The future of Australian property prices

[satanoperca]

So they weren't standard mortgage products? They sound like reverse mortgages which have much more stringent LVR restrictions than standard products.

I believe they were all interest only investment loans that utilised existing equity in full owned PPOR's,

Cheers

 

[MACCA350]

hello,

i knew macca350 (probably busy back at school) had posted this up earlier in the thread, OH YEAH

going down to get a slab of ruski's

thankyou
robots

Yeah, sorry Robots, dropped the ball on that one...........been busy. I'm chuffed you think I'm still a school goer must be young at heart

Here it is again
REIV

One can flick through different suburbs.

I should correct you on one point though............it was an almost 14% drop from the peak in Dec 07 to the low in Mar 09.

Since then there's been a 33% increase in just 9 months and an increase of almost 15% over the 07 peak............I don't know but that just seems like bubble territory to me.

cheers

 

[robots]

hello,

sorry brothers, just back from tennis

thanks Macca350, i thought you are actually a school teacher and with school starting back you may be fine tuning the year's curriculum

thankyou
robots

 

[Beej]

Um, according to Robots prices fell a HUGE 6%.

That was in 2008 UF - we are nearly half way through 2010 now! How time flies, and how house prices just keep on rising......Sydney and Melbourne in particular doing very well. Also no real sign of a great credit induced price bubble based on the soft ABS housing finance numbers of the past 7 months - in fact credit growth has been quite low compared to 10/20 years ago (see this graph: http://www.businessspectator.com.au...dyhtml/0.2354!OpenElement&FieldElemFormat=jpg)

So it would appear something more fundamental is driving the market currently (pent up demand, cashed-up buyers, foreign buyers perhaps to some extent and so on).

I might add, further to Robots request for new reasons as to why property is due for a fall - perhaps a hard landing - and that is a credit crunch is unfolding right now globally. The Fed purchased $1.25 Trillion in MBS, but has now stopped. Global competition for credit will take Australian interest rates much higher in order to compete with the rest of the world.

Along with the unwinding of the low interest currency carry trade which will start to look at the relative safety of US Treasuries out of Australian instruments ie local banks funding requirements. Tis only a matter of time "brothers"?

I know you believe in all that stuff pretty passionately, but there are no signs of any great credit crunch heading our way in Australia. Our capital requirements are pretty small fish on the global scale, and as others have pointed out our relatively high interest rates make us an attractive destination for all the capital we need. No risk of sovereign default etc or even any likely issues with our big 4 banks either, especially compared to elsewhere - we are a safe haven!

Personally I don't see interest rates heading too much higher from here for next couple of years. Maybe another 0.5% max more by the end of the year.

If/when the current high dollar/high interest rate carry trade does unwind, the biggest impact will be a falling aussie dollar, which actually reduces our banks capital needs on EUR or $US terms, helping to ease the situation quite a bit. It's all quite self correcting actually, but nothing is certain. The odds are stacked in favour of a situation normal -> continuing to improve terms-of-trade/capital availability outcome for Australia though, rather than the scenario you see panning out IMO.

Cheers,

Beej

 

[MACCA350]

hello,

sorry brothers, just back from tennis

thanks Macca350, i thought you are actually a school teacher and with school starting back you may be fine tuning the year's curriculum

thankyou
robots

Not me, but my father is which I may have mentioned in the past and that may be where you got that idea

cheers

 

[So_Cynical]

That was in 2008 UF - we are nearly half way through 2010 now! How time flies, and how house prices just keep on rising......Sydney and Melbourne in particular doing very well. Also no real sign of a great credit induced price bubble based on the soft ABS housing finance numbers of the past 7 months

Still rising?

Buyers are deserting the Sydney property market at the rate of 1000 a month, causing real estate professionals to predict an ''exhausted market'' with prices plateauing for the rest of the year.

House prices to plateau as buyers flee in droves

High auction clearance rates and record prices notwithstanding, official figures show the number of loans to buy houses in NSW slipped from 19,600 in September to just 14,300 in February after sliding in each of the past five months.

http://www.smh.com.au/news/domain/a...-flee-in-droves/2010/04/13/1270924378270.html

So im concluding that its cashed up buyers cos new loans have fallen for 5 months in a row, we all know the FHB's have deserted the market and according to stock market volumes there's still alot of money not in the market, so assume some of its finding its way into housing and the assumed safety of that asset (super conservative money)

I think the fed Govt and the reserve bank are now prepared to let the real estate market fall a little, the GFC is over so nows the time to let the market go soft and keep that cash in the bank so they can totally drop the guarantee....and the Tax review out soon, perhaps negative gearing only on new housing??

 

[MR.]

couple of more interesting points.....
our % of household debt....as a % of assets...is only around the 17% mark
equals equity of 83%....see graph 3
thats the affect high house prices have on that little old loan, taken out years ago

http://www.bis.org/publ/bppdf/bispap46e.pdf

Does sound safe as a whole having on average 83% equity. Reminds me of my comment regarding BHP's leverage of just 15%.

