The future of Australian property prices

[Modest]

Pete Wargent ‏@PeteWargent

Darwin dwelling values now where they were 7 years ago; Perth dwelling values retraced to 2007 levels

http://corelogic.com.au/news/capita...n-september-to-be-2-9-higher-over-the-quarter … #ausbiz

Wowzer thanks for posting that Joules! I am surprised MSM hasn't made a big deal out of those Perth figures... Ohh wait all the MSM outlets have vested interest in property rising!

 

[MrBurns]

I've got a feeling it's about to go bust.


http://www.fool.com.au/2016/10/06/311000-homeowners-have-zero-or-negative-equity-in-their-homes/

 

[luutzu]

I've got a feeling it's about to go bust.


http://www.fool.com.au/2016/10/06/311000-homeowners-have-zero-or-negative-equity-in-their-homes/

NAB's CEO deny there's a property bubble though

http://www.smh.com.au/business/banking-and-finance/nab-cautions-on-apartment-glut-20161006-grwmym.html

Report of some 300k+ home owner having no equity... more than a handful in there would also be owing family and friends for that deposit and stamp duty too.

Seems there's now a rush to go out and buy in case it goes up further. Wouldn't end well.

 

[Klogg]

I've got a feeling it's about to go bust.


http://www.fool.com.au/2016/10/06/311000-homeowners-have-zero-or-negative-equity-in-their-homes/

I dont think banks will start foreclosing because LVR is at 100%... CEOs of banks have a limited lifespan, and when bad debts get out of hand, they lose their bonuses and eventually their jobs.

That said, I think if they mess with credit availability too much, then we have a different problem on our hands.

 

[MrBurns]

I dont think banks will start foreclosing because LVR is at 100%... CEOs of banks have a limited lifespan, and when bad debts get out of hand, they lose their bonuses and eventually their jobs.

That said, I think if they mess with credit availability too much, then we have a different problem on our hands.

My 28 year old son with no credit history was offered $1M by a bank no problems....there's the problem.

 

[ukulele]

Your son must be on a good wicket though?

 

[MrBurns]

Your son must be on a good wicket though?

Nothing in particular the banks just want to get the money out the door.

 

[Klogg]

My 28 year old son with no credit history was offered $1M by a bank no problems....there's the problem.

This is related to my point. If credit keeps flowing, then we have no big problem for a while (people keep borrowing and buying, pushing up prices). Sure, there's a ceiling (repayment amounts), but as soon as any stresses start to show, the RBA comes to the rescue (sort of the point of monetary policy, just that we need some more macro-prudential policies)

On the other hand, as soon as foreclosures occur, banks make their own problems worse.

 

[kid hustlr]

Incredible variation across the country in the return on prices.

Sydney/Melbourne is a joke whilst outside the eastern sea board the country is on its knees. Very interesting.

There's an opportunity there somewhere.

 

[McLovin]

Incredible variation across the country in the return on prices.

Sydney/Melbourne is a joke whilst outside the eastern sea board the country is on its knees. Very interesting.

There's an opportunity there somewhere.

There is a real lack of supply that is feeding the beast and squeezing buyers in Sydney at the moment. A house close to me was listed at $1.4 and ended up going for $1.7m. No off street parking, two bedrooms, one bathroom. There's so much FOMO at the moment. It's not healthy. Falling rents and rising house prices is not healthy. SMSF's being used by property developers as lenders of last resort is not healthy. The wave will probably break when all these apartments being built come on line in the next few years.



My house is old. I found a property valuation for it from 1921. Would have been yours for £102. Back then it was owned by a slumlord. How's that for compounding!

 

[Klogg]

There is a real lack of supply that is feeding the beast and squeezing buyers in Sydney at the moment. A house close to me was listed at $1.4 and ended up going for $1.7m. No off street parking, two bedrooms, one bathroom. There's so much FOMO at the moment. It's not healthy. Falling rents and rising house prices is not healthy. SMSF's being used by property developers as lenders of last resort is not healthy. The wave will probably break when all these apartments being built come on line in the next few years.

I just don't get it... To rent the place, you're paying about 3% of the asset value at most, and that's gross.
There are downsides to renting of course, and people pay a premium - but there's limits.

The place I'm renting is achieving a gross yield of 2.4% (estimating value on similar sales) - inner east of Melbourne (Surrey Hills). Sure, there's the whole negative gearing thing. But making a loss for tax purposes on the hope that the greater fool theory holds out doesn't really appeal to me.

I always think there's something I'm missing...

 

[McLovin]

I just don't get it... To rent the place, you're paying about 3% of the asset value at most, and that's gross.
There are downsides to renting of course, and people pay a premium - but there's limits.

The place I'm renting is achieving a gross yield of 2.4% (estimating value on similar sales) - inner east of Melbourne (Surrey Hills). Sure, there's the whole negative gearing thing. But making a loss for tax purposes on the hope that the greater fool theory holds out doesn't really appeal to me.

I always think there's something I'm missing...

Perhaps it needs to be thought of from the perspective of the owner-occupier not the investor? The low returns are a function of the premium people are willing to pay to live in their own home.

That house I mentioned was bought by an owner-occupier.

 

[Klogg]

Perhaps it needs to be thought of from the perspective of the owner-occupier not the investor? The low returns are a function of the premium people are willing to pay to live in their own home.

That house I mentioned was bought by an owner-occupier.

Yeah, that was sort of my line of thinking:

There are downsides to renting of course, and people pay a premium - but there's limits.

My problem is I keep framing it in terms of my own opportunity set for using my capital, or even buying index funds/picking decent fund managers. Not everyone is willing or knows about them, so their opportunities are far more limited.

