The future of Australian property prices

[drsmith]

What happened in 1990? Was there a change in legislation on negative gearing or related tax changes?

Seemed to be floating around 10% then started climbing to 30%. Would like to see a long term graph say over the last 100 years.

cheers

The 90's was a period where long term inflation expectations fell and interest rates became sustainably low. IIRC, bank margins on home loans relative to the RBA cash target also fell during the 90's (only to have risen again recently).

 

[UBIQUITOUS]

Good luck Robots.

REIV releases March quarter median prices

MELBOURNE house prices dropped $10,000 on average in the first three months of the year as rising interest rates priced many buyers out of the market.

That means that FHBers who bought at the end of last year have had their FHOGs ripped out of their hands after taking possesion of their homes.

Looking at the number of properties up for auction, it looks like property values have been crashing on high volume. Scary!!

 

[robots]

hello,

good afternoon, apologies for not being around yesterday

could anybody tell me how units went in that latest data as I have two of them

much appreciated, paradise

thankyou
robots

 

[CamKawa]

That means that FHBers who bought at the end of last year have had their FHOGs ripped out of their hands after taking possesion of their homes.

Looking at the number of properties up for auction, it looks like property values have been crashing on high volume. Scary!!

Instant negative equity. I just hope they acknowledge their greed rather than blame the government.

 

[UBIQUITOUS]

Instant negative equity. I just hope they acknowledge their greed rather than blame the government.

Or another way of looking at it is: 100% loss of capital!

Let's hope that no ASFers acted upon the 'easy money' brigade's posts on here.

 

[robots]

hello,

hey hey hey, another superb auction day:

http://www.reiv.com.au/home/inside.asp?ID=162&nav1=1226&nav2=162

massive 85% clearance rate brothers, good stuff

i also found the result for the March 2010 quarter, units up 2%, thats right units 2%, well done robots

get all the up to date info here at ASF

thankyou
robots

 

[gav]

Looks like property is going gangbusters in NSW. $500K profit in less than 24 hours? Even Goldman Sachs would be proud of this one!

http://www.news.com.au/business/inq...000-on-unit-sale/story-e6frfm1i-1225855013745

"AN inquiry has been ordered into how a real-estate agent's wife made $500,000 from taxpayers by buying a block of units for $2.5 million and selling it on to the NSW Government the same day for $3 million."

 

[gav]

Our outer suburbs are poverty traps

http://www.heraldsun.com.au/news/vi...re-poverty-traps/story-e6frf7kx-1225854963435

Apparently 10% of Melbournians are living below the poverty line; and the rich are getting much richer, and the poor are becoming poorer.

What I find amusing is the photo in this article: husband, wife and 2 kids - but what's that in the background? A brand new mcmansion and a brand new four wheel drive? Can't be doing it too tough!

 

[joeyr46]

I may have missed some posts but so far I havn't seen anyone say why house prices will fall regardless of gearing. Once a house has been bought it has no real bearing on where prices go in the future (Bear with me I know we use last sale price as a guide for the next house price that is similar but that really only gives people confidence that they are abut right as far as price is concerned)
The real driver of house prices is liquidity in the system, if liquidity is good then demand or supply will come into the picture, and prices will fluctuate by up to 15% or so at any given time in the year depending on a lot of other factors such as buyer impatience or seller desperation.
Back to gearing it really doesn't matter if the bank lends me 150% or just 60% as long as i do not have to sell, and if I do then if the market is strong and there is good liquidity then the price will be strong and not be an issue.
So what will cause prices to collapse (lets talk about 50% being a collapse)
Answer is simply credit inflation. If we just print money then we have inflation and the prices go up as the value of money goes down(maybe not in perfect harmony) but if we create credit then prices go up but always throughout history come collapsing down when the debts have to be paid. But we are talking about systemic problems not just mortgages. We generally reach this point when the amount of interest becomes so great that we can no longer be productive enough to maintain payments, and so the price of all assets comes down (including Gold).
As these occasions are usually so far apart that no one can remember them clearly we keep making the same old mistakes. So I would argue that house prices are not seperate from the rest of the economy and now that our financial sector is almost the only sector that is profitable then we are almost there

