The future of Australian property prices

[sydboy007]

Macroprudential likley to tighten further after ASIC's findings

ASIC’s review of more than 140 consumer loan files from bank and non-bank lenders identified:

• In 40% of files reviewed, the affordability calculations assumed the borrower had longer to repay the principal on the loan than they actually did
• In over 30% of files reviewed, there was no evidence that the lender had considered whether the interest-only loan met the borrower’s requirements
• In over 20% of files reviewed, lenders had not considered the borrower’s actual living expenses when approving the loan, but relied instead on expenditure benchmarks.

 

[waterbottle]

Looks like the cash faucet is going to be running alot slower in the coming months...

 

[CanOz]

Macroprudential likley to tighten further after ASIC's findings

Too little too late...its amazing how this stuff comes out now, when the market is toppy. Why can't we have good lending practices...all the time?

 

[rimtas]

REIT's are one of the best holding sector but it should give ground soon as well. Lucky are those who are selling property now to those unaware of what is going to happen next.

 

[gartley]

A possible historic top in the process. We will see how Australians love affair with property pans out in the years ahead. It's had 20 year great run without a correction.

The last property bear market in the early 90's saw buyers "dissappear " within a few months.
The mind boggles as to how many irrationally exuberant, over leveraged in debt property bulls are out there. Most of which have never experienced a bear

 

[Smurf1976]

its amazing how this stuff comes out now, when the market is toppy.

It always seems to be the way when something is destined to end. It all goes along fine for longer than anyone expected, then everything goes against it pretty much all at once and that's it, game over.

That's not limited to property. Take a business that is struggling. It goes along for years then all of a sudden a few things happen and it collapses amazingly fast once the tipping point is reached.

Same principle with crooks, con men, anything destined to end at some point. Seems unstoppable until a few things go wrong then it all falls down real quick.

 

[gartley]

It always seems to be the way when something is destined to end. It all goes along fine for longer than anyone expected, then everything goes against it pretty much all at once and that's it, game over.

That's not limited to property. Take a business that is struggling. It goes along for years then all of a sudden a few things happen and it collapses amazingly fast once the tipping point is reached.

That's very true, and I think the main reason is because "people get caught up in the trend". What is the average Joe Blow thinking at a market peak? What I have noticed in the past ( and this includes myself years ago) is that people sitting on gains will project the current trend into the future. In this instance house prices have been rising for 20 years and every pullback is a buying opportunity. But at this juncture a surprising disappointment lies ahead for property bulls. That maybe now or maybe years ahead but it will happen. In Elliott wave terms a 4th wave retracement.

The last time Australia had a major panic and thereafter bearmarket was in 1890. That panic was triggered by problems English colonial ties to Argentina. But in reality the trigger can be anything and the primary cause is extreme optimisim. If sentiment is extremely optimistic it means they already have their money in the market waiting for prices to go up and make them rich. And if they already have their money in their it means there is very little money left to go in in which case prices have only one way left to go and that it down.

Every credit induced boom throughout history has ended in bust without exception. Some have been short others have lasted so long that it seems like forever but that they have ALL ended in bust. Looking at the Private debt to GDP chart attached we can see the last credit induced boom in Australia peaked in 1890. I call this Wave 1. The subsequent decline which was a 2 wave correction took 70 years to pan out. Lending standards where completely different when I was a young boy in the 60's and 70's. The explosion in private debt since then has been staggering and this is wave 3 on our chart. A typical wave 4 retraces between 38.2 to 50% of the previous wave 3. So when it arrives it will be felt very hard. Deflationary forces are already at work and deflation in the credit supply is fast coming.

Since the advance has been fueled by debt in the first place the attached chart of inflation adjusted Median Melbourne house prices almost mirrors the profile/pattern of trend of the debt to GDP chart. Interestingly on this chart after house prices peaked in 1890, it took them almost 100 years to reach the same levels in real (inflation adjusted) terms.

So some interesting times ahead.

 

[tech/a]

it took them almost 100 years to reach the same levels in real (inflation adjusted) terms

.

Yes it WAS a once in a lifetime opportunity!

But the world and in particular Australia is a very different place than it was 100 yrs ago.
An argument or discussion that will continue for another 100 yrs.
like all assets the shrewd will always make a buck sometimes at others expense.

While demand remains so will price.
True for anything really.

 

[waterbottle]

.

Yes it WAS a once in a lifetime opportunity!

But the world and in particular Australia is a very different place than it was 100 yrs ago.
An argument or discussion that will continue for another 100 yrs.
like all assets the shrewd will always make a buck sometimes at others expense.

While demand remains so will price.
True for anything really.

Demand is irrelevant when there isn't any money to meet your price

 

[gartley]

.


But the world and in particular Australia is a very different place than it was 100 yrs ago.

Yes it is John. But what propels markets (people) are the same. Unfortunately hope, greed, and fear in people will NEVER change.

 

[tech/a]

Yes it is John. But what propels markets (people) are the same. Unfortunately hope, greed, and fear in people will NEVER change.

Hasn't yet!

 

[Klogg]

Demand is irrelevant when there isn't any money to meet your price

If there's not enough money/credit, there's no demand.
To put it another way; on a supply/demand graph, the demand curve just shifts to the left, hence demand at lower prices.

