Australian market 50% overvalued according to The Economist

[JulieW]

I think D and G postings should go with a rider on how big a property investor the person posting the D and G is!

Useful reference in response to this very issue of over-valuation.

http://www.businessspectator.com.au...ument&src=is&is=Property&blog=Concrete Detail

Getting accurate measurements of the changing value of Australia $3-4 trillion housing sector is crucial for households, policymakers, investors and developers. And it is a task that we have been engaged in thinking about since 2001. Today many economists and regulators believe Australia has amongst the best housing data in the world. Our crucial advantage rests in the fact that government agencies collect 100 per cent of all home sales – there is no ‘sample selectivity bias’ in the technical jargon. Australia’s largest property information provider, RP Data Ltd (ASX: RPX), then spends up to $10 million a year augmenting that data with a rich range of supplementary statistics. By combining world-class data with best-in-breed academic research we are able to produce some of the most accurate and advanced house price indices in the world.

Notwithstanding all of the above, there will always be those who seek to put a subjective spin on the facts.

Amen

 

[Token Funder]

I think D and G postings should go with a rider on how big a property investor the person posting the D and G is!

Useful reference in response to this very issue of over-valuation.

http://www.businessspectator.com.au...ument&src=is&is=Property&blog=Concrete Detail



Amen

Chris J should really put a big 'ol disclosure in largish font every time he mentions RP Data. Is not as if his company and RP Data are exactly strangers to each other....

 

[sash]

Why average property won't fall 30%-50%

Couple reasons why lower priced or average properties won't fall 30%-50% like Japan, UK, USA, & Spain:

1. Unlike the USA we don't have non-recourse loans....all loans are payable to the bank. You can't get of that contract...unlike the USA where you hand back the keys and only a small black mark is recorded. If you did this here you would have to declare bankruptcy!

2. Banks lent money to anyone. Not the case here....as a matter of fact money supply for houses is now tightened. This includes developers

3. We are under building by about 50,000 houses annually...particularly in the larger 5 capital cities.

4. Councils in NSW, Qld, and WA have made developing new land expensive as service charges can be anything from 50-100k of land value.

5. Developers have a hard time securing financing for new deals...thus supply is articificially kept in check. They can't run too many in parallel unless they have their "hurt" money invested.

6. Australia's true immigration rate is more like 200,000 (this includes people coming from NZ). This itself is adding about 0.8% to population growth....factor in the booming birthrate....and you have a growth rate around 1.8%. Among the highest the OECD.

7. The new skilled immigrants are bringing in a lot of cash as they are the cream of crop. They can easily buy homes for cash in most areas.

8. It is unlikely the Henry Review meddle with CG+. Maybe they might wind back the 50% CG reduction and replace it with indexation. Thus removing property speculation but rewarding long term investors. People like me won't be affected.

So long as they factors are in place....hard to see a falling market.

 

[Piston Broke]

I put my parts in blue.

Couple reasons why lower priced or average properties won't fall 30%-50% like Japan, UK, USA, & Spain:

2. Banks lent money to anyone. Not the case here....as a matter of fact money supply for houses is now tightened. This includes developers
The damage has already been done by the more than generous loans given to people who can barely pay them off, which is why the RBA and the govt fell over themselves to bailout the banks. If rates went up as they should've most would no be bankrupt. If they go up many will anyway

3. We are under building by about 50,000 houses annually...particularly in the larger 5 capital cities.
Based on what and whose assumptions? That things are supposed to continue on the same path as they did for a few years and change does not occur? If that was the case there would'nt be any room in the public parks.

4. Councils in NSW, Qld, and WA have made developing new land expensive as service charges can be anything from 50-100k of land value.
Yep, higher inflation, higher interest rates less affordability, more bankrupticies in the short term.

5. Developers have a hard time securing financing for new deals...thus supply is articificially kept in check. They can't run too many in parallel unless they have their "hurt" money invested.
But who is going to buy these "new deals" and at what price? Point 4 makes that price not worth finishing the project in many cases.
Of course for those buying assets from repos may be in a better position
6. Australia's true immigration rate is more like 200,000 (this includes people coming from NZ). This itself is adding about 0.8% to population growth....factor in the booming birthrate....and you have a growth rate around 1.8%. Among the highest the OECD.
This is one factor that makes our economy behave like an "emerging market" yet it's still not easy going.
7. The new skilled immigrants are bringing in a lot of cash as they are the cream of crop. They can easily buy homes for cash in most areas.
Maybe they are the one buying up the Melb suburbs, most of sydney still seems quiet

So long as they factors are in place....hard to see a falling market.

