Australian house prices to explode

[FelixL]

Another day, another sensational article on the mass media on property price predications. Only this time it is not predicting doom and gloom

THE ANZ Bank says the growing housing shortage is setting Australia up for the "mother of all" housing booms.

http://www.news.com.au/business/money/story/0,25479,23961580-5013951,00.html

As usual, facts the article based on are shallow and one-sided, which just demonstrates how you can spin things which ever way you want from the same set of data

 

[The_Bludger]

Couldn't agree more Felix. Sensationalism at it's best!

My question is, with tighter credit, high interest rates and the cost of living going up at an amazing rate, who will be buying for this so called "explosion" to happen?

I think the guy from Commonwealth is more in tune with what is going on, but I could be wrong.

 

[Sunder]

As usual, facts the article based on are shallow and one-sided, which just demonstrates how you can spin things which ever way you want from the same set of data

That's true, but given conflicting analysis, no more than one (and possibly none) will be right.

I believe that their analysis will put a floor on falling property prices, but until credit is cheap and easy again, I can't see how an environment of record defaults has any wriggle room for price growth...

Unless all of the 300k odd immigrants coming in are highly skilled, old and cashed up?

 

[FelixL]

Anyone making sweeping statement about house prices across Australia is either clueless or trying to achieve some target. There are many markets across different states, even amongst the same city, eg. western and inner city of Sydney. I can understand where this article is coming from. As a researcher, the ANZ economist achieved his target by releasing some report, content is irrelevant. Newspaper reporter needs to write something to sell paper, again content is irrelevant. I would do the same if I were in their roles

Personally, I only interested in the
Sydney market. The inner city market is unclearer, its expensive but yet always in demand. Outer part is more clearer. Long term, with population rises, NSW govt finally starting to spend on infrastructure and the falling/stagnating price for the past few years means there is a lot of potential for price to go up. However, in the short to medium term, high interest rate, lack of infrastructure and high petrol price should contain any price outburst. In addition, not all outer suburbs have potentials, only the ones with low unemployment rate, good access to employment opportunities, adequate transport, shops and schools and a reasonable house price to local household income ratio should grow well

 

[depreciator]

Anyone making sweeping statement about house prices across Australia is either clueless or trying to achieve some target. There are many markets across different states, even amongst the same city, eg. western and inner city of Sydney.

There even are different markets in individual suburbs, let alone cities. Near my place is a road that crosses the suburb. I reckon that road has different markets.
I don't pay much attention to whole country or state predictions - though of course I like the ones (however flimsy and poorly researched) that talk up the prospects for property.
Scott

 

[Witzl]

Felix,

i tend to agree with you on the outer suburbs of Sydney. I too feel that there is good buying opportunity for the long term buy and hold, but the immediate future growth is a little fuzzy, and is not what i am tageting that area for anyway - im in for the long term growth.

Nice to know other people think the same

 

[Token Funder]

Another day, another sensational article on the mass media on property price predications. Only this time it is not predicting doom and gloom


http://www.news.com.au/business/money/story/0,25479,23961580-5013951,00.html

As usual, facts the article based on are shallow and one-sided, which just demonstrates how you can spin things which ever way you want from the same set of data

I have seen the presentation and it is essentially a "restricted supply" argument based around the recent rate of new dwelling construction and forecast completions over the next 5-10 years. Over the 10 year horizon the discussion relates to and assuming completion rates remain all over the shop, some of the conclusions have merit, even if the language may have been a little flamboyant.

That said, the question of funding availability wasn't addressed in any detail, which I believe is limiting factor. This is particulalry relevant given the emphasis on investors driving demand and the potential for Lo Doc lending to materially tighten over the short term.

A point strongly made on the day but not carried by the subsequent reporting was his view of further widening between inner-city locations and outer areas. Very much a worsening of the two-speed market we've seen over the last few years.

TF

 

[Aaron Sice]

what a load of bollocks.

 

[tcocaro]

article is right and wrong...

If you grab the usual economic data i.e. demand and supply you will quickly see (factually) there is a massive and increasing stock deficiency in NSW\QLD.

Further more population is growing both internally and through immigration which means this in balance simply accelerates.

Combine all the above factors together with the market cycle being (in NSW atleast) at the bottom, reaching the bottom or in plateau then it is easy to assume a "mother of all" booms is "theoretically" possible.

In my view the only reason why we haven't seen at least steady growth in (NSW) is sentiment. Just as is the case in stock markets it doesnt matter the PE ration or any other data etc sentiment rules supreme and governs price. This is why we see booms\crashes and not a steady even rise or fall. A steady even rise\fall would suggest logic but given the market "waits for a clear sign" e.g. for property.. falling interest rates then prices stay on hold.

This is why its easy for economists based on the market today to think "something" will happen.

The problem i see (this time round) is that there are capacity constraints built into the market. Wages have not kept pace with inflation and this will be the case if the government doesn't want inflation expectations feeding into inflation and becoming a self fulfilling prophecy and hence increase inflation.

