Difference b/w Oz and UK property markets

[yorke]

The same could be said of any country that has had a housing boom. By and large, housing booms have occurred in countries where a greater proportion of their economy is devoted to service industries, specifically finance.

Since we are more of a resources and agricultural economy it would make our boom the exception to your rule then.
I knew it, We are different over here .

Even though the US is still a large manufacturer, it is nothing of what it once was (as witnessed by the near, and quite likely coming, collapse of the major three car companies).

And where did the biggest property price falls happened to be ? Was that anywhere near the towns where the wheels fell of the ottomobile companies?

I'm guessing you don't realise how long commodity bear markets can last. The last one went for 20 years!

So how long will this one last ? Is this time going to last 20 years as well or will the Chinese and Indian farmers demand ottomobiles and McMansions, made of things other then mud & straw, complete with electricity and plumbing which could turn things around in as early as 6-12 months ? If we only knew that...

 

[Shadow]

It is a mirage to suggest that population statistics are fixed in time.

Who suggested that? Give me a name and I'll have him killed!

I just do not believe house prices will hold their current high level without some pull back, and I do not believe that Australia will come out of this slump with a new house price boom.

Well that is pretty close to what I believe. Perth to fall around 20% in real terms over a few years. Slight falls in the cities that rose 20%+ last year (i.e. falls of 10-15% in real terms over a few years, similar to what Sydney experienced after 2003). Flat elsewhere. I don't expect any significant growth until 2010-2011, which will kick off with a price surge in Sydney, with the other cities following a couple of years later. I've been pretty consistent in this forecast for the past year or so - I can probably dig up a post from early 2007 where I said the same.

This thread is about why Australia is different to the UK. I think there are enough differences to ensure that prices here do not collapse like in the UK. Population growth is one, and while it is not fixed at 1.7%, it is not likely to fall to 0.4% like the UK, and even if it did, then the UK would probably have fallen too. Same goes for the other reasons - banks here passing on more rate cuts, more room for RBA and government to move, economy has less dependence on the financial sector, better (financial) quality of overseas migrants, the fact that the UK boom was bigger to begin with etc. These are all real differences between Australia and the UK.

Cheers,

Shadow.

 

[Shadow]

You are making the case that households are fine with the current capacity of debt they are required to service. Quite obviously, in relatively benign macroeconomic conditions, this is not the case. Report here:

http://www.news.com.au/business/money/story/0,28323,24895606-14327,00.html

That article states that 99.8% of people are neither bankrupt nor insolvent.

 

[warmed_cockles]

That article states that 99.8% of people are neither bankrupt nor insolvent.

Heh, that doesn't mean that 99.8% of people aren't near bankruptcy, default or delinquent on their mortgage payments. But I'll grant you, it isn't Armageddon.

The point is that under much milder economic conditions than the 1990s, we had a higher rate of bankruptcy. While the RBA has made the economic conditions much better over the quarter, we are yet to see what effect unemployment will have on household bankruptcies. What would you have preferred - 90s economic conditions or today's? But seemingly, 90s conditions left fewer people worse off (unemployment sucks, but bankruptcy is hell).

Warren Buffett was quoted in Crikey yesterday:

Huge debt, we were told, would cause operating managers to focus their efforts as never before, much as a dagger mounted on the steering wheel of a car could be expected to make its driver proceed with intensified care.

We'll acknowledge that such an attention-getter would produce a very alert driver. But another certain consequence would be a deadly -- and unnecessary -- accident if the car hit even the tiniest pothole or sliver of ice. The roads of business are riddled with potholes; a plan that requires dodging them all is a plan for disaster.

I know the RBA analysed Australia's debt situation in 2007-08 and decided that everything was fine because people were managing the repayments. But this was during favourable economic conditions that had not been seen for a generation. Taking a snapshot in time and applying a steady-state analysis might make things look rosy, but both external and internal economic shocks must be taken into account. And it seems, even with mild conditions, more people are going bankrupt than during what was called the worst post-war recession.

This is essentially why I don't buy into the belief that the RBA or govt can save us. It seems they have ignored all but the most comfortable economic conditions. China was thought of as a saviour until very recently, despite all preceding indicators suggesting otherwise (sharemarket collapse, property downturn, trade downturn).

As for property market movements. I think nominal falls in Perth will be 20%. The speculative mania there up until the end of 2007 was as bad as California. By observation, the only cities in which I believe underbuilding pressures are true is Sydney and Melbourne. Perth and Adelaide have more empty dwellings than most would like to let on. And with the end of the mining boom, I think we could see some terrible things coming out of those states.

 

[yorke]

That article states that 99.8% of people are neither bankrupt nor insolvent.

How many of that 0.2% bankrupts would be lifelong renters/dollies who bought plasmas and furniture on "No Repayments 36 months Interest Free" deals from places like Harvey Norman ?

 

[Token Funder]

How many of that 0.2% bankrupts would be lifelong renters/dollies who bought plasmas and furniture on "No Repayments 36 months Interest Free" deals from places like Harvey Norman ?

Having bankrupted a few people over the years, the "minor" debts from telcos, retailers and whatnot are rarely relevant. It's the big ones.