I only speak for the market I operate in which is Sydney, and I agree that low priced RE may not have far to go and the premium market has already been hit considerably in many locations, but other than inflation, I don't see what can make the market rise. Until all the current downside factors have run their course and the effects of inflation start seeping in. Then it could get very interesting.
The 70's is an interesting lesson in investment history that I believe (is and) will repeat.

 

[BV]

Why all the concern?

Considering the recent property price increases and the interest rate hikes it's now cheaper to rent than buy.

At some stage the scale will tip in favour of buying again but for this to happen property prices need to fall by more than 20% (which is unlikely) or rents need to go up by another 30% (which is just a matter of time).

 

[Piston Broke]

Why all the concern?
Considering the recent property price increases and the interest rate hikes it's now cheaper to rent than buy.
At some stage the scale will tip in favour of buying again but for this to happen property prices need to fall by more than 20% (which is unlikely) or rents need to go up by another 30% (which is just a matter of time).

I'm always concerned with the downside potential.
The 70s were crazy times after the boom of the late 60s.
High oil, resouces, terrorism threats, unemployment etc (just like now), but when it all filtered through market prices went up further than the latest boom we had.
The main issue was surving 1st, and having the means to take advantage of it 2nd.
When resources & oil starting booming I spent some time picking the brains of many people who lived thru those times what it was like to be an investor.
The main theme was being able survive it financially.
And I dont think the craziness has ended yet.

I spose I could define myself as "the paranoid investor" lol

 

[Token Funder]

Couple reasons why lower priced or average properties won't fall 30%-50% like Japan, UK, USA, & Spain:

1. Unlike the USA we don't have non-recourse loans....all loans are payable to the bank. You can't get of that contract...unlike the USA where you hand back the keys and only a small black mark is recorded. If you did this here you would have to declare bankruptcy!
*snip*

refer usual reply to this myth

This myth that in the US non-recourse loans (which are only the case in about half the states, I might add) allow people to walk away from properties with no consequences is really starting to give me the irrits.

The end result in both jurisdictions - as far as future credit opportunities are involved - are similar, if arguably worse in the US. A big default on your credit report in Australia (whether you go bankrupt or not) will seriously compromise your ability to get any credit. In the US, if you mangle your FICO score you destroy your ability to get credit and more. By way of examples, landlords can and do access the credit report of prospective tenants, prospective employers are entitled to ask for a copy, insurers often use it to set risk premiums, and it effects the upfront deposit required or whether you can get gas/electricity/telephony services.

In half the US, you can walk away from the house.

In all of the US, you can't walk away from your credit record.

 

[Francesco]

refer usual reply to this myth

I wonder if someone (and there are many in the US) is prepared to walk away from a negative equity property commitment, how desperate is that someone in wanting to bypass past impaired financial credibility by adopting a new and different identity.

How vigorous and dependable are checks to maintain full identity checks?

 

[devo76]

refer usual reply to this myth

So you agree that they can walk away from there loans with relative ease.

The fact that they show minimal foward thinking in regards to there credit rating does not stop jingle mail being a popular USA passtime over the last few years.

 

[pinotedesco]

great post

 

[Neophyte]

The issue is that you can't accurately compare different property markets between countries. Similar to the way the markets are completely different between inner city and small rural towns (in terms of yields and cap gains).

Australia has longer term inflation of closer to 3%. Most european countries and the US target 1-2%. Australian population growth is much higher.

We have much lower land taxes - therefore absolute yields are lower. In the US there is often both state and local council land tax that can be up to 5% (this pays for schools) therefore rental yields of over 10% are standard since half of it goes in taxes.

Australian market is dominated numerically by detached housing with gardens. Thats not the case in Europe. It is more common in the US.


The valid comparison is to pick a point in time in Australia when the market value was about right. Then say is it over-valued today relative to that historic point according for changes in construction prices and land values and the rise in disposable income and two income families. When else was it over or under valued? This is a much more robust method to compare prices. Of course its a lot like hard work for an international publication using high level statistics only.

 

[Token Funder]

So you agree that they can walk away from there loans with relative ease.

Re-read my post. Even better, do the research.

[quoe]
The fact that they show minimal foward thinking in regards to there credit rating does not stop jingle mail being a popular USA passtime over the last few years.[/QUOTE]

What "fact" are you refering to?

Anyone can walk away from loans, here as well as there.

There are consequences in both jurisdictions.

 

[888]

IMHO Sydney's property is definitely overpriced, some maybe upto 50% in certain places.

