The future of Australian property prices

[jank]

I looked at LA late last year because business was seeing me spend so much time in the Americas I considered a move there. Overall I found LA property to be slightly more expensive than Sydney. The places in the US that are cheap are places you wouldn't want to live. Kansas anyone?

I'm not saying property isn't expensive, but this is a global phenomenon of global cities having inflated property. It's not just Australia.

Oh of course, global cities will be more expensive because more people want to live and work there.
However, the medium house price in LA is about $529,00, compare to Sydney its well over $800,000. Prob closer to $900,000 now once the new stats are out.

http://www.trulia.com/home_prices/California/Los_Angeles-heat_map/
http://www.zillow.com/los-angeles-ca/home-values/

Now of course if you want to live on Mullholland Drive, Bel Air or by the coast around Malibu then it will be more expensive. There will always be more expensive places in cities.

However, the madness seems to have spread to average homes in average estates. I saw the very same thing in Dublin when I was working and living in Ireland. Average homes in average estates were going for a fortune, for no other reason other then cheap credit and someone who had access to cheap credit would buy it. The crash in 2007/2008 has cut more than 50% of the price of property in Dublin to this day. Dublin is not London or LA but it is the European Silicon Valley in many ways and also a european capital. A 2nd tier city so to speak.

Once the cheap credit tap is turned off either by the RBA or cashed up Chinese, then havoc will reign in the Sydney property market. I just find is strange that intelligent people who are financially literate get sucked into this as well saying this is all 'normal' behaviour. We know through histories how bubbles develop and burst. It is the reason to this day why I will not buy any Australian Bank share. All those SMSF will be sorry in years to come to see their life savings take a hammering. Think it can't happen. Ireland today has NO private bank, all of the nationalised or part nationalised. In the mid 2000's they were the kings on the hill.

I suppose I see it differently, where I lived through the mania and saw a bubble burst at first hand. I see the same things going on here. Some differences may I add, like the influx of cashed up foreigners. The crash will have a different flavour and smell but it will leave the place bloodied and will destroy many a life and savings.

 

[McLovin]

Oh of course, global cities will be more expensive because more people want to live and work there.
However, the medium house price in LA is about $529,00, compare to Sydney its well over $800,000. Prob closer to $900,000 now once the new stats are out.

http://www.trulia.com/home_prices/California/Los_Angeles-heat_map/
http://www.zillow.com/los-angeles-ca/home-values/

Well you're comparing houses in Sydney to all home types in LA. What's the median dwelling price in Sydney? I'd guess it's closer to $650k-$700k. That's pretty much exactly what the median LA price is in AUD. And really, who is going to live in some of the really cheap parts of LA like Pacoima or Compton.

 

[jank]

Well you're comparing houses in Sydney to all home types in LA. What's the median dwelling price in Sydney? I'd guess it's closer to $650k-$700k. That's pretty much exactly what the median LA price is in AUD. And really, who is going to live in some of the really cheap parts of LA like Pacoima or Compton.

Im comparing all homes in Sydney to all homes in LA, i.e. the medium price. Saw today in the Daily Telegraph that the medium house price in Sydney is over $870k at the end of 2014 with one million being expected expected by the end of 2015.... sure its all normal.

I think one is trying to defend the indefensible here. I have family near Pasadena who have a house in a lovely safe respectible neighbourhood. One can buy a decent 4 bed house there for about 650kish.

 

[waterbottle]

Bubble or not, prices will never come down until access to credit is made more restrictive or household incomes begin to fall.
Glen Stevens warned in 2011/2012 that Sydney prices were too high and that "one should not think that property will continue to increase in price just because it did in the past" (to paraphrase) but come 2015 and we've seen record prices.

The RBA says alot of things, but I think it's more important to take note of what they actually do. Interest rates have gone down. There is no way they would resume cutting interest rates in 2015 without an additional rate cut(s), especially with the fall in commodities and high AUD. So the outlook for the future (at least for 2015) is that credit will become cheaper - expectation is that house prices will continue to increase.
A popular macrobusiness blog seems to be championing the idea that macroprudential tools could be used to quell house prices while maintaining the availability of cheap credit (to be used in restructing the economy). They've been pushing this idea for the past 5 or so years, and although it has gained traction, nothing has come of it. My guess is that nothing will come of it, not at least for the next few years.

