Australian market 50% overvalued according to The Economist

The Economist has been saying the same for several years.
I think they are right from a long term perspective. Current prices will be hard to sustain at these levels for 20+ years without imposing serious adverse social change.

But there's obvious unprecedented forces driving prices, like our growing reliance on foreign credit.....external shock is the gotcha. and it is really difficult to say how bad it could be here compared to the rest of the world.
 
No need to be concerned about what's written in The Economist about Australian property.

They don't really understand what's happening in Australia.

They have a long track record of being wrong.
 
Many years ago I had a healthy respect for the publications of the Economists. After many years of being wrong on the same subject, one would think it advisable for E to revise the parameters being used in the economic model that is significantly deviant from reality, otherwise the model is merely a reflection of denial.
 
We did not reach the low level of other countries because of the billions burnt on stimulus.
This increased and prolonged "free money" availability creates inflation as it devalues the currency.
So just as prices are falling, in comes a flood of money (like FHBG) the devalues the currency and keeps price up. Then kick in more "free money" in the form of cheques sent to everybody, paying inflated prices for useless infrastructure everywhere with Rudd saying that borrowing 200B for market stimuli is no drama, it's all hunkydory.
Not to mention RBA reducing rates and Rudd offering guarantees to save the banks from too many defaults.

So who is going to pay for all this? And more importantly how?
And how will all this stimuli, which is also "free money", eventually effect our investments?
at what point does all this money cause inflation? And higher inflation also means higher interest rates

Of course those that borrowed money will be paying back those loans with devalued $$ and think that they too are hunkydory.
But at what point can these people not afford to pay more rent?
Can rents go up 10% a year if nobody has any money to pay it?
Can RE values keep going up if nobody can afford to buy?

Japan is an example of what can happen in situations like these....
 
Interesting reading...

http://www.economist.com/opinion/displayStory.cfm?story_id=15213157&source=hptextfeature

I'm by no means a property pessimist, but the recent bubble in the first home buyer market is cause for concern.

I love it when this kind of comment pops up. 50% Australia wide
You can buy a nice 4x2x2 in my area under( growing regional coastal) 5 years old for just under $300,000.
To build today would cost around $180,000 for the house alone minimum.

So unless they start given land away with every house purchase it aint going to happen. Not Australia wide anyway.
 
I'm by no means a property pessimist, but the recent bubble in the first home buyer market is cause for concern.

The Economist said this.....
In the American housing market, where the crisis started, homes are priced at around fair value on the basis of rental yields, but they are overvalued by almost 30% in Britain and by 50% in Australia, Hong Kong and Spain.

I'm not sure why it came to the conclusion that prices were 50% to high.... they ignored the alternative conclusion that rents need raising by 100% :confused::rolleyes:.

Yields in US are approx double ours, and building cost (as devo mentioned) would mean land value goes -ve. Not a lot of thinking behind that one writers opinion. I'd guess the 10M households (who set the market price) have a better handle of the reality of Oz property market economics than a single writer in the US.
 
There's a fundamental lack of supply and demand due to population growth isn't expected to ease any time soon.

In an efficient free market economy where supply changes to match demand, we wouldn't have today's prices.

Yes, the population is going up, but housing supply is NOT matching population growth, as per this chart.





And the 2nd chart shows the recent housing supply rate has gone backwards.

IMHO, the issue is with the supply of housing, and not the growth of population. Something is constraining supply. The free market isn't weighting population growth as a good reason to increase supply.





Note in the chart below, from 2003 untl the GFC, the profound weakening of the previously strong positive correlation between housing starts and full time job creation/loss.

The fundamentals are a changin.

 
meh i think the main issue is that we have negative gearing over here whereas no such thing exists in other countries. it encourages people to buy properties even when the yield is below the interest rate
 
Yields in US are approx double ours

when they use "net" yields, then i'll take an interest in what they say.

yes, american gross yields are higher than ours - so are their management fees, maintenance fees, ongoing government fees etc.

i get very annoyed at "economists" using only a portion of the stats to confirm their alarmist view - whereas the entire facts would prove them wrong. but that is what economists do. having a hubby and stepdaughter that deal in stats every day, they laugh at anyone who trots them out to prove a point - stats can be manipulated in any manner the user desires.
 
It's not the "10M householders" who set the price.
The reality is that if the same item costs more, than the currency is worth less.
There is no "free market" system in RE in this country, but a manipulated market. The price is being set by the amount of $$ available to spend.
And while few are in strong positions, the vast majority are borderline bankrupt in the case of high inflationary period would come about.
If you think prices will keep going up whilst profits diminuish and people lose their jobs, money given & thrown away and no consequences from it, I'd say your rather naive or a wishful thinker.
 
In an efficient free market economy where supply changes to match demand, we wouldn't have today's prices.

Yes, the population is going up, but housing supply is NOT matching population growth, as per this chart.





And the 2nd chart shows the recent housing supply rate has gone backwards.

IMHO, the issue is with the supply of housing, and not the growth of population. Something is constraining supply. The free market isn't weighting population growth as a good reason to increase supply.





Note in the chart below, from 2003 untl the GFC, the profound weakening of the previously strong positive correlation between housing starts and full time job creation/loss.

The fundamentals are a changin.



looks like a great time to buy:p
 
I was sooooooo missing all the D&G threads we used to have :p

I think I'm putting The Economist into the same circular filing cabinet as BIS (aka) BS Shrapnel. If, as a BA, I consistently got stuff wrong like these guys, I'd be out of a job.:eek:
 
looks like a great time to buy:p

I am going through the risk adjusted reward calcs with a young FHB at the moment.

There's pros for buying and cons.

One pro is that rental demand will be high for yonks and that zoning relaxation pressure is building.

One con is that our property prices are growingly at the mercy of foreign creditors, who aren't as informed about Aussie property as Somersoft bulls.
 
interesting - something i've always spouted is that prices can't fall 40-50-60% because the land component of most new builds is around 50% - so land values would be negative unless builders want to build for free....! good to see others realise this as well.

so Aussie house prices are 50% OVERVALUED according to the rental yields? well, if values can't intrinsically fall that far without an engineered system collapse and reboot, then that only leaves one possible solution - rents must rise to make the yield more in line with that particular economic model.

stagnant values + rising rents = stagflation?
 
interesting - something i've always spouted is that prices can't fall 40-50-60% because the land component of most new builds is around 50% - so land values would be negative unless builders want to build for free....

There's no reason why that can't happen. But long before it does the owner will take it off the market or sell to someone else whose only intention is to hold on to it until a rising market makes development economic - q.v. the acres of Melbourne Docklands standing derelict.

Re prices being 50% too high with reference to rents, if the analysis was as simplistic as saying that you can get a no-risk 6% on a savings account whilst a rental property might well deliver 4% net. But factor in a very modest capital rise over the years and the balance is reversed.
 
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