When framed that way, it does start to make sense.
Credit availability (too much of it) is another issue though...

 

[greggles]

At a sale last week, auctioneer Baldwin took 134 bids for a drab, two-bedder in Greenacre, 18 kilometers west of Sydney, before dropping the hammer at A$926,000. That’s 19 percent more than the median price for that size of property. Baldwin said the main draw wasn’t even the house; it was the chance to knock it down and build anew. Some buyers are saying: ‘we’d better get in or we’ll never get in,’ he said.

http://www.bloomberg.com/news/artic...zy-in-sydney-gnaws-at-efforts-to-contain-risk

Here's what you get 18km west of Sydney for a little less than a million dollars.



When this bubble ends, it's going to be a very hard landing.

 

[kid hustlr]

Being a 30 year old Sydney Sider I can honestly say I don't think there will be a 'pop'.

Not saying property is a good investment now in Sydney but those expecting the worse need a catalyst to cause it.

Agreed about the rental argument and that's why any spare funds I have will be invested in the share market (6% gross!) vs sydney property (3% gross!)

 

[luutzu]

Being a 30 year old Sydney Sider I can honestly say I don't think there will be a 'pop'.

Not saying property is a good investment now in Sydney but those expecting the worse need a catalyst to cause it.

Agreed about the rental argument and that's why any spare funds I have will be invested in the share market (6% gross!) vs sydney property (3% gross!)

The catalyst will come in a few ways.

The big one is interest rate rising back to its normal "non-zero" real rate - say, 5%.

Then there's renters losing their job, or Centrelink giving them a hard time, and can't afford to pay rent for a couple weeks.

Combine that with owners usually owning 3 properties and paying only the interest payment. When interest and principal requirement kicks in, and enough renters missing payment here and there... you'll see the rush to get the heck out.

 

[Bill M]

Being a 30 year old Sydney Sider I can honestly say I don't think there will be a 'pop'.

I agree and I been around a lot longer. I am actively looking for a 2 br x 2 bathroom unit with views, balcony, quiet and walking distance to a railway station. Some Saturdays I don't even go for open for inspections because nothing new has come up.

And who is buying? Anyone and Everyone. There are young couples, working couples, Chinese families, gay couples and virtually any type of person you can imagine, come from all cultures and walks of life. All want the same thing as my wife and I. We end up following each other around at the open days.

The thing is, as long as there is so much demand and so little around, prices will not be coming down. Only the junk units stay on the market, good ones we have to try jump on before the first open day as they don't last long.

Everybody I talk to who is looking in our market says the same thing, so little around and too much off the plan stuff where they haven't even turned a sod yet. Today we stayed home, nothing of interest came on the market, the search continues.

 

[kid hustlr]

The catalyst will come in a few ways.

The big one is interest rate rising back to its normal "non-zero" real rate - say, 5%.

Then there's renters losing their job, or Centrelink giving them a hard time, and can't afford to pay rent for a couple weeks.

Combine that with owners usually owning 3 properties and paying only the interest payment. When interest and principal requirement kicks in, and enough renters missing payment here and there... you'll see the rush to get the heck out.

Don't get me wrong, I think the system is broken, but I'm also being realistic. People were on here 4 years ago calling the end. I could name 10 people right now who would pay what most of Australia think is obscene money for a nice Sydney metro area. There is demand there.

Catalysts. Who knows. I can't see rates rising any time soon. Black swan unemployment event maybe. Some of your assumptions are off the mark though, I'm talking solid sydney locations and they will always be wanted.

I'm annoyed at myself I've missed s huge opportunity. I was lucky enough to buy an apartment in a good area a few years back with a conservative mortgage partly due to this thread lol. If I'd pulled the trigger on something and stretched myself I'd be laughing

 

[luutzu]

Don't get me wrong, I think the system is broken, but I'm also being realistic. People were on here 4 years ago calling the end. I could name 10 people right now who would pay what most of Australia think is obscene money for a nice Sydney metro area. There is demand there.

Catalysts. Who knows. I can't see rates rising any time soon. Black swan unemployment event maybe. Some of your assumptions are off the mark though, I'm talking solid sydney locations and they will always be wanted.

I'm annoyed at myself I've missed s huge opportunity. I was lucky enough to buy an apartment in a good area a few years back with a conservative mortgage partly due to this thread lol. If I'd pulled the trigger on something and stretched myself I'd be laughing

I'm not wishing for a crash or anything, and of course good luck to all those who's laughing all the way to the bank.

It's pretty easy to look like a real genius when the market for your asset is booming. And it'll make people look really smart in near future given that everything that could go right is going right for the property market.

While not wanting to rain on that parade, it's worth thinking how long the good time can roll on for. And what will happen when the music stop.

And it will stop because capital gains is the only reason investors are flocking into property at the moment. The rental yield just ain't there. So how much gain would make it worthwhile for current owners and also worthwhile for new buyers?

Say you buy a property for $1m. Stamp duty and legal fees about $45k? Assume negative gearing and rentals would even out the interest you're paying... How much would you want to sell that $1.045m in 5 years time to make it worthwhile?

Say 10% a year gain is fair enough?

So $1.6m? Plus $50k stamp duty, plus $50k renovation. $1.7m...

So either adjust annual gain expectation or believe that the average aussie can afford a $1m to a $1.7m apartment.

Anyway, just put it down to me not understanding this stuff.

 

[greggles]

So what is it about this bubble that makes it different from those that came before?

Prices can only go so high before demand must drop away due to people's inability to service mortgages that outstrip their income.

It all still looks very overinflated to me, in spite of any short term supply issues.