But.. more importantly it is the lack of infrastructure that prevent the current demmand to be met with supply. Coupled with high petrol prices there is NO demmand for greenfield sites on the edges of sydney because there are no trains\transport there. Developers and end buyers are just not buying there there fore theres a perceived lack of supply and over-demmand. In reality its a case of product mismatch.. whats being demanded isnt on offer.. that is inner city infill developments (on a grand scale).

This wont happen because of NIMBY's preventing it. Theres an article in the local Baulkham Hills paper stating the governments frustration that the community is screaming for buses and trains to be brought in but each time they put forward a proposal anyone living directly on ANY route cry foul. Council buckles and nothing happens.. in a nut shell government needs to start governing for the majority and not the minority.. this is life there are some loosers... problem is right now we are happy to have all of us loose rather than a small proportion.

Now i could be wrong and urban sprawl may continue but to where Orange?

So i think economists have it wrong because they are unable to factor in the softer and harder to identify factors of affordability, capacity constraints and wages/costs. This will act as a price dampener and it is why in Sydney we are seeing strange things happening. Pyrmont\Chippendale\Darlinghurst etc all posting 15%+ growth... in short those that can keep paying higher and higher will but those that cant wont...

This is why economists are thinking theres more people staying at home longer.. etc etc i.e. simply avoiding buying a house even though they need one.

So in summary i think the article is right and wrong... it should be a boom but reality is theres a log jam to that growth in the form of affordability and capacity constraint... heaven help the first home buyer if a government solves those two issues... thats when we will have fireworks until us developers catch up

all my comments above are tempered with the following line i like to say which seems to sort things out...

"if there is enough demand for eggs even the rooster's will start laying eggs"

 

[Aimjoy]

... though of course I like the ones (however flimsy and poorly researched) that talk up the prospects for property.Scott

Hear, hear!! (or should that be here, here!?)

At last an article that is not all D&G.

Despite credit being crunchy and affordability supposedly being low, if housing starts are at all time lows and immigration is at all time highs, then you would expect some pricing pressures. But hey what would I know? I'm not an economist.

Cheers,
Aimjoy

 

[Land]

My 2 cents

There are a number of factors which will influence the growth of the Sydney market, and they are all inter-related:

1. The supply vs demand inequality
2. Access to credit
3. Sentiment (the old fear vs greed equation)
4. The cost of renting vs the cost of buying

Once these factors come together, I also believe that Sydney will take off again. At the moment, I see the following:

1. Massive supply vs demand inequality already exists - tick
2. Access to credit will improve when interest rates drop - awaiting a tick
3. Sentiment is still very poor, but this article is interesting as I use the mass media as very best measure for Joe Average sentiment, good to see some positive sentiment because it will start to kick in fear that the market will escape some people, or greed for capital gains - still awaiting tick
4. The cost of renting is rapidly increasing - nearly ticked!

Increasing rents should meet interest rates coming back down, and combined with improved acccess to credit and increasingly positive sentiment, will start the next boom.

This is my 'recipe' for the next upswing in Sydney, and everything is starting to slowly click into place. It's not a matter of 'if' but when.

 

[touchingcloth]

All of those 4 reasons apply to the UK also. However over there fear is the overriding factor.

 

[tcocaro]

Land,

i agree with you but unfortunately as a developer i cannot guarantee whether Sydney will pickup in any substantive way this year, next or the following. (This year can pretty much be assured it wont happen)

Therefore unless i landbank theres no point. HOWEVER for investors looking to hold on i.e. to purchase an IP i think whoever isnt buying now in the sydney market is pretty much loosing out. I would be recommending to buy this financial year.

I am still recommending Brisbane over Sydney because they are both similar in all aspects to why prices should go up except for one major difference.. QLD economy is growing faster than NSW, population is growing faster and most important sentiment is MUCH better (if you need a reason lets hang our hat on the mining boom)

Therefore given I never try and "pick the bottom" I will always prefer to invest in Brisbane and get the lion share of capital growth rather than attempting to go for gold which would be to buy in Sydney. (Again this is developer speak given i need to sell in 12-24 months time)

Cheers,
TC

 

[tcocaro]

All of those 4 reasons apply to the UK also. However over there fear is the overriding factor.

If a NORTHERN ROCK equivalent say.... ANZ (in terms of revenue) 10 odd billion (roughly) was nationalised because it went under... im pretty sure the Australian property market would have taken a much bigger battering than it has... or atleast reflected a UK market more closely...

but... fortunately it hasnt.. but im sure GHPC is praying day and night it does...

 

[Land]

Touchingcloth (interesting name - you wouldn't be another with multiple personalities on SS?).

I'm pretty sure there is an oversupply in the UK, the same as there is in the USA (happy to be proven wrong with reliable factual sources though).

And I agree, sentiment plays a huge role, but I believe it will begin to improve.

