The future of Australian property prices

Smurf1976 · 18 February 2014

sptrawler said:
Well Smurph, I'll tel you how stupid Perth is.
I bought my house six years ago for $450,000, it like yours is in a middle socio-economic area, 10 km from CBD.
Similar house, in my street, sold six months ago for $700,000.

Perth and Hobart are both cities located in the same country. They have the exact same changes in interest rates plus the exact same changes in any national laws (Eg income tax, negative gearing etc).

The only significant difference between in this context them is the state of the local economy. WA with the mining boom versus Tas with a clearly struggling local economy.

The local economic situation is a much bigger driver of house prices than most other factors so far as I can tell, and that is especially so in a situation where there is a disparity in economic performance between regions in the same country (since people will tend to migrate to the area with more employment opportunities).

sydboy007 · 18 February 2014

trainspotter said:
Speculators and large corporations building whole suburbs did not infiltrate Texas. It's growth was due to "singular" domestic migration who purchased established properties. The original owners of the established properties in turn bought land and built homes. A much more orderly supply chain.

Once again we are NOT the U.S.A. There is plenty of land to develop BUT the banks are not lending to property developers and making it very hard to obtain finance atm. AND the punters do not want to live in the "outer" burbs. Sounding like a broken record here !!

"Entitlement Generation" I think they call it ... Coddled by their parents and the schools, raised with remarkable material wealth and opportunity, laden with self-esteem, technologically connected and routinely promised the world, many young people are ill-prepared for the challenges of real life, let alone the highly competitive, globalized workforce that awaits them upon leaving school. There was a post awhile back for someone demanding 75k a year and wanting to live in Bondi no doubt. Get real ... start at what you can afford.

This is where the problem lies. Everyone is talking about the "median" price and the "average" income ... The "TOP" end of town is skewiffing the nett averages due to the ridiculous prices being paid for the sought after properties. Why can't the FHB purchase a property in the burbs ... live in it for awhile and get used to having a mortgage and the associated costs that go along with it. Sell it in a period of time (hopefully they have purchased SMART) and make enough to place a deposit down on something a bit more substantial or closer to where you really want to live?? You know how us "old fogies" had to do it !! Who says you have to buy the one and only house and pay the mortgage off?? OPEN YOUR EYES !

Seriously. The coddled generation, being told you can't afford to buy a property to live in, so go the NG route and get an investment property to start the whole process off. How warped is our society that we're considering it natural to force a family to buy their first home and then not live in it.

Then the argument of buying what you can afford and trading up. If it generally takes around 7 years to break even on buying a property then selling and buying a second hopefully better property, then how long do you wait before trading up? Even Liverpool NSW has a median house price of $447K. That's an hour on the train into the city, or maybe $10 a day in tolls if you need to drive your car. Liverpool is not a particularly affluent area. Move further out to Penrith (50km) and the median house price drops to $372K, which is just over 7 times the median house hold income of the area.

Seems the current generation of home owners has forgotten how lucky they were. I was able to buy my house in 97 for $300K which wasn't particularly cheap but I preferred to spend the extra money and have a short commute time to work. With inflation that purchase price would be $464K. I'd say I could sell for around the $900K mark. In 1997 it was possible for a couple with kids to buy in my area and still have a decent life. Now if you're trading up you'd still probably have a half million dollar loan.

How the property market will cope with the casualisation of the workforce I don't know. Banks will be reluctant to loan to people who have variable pay. No more secure jobs like the old fogies eh. The below graph shows just how good the yunguns these days have it.

As for your 75K job hunter, what about the boomers giving themselves lump sum tax free super after 60 that can be used to pay off the mortgage, take a holiday, tart up the primary residence and then provide themselves with lifetime full aged pension. Talk about having your cake and eating it.

sydboy007 · 18 February 2014

Smurf1976 said:
Perth and Hobart are both cities located in the same country. They have the exact same changes in interest rates plus the exact same changes in any national laws (Eg income tax, negative gearing etc).

The only significant difference between in this context them is the state of the local economy. WA with the mining boom versus Tas with a clearly struggling local economy.

