The future of Australian property prices

[explod]

One thing’s for sure.

We don’t need foreign investment in existing residential real estate.

New builds might be OK but there’s no national benefit in having foreigners buy what we’ve already got. It just pushes the price up but adds nothing tangible at all.

A good point there smurf, a local employee may cost a lot more but at least his/her wages stay here and is spent/circulated back into the community.

As for property, as per Maslow's Law, all are entitled to the basics of survival. Our system should provide a home/shelter for all and I do not believe a home should even be a cost. Yeh I know, that's a bit left.

 

[luutzu]

A good point there smurf, a local employee may cost a lot more but at least his/her wages stay here and is spent/circulated back into the community.

As for property, as per Maslow's Law, all are entitled to the basics of survival. Our system should provide a home/shelter for all and I do not believe a home should even be a cost. Yeh I know, that's a bit left.

A home should be affordable. It's good for the owner-occupier, their family, marriage... might even permit some innovative risk-taking ventures low to zero debt would permit.

Then there's the hiring of local tradies to work on home improvement. Results in more income being spread around. Results in people living in a healthier house. Reduces illness and costs to the health system etc. etc.

But na.

 

[Smurf1976]

As for property, as per Maslow's Law, all are entitled to the basics of survival. Our system should provide a home/shelter for all and I do not believe a home should even be a cost. Yeh I know, that's a bit left.

I see the point although I'm not that far to the Left as to suggest that it ought to be free. At least not beyond basic shelter.

What I do see though is that the situation with house prices, personal debt and low wages growth has pushed Australia into an economic trap really.

Raise interest rates even modestly and that'll cause chaos. One 0.25% rise might be OK but another one would surely push at least some borrowers over the edge given it's a pretty substantial increase in repayments coming from a very low interest rate base.

Wages aren't growing at a rate which will meaningfully erode the debt anytime soon.

One way or another it will be paid for and my thoughts are that via a rather convoluted process savers will end up being the big losers out of it all. That's what tends to happen.

 

[sptrawler]

A good point there smurf, a local employee may cost a lot more but at least his/her wages stay here and is spent/circulated back into the community.

As for property, as per Maslow's Law, all are entitled to the basics of survival. Our system should provide a home/shelter for all and I do not believe a home should even be a cost. Yeh I know, that's a bit left.

Didn't Clive Palmer give a free house to some needy people, then cop a $100,000 damage bill?

It all sounds good and everyone thinks that all the needy require is a break, I've been there done that, trust me they don't appreciate it.
They think you can afford it, so suck it up, it doesn't end well. IMO

 

[sptrawler]

Wages aren't growing at a rate which will meaningfully erode the debt anytime soon.

One way or another it will be paid for and my thoughts are that via a rather convoluted process savers will end up being the big losers out of it all. That's what tends to happen.

The problem is savers, don't have any safe haven, they always lose, they have the money everyone else needs.lol

 

[sptrawler]

Well ATM, it looks like the powers that be, think the Sydney housing market won't be a problem.
It may be a softening of prices, that results in a wealth transfer without pain, as usual.

http://www.abc.net.au/news/2018-02-...unlikely-to-collapse/9490216?section=business

Over here in the West, I am seeing a lot of sold signs, on houses with duplex potential.
Maybe the tide has turned and the horse has bolted, in W.A?
Also I'm not sure it is up and coming aussie's, buying the opportunity, they seem to be buying the coffee shop image ATM.
No doubt we will hear from them, when they realise the next opportunity passed them by, and it is the baby boomers fault.

 

[basilio]

This story about bank lending practices on house loans is ominous

A focus on responsible lending will uncover huge problems for the banks


.....Overstated income
The banks' Achilles heel — irresponsible lending — is shaping up as a major threat to the banks and financial system, depending on the outcome of the banking royal commission and a low-profile battle currently being waged in courts.

"Irresponsible lending is endemic in Australia," Digital Finance Analytics director Martin North said.

"More than 900,000 households are already in mortgage stress.

"We're seeing a lot of households who are actually getting loans that are five, six, seven, eight, nine times income and that is astronomically high and in my mind will lead to grief later."

Even though customers of the big four banks are representative of the Australian population, their claims about the incomes of those customers are not.

Bank disclosures suggest that 30 per cent of households with an owner-occupied mortgages have an average income of at least $200,000 a year, an extraordinarily large number of high-income earners.

It jumps to 40 per cent for those with investor loans.

UBS banking analyst Jonathan Mott has benchmarked the disclosures against the population using Census, ABS and ATO data.

His conclusion is that the bank disclosures "do not appear logical and are highly improbable".

What's more, the bank data suggests a whopping 42 per cent of customers earning at least $500,000 per annum took out a mortgage last year.