Here is one example: a house in North Parramatta ( http://www.domain.com.au/Property/For-Sale/House/NSW/North-Parramatta/?adid=2008094445 ) valued normally $400-$500K is being sold in the domain for asking price of $735K.

Now all it takes is some clueless but wealthy individual from overseas to purchase that property at the asking price of $735K and suddenly all valuation of property in North Parramatta gone up from $400K-$500K to $700K. This method has been used by Real estate agents all over Sydney and apparently it's working. Now most suburbs are overpriced, thanks to people who didn't do their research and due diligence.

 

[topcropper]

Here is one example: a house in North Parramatta ( http://www.domain.com.au/Property/For-Sale/House/NSW/North-Parramatta/?adid=2008094445 ) valued normally $400-$500K is being sold in the domain for asking price of $735K.

.

Ha, ha, you'll stir up a hornets nets here saying Sydney is so overvalued.

I gotta say I sort of agree though. I just spent 3 minutes seeing what's available elsewhere for the price of that house,....

http://www.realestate.com.au/cgi-bi...mt=&header=&cc=&c=8696365&s=nsw&tm=1264570137

30 hectares of lush wet 1000 mill rainfall land, with a nice creek running through, big magnificent house and pool and great views.

I suppose a house is worth what someone will pay, but I know what I'd rather.


See ya's.

 

[Deltaberry]

Flipside is if sufficient amounts of genuine investors are 'market-making' at those prices, you begin to wonder who's mispricing it.

 

[Aazar]

just do your due diligence and you'll be fine. If you paid the right price, even if there is a market crash you will be able to weather it. Key question is - is the author of the Economist article a wealthy property/sharemarket investor? Obviously not, otherwise he would not be employed at his 9-5 job as a journalist. So I wouldn't listen to some stupid journalist telling me stories - they are why I don't even read the financial news anymore

 

[888]

Ha, ha, you'll stir up a hornets nets here saying Sydney is so overvalued.

I gotta say I sort of agree though. I just spent 3 minutes seeing what's available elsewhere for the price of that house,....

http://www.realestate.com.au/cgi-bi...mt=&header=&cc=&c=8696365&s=nsw&tm=1264570137

30 hectares of lush wet 1000 mill rainfall land, with a nice creek running through, big magnificent house and pool and great views.

I suppose a house is worth what someone will pay, but I know what I'd rather.


See ya's.

omg, 30 hectares in Gloucester, I wish I live there or somewhere close to there

 

[Amadio]

There's a fundamental lack of supply and demand due to population growth isn't expected to ease any time soon.

This was challenged today by Hometrack http://www.hometrackaustralia.com/
They claim that because the REIA is counting homeless people (9000) and marginal residents of caravan parks(13000) and people living with friends or rellies (35000) as potential property buyers, it distorts the belief that a shortage of housing is driving up property prices.

Here is the link (sorry, I still have my P plates and can't do a one word link yet)
http://www.theaustralian.com.au/new...housing-shortage/story-e6frg6nf-1225823765035

Hometrack also claims that there are not 8.3 million occupied dwellings in Aust as reported by the ABS but 10 million. That's a serious miscount if true.

 

[Aaron Sice]

This was challenged today by Hometrack http://www.hometrackaustralia.com/
They claim that because the REIA is counting homeless people (9000) and marginal residents of caravan parks(13000) and people living with friends or rellies (35000) as potential property buyers, it distorts the belief that a shortage of housing is driving up property prices.

Here is the link (sorry, I still have my P plates and can't do a one word link yet)
http://www.theaustralian.com.au/new...housing-shortage/story-e6frg6nf-1225823765035

Hometrack also claims that there are not 8.3 million occupied dwellings in Aust as reported by the ABS but 10 million. That's a serious miscount if true.

this certainly reflects with my sentiments.

i don't feel there's a huge undersupply of ANYTHING.......yet, as confirmed here.

REIA president David Airey said that people staying with friends or relatives were clearly in a different situation to those sleeping on the streets, with many making that choice in order to save money for a home.

 

[WinstonWolfe]

This was challenged today by Hometrack http://www.hometrackaustralia.com/
They claim that because the REIA is counting homeless people (9000) and marginal residents of caravan parks(13000) and people living with friends or rellies (35000) as potential property buyers, it distorts the belief that a shortage of housing is driving up property prices.

And if Indians keep getting bashed (on a purely non racial basis ), the foreign student population will continue its rapid descent. Must be a lot of slum lords anxious about that.