well advised... then people could get on with the 'action' in much better confidence for the future.

Just think about the Carbon and mining tax for example. If nothing changes we likely grind down to a slower economy with wealth concentrated more in the few. If they are repealed and the average household is refunded the impact of the tax as Abbott promised, 6 to 9% up to 14% according to industry... what a significant boost to household wealth that will be. How will people spend it? Will they spend it on realestate, something else, reduce their debt or just leave it in deposits?

 

[trainspotter]

The future of Australian property - CERTAIN areas up by 50%. Rates to rise to curb inflation/slow the market March/April 2014 (not necessarily from the RBA) Overall synopsis - limited time frame to make money before stagnation/peak. Possible 3 year period before plateau in prices. Prognosis - looks bubbly so drink it.


WHITE NOISE: in the metaphoric sense of "random talk without meaningful contents"

 

[Uncle Festivus]

More white noise from another internet hero. You have missed the boat. Next please

Try actually doing something for a change. Go and buy/build something instead of pontificating from a position of armchair theories and extruding palaver onto the great unwashed masses.

I have posted where 50% gains have been achieved in a 12 month period. I have posted as to WHY I do what I do and given valid reasons as to WHY this is happening as well as given enough information to evidence that 28% is an achievable result. And yet you still don't get it?

More action and less talk is required.

Nice attitude there. It's similar to the attitude of the law makers to not wanting to rock the boat or lose votes in order to correct wrongs. Wrongs like tax payer subsidised negative gearing - everyone agrees that it's a massive rort but nobody wants to abolish for fear of backlash and getting tossed out of power.

Property investing is the con inflicted on the masses by the financial industry in order to continually make ever growing 'profits', with complicit help from compromised lawmakers and their property developer financial backers.

At's all beer & skittles up until the point where something breaks and then the blame game starts. All those self proclaimed property mavericks while the ponzi scheme continued soon find themselves looking to blame somebody else for having been left without a chair when the music stops. But, as usual, most of the really smart money have already gotten out at the peak and were busy dumping to the late comers - I see it now, lot's of properties tightly held for generations are coming onto the market at exorbitant prices, and selling!

I saw this during the last recession and it's a far bigger bubble now than it was then - the bigger they come the harder they fall.

 

[againsthegrain]

It looks like the last desperate push up before exhaustion. You know it when spruiklers like ts come out of hiding for their annual desperate preech on the internet thinking they can make themselves a good exit then dissapear again.

The tune is already changing from huge gains to getting out soon and drinking bubbly with stories of past success. We all know it a slowdown/stagnation are around the corner maybye even a crash.

 

[Whiskers]

The future of Australian property - CERTAIN areas up by 50%. Rates to rise to curb inflation/slow the market March/April 2014 (not necessarily from the RBA) Overall synopsis - limited time frame to make money before stagnation/peak. Possible 3 year period before plateau in prices.

Well, I just hope you have not got in out of your depth TS, on the expectation you have three years of spectacular rises up your sleeve.

Prognosis - looks bubbly so drink it.

You are certainly quite flamboyant, even quite emotive at times. You are not overindulging, mixing work with pleasure, making business judgments in a pleasurable state, are you.

In any case, isn't it wise to not count your 'bubbly' until you have it in your hand?

 

[Bill M]

A lot of emotional posts here lately but one thing for sure, in my area on the Northern Beaches (Sydney) prices are strongly up and where I am living on the Central Coast properties are selling very quickly and in most cases before auction and for good prices. Prices are going up, that is what matters to me and everything else is just guesswork. As for the future of houses prices? In good areas and suburbs with low supply, definitely up and no I am not selling anything, building anything or spruiking anything, it's just my observations and my opinion.

 

[trainspotter]

THANKS BILL M .... I actually heard it from the mans mouth who is on the ground putting a report in on house values in their area rather than pontificating from an armchair with no skin in the game. Strong rising prices in your area is a good sign of property holding it's own. Semantics of why/wherefore/moreover has been done to death. Macro economics are a factor. Don't get me wrong. All the white noise/palaver/diatribe is relevant in context. I repeat for comedy purposes only ... CERTAIN areas will rise or in fact have risen 50%if you had 400k skin in the game. Factor interest rates and outgoings it is still 28% on ya money.

Them's the breaks eh?