The local economic situation is a much bigger driver of house prices than most other factors so far as I can tell, and that is especially so in a situation where there is a disparity in economic performance between regions in the same country (since people will tend to migrate to the area with more employment opportunities).

That's true, but if an area has strong housing demand and brings new supply quickly to meet the demand, then prices don't tend to take off like a rocket. You don't see new supply being released anywhere in Australia particularly quickly. Being able to bring new supply easily to the market also means land bankers have little incentive since there's not going to be too much real increases in land values.

A guy I worked with a few years back decided to buy a tear down out in the burbs of Sydney and put 2 or 3 town houses on the block. Not particularly controversial you'd think. Took him over a year to get through council and all the whinges from those around. It was lucky he wasn't geared up. It was his one and only foray into property development. Stronger right of use / development for land owners would certainly help bring new supply quicker and cheaper to the market. A national development code would also make it easier, but every local Govt has to have their own rules. The NSW Govt has pretty much gave up the fight to improve things for developers.

We're a country without a national housing policy, seemingly the only rich country in the world without one.

sptrawler · 18 February 2014

Smurf1976 said:
Perth and Hobart are both cities located in the same country. They have the exact same changes in interest rates plus the exact same changes in any national laws (Eg income tax, negative gearing etc).

The only significant difference between in this context them is the state of the local economy. WA with the mining boom versus Tas with a clearly struggling local economy.

The local economic situation is a much bigger driver of house prices than most other factors so far as I can tell, and that is especially so in a situation where there is a disparity in economic performance between regions in the same country (since people will tend to migrate to the area with more employment opportunities).

Very true, however, Perth is a very isolated city with a relatively small population when compared to Melbourne or Sydney.
Unlike those, we have a very small service industry and an even smaller tourist industry.
Everything is geared to the mining boom, it doesn't service any other industries.

Perths industrial strip hasn't changed much in 40 years, if anything it is being run into the ground, no expansion or new industries.

I think we are in for a shock, but I've thought that for three years.

Julia · 18 February 2014

Smurf1976 said:
Just one problem, the data does not support my argument since a house in the poorer suburbs of Hobart that would have been worth $200 - 250K a few years ago is now listed around the $150K mark and there are plenty of them in several suburbs.

There's the price crash, it's actually happened it would seem at least in Tas. Sure, they're dodgy houses (mostly) in generally bad areas, but the bottom line is that there's been a pretty big decline in their value.

All we seem to hear about is the price rise in capital cities, even a housing bubble etc.
But as above in Smurf's example, it ain't happening in other places.
I can only speak for regional coastal Queensland, attractive area, pop around 55,000, where average fall is more than 30% since the start of the GFC.

The houses are not dodgy. They are ordinary, quite well kept houses in pleasant suburbs. You can sell something in the $300Ks but anything over $500K, pretty well forget it.

New apartment buildings, even those right on the beachfront, are sitting empty.

sptrawler · 18 February 2014

Julia said:
All we seem to hear about is the price rise in capital cities, even a housing bubble etc.
But as above in Smurf's example, it ain't happening in other places.
I can only speak for regional coastal Queensland, attractive area, pop around 55,000, where average fall is more than 30% since the start of the GFC.

The houses are not dodgy. They are ordinary, quite well kept houses in pleasant suburbs. You can sell something in the $300Ks but anything over $500K, pretty well forget it.

New apartment buildings, even those right on the beachfront, are sitting empty.

That is actually great news Julia.
I for one, am fed up with the talk of meteoric rises in prices, it sounds like ramping to me.

It must be devastating for baby boomers, who don't own a house, that are nearing retirement.
All they hear or read about is stupid prices for houses, it is getting like the form guide for the horse racing.
Where is the next boom suburb? What will the median price be? How much will you have to pay?
Maybe a Royal Commission into how much corruption there is between the print media and the real estate industry could follow the union one.IMO

sydboy007 · 19 February 2014

Julia said:
All we seem to hear about is the price rise in capital cities, even a housing bubble etc.
But as above in Smurf's example, it ain't happening in other places.
I can only speak for regional coastal Queensland, attractive area, pop around 55,000, where average fall is more than 30% since the start of the GFC.

