Steven Keen may have been right all along...

[yieldmatters]

You must be getting forgetful YM ..... you asked this question 2 weeks ago here (post #56).....

Can you think of some differences between the demand/supply of falcons & houses ?

I didn't see your well written and detailed response. I already know the answer. I'm just making the point that it is more complicated than simply higher disposable income being mindlessly handed over. There has to be something better / different / special on the supply side to justify the higher price. Urban sprawl and constantly aspiring to a better located house might be one of those things. It shouldn't affect the median price though, only the price of that particular house as it's relative position improves. I've brought that up before and never got a good answer.

I wonder if the new found wealth (on steroids with debt) that pushed us to "trade up" in housing will work in reverse? I might be able to buy the $1M house I'm renting for $700K as the has-beens and wanna-bes clear out of the area!!??

You know you can link to a particular post number?
http://www.somersoft.com/forums/showpost.php?p=523662&postcount=56

What I find interesting is when I first came to this site people argued with me that prices would keep rising, then they argued with me that they would be flat, then they argued with me that they would only fall a little bit, now they are arguing that they won't fall 40%. The outlook is clearly changing but the direction of the argument is the same.

 

[Shadow]

now they are arguing that they won't fall 40%

I've always argued that they won't fall 40%.

Wonder how Ed Karan is going these days? Only 9 months to go for the remaining 37% fall. That's if his '40% correction by end 2009' prediction is to come true.

I think most people here accept that property values can rise or fall over the short term, but over the long term they tend to rise.

 

[Peter 14.7]

Haven't you just answered your own question there? Supply of property IS constrained. Construction costs ARE up. Government taxes ARE high.

The other key point is emotional attachment cause by the uniqueness and individuality of housing. Most houses have some unique feature or attribute that makes them desirable on an emotional level to certain people, who will often pay as much as they can afford, and bid against others, based on their emotional attachment to the house. This emotional attachment also makes house prices sticky on the downside, making people reluctant to sell even when it may be financially prudent to do so.

Can't really say the same about Falcons (or Big Macs as per your example from last week) because if you miss out on one Falcon then there are thousand of identical ones to choose from. If you're strapped for cash you know you can trade down, knowing that plenty of identical or better models will be available in the future.

On the other hand vintage sports cars do often trade for ridiculous sums due to the rarity value.

More great logic. You are on fire. Sadly can only Kudo once.

I design houses (amongst other things) and yes they are personable and emotional. It is ultimate sign of failure in Aussie life to have to sell up your home. Bogan to wealthy, major shame. That is why we own 70% of our homes in this country rather than rent.

Construction costs ARE up. You bethcha

I am a qualified builder. I am presently building my home. It is 125% more than when I when was last building residential in 1995. Anyone who argues house costs are going down is dreaming!

Labour. There are less and less good builders trademen. Both of my chippies are over 60! When I get 20 year old to work the old one work harder and smarter! The young ones give up and bugger off.

Materials! Almost everything is more and the quality less, much less! So much so i just spent $2000 in labour to demo two sheds and large garage to salvage timber I can no longer buy because the new stuff is rubbish (bent, warped, viened, etc..) or priced like gold or full of chemicals like LVL.

Yes appliances have gone down in relative terms (it seems) but the quality is frankly rubbish at the affordable end and unless you are talking euro build smeg miele expect it to fail in 5 years. Good stuff is 150% more than they bottom end stuff.

Back in 1995 you could chop down trees, dump dirt and get rid of waste for a 1000% less. I am not joking 1000% less. Trees no approval and gave away the wood, dirt dito and waste was 1/10th of today and no issues with asbestos, petrol contaminants, etc....

Until they can import whole homes from China, then house building costs are not going down! Peter

 

[keithj]

I didn't see your well written and detailed response. I already know the answer. I'm just making the point that it is more complicated than simply higher disposable income being mindlessly handed over. There has to be something better / different / special on the supply side to justify the higher price. Urban sprawl and constantly aspiring to a better located house might be one of those things. It shouldn't affect the median price though, only the price of that particular house as it's relative position improves. I've brought that up before and never got a good answer.

Thanks YM. As investors we look at it from an individual house POV - our specific IP is likely to rise faster than the median, we don't care so much about citywide medians. Suburb medians are relevant though.

I wonder if the new found wealth (on steroids with debt) that pushed us to "trade up" in housing will work in reverse? I might be able to buy the $1M house I'm renting for $700K as the has-beens and wanna-bes clear out of the area!!??

The upper quartile is definitely showing weakness in most areas, and the lower quartile is rising (FHOG). There's compression in prices - a good time to upgrade (provided you can sell) IMO. And a good time for renters to buy.

You know you can link to a particular post number?
http://www.somersoft.com/forums/showpost.php?p=523662&postcount=56

Yes, but I wanted to show the sequence of posts.