Done the math yet on the figures I have evidenced Whiskers? Or if you PM me I will send you a PDF to disseminate at your will. Now before you begin squawking about "presales" at 110% of loan value before funding is required from bank you do realise the titles are valued at 1 mill plus. Happy with the rate of % from bank and the minimal conditions involved with the transaction. In and out in 2 years with 6 months interest free ... speculative ... you betcha it is. Your call.

Now enough about me ... how you guys going in the RE game?

Yes there are areas of mortgage stress and the investors bought these toxic debts off the bank. The poor young couples who got duped into buying property from a spruiker and then their marriage breaks down cause he went and bought an SS commodore to go with the new house certainly hurts. Guess what ... they are now renting "their" house back to the investor for the same amount they were paying mortgage.

Maths anybody on $280,000 IO and receiving $350 a week with "possible" cpi of 2.3% and I make 28% on 18 months debt free. Please factor in outgoings and tax deductibility on my income for the period. Also get to drink bubbly and fly planes.

 

[DB008]

Did someone say we have the highest debt ratio in the world, or something to that extent ???

How South Korea Became a Credit Card Nation

Over the course of two decades, South Korea quickly morphed from a country of savers to a nation of spenders and borrowers. The country now hold the most credit cards per capita in the world, according to statistics from the Bank of Korea, with five times as many credit cards as people.

Young-Sik Jeong, a research fellow at the Samsung Economic Research Institute in Seoul, tracks household debt in South Korea. In 1990, he found, Koreans saved on average 22.2 percent of their net household incomes. By 2012, that figure had dropped to 3.4 percent. And the ratio of household debt to disposable income in 2012 was 160””higher than the U.S. in 2007 before the housing bubble burst.

http://www.businessweek.com/articles/2013-11-11/south-koreas-debt-culture-fueled-by-spending-on-housing-education

 

[CanOz]

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.

Thanks Ves. I'm interested in Ballarat as its the only place I lived for a length of time in Australia. Aside from the winters it was great there too!

The growth in Ballarat of property prices seems more steady and less frothy....is this an accurate way of describing it?

 

[Uncle Festivus]

Really?

Inflated and inaccurate auction clearance rates may push misinformed buyers into the market, according to Aquasia strategist Mark Bayley.

Bayley, a chartered financial analyst for the corporate advisory company, has accused property data providers and media commentators of provoking over*excitement based on misleading figures.

This is because auction clearance rates are generated from the auction results that estate agents report, and a proportion of auction results are therefore not included in calculations.

“At best, these figures provide only a rough guide to a small sample of the overall sales, and that sample is inherently biased,” he said. “Looking at the data over the last six months, the reported clearance rate cannot even be relied upon to give a basic trend.”

Thank god for APRA, standing extra vigilant at 98%

Home lenders are accepting smaller deposits from home buyers and increasing the amount they are loaning relative to the value of property prices, causing the Australian Prudential Regulation Authority (APRA) to be extra vigilant on lending standards.

Stephen Campbell, head of credit risk management at QBE’s lenders’ mortgage insurance business, said maximum loan-to-value ratios (LVRs) had reverted back up to 95 per cent (with a 5 per cent deposit), from about 90 per cent following the global financial crisis in 2008. Adding in the cost of lender’s mortgage insurance, the maximum LVR was about 98 per cent.

“Once you cross that 95 per cent on the base LVR, the level of claims jumps significantly, and that’s why we’re not in that space any more,” Campbell said at the Australian Securitisation Forum conference in Sydney.

 

[Whiskers]

The future of Australian property - CERTAIN areas up by 50%. Rates to rise to curb inflation/slow the market March/April 2014 (not necessarily from the RBA) Overall synopsis - limited time frame to make money before stagnation/peak. Possible 3 year period before plateau in prices. Prognosis - looks bubbly so drink it.

Would your 3 year forecast be based on a full term for the government?

 

[trainspotter]

Would your 3 year forecast be based on a full term for the government?

Got nothing to do with the government of the day. Historically low interest rates, unemployment steady, job security back to normal levels, CPI within target range of the RBA, pent up demand, amount of investors back in the market place, banks offering 3 year rates at 5.8% (which have just gone up 0.06% btw *interesting*) as well as quite a few "other" market indicators. But you know all this right? :

 

[ftw129]

Anyone not taking advantage of these low rates now will be kicking themselves in a year or two....

May not see another opportunity like this for another 10 years or more.