The future of Australian property prices

[Uncle Festivus]

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? :

Unemployment is rising - http://www.tradingeconomics.com/australia/unemployment-rate
job security back to normal levels - ???. More temp jobs than full time would mean less security??
pent up demand???? - low LVR from a financial system complicit in force feeding liquidity fed via media frenzy stories

Plain & simple liquidity trap where banks are looking to put to use excess loot.......

 

[sydboy007]

Can't find the video again but was interesting a study in the USA over a 50 year period showed that those cities / states with the highest level of home ownership tended to have the highest unemployment down the track, mainly due to the lower mobility home owners have.

Looking to the EU it was similar there with Switzerland having the lowest unemployment and home ownership, whereas Spain did have the highest level of home ownership and now near the highest level of unemployment.

So why buy when specufestors will lend you a property for less than the current loan interest rate? Got yaself at least a 1% saving there. Juts rent and find another way to save people and prosper from the (false) belief you can't lose buying property.

 

[prawn_86]

Can't find the video again but was interesting a study in the USA over a 50 year period showed that those cities / states with the highest level of home ownership tended to have the highest unemployment down the track, mainly due to the lower mobility home owners have.

Not trying to add or detract from this argument either way, but it is interesting to note the property taxes her in the US. I have heard stories of people paying well over 5% pa just in land/property tax. Surely this has to keep a lid on capital appreciation, if you are paying out 30k pa for a 500k property no-one is going to buy it unless they have that free cash flow to pay the taxes

 

[Mrmagoo]

Can't find the video again but was interesting a study in the USA over a 50 year period showed that those cities / states with the highest level of home ownership tended to have the highest unemployment down the track, mainly due to the lower mobility home owners have.

Looking to the EU it was similar there with Switzerland having the lowest unemployment and home ownership, whereas Spain did have the highest level of home ownership and now near the highest level of unemployment.

So why buy when specufestors will lend you a property for less than the current loan interest rate? Got yaself at least a 1% saving there. Juts rent and find another way to save people and prosper from the (false) belief you can't lose buying property.

Can you say "spurious variable" ?

 

[sydboy007]

Can you say "spurious variable" ?

So you don't believe home ownership acts as an anchor that limits a person's or family's willingness / ability to move to where employment opportunities are?

I'd say it's a big issue here due to the SD on housing purchases.

 

[Smurf1976]

So you don't believe home ownership acts as an anchor that limits a person's or family's willingness / ability to move to where employment opportunities are?

How significant it is depends on the ability to sell or profitably rent that house.

I own a house in Tasmania. If I personally lose my job but the overall state economy remains stable then selling the house and relocating to another state is a realistic option. But if the overall Tas economy falls in a heap and local housing prices crash but the other states don't suffer the same fate then my options are more restricted. Either I sell the property cheaply (or not all) and move, or I continue living in it and potentially remain unemployed.

Since a large proportion of people could not reasonably afford to simply walk away from a house without selling or renting at a price that covers the original purchase cost, it's entirely possible for people to become "trapped" in a failing local, regional or state economy. There are plenty of examples of just that overseas (notably the US) and within Australia in towns where major employers have closed etc.

The other big restriction on mobility is relationships. If you're 20 years old and single then you can move pretty much anywhere as long as you can afford the physical cost of relocation. But if you lose your job, but your partner still has a decent job, then the decision to move becomes much more difficult. Not only do you need to get a job in the new location but so too does your partner - it's a much more complex situation. Now factor in family, friends and especially children if they are at school and it becomes more complex again.

Home ownership is one limitation on mobility but it's certainly not the only one.

 

[CanOz]

My wife's Chinese friend has a friend that just bought five apartments in Melbourne, plus a house in toorak...

Imagine if there is one, there's a hundred.

 

[trainspotter]

My wife's Chinese friend has a friend that just bought five apartments in Melbourne, plus a house in toorak...

Imagine if there is one, there's a hundred.

And I imagine she is receiving a stipend from these purchases? People have got to live somewhere !

The name Toorak has become synonymous with wealth and privilege. The suburb has long had the reputation of being Melbourne's most elite, and ranks among the most prestigious in Australia. It has the highest average property values in Melbourne, and is one of the most expensive suburbs in Australia. It is also listed as the "highest money earning suburb" in the country.

Mebbe on this purchase she is looking for capital growth? Average HOUSE price is 2.1mill and rent is $970 per week Strangely enough it has one of the highest people looking per listed property in Australia as well?