What I find interesting is when I first came to this site people argued with me that prices would keep rising, then they argued with me that they would be flat, then they argued with me that they would only fall a little bit, now they are arguing that they won't fall 40%. The outlook is clearly changing but the direction of the argument is the same.

2 points...
People are allowed to change their minds as events unfold - in fact we'd be stupid not to.
And we're mostly long term people here, in the long term prices will rise, in the short/medium term some will no doubt fall, some may even fall by 40%. FHOG has ensured that the bottom end will be supported, and that will provide a floor for everything else.

 

[WinstonWolfe]

I suppose the Japanese thought property never went backwards (over a 10 year period) before 2002.

The chart shows prices have gone backwards since 1992....

 

[Trogdor]

I suppose the Japanese thought property never went backwards (over a 10 year period) before 2002.

The chart shows prices have gone backwards since 1992....

Can you show the 82 - 92 graph please?

And also what happened when only Japan was in recession and efforts to re-start things just kicked off the carry trade.

Dont think the run up has been remotely as large, and monetary policy will be more effective.

 

[WinstonWolfe]

Can you show the 82 - 92 graph please?

And also what happened when only Japan was in recession and efforts to re-start things just kicked off the carry trade.

Dont think the run up has been remotely as large, and monetary policy will be more effective.

Hey I have to wash the dishes. Appreciate if you could find the 82-92 run up, or even an index covering 1980-2009

 

[Shadow]

Japan is a great example of a country where supply of housing really does exceed demand. Japan's population is shrinking, which tends to cause an oversupply of housing over time. The Australian population on the other hand is growing at a rate of 1.84% per annum - the highest rate in the developed world!

(The recently announced immigration cuts will bring this growth rate down to about 1.7%).

By comparison, the UK growth rate is 0.4% and the US growth rate is 0.9% (pre GFC).

http://www.bloomberg.com/apps/news?pid=20601081&sid=a4VrmJ19O1wE&refer=australia

March 19 (Bloomberg) -- Australia’s population expanded by a record number last year due to an increased birth rate and an influx of migrants, the Australian newspaper reported.

The population grew by 390,000 to 21.5 million, the first increase of more than 300,000, the newspaper said, citing figures from the Australian Bureau of Statistics. The 1.84 percent growth rate was the highest since 1970, it said. Sixty percent of the increase was due to migration, the report said, citing the bureau.

 

[topcropper]

Only if supply is constrained or construction costs are up or government taxes are rampant. If higher disposable income means higher prices then why didn't your Falcon go up in price?

The falcon car dropped in real prices due to increasing efficiency. Less workers needed to build it, globalisation ment the parts were outsourced from the biggest, most efficient factories from every part of the globe. The raw resources, steel, metals got cheaper due to bigger mines and machinery. 20 years ago, I'd think a lot more of the falcon car was locally built.

Same reasons the real price of food has got cheaper, televisions, electrical and whitegood stuff, airtravel, etc, etc.



But, 20 years later, there is what? 5 or 6 million more people in this country, placing more demand on land, so land has probably gone up heaps in 20 years.

Supply is constrained for land, and especially desirable land. Not so consumer goods.

See ya's.

 

[BoatBoy]

Steven Keen?
Wasn't that the guy who made a bet with someone that he'd walk up Mount Kozzie naked if property prices didn't fall 40%+? And the other guy said he'd do it if they did fall 40%+? IICCHH!!! Either way we lose. I'm moving to the moon so I can buy up before the "moon boom" starts.

Project 1080

The Project: 10IPs in 80 mths.

Now thats a horrible picture

There would be a contraction and both supply and demand would be down.

Dave

 

[tcocaro]

we are all greenies

I say that because after reading this long post feel we have all partook in a colossal recycling project where the same points be it about Japan, Australia different or not etc being dished out for our consumption.

The premise of the post is also another great example of recycling rubbish. My inside merchant banker source told me blah and told me this and that?

Well I too have some inside sources, some that believe in UFO's others that think there is a conspiracy where Kevin Rudd isnt really human but an ATARI game console made to look human.

First things first, what some individual person says about the economy is useless. Literally, there are 1000's of merchant bankers do you think they all have the same view? Are merchant bankers view superior to statisticians? or other industry "pro's". Its simply illogical to follow the views of a single person.

Its much better to stick to the facts whats changed now compared to say 12 months ago in terms of property prices which seems the central focus or the symptom of main concern?

Steven Keen is right? well by my count he is still off by about 35% off percent... from his prediction of 40% falls.

 

[steveadl]

I'm not trying to start arguments or upset anyone and I am new to the property investment field but I do have experience as a stock market investor and I feel it is a legimate question to ask particularly when people such as Steven Keen, AMP's Shane Oliver, The Intelligent Investor newsletter and quite a few others are saying that Australia's housing market is now the most overvalued market in the world today! That we are in a bubble caused largely by irresponsible lending of huge amounts of money (low doc/no doc) loans etc at cheap rates for quite a few years now and that prices have to fall by some magnitude in order for the long term relationship to be restored.