 

[UBIQUITOUS]

I may have missed some posts but so far I havn't seen anyone say why house prices will fall regardless of gearing. Once a house has been bought it has no real bearing on where prices go in the future (Bear with me I know we use last sale price as a guide for the next house price that is similar but that really only gives people confidence that they are abut right as far as price is concerned)
The real driver of house prices is liquidity in the system, if liquidity is good then demand or supply will come into the picture, and prices will fluctuate by up to 15% or so at any given time in the year depending on a lot of other factors such as buyer impatience or seller desperation.
Back to gearing it really doesn't matter if the bank lends me 150% or just 60% as long as i do not have to sell, and if I do then if the market is strong and there is good liquidity then the price will be strong and not be an issue.
So what will cause prices to collapse (lets talk about 50% being a collapse)
Answer is simply credit inflation. If we just print money then we have inflation and the prices go up as the value of money goes down(maybe not in perfect harmony) but if we create credit then prices go up but always throughout history come collapsing down when the debts have to be paid. But we are talking about systemic problems not just mortgages. We generally reach this point when the amount of interest becomes so great that we can no longer be productive enough to maintain payments, and so the price of all assets comes down (including Gold).
As these occasions are usually so far apart that no one can remember them clearly we keep making the same old mistakes. So I would argue that house prices are not seperate from the rest of the economy and now that our financial sector is almost the only sector that is profitable then we are almost there

Firstly, it's a question of value. Better value can be had in other asset classes as opposed to real estate. This will result in the correction which is happening as we speak as money flows to find a better reward to risk ratio.

Secondly, any asset class with artificially supported prices should be questioned as an investment. Would one be wise to invest in stock in a company where the share price is supported by erroneous forces? I think not. So why should real estate be any different?

 

[robots]

hello,

here we go, great analysis man, many could probably replace Alan Kohler on the ABC news bulletin

but its all way beyond interest rates, inflation, reward/risk ratio's,

thankyou
robots

 

[cutz]

Apparently 10% of Melbournians are living below the poverty line; and the rich are getting much richer, and the poor are becoming poorer.

Yep the rich are getting richer on the backs of the taxpaying class.

I wonder if we'll ever have a government with the courage to pull negative gearing, came across some figures somewhere recently, the amount claimed on this practice is ridiculous.

 

[MR.]

What happened in 1990? Was there a change in legislation on negative gearing or related tax changes?

In addition to Drsmith's reply

*July 1985 the government quarantined negative gearing interest expenses (on new transactions), so interest could only be claimed against rental income on existing and newly built houses, not other income. (Any excess could be carried forward for use in later years.) The result was a considerable dampening of investor enthusiasm.

*September 1985, just two months later, the 50% capital gains tax was introduced. Before that no CGT existed. This perhaps contributed, with fewer landlords, rents rose. But house prices rose or continued to rise too, apparently because less new construction for investors kept the market tight (the factor of fewer investors competing with owner-occupiers to buy was apparently overwhelmed).

*July 1987, two years later, negative gearing could be used again to offset tax from other forms of income. The immediate effect however was only further house price rises as investors returned to the market before new construction could catch up.

http://en.wikipedia.org/wiki/Negative_gearing_(Australia)
http://taxes.suite101.com/article.cfm/capital-gains-tax-cgt

You’d have to wonder if just a change to Negative Gearing on existing houses (similar to July 1985) would help the speculation of ever higher house prices and not enough new dwellings! Will also help with some extra gov' funding.

Back to gearing it really doesn't matter if the bank lends me 150% or just 60% as long as i do not have to sell, and if I do then if the market is strong and there is good liquidity then the price will be strong and not be an issue.

Yes and interest rates may not return to where they were just 20 months ago. IMO the low interest rates now appear to be a major driving factor in the current housing speculation. IMO something else needs to be done like a slight change to Negative Gearing.
Who knows what will be the cause of any actual crash of 50%......