The houses are not dodgy. They are ordinary, quite well kept houses in pleasant suburbs. You can sell something in the $300Ks but anything over $500K, pretty well forget it.

New apartment buildings, even those right on the beachfront, are sitting empty.

I suppose part of the focus on the capital cities is because that's practically where all of us live. It's also easier to spin the story of property doubles every <insert number> years. I'd say the smaller coast cities and areas that have been wearing the damage of the high dollar longest are the canaries of the housing market. My parents live in a small town on the South Coast of NSW around 1.5-2 hours drives to Sydney depending on the traffic. I suppose for a lot of wealthy Sydney siders it's a great holiday destination which has propped things up to a degree. Plenty of empty holiday homes. An avg 3 BR house still goes for a median of $550K and the price growth has been pretty good. I'd say once you get a bit further from Sydney though the price gains are getting closing to falls as there's not a lot of work down there these days.

sptrawler said:
That is actually great news Julia.
I for one, am fed up with the talk of meteoric rises in prices, it sounds like ramping to me.

It must be devastating for baby boomers, who don't own a house, that are nearing retirement.
All they hear or read about is stupid prices for houses, it is getting like the form guide for the horse racing.
Where is the next boom suburb? What will the median price be? How much will you have to pay?
Maybe a Royal Commission into how much corruption there is between the print media and the real estate industry could follow the union one.IMO

Keep dreaming. The housing banking media politico complex feed off each other. No one is going to do anything till we're sweeping up the ashes and staring around at utter devastation, being told no one could have foreseen what happened.

I say keep renting if you don't own a place, especially since rents are lower than interest rates. You're way in front, especially if you're saving the difference between a mortgage and rent.

sydboy007 · 19 February 2014

could be the canaries in Sydney are having trouble keeping up the siren song of it's never been a better time to buy.

McLovin · 19 February 2014

trainspotter said:
Yes the high end of town is performing well skewiffing the median average for this set of data. That is the problem ... it is increasing the "mean" average.

Except the median is the middle value of the dataset, not the average. That is if you have 5 houses arranged by price the median price will be the value of house number 3. There is no skewiffing because of high end houses.

Value Collector · 19 February 2014

Julia said:
All we seem to hear about is the price rise in capital cities, even a housing bubble etc.
But as above in Smurf's example, it ain't happening in other places.
I can only speak for regional coastal Queensland, attractive area, pop around 55,000, where average fall is more than 30% since the start of the GFC.

The houses are not dodgy. They are ordinary, quite well kept houses in pleasant suburbs. You can sell something in the $300Ks but anything over $500K, pretty well forget it.

New apartment buildings, even those right on the beachfront, are sitting empty.

That goes along with what I said in an earlier post, the property bears continually reference Australia's large land mass as a reason against high property prices in the capital cities, the fact is though people seem hell bent on cramming themselves into the largest capital cities.

It doesn't matter how much desert we have or as you pointed out nice coastal towns or rural centres, the prices of the capital cities will be high as long as people refuse to move out of them.

people here complain about high prices and then in the same breath scoff at the idea of living more than 50kms from the cbd of a capital city, and not only that, the want to live in a large house, and scoff at the idea of living in a cupboard sized apartment like the English ones they compare the prices of aussie mcmansions to.

odds-on · 19 February 2014

sptrawler said:
That is actually great news Julia.
I for one, am fed up with the talk of meteoric rises in prices, it sounds like ramping to me.

It must be devastating for baby boomers, who don't own a house, that are nearing retirement.
All they hear or read about is stupid prices for houses, it is getting like the form guide for the horse racing.
Where is the next boom suburb? What will the median price be? How much will you have to pay?
Maybe a Royal Commission into how much corruption there is between the print media and the real estate industry could follow the union one.IMO

The media analysis of the housing market is amusing. This is my favourite from NZ - http://www.interest.co.nz/property/rent-or-buy

Lots of data analysis, but as per the posts by “Basel Brush III” and “Philip O’Connor” the following assumptions are incorrect:

1. They compare renting a median house with buying a house in the first quartile
2. No account of income generated from the deposit.