So you're looking at a picture where credit is cheap; will become cheaper; and will remain cheap for some years to come. The only game in town is property and you have no choice but to play lest you find yourself losing by sitting out on the sidelines.

 

[banco]

Bubble or not, prices will never come down until access to credit is made more restrictive or household incomes begin to fall.
Glen Stevens warned in 2011/2012 that Sydney prices were too high and that "one should not think that property will continue to increase in price just because it did in the past" (to paraphrase) but come 2015 and we've seen record prices.

The RBA says alot of things, but I think it's more important to take note of what they actually do. Interest rates have gone down. There is no way they would resume cutting interest rates in 2015 without an additional rate cut(s), especially with the fall in commodities and high AUD. So the outlook for the future (at least for 2015) is that credit will become cheaper - expectation is that house prices will continue to increase.
A popular macrobusiness blog seems to be championing the idea that macroprudential tools could be used to quell house prices while maintaining the availability of cheap credit (to be used in restructing the economy). They've been pushing this idea for the past 5 or so years, and although it has gained traction, nothing has come of it. My guess is that nothing will come of it, not at least for the next few years.

So you're looking at a picture where credit is cheap; will become cheaper; and will remain cheap for some years to come. The only game in town is property and you have no choice but to play lest you find yourself losing by sitting out on the sidelines.

I don't think APRA would dare introduce serious macroprudential tools.

 

[waterbottle]

I don't think APRA would dare introduce serious macroprudential tools.

I completely agree. There was an announcement made approximately mid last year stating that some form of macroprudential was guaranteed to be introduced by the end of 2014, yet nothing was actually done.

Nothing will ever be done.

Hence why housing will continue to increase, until the stance towards cheap credit and higher incomes changes.

 

[jank]

Bubble or not, prices will never come down until access to credit is made more restrictive or household incomes begin to fall.
Glen Stevens warned in 2011/2012 that Sydney prices were too high and that "one should not think that property will continue to increase in price just because it did in the past" (to paraphrase) but come 2015 and we've seen record prices.

The RBA says alot of things, but I think it's more important to take note of what they actually do. Interest rates have gone down. There is no way they would resume cutting interest rates in 2015 without an additional rate cut(s), especially with the fall in commodities and high AUD. So the outlook for the future (at least for 2015) is that credit will become cheaper - expectation is that house prices will continue to increase.
A popular macrobusiness blog seems to be championing the idea that macroprudential tools could be used to quell house prices while maintaining the availability of cheap credit (to be used in restructing the economy). They've been pushing this idea for the past 5 or so years, and although it has gained traction, nothing has come of it. My guess is that nothing will come of it, not at least for the next few years.

So you're looking at a picture where credit is cheap; will become cheaper; and will remain cheap for some years to come. The only game in town is property and you have no choice but to play lest you find yourself losing by sitting out on the sidelines.

Interesting post. Do banks have guidelines here on what level your mortgage is against your income? Only the past few weeks the Irish Central bank has issued rules on mortgage lending.

http://www.centralbank.ie/press-are...wregulationsonresidentialmortgagelending.aspx

This has been done in an effort to save the banks from themselves, while also taking the poker out of the fire. It seems that this alone has stopped a surge in property prices especially in Dublin.

RBA looks powerless at the moment, too much vested interest in letting property prices grow and grow.

 

[McLovin]

Im comparing all homes in Sydney

No, you're comparing houses. Not everyone lives in houses.

I think one is trying to defend the indefensible here. I have family near Pasadena who have a house in a lovely safe respectible neighbourhood. One can buy a decent 4 bed house there for about 650kish.

The median price in Pasadena is AU$1m and there are a total of eight, four bed homes for sale at $650k or less. None of them I would describe as "decent", but then I guess that's open to interpretation.

Perhaps a case of the grass always being greener? And let's not start talking about San Francisco.

 

[Wysiwyg]

principal dwelling houses (PDH) mortgage loans are subject to a limit of 3.5 times loan to gross income.

I am sure that ratio is higher in Australia. At a guess, 5 times.

 

[jank]

The median price in Pasadena is AU$1m and there are a total of eight, four bed homes for sale at $650k or less. None of them I would describe as "decent", but then I guess that's open to interpretation.

