The future of Australian property prices

[finnsk]

If the only way for someone to get into the housing market is via I/O loans then REALLY REALLY need to be discouraged. That kind of loan leaves little left over for when something goes wrong.

When I came to this country in 1991 all I was hearing from people I was working with that I/O loans is the way to go because prices always go up, we can buy a better property, it is like paying rent but with the owner ship of the property and therefor the increase in value, I dont like that idea but must admit that I have used I/O for the purpose for being able to pay of mortgage quickly and still have the facility for later when/if needed, also bank is holding the deed one less responsibility and for only $2 per month I think it is worth it

 

[trainspotter]

There are that many options out there for financing that IO is only one way to go. Revolving line of credit is another whereby you can choose to pay IO or place lump sums into your loan then redraw at will. 5.88% current rate with NAB. Split facilities with IO for a nominated % of loan and PI for a nominated % of loan.

DYOR ...

 

[trainspotter]

Spot the difference in subdivisions:-



Ellenbrook - Perth - Western Australia



Port St Lucie - Florida - USA



Medina Sidonia - Cadiz - Spain



Westside - Galway - Ireland



Kellyville - Sydney - NSW

 

[Smurf1976]

Spot the difference in subdivisions

Based solely on those images:

Florida is obviously the most expensive to build, since there's a lot of work required to create the land itself assuming that's not a natural land formation which it doesn't appear to be. They'd have to either fill in land otherwise below water, or cut channels through land to let the water in. Either way that's big $ so definitely the highest cost in Florida.

Sydney and Perth would be next. Nothing has really been done with the land itself other than roads etc and the houses.

Ireland would be next but is very high density not directly comparable to Perth, Sydney or Florida.

Spain would be cheapest to build just plonked in a field (the land itself being of little inherent value).

So how does the cost of one of these houses actually compare? How much cheaper is a house in Sydney or Perth compared to those in Florida?

 

[Smurf1976]

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)

The point being made by myself and others is about the maths, not about real estate as such.

Whether the top sells for $500K or $500 million does not in itself change the median price. For the median to go up, the price of a house in the middle needs to go up.

I don't doubt that the price of "top" houses may well influence the price of those in the middle. But it's the actual price of those in the middle, not the top, which determines the median.

The point being made is about maths, not real estate as such. By definition the median is always the one in the middle be it house prices, sports scores, weather or anything else.

If 5 houses are given away free and another 4 sell for $500K each then the median price is zero. If one of the 4 sold for $10 million then the median is still zero.

 

[trainspotter]

Based solely on those images:

Florida is obviously the most expensive to build, since there's a lot of work required to create the land itself assuming that's not a natural land formation which it doesn't appear to be. They'd have to either fill in land otherwise below water, or cut channels through land to let the water in. Either way that's big $ so definitely the highest cost in Florida.

Sydney and Perth would be next. Nothing has really been done with the land itself other than roads etc and the houses.

Ireland would be next and Spain would be cheapest to build just plonked in a field and both Ireland and Spain are relatively high density developments too. So definitely should be the cheapest.

So how does the cost of one of these houses actually compare? How much cheaper is a house in Sydney or Perth compared to those in Florida?

Florida has created the land by digging into the ground and the water table naturally seeps in. Look at the style of houses built. ALL the same design and built by a developer and sold to nupties at 100% LVR. Hello Mr. Housing Bubble.

Ireland was developed by greedy developers with German money and in areas where no one wanted to live but council regulations insisted that this is where the subdivisions had to go. No jobs, infrastructure etc et al led to their housing bubble.

Spain ... ditto to above but was marketed to the Brits as "holiday" homes. Generally with a golf course and miles from the beach. Hello Mr Housing Bubble.

Perth - higher density but HUGE infrastructure costs as waste management (sewer etc) as well as POS zoning laws are insane in WA. Note the style and size difference in EVERY single house. Record peak at $539,000 median price range. More pus to be squeezed out YET but huge amounts of land available on the coast to be developed.