That was in 2008 UF - we are nearly half way through 2010 now! How time flies, and how house prices just keep on rising......Sydney and Melbourne in particular doing very well. Also no real sign of a great credit induced price bubble based on the soft ABS housing finance numbers of the past 7 months - in fact credit growth has been quite low compared to 10/20 years ago (see this graph: http://www.businessspectator.com.au...dyhtml/0.2354!OpenElement&FieldElemFormat=jpg)

So it would appear something more fundamental is driving the market currently (pent up demand, cashed-up buyers, foreign buyers perhaps to some extent and so on).

Interesting link, just concluded before reading your post a 17.55% credit growth over the last two years (ie: 8% per annum) Credit is still growing even with the FEB10 figures. (ie: divide "owner occupied" volume into m$ amount and as of Feb10 $284,382 up from $235,514 two years earlier. (GREEN))

House prices are increasing and is reflected in those House Finance figures from the ABS per dwelling (GREEN) and ABS house sales (PURPLE). We don't know if more houses are actually selling though do we?. We know there have been some high clearance rates at auctions in some states of late!

House loan sale volumes (RED) are down a lot, perhaps from interest rates (DARK BLUE) but prices are still climbing. Why? I don't know, as you and others have stated or "Perhaps people are just still dancing" Loan volumes dropping must make an impact and did prior to the GFC (PURPLE) when christmas came to many as interest rates reduced.
Loan credit per dwelling kept growing consistantly through the whole period apart from a slight pause during the GFC. (GREEN)

(LIGHT BLUE) Investment loans for housing in total $ terms. Just for an idear of where it's at.

All data from the ABS and RBA.

 

[UBIQUITOUS]

Still rising?





http://www.smh.com.au/news/domain/a...-flee-in-droves/2010/04/13/1270924378270.html

So im concluding that its cashed up buyers cos new loans have fallen for 5 months in a row, we all know the FHB's have deserted the market and according to stock market volumes there's still alot of money not in the market, so assume some of its finding its way into housing and the assumed safety of that asset (super conservative money)

I think the fed Govt and the reserve bank are now prepared to let the real estate market fall a little, the GFC is over so nows the time to let the market go soft and keep that cash in the bank so they can totally drop the guarantee....and the Tax review out soon, perhaps negative gearing only on new housing??

I reckon that those clearance rates are absolute bull. I wouldn't put it past the various RE institutes.

As for negative gearing, it's looking like a plain awful reason to buy an investment property right now.

http://www.smh.com.au/business/rent...use-despite-interest-rises-20100413-s7m9.html

''Affordability is a brake on rising rents,'' he said. ''At least one quarter of the rental market is in housing stress. The idea that rents can keep going up regardless of people's income or affordability is wrong.''

 

[MR.]

Are "Investment Loans" just returning to normal of 30 - 31% of total housing loans?

Some figures from before Jan08
July 07 = 32.5%
Jan 07 = 29.3%
July 06 = 30.5%
Jan 06 = 30.9%
July05 = 31.5%
Jan 05 = 34.3%
July 04 = 34.8%

This can't be Glenn Steven's concern can it?

Data from ABS
http://www.abs.gov.au/AUSSTATS/abs@...sues&prodno=5609.0&issue=Dec 2009&num=&view=&

 

[Uncle Festivus]

Some 'what the!' facts -

• The Big 4 Banks reduced mortgage lending by 82% in March while non-traditional lenders doubled their lending.
• 37% of March mortgage lending was for refinancing purposes
• The banks grew their loan book in residential housing by $75 billion in the last 18 months.
• The Big Four Aussie banks expanded their control over the Aussie mortgage market from 65% to 75% in the last 18 months.

 

[Beej]

Some 'what the!' facts -

• The Big 4 Banks reduced mortgage lending by 82% in March while non-traditional lenders doubled their lending.
• 37% of March mortgage lending was for refinancing purposes
• The banks grew their loan book in residential housing by $75 billion in the last 18 months.
• The Big Four Aussie banks expanded their control over the Aussie mortgage market from 65% to 75% in the last 18 months.

Got links for those "facts"?? The first one looks very unlikely to be true to me. The others could be correct. Re refinancing, what's the normal amount of re-financing done in any given month??

 

[MR.]

http://www.afgonline.com.au/
http://www.lendingcentral.com/tag/afg-mortgage-index/

"AFG data also shows lending by the major bank groups (i.e. the ‘Big Four’ banks and their subsidiaries) reduced to 82% during March, with the non majors accounting for 18% of all new loans."

Still, from 92.5% for the big four down to 82%!

 

[Uncle Festivus]

Got links for those "facts"?? The first one looks very unlikely to be true to me. The others could be correct. Re refinancing, what's the normal amount of re-financing done in any given month??

Woops, should be 'to' instead of 'by'

http://corporate.afgonline.com.au/i.../web_content/mortgageindex-apr10-national.pdf

 

[TOBAB]

Re the fall in prices, I was pointing out an error in some claims from a previous erroneous post.

