The future of Australian property prices

kenny · 30 November 2009

Do people really think the price of residential property will fall in the long term?

I'm referring more to the average $400K - $800K range properties rather than the waterfronts that seem to change hands at volatile prices depending on who suddenly needed to cash up.

As long as their is a growing pool of renters keeping the rental return steady, I would have thought most landlords would choose to ignore a 10 - 20% drop in valuation as long as it was impacting their LVR% and forcing foreclosure. Given the costs of selling up and buying back later, it's not a decision made as lightly as acting on a stop-loss trade.

Cheers,

Kenny

Beej · 30 November 2009

Well, turns out Australians are now building the biggest houses in the world - some selected quotes from the article included below:

http://www.smh.com.au/national/home...hen-it-comes-to-mcmansions-20091129-jyva.html

Home truths: Australia trumps US when it comes to McMansions
Peter Martin
November 30, 2009, SMH

......

The typical size of a new Australian home hit 215 square metres in the past financial year, up 10 per cent in a decade, according to Bureau of Statistics data compiled for Commonwealth Securities.

US figures show the size of new American homes shrinking from 212 square metres before the financial crisis to 202 square metres in September.

New homes in other parts of the world are far smaller, with Denmark the biggest in Europe at 137 square metres and Britain the smallest at 76 square metres.

The figures lend weight to a claim by the deputy governor of the Reserve Bank, Ric Battellino, this month that Australian house prices are high in part because Australian houses are better.

.....

Sydney [newly built] houses are by far the nation's biggest with new free-standing houses typically spanning 263 square metres - providing more than 100 square metres of indoor space per person.

In Sydney these big houses are the ones built out in the new outer suburbs - so you really get the choice here to live closer to the CBD or other existing infrastructure in a smaller house or a unit/semi/townhouse (but pay more for the location) or further out in a bigger house.

Also, Sydney preliminary auction clearance rate was 68% for the weekend, with a median price of $730k. That's the first weekend with a sub 70% clearance rate after 5 months of 70%+, and apparently the only better run than that occurred allt he way back in 1997. (See http://www.smh.com.au/business/feverish-auction-activity-begins-to-subside-20091129-jysp.html for further analysis/info on this).

Cheers,

Beej

cutz · 30 November 2009

kenny said:
Do people really think the price of residential property will fall in the long term?

The Australian property market has reached a constantly high plateau.

Mofra · 1 December 2009

cutz said:
The Australian property market has reached a constantly high plateau.

* Applauds the 1929 reference *

"Stock prices have reached what looks like a permanently high plateau."
- Irving Fisher, Ph.D. in economics, Oct. 17, 1929

(Serious answer - depends if we are talking total returns or inflation adjusted)

Aussiejeff · 1 December 2009

cutz said:
The Australian property market has reached a constantly high plateau.

With the KRudd mantra of "Eternal Growth For All" ringing dailly in our ears, I would totally agree.

eg..

Constantly High Immigration Rate = Constantly High Ongoing Demand For Housing.

Stop the immigration and it would be a different matter entirely. Japan as a comparison springs to mind. Since we've had massive immigration since the First Fleet landed, I don't see any policy shift there in the short term!

So, you can forget these piddly 25 BP rises in interest rates. They would have to rocket up by 4-6% or more to really start hurting most FHB's and investors. I don't hear too many complaining or marching on Parliament House yet.

IMHO

aussiejeff
[robots for PM]

drsmith · 1 December 2009

Aussiejeff said:
So, you can forget these piddly 25 BP rises in interest rates.

Westpac obviously have.

http://www.theaustralian.com.au/bus...age-rate-by-45bp/story-e6frg96f-1225805837339

Nyden · 1 December 2009

Aussiejeff said:
With the KRudd mantra of "Eternal Growth For All" ringing dailly in our ears, I would totally agree.

eg..

Constantly High Immigration Rate = Constantly High Ongoing Demand For Housing.

Stop the immigration and it would be a different matter entirely. Japan as a comparison springs to mind. Since we've had massive immigration since the First Fleet landed, I don't see any policy shift there in the short term!

So, you can forget these piddly 25 BP rises in interest rates. They would have to rocket up by 4-6% or more to really start hurting most FHB's and investors. I don't hear too many complaining or marching on Parliament House yet.

IMHO

aussiejeff
[robots for PM]

I thought that it was fairly obvious that rates will rocket up by 4-6%? Obviously not over a period of 3 months, but I can honestly see rates back at 6-8% by next Christmas.

The RBA have made history today. Three consecutive rate rises - I'd say that was a fairly strong message.