That kind of maths does not compute at all !!!!!!!!!!!!

 

[trainspotter]

So you don't believe home ownership acts as an anchor that limits a person's or family's willingness / ability to move to where employment opportunities are?

I'd say it's a big issue here due to the SD on housing purchases.

An anchor? I would have thought that the banks would have lent the money to the purchaser BECAUSE they had steady employment and not the vice versa? Employment opportunities? What you talking about Willis? Have you not heard of FIFO?

Can't find the video again but was interesting a study in the USA over a 50 year period showed that those cities / states with the highest level of home ownership tended to have the highest unemployment down the track, mainly due to the lower mobility home owners have.

Looking to the EU it was similar there with Switzerland having the lowest unemployment and home ownership, whereas Spain did have the highest level of home ownership and now near the highest level of unemployment.

So why buy when specufestors will lend you a property for less than the current loan interest rate? Got yaself at least a 1% saving there. Juts rent and find another way to save people and prosper from the (false) belief you can't lose buying property.

USA home ownership to unemployment ratios is due to manufacturing companies going offshore in the 80's. Think Chrysler/Ford/GM and Detroit "Motor City." How many of these plants are still producing motor vehicles there today? So if the major industry shuts down and the majority of the workforce has one skill level so therefore practically unemployable what do you think this will do to house prices? I wont go on as to the rest of the USA as I am sure you are picking up what I am putting down.

The Switzerland pfizer - According to a 2010 study, “Why Do the Swiss Rent?” by Steven C. Bourassa at the University of Louisville and Martin Hoesli at the University of Geneva, tax policy provides much of the explanation. For example, owner-occupants in Switzerland pay income tax on what is known as the imputed rent they derive from living in their own homes ”” yes, they pay tax on the rent they could be charging themselves. This imputed rent is estimated by looking at market rents for similar properties.

The Spain pfizer - The majority of "owner occupied" homes in Spain are debt free as they have been passed on through the generations. No banks to repossess what you already owned for a 100 years or so in the family. Now before you get on the bandwagon and start monkey poo flinging about "housing bubble" and "Spain" this was not directly the case. Foreign investors cashing in on the tourism boom were building MULTI MULTI housing developments and MASSIVE resorts trying to cash in on foreigners purchasing "holiday homes/apartments" .... Hey Presto ! ..... GFC .... *POP* goes the banks. Nothing to do with the "residential" market. Just greedy investors and stupid banks not performing due diligence.

In the last thirty years the Spanish unemployment rate has hovered around double the average of developed countries, both in times of growth as in crisis. Knocking off at 12 o'clock for a "Siesta" for a few hours may have something to do with it as well as being a lazy population does not help !! Been there to see it first hand so PULLLEEEZE don't start. Oh yeah ... tourism is one of their MAJOR income streams. When people no longer go on holidays there ..... well you get the idea?

YES YOU CAN LOSE MONEY ON PROPERTY !!!!!!!!!!!

 

[trainspotter]

Sydney home values grew an eye-watering 13.3 per cent this year, according to RP Data figures, with prices getting so high - and rental yields plunging as a result - that hopeful investors are now looking outside NSW for good deals.

Brisbane prices were up just 3.5 per cent, and with RP Data revealing properties are also discounted an average 5.8 per cent before selling, inner-city suburbs offer value for investors.
"South Brisbane rents are the best for a blue-chip suburb anywhere in Australia," Positive Real Estate chief executive Sam Saggers said. "Yields are pressing 6.5 per cent if you buy well."

Central Coast sisters Ann Bettson-Barker and Amy Pidgeon bought a one-bedroom unit in South Brisbane for $412,000. They now rent it out for $530 a week - a yield of 6.7 per cent.

http://www.news.com.au/national/que...s-housing-market/story-fnii5v6w-1226762129823

Now this is SPRUIKING !

 

[Whiskers]

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.

Not sure 'will' is the best word... 'may' may be more appropriate.

More particularly, with regard to Trainspotters perception of the rise in fixed rates by banks, they have got it wrong before, a couple of times in the last couple of years.

But did they just get it wrong or was it a spruiking tactic by the banks (building up expectations) to spook people into switching from variable to locking in a fixed rate before rates go lower.

It is worth noting that the RBA is arguably too pre-occupied with talking up expectations of housing prices overheating as justification for not lowering the cash rate more and sooner, while the more significant macroeconomics influences, the GDP growth rate is trending lower and unemployment trending higher.

Clever, subtle tactic to lock in more profits.