 

[UBIQUITOUS]

The tactic employed by the REIV to mask over the deteriorating values of house prices is very basic in the extreme, but is plain to see by anybody who compares the quarterly reporting and their unrevised numbers.

This was what was reported for the Dec09 quarter:

http://www.reiv.com.au/news/details.asp?NewsID=890]
The REIV December quarter Property Update has revealed a new record high median house price of $540,500, an increase of 15 per cent from $470,000 in the September quarter.

And this is what is now being reported for the March10 quarter:

http://www.reiv.com.au/news/details.asp?NewsID=923
The REIV March quarter Property Update reveals that Melbourne has recorded the strongest March quarter for seven years and the median price of a house is now $524,500, a two per cent reduction from the revised median of $535,000 in the December quarter of 2009.

So what the REIV are infact doing is 'accidentally' increasing the median house price reporting for a current quarter to make thinks look rosy, and then revise down the previous quarter, to make it look as though house prices are increasing. By the time the following quarter's numbers arrive, the bet is that nobody will look back to what was claimed in the last report.

So if we take the last 2 quarters as an example, the fall is infact 3% and not the 2% as reported. I expect the March quarter to be revised downwards again when reported at the end of this quarter, to create further misconceptions.

Happy days to all expect the money renters.

 

[robots]

hello,

and units? oh yeah

happy days for the money renters, utopia Ubiquitous

thankyou
robots

 

[drsmith]

Looks like property is going gangbusters in NSW. $500K profit in less than 24 hours? Even Goldman Sachs would be proud of this one!

http://www.news.com.au/business/inq...000-on-unit-sale/story-e6frfm1i-1225855013745

"AN inquiry has been ordered into how a real-estate agent's wife made $500,000 from taxpayers by buying a block of units for $2.5 million and selling it on to the NSW Government the same day for $3 million."

I can recall an article in the AFR about the NSW ALP government from a few years ago. To this day it is the most scathing article I have ever read on any Australian government.

The way it was worded was priceless. It should have been framed.

 

[drsmith]

hello,

and units? oh yeah

happy days for the money renters, utopia Ubiquitous

thankyou
robots

Enjoy the punch while it lasts.

The RBA is being somewhat cautious in diluting it and governments are welcoming new party goers through the door and happily clipping their entry fee.

Maintain a keen ear and senses though for any rumblings. That might be China with a bout of economic indigestion.

 

[KateMelb]

I wonder if we'll ever have a government with the courage to pull negative gearing

I doubt it. The cost of building public housing is just too great and there are too many competing public services that require huge investments (such as health and transport). All of this with a massive budget deficit!

A far cheaper alternative to government-funded housing is privately-funded and investors are incentivised to fund housing through negative gearing. This way governments can actually gain revenue through CGT, stamp duty etc and pay for other government services.

Whether we like it or not, negative gearing is the best idea we've got to increase housing stock. Unfortunately the Reserve Bank is spoiling the party with trigger-happy monetary policy. Investors can't contribute more housing stock if it's too expensive to build/buy.


***************************
I DIY manage with Rentwise.

 

[Trembling Hand]

Whether we like it or not, negative gearing is the best idea we've got to increase housing stock. Unfortunately the Reserve Bank is spoiling the party with trigger-happy monetary policy. Investors can't contribute more housing stock if it's too expensive to build/buy.

Sorry Kate that doesn't stack up. In fact its actually laughable. Clearly housing demand is fixed by roughly by population. You are not likely to have greater than 1 house for every household - logical.

But

If investors who can negative gear arrive at sale time they are able to out compete people who are using the house as a place of residence thus forcing up house & land cost and pushing would be owners into forever renters.

Its a complete load of BS the "negative gearing is the best idea we've got to increase housing stock." Its the worst.

Cheap prices is the best "best idea we've got to increase housing stock" not investor with tax breaks competing against home owners.

 

[CamKawa]

Some intersting reading.

Rentals showing poor yield

''You can put money in the bank and get 5.5 per cent without any maintenance costs, insurance and repairs.''