A crash in property prices? Don't bet on it

[lizzie]

All these theories are great for prices to always rise and I hope they are true but they all sort of go out the window when you look at the USA for example.

Sigh ... here we go again as this has been done to death on SS ... you cannot compare the USA with Australia.

Three reasons off the top of my head ...

Massive tracts of land were being developed, and houses built, with no buyers. In Australia a developer has to sell off the plan nearly 100% (in current market) before the bank will lend to build.

Banks in the USA were lending money for property to people with no jobs, no assets, no money, no deposit. In Australia you currently need around 10-20% deposit, prove that you have a sustainable income and that can comfortably pay the loan at 2% higher interest rate than current.

Many of the States in the worst default prediciment (asides from Florida) has non-recouse loans. This means you can hand the keys back to the bank and the bank cannot chase you for any money. In Australia there is no such thing. The bank will not hesitate to send you bankrupt if required.

Now - back on topic.

 

[ali]

Sigh ... here we go again as this has been done to death on SS ... you cannot compare the USA with Australia.

Three reasons off the top of my head ...

Massive tracts of land were being developed, and houses built, with no buyers. In Australia a developer has to sell off the plan nearly 100% (in current market) before the bank will lend to build.

Banks in the USA were lending money for property to people with no jobs, no assets, no money, no deposit. In Australia you currently need around 10-20% deposit, prove that you have a sustainable income and that can comfortably pay the loan at 2% higher interest rate than current.

Many of the States in the worst default prediciment (asides from Florida) has non-recouse loans. This means you can hand the keys back to the bank and the bank cannot chase you for any money. In Australia there is no such thing. The bank will not hesitate to send you bankrupt if required.

Now - back on topic.

I remember reading on a Florida government website that their policy was to ensure that there was an oversupply of building blocks to accommodate population growth so as to prevent a demand-driven boom-and-bust scenario!
Cheers Ali

 

[Intrinsic_Value]

All these theories are great for prices to always rise and I hope they are true but they all sort of go out the window when you look at the USA for example. I guess even the US will see property values return to what they were and rise above one day, but when that could be is anyone's guess!

http://forecastchart.com/housing-price-index.html

The above link shows the long term price movement for each US state.
The long term trend is still up.
That is why residential housing can still be considered an 'investable asset'.

 

[silverx]

http://forecastchart.com/housing-price-index.html

The above link shows the long term price movement for each US state.
The long term trend is still up.
That is why residential housing can still be considered an 'investable asset'.

do we have one for each cities in australia?

 

[Piston Broke]

It is a cultural thing. Aussies value their houses and would do anything to keep it from going into default. In America, it is common place to live in caravans/trailers....who cares about a house?

Since it's generalisation time, I would say it's the immigrants dream, and not the houso/dole bludger's dream which until recently was mostly "aussie".

A massive change like this will change our prices but it aint gunna happen
Peter 14.7

Why not? There are plenty arguments why it can.

What's struck me (and I think Indifference too) is that the obvious changes are tapped out. The only thing that I could see coming along is either groups of friends or multiple generations of a family getting together to buy a property. The former isn't unheard of in the UK these days.

Yep, which is why all this talk of undersupply is not relevant to prices when millions of bedrooms are empty. There is oversupply, not undersupply.
And it is no foreign concept to those living OS: smaller homes, more people per home.
what we have here is an abnormal waste of space & resources.

What they don't realise is that technically this ratio can keep on rising indefinitely, with people still able to afford homes, while the supply of housing becoming increasingly concentrated in the hands of the wealthiest people.

"Technically" is far from reality. Just talk to any Yank or EU/UK resident.

It would NOT be very well received here...... It involves moving capital between asset classes depending on their "cycle" and macro-economic fundamentals. And I truly mean "moving capital" not borrowing against equity..... this is at odds with the vast majority of SS'ers ideas regarding investing.

For instance.... would you sell your PPOR and reinvest the capital in "something" your DD indicated would multiply that capital by 3 times within 3 years and potentially 10 times within 8yrs? See.... it is crazy talk and totally irresponsible to do such a thing

Ohh, and why the PPOR and not IP.... well, market cycles (locations) is one reason and CGT considerations another.....

Ohhh your such a tease

 

[Aaron Sice]

Yep, which is why all this talk of undersupply is not relevant to prices when millions of bedrooms are empty. There is oversupply, not undersupply.
And it is no foreign concept to those living OS: smaller homes, more people per home.
what we have here is an abnormal waste of space & resources.