I don't believe we'll have any real falls, but one must throw some caution out there. I know of at least 2 couples, that were it not for all of these First time buyer grants, would not have otherwise been able to afford a property. They've now each got themselves property at near all-time high prices, and are probably already a little financially strained. Slap on another 4%, and we're nearly talking about an extra $15-30,000 a year in interest. Nah, that's piddly, right?

MACCA350 · 1 December 2009

Nyden said:
The RBA have made history today. Three consecutive rate rises - I'd say that was a fairly strong message.

Yippeee!!! ............but if they want to get serious, whack on a few 1% rises and lets get back to a 6-7% cash rate ...........come on we're not in recession and housing has been going gangbusters, you know, sunshine and lolliepops and all that

BTW where's Robots lately..........the thread's getting boring .........hope nothing untoward has happened to you mate.

drsmith said:
Westpac obviously have.

Yeah but the savings rate hasn't moved yet ............as usual quick on the mortgage rate but slow on the savings rate

cheers

drsmith · 1 December 2009

MACCA350 said:
Yeah but the savings rate hasn't moved yet ............as usual quick on the mortgage rate but slow on the savings rate

cheers

It will be interesting to see how quickly these move.

http://www.infochoice.com.au/banking/savings-account/online-savings.aspx

satanoperca · 1 December 2009

Nyden said:
I don't believe we'll have any real falls, but one must throw some caution out there. I know of at least 2 couples, that were it not for all of these First time buyer grants, would not have otherwise been able to afford a property. They've now each got themselves property at near all-time high prices, and are probably already a little financially strained. Slap on another 4%, and we're nearly talking about an extra $15-30,000 a year in interest. Nah, that's piddly, right?

It is this market segment that will be the one to watch.

FHB that bought with minimal deposit on high LVR's who took advantage of the historically low interest rates and who at the time believed that IR's would not be increasing for some time but reducing further.

Just how the FHVG (first home vendors grant) created demand in the low end which in-turn saw prices increase with up-graders who sold to the FHB's resulting in prices increases up the ladder, the same can occur in reverse. FHB start getting into difficulty resulting in a increase in supply at the low end which cannot be meet with demand due to the higher interest rates and lack of govnuts handouts.

Everything cycles and the next few years will be great to study.

Note : RPdata figures out, property is flying at the moment, maybe the IR increase will apply the brakes.

MACCA350 · 1 December 2009

satanoperca said:
Note : RPdata figures out, property is flying at the moment, maybe the IR increase will apply the brakes.

Spoke to a mate who is a real estate agent, he said 1 in 2 contracts he signs are to international buyers......even he(who is earning a bucket load due to this) is concerned about the ramifications.

cheers

Nyden · 1 December 2009

MACCA350 said:
Spoke to a mate who is a real estate agent, he said 1 in 2 contracts he signs are to international buyers......even he(who is earning a bucket load due to this) is concerned about the ramifications.

cheers

Why the heck are our laws so relaxed about international property ownership? We're going to be paying all of our rent to bloody foreigners soon enough.

Mofra · 2 December 2009

Nyden said:
Why the heck are our laws so relaxed about international property ownership? We're going to be paying all of our rent to bloody foreigners soon enough.

Quite a bit more of it too:

http://www.news.com.au/money/proper...bn-in-extra-rent/story-e6frfmd0-1225805320887

Landlords 'to pocket $1.9bn in extra rent'

Rents to rise by 5.8pc over next three years
Landlords will pocket extra $1.9bn
Supply of housing has "plunged"

Now, where was all that derision for Australian landlords coming from?

robots · 2 December 2009

hello,

good evening brothers, great day in Melbourne and tomorrow is all set

went away for the weekend to help friend in 24hr mountain bike race, huge event in Forrest, a great time

the beats were going strong at the support tent

things still doing well on the property front, still 8x average income and tenants seem to be sticking to the one property for many years now as opposed to previous when they departed after 12mths

as Mofra identified the rent increases will be easy over the coming years, cleaning up

thankyou
robots

gfresh · 3 December 2009

The one consequence of such rapid rate rises will be renters are going to get smashed at their next renewal as costs are passed on. I wouldn't be surprised to see 10% rises for many renters, many of which already aren't in the best financial situation While it won't be easy for recent buyers, it's not going to be any easier for renters either.

Government policy has utterly failed, and nobody seems willing to step forward to fix it. I am very disappointed in the entire country to be honest

As an aside, apparently the median in my area has increased by 15% since I bought about 4 months ago. Does it make me feel any better? nope.. on the other side of the fence now, still don't quite understand what the obsession with owner occupiers really giving a **** what their place is worth?