Sydney - The "spot to be" ... $655,000 median price range Mainly due to coastal and "TOP" end of town dragging middle range properties higher as buyers get emotional. Signs of bubble territory.

Not possible to compare these on a flat out price comparison as 3 out of 5 have suffered massive price corrections. Spain also has massive unemployment (always has) so do you compare an income ratio? I am not sure if there is any way you could compare them unless you drew a line in the sand at "peak" price curve perhaps? Too much like research for mine.

It was more along the lines of that Australia is "different" in it's housing structure whereby singular dwellings are constructed for individual people. So if Australia was to show signs of a "bubble" it would be more along the lines of a "bubble wrap" as in a certain area would "pop" but not necessarily bring the whole circus tent toppling down.

Just my opinion of course and we may see a massive correction in the near future as predicted by the "economists".

 

[trainspotter]

The point being made by myself and others is about the maths, not about real estate as such.

Whether the top sells for $500K or $500 million does not in itself change the median price. For the median to go up, the price of a house in the middle needs to go up.

I don't doubt that the price of "top" houses may well influence the price of those in the middle. But it's the actual price of those in the middle, not the top, which determines the median.

The point being made is about maths, not real estate as such. By definition the median is always the one in the middle be it house prices, sports scores, weather or anything else.

If 5 houses are given away free and another 4 sell for $500K each then the median price is zero. If one of the 4 sold for $10 million then the median is still zero.

PULLLEEEEEZE ... The price in the middle IS going UP cause the people are being driven by fear and greed as they see the TOP end of town selling, then they get emotional that they might miss out and end up paying more for the middle / lower priced houses. I do understand what the difference is in a maths equation and I even posted a link

http://www.wisegeek.org/what-is-the-difference-between-median-and-mean.htm

These methods are both used to find a “typical” value from a set of data. The mean is the most commonly used measurement of central tendency, but there are cases where it is not appropriate. For example, the data may be “skewed,” meaning that most of the numbers are toward either the low or the high end of the scale, or that there is one value that is wildly different from all the others — this is known as an outlier. Especially in a small set of data, the average value in these cases will not be typical.

I am not sure Smurf1976 if what I am writing is obviously not making sense so I will endeavour to make my style of writing easier to understand in future.

P.S. I also used the word skewiffed in my original statement. If the TOP end of town is selling more than the lower end in volume than what is the median doing?

 

[Smurf1976]

Why is it that everyone is so locked in on this 20 - 30 year loan thingy?

Because they are comparing now with the 1990's or earlier and those buying a house reasonably expect to own it at some point, the historic norm being within 25 years at most and that's what people are comparing to.

That was always possible in the past and if this country is going anywhere other than backwards should be possible now under similar circumstances.

It's a generational thing. Did the Boomers need to make constant payments for 40 years, with little benefit of rising wages due to inflation, in order to own a house? Someone might have but the vast majority had it a LOT easier than that, 17% interest rates included.

The whole debate about the social implications of house prices is essentially comparing one generation to another, and noting that housing today is considerably more expensive than was historically the case.

It comes down to expectations. Like most I grew up fully aware that most adults worked in a single job at any point in time, lived in free standing houses that they either owned outright or were paying off, had at least one car per household sometimes two, practically everyone had access to decent food, water, electricity, a phone and so on. As such, I reasonably expect that I can also work one job at any given time and be able to afford all those things plus whatever else technology brings along (noting that as technology develops prices naturally decline in real terms).

The surest way to upset anyone is to create an expectation that is subsequently not fulfilled. Money, career, relationships, whatever - once an expectation is created, either it is met or they'll be unhappy. But they would not be unhappy if the expectation had never been created in the first place - nobody in 1980 was lamenting the lack of mobile phones or music festivals or having to get out of the chair and physically turn the knob on the TV to change between the two (or four in the bigger cities) TV stations that existed at the time. But there would be a lot of very unhappy people if mobiles, festivals and remote controls all disappeared tomorrow since they are now an expectation.

 

[Smurf1976]

I am not sure Smurf1976 if what I am writing is obviously not making sense so I will endeavour to make my style of writing easier to understand in future.