I said near Pasadena
Where are you getting that $1m figure?
http://www.zillow.com/pasadena-ca/home-values/
http://www.trulia.com/home_prices/California/Los_Angeles-heat_map/

Perhaps a case of the grass always being greener? And let's not start talking about San Francisco.

I think its more the case of looking at more sane and affordable homes and property markets around the world than looking at the Sydney property market and think its normal. The Sydney property market is definitely not 'normal' given any historical metrics or any standard metric to measure affordability related to income or rents. Majority of property in Sydney is bought by investors, who are primarily interested in Captial Gains of their underlying asset. Income is a secondary consideration and for foreign buys doesn't even enter the criteria at that much. Of course those who have already bought are on the express train, so have no interest in stopping the train as they themselves now benefit from inflated asset prices, hence why property bubbles emerge so commonly. It is why negative gearing is rarely mentioned. Too many voters benefit from it so no one is going to dare scrap it even though its just a big tax break for property investors with the results self evident.

 

[McLovin]

I said near Pasadena
Where are you getting that $1m figure?
http://www.zillow.com/pasadena-ca/home-values/
http://www.trulia.com/home_prices/California/Los_Angeles-heat_map/

You need to learn the difference between a house and a home. There's a tab on that Zillow page to change it to "single family" under "home type", that's a house. The median for those is $774k or AU$1m. Oh and just for interest's sake, the median price for a four bedroom home in Pasadena is AU$1.3m.

None of this means Sydney is cheap, but it's not unique in that regard. And I certainly wouldn't be moving to LA because houses are cheap.

 

[jank]

Again, for the third time I said that 4 bed house was near Pasadena not in it... and then you accuse me of mixing up house and home?
Also, bear in mind when the AUD has taken the guts of 20% of its value against USD then of course Sydney prices on paper look better against their international counterparts even though they are still over valued. Add to the mix of course that prices in LA are back to their 2007 peak.... Two huge tailwinds there working for your argument it must be said but I do concede the general point.

However, take for example this.
http://www.zillow.com/homedetails/966-Worcester-Ave-Pasadena-CA-91104/20865390_zpid/

One has to remember that pasadena and the area around it would be regarded as one of the better areas in LA. We are talking northern beaches type of demo graphs here. Would one be able to buy similar home like above for anywhere the same price? The currency is after skewing my arguments against my favor but 6 months ago, that property would have been cheaper in paper and in real terms. However, looking at zillow you will see that the average discount from the list price is a little over 11% (but is falling)

Many other examples.
http://www.zillow.com/homedetails/966-Worcester-Ave-Pasadena-CA-91104/20865390_zpid/
http://www.zillow.com/homedetails/1244-E-Villa-St-Pasadena-CA-91106/20870336_zpid/
http://www.zillow.com/homedetails/426-Santa-Paula-Ave-Pasadena-CA-91107/20878116_zpid/

These are normal decent sized 4 bed houses for your average run of the mill middle class family which are within reach. Nothing like that is within reach in Sydney unless you want to be way out west or settle for a unit. I have no idea of your means but I take it you move in different circles than I do especially when you mention the types of property you were looking at in London and LA.

See, I am the type of person you should be convincing to a) stay in Australia and b) make roots here. I arrived here as an immigrant over 5 years ago on a Sunday evening and started work that Monday morning and have not been out of work a day since. I have saved the guts of 200k since then with the future in mind. It may be peanuts to you but its a lot of money to me. I know that if you want something you have to go out and earn it. I am not a latte drinking gen Y who thinks everything should fall on their lap, who spends all their income on crap and then wonders why they cant have a McMansion to live in! I am a fiscal conservative who would probably veer on the libertarian side of the liberal party. Yet all is said and done and I just cannot at this moment in time see myself staying here with property so expensive. Why should I do sign my life away for a huge debt, when I could go back to Ireland, the UK, Europe or the US where I could get a job in my field at similar-ish pay, where the cost of living is dramaticly reduced and where property if I wanted to jump in there be much more attainable? As I mentioned many are leaving Australia due to the cost of living pressure. I hardly have any friends left that I made years ago because people are moving on and setting up roots in the US and Europe. Wages are good here. People are making hay while the sun shines, so they are saving like crazy for a few years, then moving on with their lump sum, sometimes to buy a house outright with cash or if not outright a small mortgage that could be paid off in a few years.

