The future of Australian property prices

[waterbottle]

You're pretty well spot on smurph.

The only thing between W.A surviving, or ending up like S.A and Tasmania, is Barnie.IMO

http://www.abc.net.au/news/2015-06-23/wa-government-and-woodside-reach-browse-gas-deal/6567708

The only politician that is showing any vision.IMO

Off topic, but I think there would be a number of people who would strongly disagree with you if you are suggesting Premier Barnett has/had vision.

http://www.macrobusiness.com.au/?s=barnett

 

[sptrawler]

Off topic, but I think there would be a number of people who would strongly disagree with you if you are suggesting Premier Barnett has/had vision.

http://www.macrobusiness.com.au/?s=barnett

It was off topic and apologies for that, however time will tell the Barnett tale, be it good or bad.

With regard W.A, unless it can develop a sustainable economy, that isn't 100% reliant on resources, it is doomed to cyclical property prices.

There is one thing that is a certainty, if W.A doesn't expand its fiscal base, when the resources are gone, so is W.A.

A good surf break at Margaret River, won't support the population.

 

[sptrawler]

Well vacancy rates in Perth are rising, it is all turning a bit shakey over here, for investors.

https://au.news.yahoo.com/thewest/a/28553224/empty-perth-rental-properties-on-the-rise/

 

[waterbottle]

Well vacancy rates in Perth are rising, it is all turning a bit shakey over here, for investors.

https://au.news.yahoo.com/thewest/a/28553224/empty-perth-rental-properties-on-the-rise/

Yup, rents sure have fallen. Anyone have access to data from another source?

How low would the price have to fall before investors are forced out of their current position?

 

[sptrawler]

Yup, rents sure have fallen. Anyone have access to data from another source?

How low would the price have to fall before investors are forced out of their current position?

It is all dependant on how much equity the investor has, and how long they can absorb the loses.

Those investors who are geared into 10 properties, with minimal equity, will be sweating somewhat.IMO

As one of the posted articles said, investors are bailing out and cutting their loses, it is no different to the stock market.

It is just a confidence and equity equation, those who can't afford to hold have to sell, those who can afford to hold, do.
There are others who will sell and buy back.
The holding costs on housing in a down market is much higher than dividend paying shares.IMO

It may end up giving people, a more balanced view on property, as an investment .

Must qualify the post, I'm only talking from a W.A perspective.

 

[rimtas]

Homebuilding stocks are a leading indicator of house prices, and square footage is a lagging indicator.

As an example I take a US Real Estate market. In a chart below one can see that the S&P index of homebuilding stocks topped in 2005. Home prices topped in 2006. And the average square footage of newly built houses peaked in 2008. This progression should repeat in the current cycle.

Today the homebuilding stock index is losing upside momentum. It may have peaked. When it turns down decisively, it will portend a peak in home prices. The only graph in this chart making a new high today is the average square footage of a house. Fewer people are buying new homes, but those who are in the market are building mansions.








I tried to find the same data about Australian Housing market, but was able to find only couple long term charts of Australia's house prices and one particularly interesting is Melbourne's price chart.

Applying Wave Principle we can see that from 1980 low prices managed to sport five waves up, (with the latest data through Dec 2014,) on both charts, with the smaller degree fifth wave from 2012 still in progress. Melbourne's rise is likely the "thrust" out of consolidation Triangle, meaning that when it finishes it should fall back to test the apex.






The data on these charts suggest that the TOP in Real Estate is fast approaching, the underlying sentiment is so extreme, that even RBA said that "prices will get more crazy", expressing a linear thinking.
Reality TV Shows that I mentioned in earlier post is also a good sentiment measure, pointing that masses are completely engulfed in chasing the dream https://www.aussiestockforums.com/forums/showthread.php?t=17967&p=872758&viewfull=1#post872758

Meanwhile, the leading indicator-construction companies stocks-turned down decisively. The same as REIT's, most builders managed to rise in three waves from 2009 bottom, like AV Jennings or Fletcher Builders others Toped in early 2013, as Monadelphous Group. The chart below illustrates the point- Fletcher Builders should experience hard times ahead, along with others in this industry, as appetite for expensive houses will start to wane soon.



The square footage data is hard to find, but everyone must agree that houses got bigger and more popular now than 5 years ago. One lucky seller after he sold his 4bed house in one of premiere Cairns northern beaches, extoled-"Do not buy 2 or 3 bed house-everybody now wants no less than 4 bedroom 2 bath home". This captures nicely about how appetite for bigger has grown up in recent years.

The bottom line is-it is the Best time to SELL, though realestate agents in their newsletters highly disagree-they say that given the low rate environment it is the best time to BUY. Well, market will decide.

 

[sptrawler]

From my understanding, there is a huge fundamental difference, between the U.S and Aust property markets.

In the U.S, the property carries the responsibility for the loan. In Australia the individual carries the responsibility.