 

[depreciator]

But.. more importantly it is the lack of infrastructure that prevent the current demmand to be met with supply. Coupled with high petrol prices there is NO demmand for greenfield sites on the edges of sydney because there are no trains\transport there. Developers and end buyers are just not buying there there fore theres a perceived lack of supply and over-demmand. In reality its a case of product mismatch.. whats being demanded isnt on offer.. that is inner city infill developments (on a grand scale).

Hey Tcocaro,
What happened to that edict that all local councils were supposed to be given to fit x number of new dwellings into their area. I didn't pay much attention to it at the time. I'm assuming Sartor will make it happen? There are so many underused sites in the inner ring. Many aren't green space, but underused commercial sites. There was one not far from me that I have always assumed would one day become apartments, but is now going to be factory units.

 

[tonyc00]

Hi

I agree - bollocks - but in my heart I would like to believe it true for Sydney in general, and Parra in particular.

Interestingly there is no sign of the article/ presentation on the anz website.

I've still to find exactly what was said (apart from the rehashed stuff in the newspapers).

Note that anz are predicting two more interest rates to come this year in August and September. How does that square with the "mother of all booms".

Other economists speak about the possible housing recession if rates continue to rise - huh - the housing recession started in 2003 and has not yet left some Sydney suburbs.

I wonder how many economists predicted the asx down to 5000 by 3 July 2008, with the promise of more bad news to come.

Tony

 

[grossreal]

hi all
interesting post.
if a bank is saying that they think that the market is going to change.
then I would think that same bank should be the first not the last to start to lend to development.
it seems to be a bit funny from my seat to be saying that you think the market is going to go gang busters but on the other hand say we are out of construction funding and am liquidating development sites that would be viable had you developed them.
the banks taht are holding lots of sites and if they think that it going to be gang busters thats fine.
put up the money.
its good to talk up a market but it seems to me that a few people are saying one thing and there companies are doing something very different.
maybe the guys need to have a chat with a couple of lenders that have shut there doors or for that matter moved there guys out of construction lending into corporate lending and have for all intence and purpose closed off there construction funding section.
this may be seen as preaching to the converted but it gets me that we have lender saying on one hand they think is going to be roses in the garden but we are turning off the water and forget anytype of fertalizer as we think its going to sh-t anyway.
I do believe that the market is going to go gang busters but only when the lenders stop standing on chairs shaking legs and get back to lending( they are to me like a pack screaming sheilers so get back to lending)
yes not all banks are the same and there are a couple that have broken ranks and they are out lending again and they to me are doing a good job but the rest well just keep saying that it will get better go back to eating your ham sandwich close off your lending until other banks take market share and then play catchup all over again.
for me its not alot of point form one bank to buy or do a take over and then both banks close of there depts or do just the same by closing of there criterias.
sounds a bit silly to me but ha thats the world of lending.
hope you enjoy the rant I did gets a bit off my chest.
and for those that want ....... heres a few and a couple of ,,,, to go with em
and





a few gaps in between

 

[stumunro]

and for those that want ....... heres a few and a couple of ,,,, to go with em
and





a few gaps in between

LOL enjoyed your post, especially the above

 

[s_t]

Grossreal, can you tell me from your point of view and the type of deals you do, which of the big banks are OK and which are being a pain?

I'm asking not because I want to use them, but to help decide which bank/shares would make better investments!

hi all
interesting post.
if a bank is saying that they think that the market is going to change.
then I would think that same bank should be the first not the last to start to lend to development.
it seems to be a bit funny from my seat to be saying that you think the market is going to go gang busters but on the other hand say we are out of construction funding and am liquidating development sites that would be viable had you developed them.
the banks taht are holding lots of sites and if they think that it going to be gang busters thats fine.
put up the money.
its good to talk up a market but it seems to me that a few people are saying one thing and there companies are doing something very different.
maybe the guys need to have a chat with a couple of lenders that have shut there doors or for that matter moved there guys out of construction lending into corporate lending and have for all intence and purpose closed off there construction funding section.
this may be seen as preaching to the converted but it gets me that we have lender saying on one hand they think is going to be roses in the garden but we are turning off the water and forget anytype of fertalizer as we think its going to sh-t anyway.
I do believe that the market is going to go gang busters but only when the lenders stop standing on chairs shaking legs and get back to lending( they are to me like a pack screaming sheilers so get back to lending)
yes not all banks are the same and there are a couple that have broken ranks and they are out lending again and they to me are doing a good job but the rest well just keep saying that it will get better go back to eating your ham sandwich close off your lending until other banks take market share and then play catchup all over again.
for me its not alot of point form one bank to buy or do a take over and then both banks close of there depts or do just the same by closing of there criterias.
sounds a bit silly to me but ha thats the world of lending.
hope you enjoy the rant I did gets a bit off my chest.
and for those that want ....... heres a few and a couple of ,,,, to go with em
and





a few gaps in between