I could stay here for another year or two, then go home and buy a 4 bed house with cash, or buy in Sydney and be in debt for over a million even though my deposit could be 300k...... its a no brainer...
I could take my 300k to the US in the quieter parts and buy outright, or go to the Bostons and the LA's of this world and pay for 40-50% of a house leaving something very very manageable to pay off.

Lastly, I have to love the passive aggressive sentiments of the property spruikers... its like 2006 all over again in Ireland. Mention anything negative about property, you were basically lynched by special interests. Remember, when a well respected Irish economist mentioned a negative outlook on Ireland's property market, the PM of the day basically told him to go kill himself....

All documented in Michael Lewis book 'Boomerang'.
http://www.finfacts.ie/biz10/Michael-Lewis-on-ireland.pdf
Required reading for everyone!

 

[McLovin]

Again, for the third time I said that 4 bed house was near Pasadena not in it... and then you accuse me of mixing up house and home?

There are houses "near" Sydney that cost a hell of a lot less than US$650k, you could even get one in Sydney for that money. The point remains LA is not some dreamland of affordable housing. Sydney isn't the only city in Australia either, and the median house price in Melbourne is $669k or about $80k cheaper than LA. Brisbane is cheaper still. Maybe consider moving there?

Also, bear in mind when the AUD has taken the guts of 20% of its value against USD then of course Sydney prices on paper look better against their international counterparts even though they are still over valued.

The AUD was at a multi-decade high, I hardly think that should be the basis for comparison.

One has to remember that pasadena and the area around it would be regarded as one of the better areas in LA. We are talking northern beaches type of demo graphs here.

I see it as being the same as the Hills district, a wealthy inland area. I wouldn't compare house prices to the Northern Beaches because that thin strip of coast line is where everyone wants to live and consequently prices are high. The demography of the two areas (Hills/Nth Beaches) is virtually the same (incomes/% Australian born, university attainment -- ie they're just as insular as eachother) but housing is way more affordable. Plenty of work out that way too, unlike the Nth Beaches which requires a commute down the worst road in Sydney.

As an example...

http://www.realestate.com.au/property-house-nsw-glenhaven-118366887

http://www.realestate.com.au/property-house-nsw-cherrybrook-118411879

http://www.realestate.com.au/property-house-nsw-beaumont+hills-118636987

http://www.realestate.com.au/property-house-nsw-beaumont+hills-118647847

And they all look a little bit more "ready to move into" than the ones you posted.

ETA: That four poster bed in 966 Worcester Ave, Pasadena, looks absolutely ridiculous. It gave me a good chuckle.

 

[jank]

100% increase for some homes with large Chinese demographs in the space of 5 years? All normal as rain I suppose....

http://news.domain.com.au/domain/re...-year-of-the-sheep-dawns-20150218-13i7bz.html

 

[Value Collector]

The first home buyer myth

http://www.smh.com.au/business/the-economy/the-great-first-home-buyer-myth-20150223-13ltlm.html

Turns out first home buyers outnumber investors and foreign buyers.

 

[delaroche]

The first home buyer myth

Turns out first home buyers outnumber investors and foreign buyers.

This isn't quite 100% accurate as around 1/3 of those FHB are investors themselves (normally referred to as FTB or first time buyers, not first time HOME buyers). This means the % of FHB is still ~15% and investors still outnumber them.

 

[Tyler Durden]

This isn't quite 100% accurate as around 1/3 of those FHB are investors themselves (normally referred to as FTB or first time buyers, not first time HOME buyers). This means the % of FHB is still ~15% and investors still outnumber them.

Sorry I don't quite understand the distinction?

 

[Modest]

The first home buyer myth

http://www.smh.com.au/business/the-economy/the-great-first-home-buyer-myth-20150223-13ltlm.html

Turns out first home buyers outnumber investors and foreign buyers.

Wouldn't read anything by the SMH regarding RE in AU. Owned by Fairfax, all their RE related stuff is a circle jerk how its up up and away, no mention of WA's declining housing market or anything negative to do with RE.

 

[needsajet]

Wouldn't read anything by the SMH regarding RE in AU. Owned by Fairfax, all their RE related stuff is a circle jerk how its up up and away, no mention of WA's declining housing market or anything negative to do with RE.

It is indeed hard to get useful information! +1

 

[Value Collector]

It is indeed hard to get useful information! +1

Not really, all the information you need to make real estate investments is pretty easy to get.

What sort of information are you after?