 

[tech/a]

Demand is irrelevant when there isn't any money to meet your price

Demand remains
Price varies

 

[qldfrog]

and demand is based only partly on numbers and need
psychology is key: as in stockmarket PE, reason/facts, on short term, do not always win , and if panic/fear strikes however real the need, low the price, you can not sell.
This worked the other way round when this bubble was expanding, now we might see the other side

 

[gartley]

Hasn't yet!

That's right!!

- In 1991 the Japanese housing market hadn't yet either and is now down 50% in a deflationary spiral that has not ended. But the warning signs where there 1 year earlier when the stock market crashed.

- In 2006 the US market hadn't either but the warning signs where there.

- In April this year the All Ords was 1000 pts higher than now it hadn't YET either but the warning signs where there.

- Two months ago in China the Shanghai Composite index hadn't YET either but now it has capitulated, warning signs where there.

- Two weeks ago the DJIA was near record levels and hadn't YET but look now. Warning signs where there.

Nothing lasts for ever, anything is possible at any time in any market. Peaks often coincide with the sort of complacency that is cascading out of your mouth and the most of the Australians who think property prices will never stop rising.

When a market peak comes it usually takes everyone by surprise and events unravel very quickly.

This country has had it too good for too long. In 2 years there will be little manufacturing left in this country. Next to zero value added goods. Mining boom is long gone and contracting further every day. What do we have here that's keeping things going? An overheated property market, contracting retail spending because nearly everything is spent servicing loans, and the services.

In 2008 we our told how our property market and economy has next to immune from the global shock because of our smart thinking RBA quickly slashing rates and providing stimulus. If the world has another shock, the RBA has very little space to manoevere having already played it's cards.

Others say that it's overseas investors (mainly from China) that will keep buying into our property market. Back in the late 80's early 90's cashed up Japanese where doing the same. Then the Nikkei crashed and their economy went backward. Where are these investors now.
Right now the the Chinese stock market bubble has burst and you can bet your bottom dollar foreign Chinese buyer interest will slowly start dissipating in the years ahead.

 

[MrBurns]

The share market is in deep trouble so where will the money go ?

Traditionally into cash but the rates haven't been increased so no go there.

Perhaps into property ? The Chinese will be flooding our property market as their economy dies.

I fear that Australia will be majority Asian before long if it keeps going this way..........we are being pushed to one side.

 

[Modest]

AFR on how to sell your house in the next 18 weeks...

http://www.afr.com/real-estate/resi...mas-and-have-a-happy-new-year-20150817-gj0wh9

 

[waterbottle]

The share market is in deep trouble so where will the money go ?

Traditionally into cash but the rates haven't been increased so no go there.

Perhaps into property ? The Chinese will be flooding our property market as their economy dies.

I fear that Australia will be majority Asian before long if it keeps going this way..........we are being pushed to one side.

I am a bit skeptical about property prices continuing to rise because of Chinese capital as they are losing too much purchasing power: The yuan being devalued, and will probably continue to fall; Chinese markets being devalued, and also probably continue to fall; and new laws from 1 November that may actually have do their job of preventing foreign ownership. Even Australian citizens are being restricted - new APRA initiatives have started to restrict credit availability for investors and importantly, the big banks have decoupled from the RBA and begun to increase interest rates.
All of this points to a restriction on credit-driven demand, meanwhile we've got new constructions happening on virtually every corner in Inner West Sydney. It's hard to see prices continuing as they have been, let alone increasing any further.

 

[Klogg]

That's right!!

- In 1991 the Japanese housing market hadn't yet either and is now down 50% in a deflationary spiral that has not ended. But the warning signs where there 1 year earlier when the stock market crashed.

- In 2006 the US market hadn't either but the warning signs where there.

- In April this year the All Ords was 1000 pts higher than now it hadn't YET either but the warning signs where there.

- Two months ago in China the Shanghai Composite index hadn't YET either but now it has capitulated, warning signs where there.

- Two weeks ago the DJIA was near record levels and hadn't YET but look now. Warning signs where there.

Nothing lasts for ever, anything is possible at any time in any market. Peaks often coincide with the sort of complacency that is cascading out of your mouth and the most of the Australians who think property prices will never stop rising.

Reminds me of Taleb's turkey analogy. From this link:
http://www.businessinsider.com.au/nassim-talebs-black-swan-thanksgiving-turkey-2014-11

“Consider a turkey that is fed every day,” Taleb writes. “Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race ‘looking out for its best interests,’ as a politician would say.

“On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.”

 

[trainspotter]

View attachment 53764

This chart tells a thousand stories.

It would seem we reach resistance at around 160% debt to disposable income.

It would also seem that the momentum increased :

After the last recession
Deregulation of the banking sector
Market flooded with cheap debt
The increase of women working full time which I believe as peak around 2010.

Most of the above has reached 100% saturation.

Putting a rocket under a rocket ship doesn't always make it fly straight.

I foresee several things happening to the property market in the short term :

• A recovery/uptick in prices due to low interest rates, people rushing to the market, herd mentality
• A period of stagnation where many who bought find the returns/yields to be insufficient and that negative gearing just isn't working as an investment strategy
• Slowing of the economy and employment rising
• Inflation starting to hurt the every day australian with rising costs and no way growth, RBA starts to look to the heavens for another solution
• A turn point in structural beliefs in Australia society that property is a easy investment, everyday business getting tougher, the fit will survive but many have become slow over the last 30 years.
• A slow but steady rush to the gate to offload property for the over indebted.

Price correct over many years. How much and how far, anyone's guess

*BINGO* .... posted on 10th-August-2013 11:31 AM

You HAD been warned !