Therefore from my understanding, in the U.S you can forfeit the property, with no recourse.

That isn't the case in Australia, the bank sells the property and the owner is responsible for any shortfall.

So comparing U.S charts to Aust charts may be misleading.IMO

 

[rimtas]

Hi sptrawler, this is not comparison, this is a universal way of how realestate market works, no matter where. It obeys the same principles as the stock market, creating boom and bust cycles despite underlying fundamentals. There were thousands of reasons in US in 2007 why House prices can't fall. Ignoring all of them, market send them under.

If you can't pay your loan, it doesn't matter that you are responsible-bank still sells your property, creating supply.

 

[sptrawler]

Hi sptrawler, this is not comparison, this is a universal way of how realestate market works, no matter where. It obeys the same principles as the stock market, creating boom and bust cycles despite underlying fundamentals. There were thousands of reasons in US in 2007 why House prices can't fall. Despite all of them, they did.

If you can't pay your loan, it doesn't matter that you are responsible-bank still sells your property, creating supply.

That is very true, the difference is, the banks wear the loss in the U.S, the vendor wears the loss in Australia.

It is a small but pertinent point.IMO

 

[rimtas]

So you basically claim that because vendor is responsible, prices can't fall, just rise. It would be interesting to see argument why, keeping discussion going.

 

[ROE]

From my understanding, there is a huge fundamental difference, between the U.S and Aust property markets.

In the U.S, the property carries the responsibility for the loan. In Australia the individual carries the responsibility.

Therefore from my understanding, in the U.S you can forfeit the property, with no recourse.

That isn't the case in Australia, the bank sells the property and the owner is responsible for any shortfall.

So comparing U.S charts to Aust charts may be misleading.IMO

This is a myth, most states in the US has recourse law, read up on Deficiency Judgments in the US
the two biggest state with fore closure are Florida and Nevada and they have full recourse law.

 

[ROE]

So you basically claim that because vendor is responsible, prices can't fall, just rise. It would be interesting to see argument why, keeping discussion going.

I dont think it makes any differences if the loss is wear by vendors or lenders, when people don't have jobs or money to support the loan and it not confine to a dirty dozen loans but to a few percentage of the population asset start to fall.

There is no if or but or it cant happen here, that the law of money but Australia is not there yet, until unemployment rise and people without jobs asset price will fall.

 

[sptrawler]

So you basically claim that because vendor is responsible, prices can't fall, just rise. It would be interesting to see argument why, keeping discussion going.

Well that is a pretty stupid comment, if you had read my last few posts, I have being saying property prices in Perth are falling.

So from that you must have some ulterior motive, which is nice to know. Cheers

Rimtas, memory bank, kachink.lol

 

[trainspotter]

That is very true, the difference is, the banks wear the loss in the U.S, the vendor wears the loss in Australia.

It is a small but pertinent point.IMO

LMI wears the brunt of the risk. When that fails and mortgagee in possession prevails then the valuer who signed off on it had better make sure his insurance policy is in place. So several layers of underwrites taking the love risk of mortgage stress is the key. Who owns the LMI toxic debt is the question?

 

[waterbottle]

LMI wears the brunt of the risk. When that fails and mortgagee in possession prevails then the valuer who signed off on it had better make sure his insurance policy is in place. So several layers of underwrites taking the love risk of mortgage stress is the key. Who owns the LMI toxic debt is the question?

The taxpayer hahahahaha

 

[Mrmagoo]

It is amazing how Australia has changed from a good country where working class people could earn a decent life to a country of privilege where wealth is handed to the elite few. The process has been exponential since the GFC. Even if you get a really good job you cannot compete with the old money created in the 1990s. Amazing. Australia is now a text book example of a failed socialist state. Housing policy designed to "spread the wealth around" has had the exact opposite effect. Spreading the wealth around to some but not to others. Seems some Australians are more equal than others. Obviously they'll fight to the death to retain their privileges while the rest of us work to pay tax to keep rich old men who never worked for it even richer. Gotta love socialism.

 

[againsthegrain]

It is amazing how Australia has changed from a good country where working class people could earn a decent life to a country of privilege where wealth is handed to the elite few. The process has been exponential since the GFC. Even if you get a really good job you cannot compete with the old money created in the 1990s. Amazing. Australia is now a text book example of a failed socialist state. Housing policy designed to "spread the wealth around" has had the exact opposite effect. Spreading the wealth around to some but not to others. Seems some Australians are more equal than others. Obviously they'll fight to the death to retain their privileges while the rest of us work to pay tax to keep rich old men who never worked for it even richer. Gotta love socialism.