I, and I think a few others, have taken your comment as "a rise in prices at the top is pushing the median price up" and taking that to mean in a mathematical sense which is not correct.

But I think what you are really saying is that the actual price of a "median house" is being bid up to some extent due to the high prices being paid for "top" properties?

Anyway, we're on the same page now I think. Maybe some disagreements but it's a good debate let's not get bogged down on a definition.

 

[trainspotter]

Because they are comparing now with the 1990's or earlier and those buying a house reasonably expect to own it at some point, the historic norm being within 25 years at most and that's what people are comparing to.

Dream on .. that was 1950's when the population bought one house and stayed in the one job. The times they are a changing. Sydney in 1981 was STILL the most expensive place to live in OZ at 5.2 times the average income. 1981 house Sydney = $79,000. Average income = $15,100. Anything above 5 is out there. Sydney now at 9 times is in the stratosphere. Now once again we are talking averages .. not everyone is "average"

 

[trainspotter]

I, and I think a few others, have taken your comment as "a rise in prices at the top is pushing the median price up" and taking that to mean in a mathematical sense which is not correct.

But I think what you are really saying is that the actual price of a "median house" is being bid up to some extent due to the high prices being paid for "top" properties?

Anyway, we're on the same page now I think. Maybe some disagreements but it's a good debate let's not get bogged down on a definition.

I wrote this

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

esok:

 

[Ves]

Signed the contract for the sale of my old residence in Ballarat today. What originally started off as a place to live in turned into an investment / security blanket if I ever needed to return home to live again. Fairly mediocre return, but positive in the end after holding for five years. Same tenant the whole time and raised the rent every year, usually more than CPI. Surprised that it sold within 3 weeks, I was expecting to twiddle my thumbs for a bit longer. Will use the proceeds to pay off the small loan balance and then most of the mortgage on our PPOR. Then we will be debt free with no plans of borrowing further. Opens up quite a bit of cash flow for us to continue to invest as I have been.

Pretty happy to be in the position that I am before I've turned 30.

 

[sptrawler]

Dream on .. that was 1950's when the population bought one house and stayed in the one job. The times they are a changing. Sydney in 1981 was STILL the most expensive place to live in OZ at 5.2 times the average income. 1981 house Sydney = $79,000. Average income = $15,100. Anything above 5 is out there. Sydney now at 9 times is in the stratosphere. Now once again we are talking averages .. not everyone is "average"

You are spot on not everyone is on the "average" wage, but as more "higher than average" paying jobs disappear, the churning becomes more difficult.
If the government is determined to reign in a rampant market, it will do so. Any one for a game of "two up".

 

[Bill M]

Signed the contract for the sale of my old residence in Ballarat today. What originally started off as a place to live in turned into an investment / security blanket if I ever needed to return home to live again. Fairly mediocre return, but positive in the end after holding for five years. Same tenant the whole time and raised the rent every year, usually more than CPI. Surprised that it sold within 3 weeks, I was expecting to twiddle my thumbs for a bit longer. Will use the proceeds to pay off the small loan balance and then most of the mortgage on our PPOR. Then we will be debt free with no plans of borrowing further. Opens up quite a bit of cash flow for us to continue to invest as I have been.

Pretty happy to be in the position that I am before I've turned 30.

Well done Ves, it just goes to show that it's not impossible. No rent or mortgage before 30, I dips my hat to you.:aus:

 

[trainspotter]

Well done Ves ... you might even get to retire at 40 When you say mediocre return ... would you like to expand on this statement?

 

[Ves]

Well done Ves, it just goes to show that it's not impossible. No rent or mortgage before 30, I dips my hat to you.:aus:

Thanks Bill! I save a large proportion of my salary (which is around the average wage) and it has started to see some good results in the last few years as the stash builds. A few sacrifices along the way, but I dont feel like I've missed out on much.

Well done Ves ... you might even get to retire at 40 When you say mediocre return ... would you like to expand on this statement?

Yep, plan is to retire around that age.