Surely, if we are analysing the national averages to obtain an objective view of the rent vs buy decision you would make the correct assumptions.

Cheers

McLovin · 19 February 2014

Value Collector said:
That goes along with what I said in an earlier post, the property bears continually reference Australia's large land mass as a reason against high property prices in the capital cities, the fact is though people seem hell bent on cramming themselves into the largest capital cities.

It doesn't matter how much desert we have or as you pointed out nice coastal towns or rural centres, the prices of the capital cities will be high as long as people refuse to move out of them.

people here complain about high prices and then in the same breath scoff at the idea of living more than 50kms from the cbd of a capital city, and not only that, the want to live in a large house, and scoff at the idea of living in a cupboard sized apartment like the English ones they compare the prices of aussie mcmansions to.

I made the same comment about how those comparisons on housing affordability always seem to include places in the US that no one wants to move to. It's just a fact of life that more people are going to want to live in NY, LA, SF than are going to want to live in Indianapolis, Oklahoma City or Omaha. And people will pay more to live in those cities because of the amenity they offer.

trainspotter · 19 February 2014

sydboy007 said:
Seriously. The coddled generation, being told you can't afford to buy a property to live in, so go the NG route and get an investment property to start the whole process off. How warped is our society that we're considering it natural to force a family to buy their first home and then not live in it.

Then the argument of buying what you can afford and trading up. If it generally takes around 7 years to break even on buying a property then selling and buying a second hopefully better property, then how long do you wait before trading up? Even Liverpool NSW has a median house price of $447K. That's an hour on the train into the city, or maybe $10 a day in tolls if you need to drive your car. Liverpool is not a particularly affluent area. Move further out to Penrith (50km) and the median house price drops to $372K, which is just over 7 times the median house hold income of the area.

Seems the current generation of home owners has forgotten how lucky they were. I was able to buy my house in 97 for $300K which wasn't particularly cheap but I preferred to spend the extra money and have a short commute time to work. With inflation that purchase price would be $464K. I'd say I could sell for around the $900K mark. In 1997 it was possible for a couple with kids to buy in my area and still have a decent life. Now if you're trading up you'd still probably have a half million dollar loan.

How the property market will cope with the casualisation of the workforce I don't know. Banks will be reluctant to loan to people who have variable pay. No more secure jobs like the old fogies eh. The below graph shows just how good the yunguns these days have it.

As for your 75K job hunter, what about the boomers giving themselves lump sum tax free super after 60 that can be used to pay off the mortgage, take a holiday, tart up the primary residence and then provide themselves with lifetime full aged pension. Talk about having your cake and eating it.

JUST FRICKING LOL ... Go and sell your 900k inner city home and rent for Chrissake and do us all a favour and quityabitching ... You are on the roller coaster as well but you are chucking out venom to people who are making money out of RE. JUST FRICKING LOL !!

P.S. We all do not live in Sydney DERRRRRRRRRRR

trainspotter · 19 February 2014

McLovin said:
Except the median is the middle value of the dataset, not the average. That is if you have 5 houses arranged by price the median price will be the value of house number 3. There is no skewiffing because of high end houses.

Ermmmmmmmmmmmmmmmmmmmmmmm not you as well !!!!!!!!

The average price is being drawn up as the TOP end of town is selling for higher.

The median price is being drawn up as the TOP end of town is selling for higher which in turn makes people emotional and want to pay more for the lower end of houses as the spruikers keep pushing the same excrement upon them that NOW is the time to buy blah blah blah ... has anyone here actually got any experience in RE other than thinking about or just owning a singular residence? (or in some cases a few set and forget no brainer IP's)

Value Collector · 19 February 2014

odds-on said:
2. No account of income generated from the deposit.

A deposit offsets interest you would have had to pay if you didn't pay a deposit.