The most plausible explanation for all of this is that a vast number of borrowers have overstated their incomes.

http://www.abc.net.au/news/2018-03-...ractices-will-leave-the-banks-exposed/9498992

 

[luutzu]

Well ATM, it looks like the powers that be, think the Sydney housing market won't be a problem.
It may be a softening of prices, that results in a wealth transfer without pain, as usual.

http://www.abc.net.au/news/2018-02-...unlikely-to-collapse/9490216?section=business

Over here in the West, I am seeing a lot of sold signs, on houses with duplex potential.
Maybe the tide has turned and the horse has bolted, in W.A?
Also I'm not sure it is up and coming aussie's, buying the opportunity, they seem to be buying the coffee shop image ATM.
No doubt we will hear from them, when they realise the next opportunity passed them by, and it is the baby boomers fault.

I think that most people who want/need a house to live would buy it the moment they can afford it. Most would even buy when they could barely afford it but could find ways and help just to make it.

So it's somewhat of a myth that those who can't afford a house are either lazy or sipping latte and splurge on overseas holiday.

And I don't think they blame anyone else but themselves for not being able to buy it either. Maybe now and then pointing out that it was a lot easier back then to buy a house than it is now... that's not blaming, that's just pointing to a fact.

Take an average tradie in the 80s and early 90s. Average wage then was some $25 to $30K? An average house with a backyard, 3 bedroom goes for $120K to $150K? Or 4 or 5 times their earnings.

An average wage is now some $80K? A blue-collar tradie maybe earn $50K?

An average house that was sold for $120ks back then now goes for some $1.2M to $1.5M. An average duplex or townhouse some $800K... i.e. some 10 times the average wage.

Then there's the privatised power, water and other utilities... job insecurity, higher costs of living, the offshoring of most jobs, automation.

Not saying that life was easier back then and such... But it's not easy now for the young either.

 

[sptrawler]

I think that most people who want/need a house to live would buy it the moment they can afford it. Most would even buy when they could barely afford it but could find ways and help just to make it.

So it's somewhat of a myth that those who can't afford a house are either lazy or sipping latte and splurge on overseas holiday.

And I don't think they blame anyone else but themselves for not being able to buy it either. Maybe now and then pointing out that it was a lot easier back then to buy a house than it is now... that's not blaming, that's just pointing to a fact.

Take an average tradie in the 80s and early 90s. Average wage then was some $25 to $30K? An average house with a backyard, 3 bedroom goes for $120K to $150K? Or 4 or 5 times their earnings.

An average wage is now some $80K? A blue-collar tradie maybe earn $50K?

An average house that was sold for $120ks back then now goes for some $1.2M to $1.5M. An average duplex or townhouse some $800K... i.e. some 10 times the average wage.

Then there's the privatised power, water and other utilities... job insecurity, higher costs of living, the offshoring of most jobs, automation.

Not saying that life was easier back then and such... But it's not easy now for the young either.

I don,t know about Sydney, but in Perth a tradie won't get out of bed for less than $100,000 a year.
It is $700 to put in a back to back split AC system, they put in about 5 per day.
A plumber won't change a tap washer for less than $90.
Your obviously living in a time warp.
Even factory workers at Holden were on $100k when they talked about shutting it down.
The RBA wants wages lifted, the Gov wants the wages lifted .Get used to the property prices, they will soften, they won't collapse. IMO

 

[qprjames]

I can only see house prices dropping quite hard in 2018. Again it depends on where you are buying, but places which have seen big price rises over the last few years, or areas with an over supply to the market (too many new builds i.e. Southbank / Docklands) will see large drops in 2018, particularly if interest rates start creeping up. Most 'young professionals' who buy into the market, have really stretched themselves already financially to get their foot onto the ladder, and I doubt they have any idea what mortgage rates were at back in 2009 (7%). I'm not suggesting rates will go to 7% but even 1 basis point rise will see these first homebuyers seriously struggling. I think they might be in for a real shock in the coming year or two when rates start creeping up. They might have saved paying no stamp duty with the government offer, but it might end up costing them more in the long run from buying in an already over-heated market.

 

[satanoperca]

 

[luutzu]

I don,t know about Sydney, but in Perth a tradie won't get out of bed for less than $100,000 a year.
It is $700 to put in a back to back split AC system, they put in about 5 per day.
A plumber won't change a tap washer for less than $90.
Your obviously living in a time warp.
Even factory workers at Holden were on $100k when they talked about shutting it down.
The RBA wants wages lifted, the Gov wants the wages lifted .Get used to the property prices, they will soften, they won't collapse. IMO

$100K a year also include material. Depends on the trade but material could easily take 30% to 50% of the job.

For most trades, particularly self-employed ones... there's not that many years they could work. It's hard, heavy, labour intensive work where by the time they're 50 the game's almost over. That doesn't include the injuries and health hazards etc.

Some tradies do charge insane prices like you say. We've all dealt with them. Just whether or not their prices are accepted depends on the customer.

The RBA and gov't somehow figured that with tax cuts corporations will somehow pass the savings onto higher wages. Not happening. Not here, not in the US, not in Korea or Japan.