....INSIDE those dwellings.

show me one single female who bought a small 3 bedder in the outer burbs renting the place out room by room while living in it.

54% of the population are living in one or two person households - yet they're all buying 3 and 4 bed homes. so the "bedroom" argument is bunk. we don't have a "national bedroom affordability crisis" - unless you're a student.

theoretical arguments have no place in the real world.

 

[Piston Broke]

theoretical arguments have no place in the real world.

And yet house prices are not rising much, have not risen much and does'nt look like they will rise much for a while as most people (with an interest) keep pushing the "massive undersupply". So where are the parks full of homeless people? Why aint the local parks full of tents?
It's a very practical argument for those who have seen the world imo.

 

[MichaelW]

....INSIDE those dwellings.

show me one single female who bought a small 3 bedder in the outer burbs renting the place out room by room while living in it.

54% of the population are living in one or two person households - yet they're all buying 3 and 4 bed homes. so the "bedroom" argument is bunk. we don't have a "national bedroom affordability crisis" - unless you're a student.

theoretical arguments have no place in the real world.

Aaron,

As an aside, I've just re-let my former PPOR in Sydney. I was going to let the 4 bedroom house to 4 young Gen Y guys but this was their first place since moving out of home so I decided not to take the risk. Instead I'm renting it to a single lady in her early 30's who runs a personal fitness business and wants to do private Pilates lessons downstairs.

She can easily service the $800pw rent but is one person in a four bedroom house. Should I demand she sub-lets so we don't show a 75% vacancy rate in this property on a "rooms" basis? No, didn't think so...

Cheers,
Michael

 

[Aaron Sice]

And yet house prices are not rising much, have not risen much and does'nt look like they will rise much for a while as most people (with an interest) keep pushing the "massive undersupply". So where are the parks full of homeless people? Why aint the local parks full of tents?
It's a very practical argument for those who have seen the world imo.

well, i'm sure you can house them in your spare bedrooms. i'm sure you don't mind having tent cities on your CBD's doorstep, with the hygiene, waste and social issues that come with it.

again, theoretical...... some days you make so much sense, and other days you're just full of s__t. it's almost like you'll say anything or put up any argument to find a shred of evidence that you weren't wrong, even though you may admit you weren't right.

 

[Aaron Sice]

Aaron,

As an aside, I've just re-let my former PPOR in Sydney. I was going to let the 4 bedroom house to 4 young Gen Y guys but this was their first place since moving out of home so I decided not to take the risk. Instead I'm renting it to a single lady in her early 30's who runs a personal fitness business and wants to do private Pilates lessons downstairs.

She can easily service the $800pw rent but is one person in a four bedroom house. Should I demand she sub-lets so we don't show a 75% vacancy rate in this property on a "rooms" basis? No, didn't think so...

Cheers,
Michael

point proven. real world.

but or course, it's wrong.

 

[Belbo]

Some people say the ratio in Australia 'should' be 3x and anything more than 3x is 'too high' so prices must 'revert to mean' and stuff like that.

They say things like 'the ratio can't keep rising because soon nobody will be able to afford a home'.

What they don't realise is that technically this ratio can keep on rising indefinitely, with people still able to afford homes, while the supply of housing becoming increasingly concentrated in the hands of the wealthiest people.

This media release from the ABS today might suggest that this concentration is indeed underway -

Richest households 15% richer
The wealthiest 20% of households have increased their average net worth 15% since 2005-06 (CPI adjusted), while the poorest 20% of households saw only a 4% rise, according to the Australian Bureau of Statistics (ABS).

These wealthy households had an average net worth of $2.2 million per household, and accounted for around two-thirds of total household wealth. The poorest 20% of households had an average net worth of $32,000 per household, which accounted for 1% of total household wealth.

 

[Piston Broke]

well, i'm sure you can house them in your spare bedrooms. i'm sure you don't mind having tent cities on your CBD's doorstep, with the hygiene, waste and social issues that come with it.

again, theoretical...... some days you make so much sense, and other days you're just full of s__t. it's almost like you'll say anything or put up any argument to find a shred of evidence that you weren't wrong, even though you may admit you weren't right.

lol
My point is that people will only act when it becomes a necessity.
And it's only a matter of time before it becomes a necessity.
There is always ranting about undersupply, and sure everyone wants a palace just for themselves, if there was *real* undersupply there would be many more people sleeping on the streets.