Hit the nail on the head again magoo, good post

 

[luutzu]

It is amazing how Australia has changed from a good country where working class people could earn a decent life to a country of privilege where wealth is handed to the elite few. The process has been exponential since the GFC. Even if you get a really good job you cannot compete with the old money created in the 1990s. Amazing. Australia is now a text book example of a failed socialist state. Housing policy designed to "spread the wealth around" has had the exact opposite effect. Spreading the wealth around to some but not to others. Seems some Australians are more equal than others. Obviously they'll fight to the death to retain their privileges while the rest of us work to pay tax to keep rich old men who never worked for it even richer. Gotta love socialism.

What you've described there, according to a couple notable economists I've listened to, is not socialism - it's rampant capitalism without regulation.

The socialism you might be referring to would be those Communist states' form of "socialism" - like China or Vietnam. Where it really is not socialism at all, but more of totalitarianism, oligarchic society where wealth and power is concentrated in the hands of the few.

But wealth and power has always been concentrated in the hands of the few - it was only after WW2 until the 1970s/80s that Capitalist states like the US, Aus., the West... thought that maybe the colored people could vote too, maybe the rich should be taxed higher, maybe there should be social security to take care of the sick and the old and the weak, maybe there should be regulation against monopolies and strong regulation to avoid financial system collapse.

Then facing the Red threat from the Soviets, and probably WW2 and the economic collapse wiping out most concentrated wealth and most industries, Big Business weren't that big and there are alternative form of gov't that sounds pretty good to the masses... so capitalism, with regulation and social welfare, were adopted.

Since the 1980s, all that are slowly being dismantled... tax on the rich were at 95% in the US back in the 50s, it's now 15% on average; banks have little regulation and the too big to fail are getting bigger and badder as we speak... since deregulation, Stiglitz said there's about 100 financial crisis around the world. etc. etc.

So it's not "socialism" that's doing the US and Australia in - it's unregulated capitalism. But then what we're seeing is not even capitalism, it's more corporate-socialism where the gov't (thru taxpayers) guarantee big banks and big businesses and will bail them out if they fail - so they can take all the risks they want, higher risks mean higher profit.. .and when it's profitable they take the profit, when it's screwed the taxpayer bail them out. They don't even share the profit when it's extremely profitable - that would be anti-competitive or whatever... but when it hits the fan, they threaten to cut jobs or move overseas so gov't help them out, then they cut jobs and stay a while.

BUt what do you expect when the high priests of modern day society is the likes of Ayn Rand and Gordon Gecko - where greed is good and it's every man for himself. Where the sick and the laggard ought to be cut and destroy and abandon because they pull society down. Where you measure a person's character and contribution by how much money they have (Packer getting a state funeral?); and where profit and costs are measured in terms of direct income and expense, and costs to the environment, costs to society.. .those costs are free.

Anyway, despite the headlines... Australia is in pretty good shapes relative to other countries.. and it needs more "socialism" and less the US/UK kind of free market capitalism that almost crash the world twice in the last 15 years and looks to do it for the third time soon.

 

[SmokeyGhost]

........BUt what do you expect when the high priests of modern day society is the likes of Ayn Rand and Gordon Gecko - where greed is good and it's every man for himself..........

In regard to Ayn Rand, I have always found it rather bemusing and a tad contradictory that at the end of her life she received assistance from Social Security benefits and the American form of Medicare.

 

[Smurf1976]

Looking at the overall economic changes over the past 35 or so years, the net effect is basically to produce a one-off spending spree by means of running down capital.

There's plenty of real life analogies, but the basic concept is that if you stop worrying about the future then you can certainly ramp up spending, production, enjoyment or whatever today. It works just fine until tomorrow comes.

Australia's economy circa 1980 and in the decades prior was basically about making stuff. Manufacturing was huge and everything else, that is mining, administration, retail, banking and so on, basically existed to either supply the factories and other "real" industries (eg agriculture, traditional service industries), distribute the products or administer the whole thing.

What we've got now is basically the liquidation of capital in order to produce a one-off boom. Manufacturing has been largely wiped out, we're running down infrastructure, we're running down natural capital at an alarming rate and so on. Meanwhile we're borrowing to fund consumption as well.

In broad terms, we've shifted from sustainable to unsustainable. We had something that could have continued on an ongoing basis but now we've got something that is very much finite in its nature - there's only so much iron ore, coal and gas in the ground and we're hell bent on making damn sure that the whole lot is gone well within the lifetime of a child born today. Meanwhile we're gotten rid of manufacturing etc and run up huge debts.

Like anything, you can have a lot more of it in the short term if you don't worry about tomorrow. There's plenty of money if you just borrow it. There's plenty of water if you don't mind the dams running completely dry. You can have one almighty party if you're not worried about a hangover tomorrow. Any job is faster if you don't worry about health and safety. And just think how much time you could free up by not exercising and just eating take away food. All completely unsustainable of course and not something that's wise to do but as a nation it's pretty much what we've actually done. Now we're starting to suffer the consequences with house prices being just one of the myriad of problems we face.