 

[trainspotter]

Things must be heating up when the Yanks start commenting

EVEN for an economist from New York with its fabled cost of living, prices in Australia's property market seem high.

"For an American, coming to visit in Australia, things are expensive, and property's expensive," economist Robert Gay said, as he walked around Brisbane's CBD on Monday.

"That doesn't mean it's a bubble," he added. It was only a bubble when banks become too lenient with lending standards and Australian banks did not have a history of being too lax, Dr Gay said.

But he warned that Australia's property was not impervious to a bubble emerging. Hot money could flow in when the Reserve Bank of Australia has normal monetary policies while other nations had extraordinarily low ones.

"Australia's vulnerable because it's a very attractive place," he says. "It's a natural lure for a lot of Asians who can't find (savings-investment) vehicles in their own country."

http://www.news.com.au/realestate/b...omist-robert-gay/story-fndban6l-1226763042194

As per CanOz friend of a friend buying up BIG in Toorak etc. there is a limit to prices and to what the market can withstand. As shares go down (read plunge) "Black Monday, 19.10.1987" for example so can the prices of property IF and it's a pretty big IF a number of factors come into play.

1) RBA lowers interest rates AGAIN
2) Unemployment rising
3) FIRB relaxation of policy (read Asian purchasing)
4) ???? ... anybody care to comment?

 

[Smurf1976]

An anchor? I would have thought that the banks would have lent the money to the purchaser BECAUSE they had steady employment and not the vice versa? Employment opportunities? What you talking about Willis? Have you not heard of FIFO?

Circumstances can and do change after people take out mortgages. It might be a "secure" job today but that doesn't mean it won't be gone tomorrow.

Just today there is news that BP is to put off 300 or so office workers in Melbourne. No doubt they all thought they were "safe" at some point - BP is a pretty big company after all and it's not as though the market for petrol has disappeared. But those jobs are going and the same could be said for every other "safe" employer who has cut staff or closed completely over the years. Few would have thought 15 years ago that Ansett would soon go bust or that the Newcastle steel works would be demolished. I mean, a job with Ansett or BHP was pretty much a "job for life", right? Things change, and when it happens it tends to happen fairly quickly from the perspective of those affected.

From my own experience, the bank asked no further questions about employment as soon as they saw that I worked for a locally "too big to fail" employer. Never mind that it has a much smaller workforce than it once did or that it's not known for being particularly profitable. It's extremely well known locally, is "too big to fail" and I've been there quite a while. That was enough to satisfy the bank.

Suppose that somewhere like Tas or SA go bust in a big way. Doing FIFO to Melbourne to work in an office job paying $60K doesn't work too well economically. At least it doesn't unless you can stay at no cost with friends / family or are prepared to spend 5 nights a week sleeping in a backpackers. Even then, air fares and the cost of getting to and from the airport will be eating up 20% or so of your after tax income. A short term option maybe, but ultimately most would end up just relocating to where the work is in due course.

If you look at the people who actually do FIFO, in most cases there are two key factors. Firstly, the job itself is high paying such that transport costs aren't a huge factor. Second, the location is such that living nearby either isn't an option at all, or is in some way undesirable (middle of nowhere). Hence such jobs are commonly associated with mining and construction projects.

I personally know two people who do it. One drives about 300km each way from Hobart to Queenstown and the other flies to SA and back. Both are mining related jobs. The one who goes to Queenstown used to live there (still has the house there) and moved to Hobart due to greater recreation and educational opportunities for their teenage children. In due course they'll quite likely move back to Queenstown. The one who flies to SA is a contractor who also does somewhat specialised work locally - but there wasn't enough local work to sustain the business hence pursuing opportunities elsewhere. He seems to see it as a "wait and see" situation. Either the local economy picks up or in due course he'll relocate to SA and at that point his house in Hobart will be for sale or rent.

I really can't see a situation where we have significant numbers of people flying from one state to another to work in "ordinary" jobs. Mining and one-off contracts yes, but not things like bus drivers or administrative roles. If the economy in NSW (for example) goes down in a big way then we're not going to see a million or even 100,000 people flying out of Sydney every Sunday night to get to their accounting, bus driving, car salesman or whatever "normal" job in another state. In practice, they'd either stay in Sydney and get whatever work they can, or relocate somewhere else. Either way, they won't be needing a house in Sydney once they make the move.

 

[Mrmagoo]

So you don't believe home ownership acts as an anchor that limits a person's or family's willingness / ability to move to where employment opportunities are?