What MichaelW's case clearly states is that 4 people are looking for 1 house to share. 2 x 2 br homes would have earned a higher income.
And this will be the trend for the future as i see it. Smaller dwellings, more people per dwelling. As also home ownership will decline.
This has been happening, and will continue in all capital cities.

Belbo that "average net" includes all those people who have zero borrowings.
In actual fact a very small % of the population has 2.2mil net worth.

 

[Belbo]

Belbo that "average net" includes all those people who have zero borrowings.
In actual fact a very small % of the population has 2.2mil net worth.

That $2.2M is the average of the top 20% of households, who collectively own 66% of Australia's collective wealth, according to that ABS release at least. (I don't understand the intent or meaning of your preceding sentence, sorry.) My point was simply that - good or bad - there is no necessary correlation between median/average income growth and the prospect for median/average house price growth as implied by Indifference because of the polarisation of wealth seemingly occurring in Australia as elsewhere in the developed world.

If you're in the lowest 20% and your average net wealth of $32,000 increases over the next 5 yrs by another 4%, then you've accrued an additiional $ 1,280. If you're in the top 20% and your wealth goes up by another 15% over the same period, then you're likely to be better of to the tune of $ 330,000!

Now, if median house prices (say $ 500,000) rise over the same period by let's just say 5% ($ 25,000), who's most likely to buy them?

Just like you, I've always argued here that the affordability critique is a crock. It presupposes a right to home ownership that is simply indefensible, and builds on this a case for retracting access to negative gearing for property ownership alone (rather than for all investment classes). Yes, house ownership is becoming less affordable, let's be honest. But I'd just argue that the retracting of access to negative gearing on property would only accelerate the concentration of wealth to a minority, not alleviate it.

But I could be wrong.

 

[HomePage]

That $2.2M is the average of the top 20% of households, who collectively own 66% of Australia's collective wealth, according to that ABS release at least. (I don't understand the intent or meaning of your preceding sentence, sorry.) My point was simply that - good or bad - there is no necessary correlation between median/average income growth and the prospect for median/average house price growth as implied by Indifference because of the polarisation of wealth seemingly occurring in Australia as elsewhere in the developed world.

If you're in the lowest 20% and your average net wealth of $32,000 increases over the next 5 yrs by another 4%, then you've accrued an additiional $ 1,280. If you're in the top 20% and your wealth goes up by another 15% over the same period, then you're likely to be better of to the tune of $ 330,000!

Now, if median house prices (say $ 500,000) rise over the same period by let's just say 5% ($ 25,000), who's most likely to buy them?

Just like you, I've always argued here that the affordability critique is a crock. It presupposes a right to home ownership that is simply indefensible, and builds on this a case for retracting access to negative gearing for property ownership alone (rather than for all investment classes). Yes, house ownership is becoming less affordable, let's be honest. But I'd just argue that the retracting of access to negative gearing on property would only accelerate the concentration of wealth to a minority, not alleviate it.

But I could be wrong.

But what about the yields? They're not exactly stellar as it is and higher priced houses accommodating already cash-strapped tennants is not going to help this.

 

[VYBerlinaV8]

But what about the yields? They're not exactly stellar as it is and higher priced houses accommodating already cash-strapped tennants is not going to help this.

I would love to write a well thought out reply, but I've just finished dinner with my family, and enjoyed several really nice glasses of shiraz, so I'm simply going to respond by saying 'avagoodweekend'...

 

[HomePage]

I would love to write a well thought out reply, but I've just finished dinner with my family, and enjoyed several really nice glasses of shiraz, so I'm simply going to respond by saying 'avagoodweekend'...

Good choice. Cheers!

 

[.toe]

I would love to write a well thought out reply, but I've just finished dinner with my family, and enjoyed several really nice glasses of shiraz, so I'm simply going to respond by saying 'avagoodweekend'...

No flies on you

 

[Belbo]

But what about the yields? They're not exactly stellar as it is and higher priced houses accommodating already cash-strapped tennants is not going to help this.

What about them? Median investors can't (or won't be able to) afford them? Or wealthy investors might find them tiresomely low while they wait for CGs?

 

[HomePage]

What about them? Median investors can't (or won't be able to) afford them? Or wealthy investors might find them tiresomely low while they wait for CGs?

The latter.

 

[VYBerlinaV8]

Good choice. Cheers!

Thankyou. And cheers to you too.