What we are seeing now is a combination of the effects of reflation efforts globally and flawed government policy which distorts property prices ie negative gearing & subsidies, along with the usual RE industry hype along the lines of 'buy now or miss out'. The buying pool is fast diminishing, down to local & Chinese & Indian investors. A local petrol station was bought by a family of Indians who promptly sacked all the employees and staffed the place with family members - not many locals use them anymore.

I find the discussion on negative gearing interesting. It would seem there is intent on either removing or making it specific to new builds. From a mkt based economic rationale this does not make sense. If you remove the deductibility of interest you must likewise remove the CGT component. If not there is a massive distortion to the market and good luck with anyone investing in property at all! Rental mkt gone, building industry stuffed, plenty of people on the streets.

Also would there not be a similar removal of deductibilty on margin loans, business loans etc. Why is it that property is deemed in some ways different?

I am not proponent of wholesale negative gearing as some sort of way to print money. It is frought with cashflow dangers. If you have a decent income then may be a good option, if not, then forget it. Yields of between 3 and 5% along with agents commissions, annoying renters, cost and timeframe of sales etc etc make property investment very illiquid and not as billiant as some believe. However, in the right circumstances as part of an overall strategy it can be good.

You distort the market at your own peril. (As a side CGT should be at a higher rate, and the FHBG was crazy - my 2 cents)

 

[Bushman]

[*]The Big Four Aussie banks expanded their control over the Aussie mortgage market from 65% to 75% in the last 18 months.[/LIST]

Part of the reason why Don Argus said the Big 4 are at risk of becoming building societies.

I saw those facts on the downturn on lending.

Why anyone would chase residential with a large LVR now is a mystery to me. Interest rates are rising and incomes are not rising at 10-15% a year. Real estate values are a lagging indicator. So your risk of negative equity has increased, not decreased and most ressie yields do not cover the cost of capital? Ultimately why chase a hot market?

You should never become emotionally attached to an investment or an investment class.

In the long-term, Australia needs to work out its under supply of housing. So the political risk has increased as well with housing affordability set to be a key election issue. So I wonder what the future for relaxing foreign ownership rules and negative gearing are? I'll be watching with interest.

 

[satanoperca]

I find the discussion on negative gearing interesting. It would seem there is intent on either removing or making it specific to new builds. From a mkt based economic rationale this does not make sense. If you remove the deductibility of interest you must likewise remove the CGT component.

How does NG on existing properties help reduce the undersupply of homes, it does not.

How does NG on existing properties help the construction industry, they are already built.

It is an assumption that if you remove NG that the rental market will dry up unless you have specific studies that prove otherwise.

NG on existing properties only benefits the investor at the expense of the tax payer.

If NG was removed maybe housing might become more affordable and people could use the extra disposable income for investments that are productive.

Cheers

 

[MR.]

If negative gearing was made specific to new builds only, one could imagine a boom in new dwellings. However, would there be an imbalance between occupants in new and older areas?

Would new estates become filled with renters?

 

[TOBAB]

How does NG on existing properties help reduce the undersupply of homes, it does not.

How does NG on existing properties help the construction industry, they are already built.

It is an assumption that if you remove NG that the rental market will dry up unless you have specific studies that prove otherwise.

NG on existing properties only benefits the investor at the expense of the tax payer.

If NG was removed maybe housing might become more affordable and people could use the extra disposable income for investments that are productive.

Cheers

Totally disagree. You mess with the free mkt at your peril.

An example straight off the top of my head. If we wipe out NG on existing. This will then reduce the buying mkt (no investors) for all existing dwellings - that's the theory anyhow, agreed? Immediate problem is that it also reduces the saleability of current new dwellings in a few years time as again investors will not purchase (Reduced CG reduces incentive). Therefore investors will either: flee this mkt too; or increase yields to the point where some people will be unable to afford to rent say to 8 or 9%. If they leave then a large chunk of developement will dry up.

I do not need studies to prove my point. For mine I would not invest in a mkt that had little or no chance of gain at a yield of 3 to 5%. Just put the money into the bank or invest in shares. Not too sure if even robots would like property under those circumstances?

You talk about existing and future dwellings as if they are not linked which is untrue. Land is the ultimate scarce resource and we need to utilise it a hell of a lot better than currently. Havn't got the time to check but would be very surprised if Melb, Syd and Bris land values in comparison to equivalent cities os is actually expensive. Would be very interested if any data out there.

 

[TOBAB]

If negative gearing was made specific to new builds only, one could imagine a boom in new dwellings. However, would there be an imbalance between occupants in new and older areas?

Would new estates become filled with renters?

Don't think so. When it comes time to sell - who will buy? I for one am not that crazy to buy into something without considering the get out. More than likely looking at a capital loss under those circumstances and unless yielding huge nos why would you even bother. Doubt I am an island on this one.

 

[Uncle Festivus]

Totally disagree. You mess with the free mkt at your peril.

That's the whole point - it's not a free market. If it truly were a free market we wouldn't have the gov continually propping it up through tax incentives, subsidies, grants and rest, and it would find a natural price level.

A price level that would hopefully remove it as some kind of growth asset for baby boomer retirement funds and make it just another basic necessity that the population can afford without paying an arm & a leg for?