Return (excluding the FHB grant, think it was $18k at the time) was around 10% gain on purchase price (I overpaid by a few % because I was a 23yo dumby and fell for the "there's another buyer making a counter offer" trick). Plus a few % for rent after expenses. So not really fantastic. But it was never intended to be an investment when I made the decision to buy and I never added any value, so I wouldn't expect any more.

 

[sptrawler]

Thanks Bill! I save a large proportion of my salary (which is around the average wage) and it has started to see some good results in the last few years as the stash builds. A few sacrifices along the way, but I dont feel like I've missed out on much.


Yep, plan is to retire around that age.

Return (excluding the FHB grant, think it was $18k at the time) was around 10% gain on purchase price (I overpaid by a few % because I was a 23yo dumby and fell for the "there's another buyer making a counter offer" trick). Plus a few % for rent after expenses. So not really fantastic. But it was never intended to be an investment when I made the decision to buy and I never added any value, so I wouldn't expect any more.

Sounds like you are happy with the outcome and no stress attached, well done.
Best of luck with your future investments.

 

[Mrmagoo]

http://www.realestate.com.au/property-villa-nsw-werrington-116173787

3 bedroom, 2 bathroom, Penrith/Werrington area and $310,000. FHB Grant of $7000 and NIL stamp duty applicable. Settlement fees of approx $3,000 and lets say a 5% deposit and borrowing IO $294,000 = $320 per week.

Yep no way I can afford that !

Funny. The result comes out for me at 460 a week, plus about 50-70 for rates and other assorted crap.

$530 a week ? Just not worth it.

 

[Smurf1976]

Dream on .. that was 1950's when the population bought one house and stayed in the one job.

Maybe I've missed something, but I've always considered that having more than one job at the same time to be fairly unusual. Sure, there are some who will work 9 to 5 then a second job on weekends or of an evening, but certainly the vast majority of people I have ever known have only had one job at any given time.

Obviously nobody expects to stay in the same job for life these days, but that's an entirely different issue. Likewise most won't stay in the same house and I don't think that anyone's suggesting that here.

But if someone has a full time job then they reasonably expect to be able to eventually own outright a house. Maybe they'll have 10 jobs and 4 houses along the way, but by the time they're 55 or so it's reasonable to expect that paying rent or a mortgage is a thing of the past. It was certainly possible in the past to do that, a great many people have actually done it, and it ought to be possible now in return for the same effort (or less effort given technology and productivity improvements etc).

The whole concept of buying a house is that at some point, generally before you retire, you own it outright. That along with avoiding the hassles of renting is the primary reason to buy rather than rent. If it takes 40 years to pay off the mortgage then that's getting a bit ridiculous.

You only have to go back to the mid-1990's to find that 41% of Australians owned their primary residence outright and about 26% were buying (had a mortgage). That's ABS data from 1996 and clearly shows that outright ownership is a normal expectation - 41% had achieved it and most of the 26% with a mortgage would be expecting to achieve it at some future date. The majority of those who buy (rather than renting) do indeed end up paying off the mortgage or at least they did in the 1990's.

Go forward to 2011 and the number who own outright has dropped to 32% and 35% now have a mortgage. So it's still 67% of people "buying" a home, it's just that a significantly lower portion of those now actually own it outright and there's a fairly simple explanation - houses have become more expensive relative to income.

That data can be found at the following link. For simplicity I've rounded the figures to the nearest whole %. http://www.ahuri.edu.au/themes/home_ownership

As for prices in Sydney, yes that has always been the most expensive city but then roughly 80% of Australians don't live there. For most of the country (including Melbourne) the real price of housing, relative to incomes, was a lot cheaper in the past than it is today.

 

[sptrawler]

Also Smurph, if there is a contraction in the jobs market and it causes a further contraction of wages.

Well, the sunshine, might melt the lolypops.

Something has to break this pyramid scheme.IMO

What's the old sayings.

"if it's too good to be true".

"It's a dead cert winner, you can't lose"

"Trust me, property never goes down"