I'd say it's a big issue here due to the SD on housing purchases.

I believe there would be much more important variables.

 

[Mrmagoo]

My wife's Chinese friend has a friend that just bought five apartments in Melbourne, plus a house in toorak...

Imagine if there is one, there's a hundred.

I don't think any other country in the world allows this sort of thing to go on. Think about it. Most Aussies can't buy property overseas and would have little to no chance of working overseas yet we are allowing a tide of immigrants to come here and compete for jobs and houses so that a select few can get wealthy without having to lift a finger for it. It just isn't right. It is going to stuff up the lives of an entire generation.

 

[sydboy007]

I don't think any other country in the world allows this sort of thing to go on. Think about it. Most Aussies can't buy property overseas and would have little to no chance of working overseas yet we are allowing a tide of immigrants to come here and compete for jobs and houses so that a select few can get wealthy without having to lift a finger for it. It just isn't right. It is going to stuff up the lives of an entire generation.

I just got back a few days ago from a holiday in SE Asia.

Trust me, it's quite easy to buy property over there - admittedly just apartments.

Rental yields are pretty good at 6%+ and ongoing costs much cheaper than in Australia. Throw in say a 10%+ currency drop gain and it's very tempting for me. Was looking at quite a nice 1BR apartment in Soi 3 Silom for about $170K, and was advised that no locals had bought into it. Pretty much just Singaporeans, Malays and HK.

As for stuffing up the lives of an entire generation, restrictive planning laws and urban growth boundaries have and will continue to do this until the vested interests are overcome and what should be cheap land is finally available for sale. Texas has a population higher than Australia, had higher levels of population growth, income growth than Australia, yet REAL house prices have barely moved over 10+ years. We could learn a lot from them, but it's probably too late now because the banks would collapse if there was a significant increase in housing supply and prices dropped 30%+

The bubble has continued for far far longer than I expected, but the proof of Australian exceptionalness in regards to property pricing will be when unemployment rises a couple of percent, and those earning decent money are forced into new jobs paying significantly less. We manufacture barely nothing, import practically anything of value, yet somehow feel safe and secure with our ever increasing house prices

 

[aster]

The Switzerland pfizer - According to a 2010 study, “Why Do the Swiss Rent?” by Steven C. Bourassa at the University of Louisville and Martin Hoesli at the University of Geneva, tax policy provides much of the explanation. For example, owner-occupants in Switzerland pay income tax on what is known as the imputed rent they derive from living in their own homes ”” yes, they pay tax on the rent they could be charging themselves. This imputed rent is estimated by looking at market rents for similar properties.

Same thing in Singapore. When you own a property you have to pay tax as if it were rented out.

 

[aster]

I don't think any other country in the world allows this sort of thing to go on. Think about it. Most Aussies can't buy property overseas and would have little to no chance of working overseas yet we are allowing a tide of immigrants to come here and compete for jobs and houses so that a select few can get wealthy without having to lift a finger for it. It just isn't right. It is going to stuff up the lives of an entire generation.

Very easy to buy property abroad. The problem is different, opening up the housing market and allowing it to be a vehicle for speculative/investment capital for outside investors, or even for investors in general. So money starts flowing in and scooping up properties, sending prices up. A lot of investors from Asia don't even care if the apartment is rented or not. Here in Singapore it's quite normal for someone to fly in, buy three apartments at $5M each, and just keep them empty.

Allowing people to gamble and speculate ("invest") in crucial areas like housing is a big mistake imo. Countries like Norway, where people earn good wages and the price of everything from beer to cheese is high, happen to have very affordable property prices. Surprised? What they do is keep gamblers away from the housing market. The last time I was there I believe you were not allowed to buy a second home, so basically you can only buy a home if you haven't got one.

Same thing with oil prices. Speculators can send the price skywards by just gambling on what is a strategic resource without having ever seen a real barrel of oil.

 

[aster]

View attachment 55202

View attachment 55203
Source http://asiaconf.com/

What does that first chart show btw?

As for the second one, are all Australian banks so heavily dependent on property loans (and at risk if the property bubble bursts)? Is there a chart with a break-up showing what the percentage is for each particular bank?

 

[sydboy007]

What does that first chart show btw?

As for the second one, are all Australian banks so heavily dependent on property loans (and at risk if the property bubble bursts)? Is there a chart with a break-up showing what the percentage is for each particular bank?

My understanding is pretty much the gang of 4 + the regionals are all glorified building societies with over 60% of loans for residential mortgages.