So if you pay off $80,000 off the value of your house in the form of an initial deposit you are saving interest at probably a higher interest rate than if you had the money in the bank.

eg, $80,000 in the bank probably earns 3%, $80,000 in the home loan saves you 6%

Also the interest earned on the bank account is taxable, the interest saved by paying off your loan is not taxable.

________________

But to me, either way you are renting. You can either rent a house or you can rent money that you use to by the house.

Renting the house is cheaper at first, But your repayments on renting the money go down over the years where as your rent on the house will pretty much go up forever.

trainspotter · 19 February 2014

Have a look at this renting vs buying calculator.

http://www.yourmortgage.com.au/calculators/rent_vs_buy/

Do your own sums .... I personally believe their "appreciated home value" is WAY OFF !!! Well maybe if you bought in the CERTAIN areas that are performing this MIGHT be the case but I seriously doubt it.

Current trending is about equal IMO ...

Gotta love the byline at the bottom "There are many emotional reasons for wanting to own the home that you live in, even when the numbers don't necessarily justify the purchase"

Bill M · 19 February 2014

This is what's going on at the Northern Beaches of Sydney, no shortage of buyers and it's all about location.

---
Derelict Mona Vale shack sells for $1.8 million

The old timber cottage hadn’t been listed for sale in half a century and had just two bedrooms and no garage.

Despite that, 47 contracts issued on the home and there was aggressive bidding and high emotion at the auction.

http://www.dailytelegraph.com.au/newslocal/northern-beaches/derelict-mona-vale-shack-sells-for-18-million/story-fngr8hax-1226830647942
---

trainspotter · 19 February 2014

Wanna know where all the money goes? To develop a 11 unit site just for Water Authority headworks fees is over $70,000 ... Electricty Supplier headworks fees is over $80,000 and this is just for them to look at the project and NOT actually install anything in the subdivision. No upgrading of meters or moving sewer connections nor installing a transformer on the property. Nuffin. And you wonder why developers are not building anything and why the costs are so expensive?

A Centre for International Economics report found that taxes accounted for $267,879 of the average total dwelling cost of $639,533.

“Government taxes are forcing developers out of the market,” said Peter Icklow, CEO of developer Monarch Investments. “I’m selling house-and-land packages for $500,000 each and then paying the government $50,000 for each settlement. “That’s after paying taxes all the way through the development process.”

http://www.news.com.au/finance/real...50k-per-property/story-fnd91nhy-1226831181270

Klogg · 19 February 2014

trainspotter said:
Wanna know where all the money goes? To develop a 11 unit site just for Water Authority headworks fees is over $70,000 ... Electricty Supplier headworks fees is over $80,000 and this is just for them to look at the project and NOT actually install anything in the subdivision. No upgrading of meters or moving sewer connections nor installing a transformer on the property. Nuffin. And you wonder why developers are not building anything and why the costs are so expensive?

Yeah, I see this first hand... My dad is a builder (smaller scale, hasn't touched an 11 unit site as yet), but the planning stage is just a nightmare. Open space levy, Cultural Heritage Management plans (and in Sunshine [Melbourne] of all places!), lengthy planning approvals, shadow diagrams, landscape bonds, City West water approvals, Electricity Supplies (as trainspotter mentioned)... and the list goes on.
While not all of these are taxes, they take time and effort and ultimately add to cost.

trainspotter · 19 February 2014

Beware the Asian Invasion ... my @rse !!

Under FIRB regulations, foreigners can only buy: a new dwelling, which must be purchased directly from the developer and cannot have been previously occupied for more than 12 months; a vacant block of land for residential development, and construction must commence within 24 months of approval; or vacant land for the development of multiple dwellings.

The only way foreign investors can buy an established property, is if they knock it down and develop multiple residences on the site.

If the property is uninhabitable, they can replace it with a single residence. In either case, the properties cannot be rented out prior to redevelopment. Because foreigners can only purchase brand new or off-the-plan, we can assume the “Asian packed” auctions of established houses in Chatswood, Eastwood and Epping are actually auctions full of Australians, who happen to have Asian ancestry

http://www.news.com.au/finance/real...ion-just-hot-air/story-fnd91nhy-1226829064131

The future of Australian property prices

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