People have covered your other questions, however I'll pick up on this point. Don't believe all the chatter about this. It makes a nice sound bite, but low/no docs are a very small portion of the loans in Aust. Something like 5% or less from memory (anyone have the exact figure?).

 

[Witzl]

Did you know that in 1977 the Atari 2600 was released at the price of US$199.00?

Why will Australia escape the same fate that has befallen other similarly overvalued markets such Japan, USA, Spain and the UK?

We have a totally different attachment and social behaviours towards housing than all these countries.

You really need to look past the basic principles and see the inner workings of each countries's societal attitudes towards housing.
In Australia, we have a VERY high percentage of home ownership. Home ownership is an extension of personality, and treated with great emotional attachment. It's the aussie dream to own your own house.

In the states - yes owning your own house is also the great american dream.... but it's a DISPOSABLE dream to the yanks. Their society is generally much more transient - people move from town to town quite regularly.

Also - a major defining factor comparing Australia to those other countries is our population distribution. Pretty much everyone in australia wants to live in one of the 5-6 major cities. People here dont want to live in regional areas. This puts much GREATER demand on the limited supply of land within those handful of capital cities.
You dont get such an effect in those other coutries listed above.

Anyway... all these points have been argued ad nauseum elsewhere in these forums.

 

[Pushka]

I just did a check on Keen's cred. He is not even a full professor, but an Associate Professor at the University of Western Sydney. Dont you just get those positions by being there for a long time. Um, does that even rate a blip on anyone's radar?

 

[pieman]

I suppose the Japanese thought property never went backwards (over a 10 year period) before 2002.

The chart shows prices have gone backwards since 1992....

The old Japan v Aus RE battle again...
In 1989 the Japanese economy was the largest in the world. Ten of the largest banks in the world were Japanese and the country had become the world’s largest creditor nation. Stocks were trading at north of 60 times earnings and land values were extreme; so much so, that the land area of the Emperor’s palace in Tokyo was worth more than the entire state of California. The Japanese stock market was worth more than every other nations stock combined!!!!!
This was far different than every other increase in RE and stocks that we have experienced here....its very different here.

Speaking of which, I'm looking for another rental and in Richmond last week for a little *****box 2 br house that needs work , there was 5 bidders. It sold for 630ish. Just like the "old days"
pieman

 

[Timeshift]

Here's some more from Keen: Australian housing market holds sub-prime danger
http://www.news.com.au/business/money/story/0,28323,25223797-5013951,00.html
This is just and observation but over the past month I personally know a afew young people in there early 20s looking to purchase or have purchased a first home, first home grant and prices have pulled back they think there getting a deal, trouble is i also know afew more people who just lost there jobs because of GFC.

 

[weg]

Don't you just love the media. The addition of these first two paragraphs says a lot imo. .

ECONOMIST Professor Steve Keen has a knack of being able to predict gloomy developments, such as the global financial crisis (GFC).

So when he warns Australia faces a "sub-prime lite" financial disaster, it pays to listen.




http://www.news.com.au/adelaidenow/story/0,22606,25222386-5006336,00.html

 

[yorke]

Here's some more from Keen: Australian housing market holds sub-prime danger
http://www.news.com.au/business/money/story/0,28323,25223797-5013951,00.html
This is just and observation but over the past month I personally know a afew young people in there early 20s looking to purchase or have purchased a first home, first home grant and prices have pulled back they think there getting a deal, trouble is i also know afew more people who just lost there jobs because of GFC.

So the only paper that takes Keen seriously these days is the same one that paid $15,000 for fake Pauline Hanson nude pics and then published them without checking the facts ? I wonder if this is an attempt to sell more papers or just a pathetic attempt to misdirect their readers from the half baked apology they made.

http://www.news.com.au/dailytelegraph/story/0,22049,25220679-5001030,00.html

 

[Token Funder]

So the only paper that takes Keen seriously these days is the same one that paid $15,000 for fake Pauline Hanson nude pics and then published them without checking the facts ? I wonder if this is an attempt to sell more papers or just a pathetic attempt to misdirect their readers from the half baked apology they made.

http://www.news.com.au/dailytelegraph/story/0,22049,25220679-5001030,00.html

Clearly A Second Rate Rag That Can't Be Trusted

 

[WinstonWolfe]

The old Japan v Aus RE battle again...
In 1989 the Japanese economy was the largest in the world. Ten of the largest banks in the world were Japanese and the country had become the world’s largest creditor nation.

the old Emperor's Palace defence again.
Check the source of the graph and what it graphs.

and stop to think how severely and chronically Japanese real estate has suffered, despite the country being the bank to the world.

The west is now in more dire circumstances than Japan was in in the 90s. To keep arguing Western property markets cannot experience a similar fate is unfounded.

In fact, cheap credit from the BOJ was directly responsible for much of the asset price inflation in the west. As that gets withdrawn, let's see how the cards fall.