Read somewhere where the gov't was expecting wage increase of about 2 to 3% to be passed on from the tax cuts. Surveys of corporations in above countries said nope, maybe an average of 1% or so increase. That's below inflation.

 

[Smurf1976]

In Hobart you can still buy a perfectly reasonable house in a "middle" suburb for $400K and that does seem to be driving quite a bit of interstate migration. It's a ridiculous situation though. 20 years ago you could buy houses like that for $110K and whilst wages have increased they sure haven't gone up that much in the past 20 years.

As for banks and incomes, well I certainly find it hard to believe that 42% of all people earning over $500K actually took out a mortgage in the past 12 months. It's hard to come up with a scenario where that's the case without using some creative accounting at best and outright fraud at worst.

The boom's still going full steam ahead down here though.

 

[Trendnomics]

In your mind (every time you hear it), replace "Ireland" with "Australia" - and add a dash of aussie accent.

Luckily I'm not relying on property in any shape or form to reach FIRE before 40. Good luck to everyone else.

 

[luutzu]

In your mind (every time you hear it), replace "Ireland" with "Australia" - and add a dash of aussie accent.

Luckily I'm not relying on property in any shape or form to reach FIRE before 40. Good luck to everyone else.

Australia is one big island with lotsa sunshine... great place to for a tax haven once this bubbles goes the way of Ireland.

 

[sptrawler]

Well I was one several years ago, that screamed they should have stopped the housing bubble, along with sydboy.
But having lived as long as I have, I think it is all accounted for, just get ready for pay rises, inflation and a big drop in the dollar. IMO

 

[Smurf1976]

just get ready for pay rises, inflation and a big drop in the dollar. IMO

That’s my conclusion too.

Love it or hate it but inflation looks like the most obvious (only?) way out that government could orchestrate for a problem involving high debts and house prices.

Given that we seem to be going back in time with the slow but steady move to protect various things, the US imposing import tariffs and Russia restarting the Cold War it’s only a matter of time until this trip back through the 1990’s lands us in the 1970’s complete with high inflation.

 

[sptrawler]

Yep, you keep your house, but you cop a drop in living standards.

 

[satanoperca]

W just get ready for pay rises, inflation and a big drop in the dollar. IMO

Inflation, tried and tested method of inflating debt away, worked in the past, but may not be possible in the future.
Everyone knows the inflation figures are b...sh..t.

But lets say inflation does take off, over 3%, interest rates are hiked, great for savers and pensioners, bad for the heavily indebted community that is Australia.

Result = property drops, confidence drops, construction comes to a stand still, job losses, bankruptcies etc.

Pay rises, where are they going to come from, we live in a global community and Australia is no longer competitive.

1. Manufacturing - gone, cannot compete with East Asia.
2. IT - again, outsourcing is far far cheaper.
3. Retail Sector - online is shrinking this sector for labor requirements
4. Middle Management - AI will take it over.
5. Construction sector, ah, with a country so over indebted in this sector, and maybe inflation > rate hikes, also a no go.
6. Govnuts Sector - pay rises to the moon, as they are unaccountable and the money comes from the every growing indebted public purse.

Falling dollar : this has many implications, so good, some bad.

1. 
   
2. Tourism sector benefits, increase in jobs
3. Manufacturing sector, greater exports but this industry sector has already been destroyed by the high dollar and will take many years to rebuild
4. Petrol Price, not good for the consumer and will lead to a negative feedback loop on inflation
5. IT Sector, these outsourcing, but would need to drop significantly for employers to build up local development teams again.
6. Property Sector, excellent news for all those foreigners snapping up farming land and prime residential property.
7. Bank Sector, even hedged offshore borrowings will get effected resulting in lower margins for banks who will then increase IR's out of step with the RBA
8. Agricultural sector, great news as farmers and produces will be able to further increase their share of the massive Asian markets for produce. Downside, us Aussie will be paying significantly more for our locally produced foods, further increasing inflation
9. Retail sector : bad news, products will cost more and given the current state of retail space, the only winners if you can call them that in the retail sector will be the online businesses.

The end result is the same as I have been arguing for over a decade, high property prices do not make a country wealth and they do not create a great standard of living for those living in the country.

The RBA has it hands tied and which ever lever it pulls on will have a negative effect.

The best we can hope for is a slow decline or stagnation in property and the dollar, with moderate inflation to see us through this storm.

Question is, do you trust the RBA, treasury and our brilliant bunch of comedians (pollies) to be able to manage this process effectively with sinking the ship altogether.

And one final note, just remember in the coming years when at dinner parties, the pub, around the barbecue or talking with colleagues and family, NO ONE COULD HAVE SEEN THIS COMING.

 

[Smurf1976]

do you trust the RBA, treasury and our brilliant bunch of comedians (pollies) to be able to manage this process effectively

The lack of leadership at the federal level is a massive problem in itself even without the other issues.

My personal view is that it will take a recession to get our politics focused again. Sad but I think that’s what it’ll take.