Mofra · 3 December 2009

gfresh said:
As an aside, apparently the median in my area has increased by 15% since I bought about 4 months ago. Does it make me feel any better? nope.. on the other side of the fence now, still don't quite understand what the obsession with owner occupiers really giving a **** what their place is worth?

Access to cheap credit, if they know what they're doing. Otherwise, it's just another pissing contest

Beej · 3 December 2009

Interesting article by Chris Joye (RP_Data/Rismark) debunking a popular housing bear myth re the Australia house price to income ratio currently being pushed again by Crikey's Adam Schwab:

http://www.businessspectator.com.au...ment&src=blb&is=property&blog=concrete detail

Selected quotes:

Is home-ownership really out of reach?

Crikey’s Adam Schwab should stick to his day job and quit writing factually flawed missives about housing.

Schwab’s key argument is that Australian "dwelling prices are almost nine times disposable income", which is "extremely high by international and historical standards".

.....

Based on the RBA’s estimates, Australia’s capital city dwelling price-to-income ratio is just under 4.5x (more recent data puts it at 4.8x). Now how on earth does that reconcile with Schwab’s estimate of 9x incomes? Of course, it does not.

.....

Combining the national median dwelling price in all regions, and including all property types, of $370,000, with the RBA’s disposable household income definition, Australia’s dwelling price-to-income ratio today is slightly above 4x, which is less than half the 9x estimate that Schwab proposes is so offensive. Accordingly, Australia’s housing is not unusually expensive by international standards.

This perfectly correlates with:

1. Australia’s internationally high home ownership rate of 70 per cent;
2. Australia’s incredibly low mortgage default rate, which is a fraction of overseas levels; and
3. The fact that the value of Australian housing has been rising, not falling, indicating that households are having little trouble affording to purchase properties.

I particularly agree with the last points quoted - if houses were really as totally expensive/unaffordable as some claim, then how come AU has managed to maintain one of the highest rates of home ownership in the world? With possible the lowest default rates in the world? And prices continuing to rise even after years of what many argue are unsustainably high prices? Literally millions of Australians must have entered and/or upgraded within the market in the past 6 years since the income/dwelling price ration peaked?

Attached is an RBA graph showing the historical Australian disposable income to national median dwelling price ratio.

Cheers,

Beej

satanoperca · 3 December 2009

Thanks for the link Beej.

Looks like semantics by both parties to me, but cannot access the Crickey report.

Firstly from Rpdata - National $496,398.

Secondly, must watch the detail

Based on the RBA’s estimates, Australia’s capital city dwelling price-to-income ratio is just under 4.5x (more recent data puts it at 4.8x). Now how on earth does that reconcile with Schwab’s estimate of 9x incomes? Of course, it does not.

& then

RBA’s disposable household income definition

The key being "household income", that be it two incomes. Fanatastic country we live in, very forward thinking were the major care giver of a family must work also to put a roof over the families head. No wonder childcare is in such high demand.

If it was just one income, then maybe x9 is about right. I thought most ratio where based on the average income of an individual.

Which is true I do not know, but unless there is a major change in the variables that effect house prices then I do not seem them stagnating or falling in the future (1-2years).

Cheers

drsmith · 3 December 2009

Beej said:
I particularly agree with the last points quoted - if houses were really as totally expensive/unaffordable as some claim, then how come AU has managed to maintain one of the highest rates of home ownership in the world?

Debt.

While below it's peak the percentage of household income that is used to service loans is still very high, higher than during the interest rate peaks of the late 80's IIRC from RBA information I posted in one of the earlier property threads a few months ago.

joeyr46 · 3 December 2009

Household income can be any number not just 2 and with kids staying home longer is not necessarily a good way to measure income to house price but then neither is 1 income because most wifes work at least part time. Possibly a more accurate way to measure sustainability of prices is debt (not just mortgage debt but all debt ) and the percentage of income required to service that debt.Because house prices are based on supply / demand on one hand and liquidity on the other IMHO, not just supply demand

The future of Australian property prices

kenny

Beej

cutz

Mofra

Aussiejeff

drsmith

Nyden

G.E. Money Genie

MACCA350

drsmith

satanoperca

MACCA350

Nyden

G.E. Money Genie

Mofra

robots

hello

gfresh

Mofra

Beej

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satanoperca

drsmith

joeyr46

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The future of Australian property prices

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G.E. Money Genie

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