Too much debt against the business
Too much debt against property
Too much debt against shares.

..and an unwillingness to deleverage when the indicators suggest they should.

 

[boz]

I know the RBA analysed Australia's debt situation in 2007-08 and decided that everything was fine because people were managing the repayments.

Do have I missed something? I thought RBA was increasing rates duriing 2007 and early 2008 because of debt problem and the economy in need of a soft landing. Did RBA say that everything was fine? or perhaps you got that info directly from someone within RBA?

By observation, the only cities in which I believe underbuilding pressures are true is Sydney and Melbourne. Perth and Adelaide have more empty dwellings than most would like to let on. And with the end of the mining boom, I think we could see some terrible things coming out of those states.

Interesting point, one of the thing I give up trying to work out is the undersupply and oversupply of property as too many factor are at play. Would be great to see new way to look at it. What is the data you look at for Melbourne and Sydney supply? You must be quite positive for the economic outlook for those 2 cities (businesses and employment). Would be great to read something different then the crap going around on the homes supply numbers you get in the AUS media.

 

[boz]

this link show the
UK equivalent of Somersoft forum back in june 2007 comparing UK marketwith USA

Those articles are talking about the USA and their economy. Not the UK. There is, in my opinion, a fundamental difference between the US and the UK. The UK has Planning Laws which restrict development in a lot of areas and therefore restrict the number of dwellings available.

The UK is one of the biggest financial centres in the world due to its favourable tax laws. This brings in Billions of £'s into the countries economy.

With hundeds of thousands of migrant workers working in the UK there is a mmassive rental market.

There are a lot of differences between the UK and USA and because someone is forcasting a scene in the USA, doesnt mean it will happen here.

I dont say that wont be a 5-10% drop at one point. But 20-30%, I dont see - too much demand and too little supply. But as a HPC bear, I dont really expect any agreement.

it doesn't make much sense to point out all the differences when you get the big picture wrong

 

[Shadow]

this link show the
UK equivalent of Somersoft forum back in june 2007 comparing UK marketwith USA

Those articles are talking about the USA and their economy. Not the UK. There is, in my opinion, a fundamental difference between the US and the UK. The UK has Planning Laws which restrict development in a lot of areas and therefore restrict the number of dwellings available.

The UK is one of the biggest financial centres in the world due to its favourable tax laws. This brings in Billions of £'s into the countries economy.

With hundeds of thousands of migrant workers working in the UK there is a mmassive rental market.

There are a lot of differences between the UK and USA and because someone is forcasting a scene in the USA, doesnt mean it will happen here.

I dont say that wont be a 5-10% drop at one point. But 20-30%, I dont see - too much demand and too little supply. But as a HPC bear, I dont really expect any agreement.

it doesn't make much sense to point out all the differences when you get the big picture wrong

Hi boz, I was wondering how long it would take a GPHC'er to accept HiredGoon's challenge and post that article here! Anyway, it was a very weak effort from HG in this case. I already addressed the points mentioned here in my first post in this thread...

'The UK is one of the biggest financial centres in the world due to its favourable tax laws. This brings in Billions of £'s into the countries economy.'

Exactly. And this is why I said in my first post that 'the UK and especially the London economy is very much based on the financial services sector. And we know how that sector is going. The UK economy is in a far worse position than Australia.' This is a point of difference between the UK and Australia, not a similarity!

'With hundeds of thousands of migrant workers working in the UK there is a mmassive rental market.'

Yes, thousands of unskilled migrants from Eastern Europe who packed their bags and went home at the first sign trouble. Compared to Australia's hundreds of thousands of highly skilled and well paid migrants who move here on long term visas. As I said in my first post:

'Another important factor is the quality of overseas immigrants - while Australia has quite a restrictive policy to encourage 'skilled' migrants only, the UK has been taking in a large share of poor and uneducated migrants from Eastern Europe, who tend to send most of their money home to family instead of spending it in the UK, unlike our immigrants who contribute towards the Australian economy to a much greater extent (and can better afford to buy/rent houses).'

Remember...
UK population growth = 0.4%, includes many unskilled and low paid short term migrants.
Australia population growth = 1.7%, includes many highly skilled and well paid long term migrants.

Cheers,

Shadow.

 

[ziggy2214]

So how long will this one last ? Is this time going to last 20 years as well or will the Chinese and Indian farmers demand ottomobiles and McMansions, made of things other then mud & straw, complete with electricity and plumbing which could turn things around in as early as 6-12 months ? If we only knew that...

It will be something like 6 to 12 months IMO

 

[ziggy2214]

The point is that under much milder economic conditions than the 1990s, we had a higher rate of bankruptcy. While the RBA has made the economic conditions much better over the quarter, we are yet to see what effect unemployment will have on household bankruptcies.
.

Probably very little because people today (unlike previous times)
have their LOC or offset account to fall back to so they won't be going under in a hurry.
If I did lose my job and could not find another 1
I would have to increase rents, or perhaps sell 1 or more of my IP's.
Although with interest rates falling and IP's becoming cash flow neutral or +ve I am in no financial pressure to sell

 

[warmed_cockles]

Exactly. And this is why I said in my first post that 'the UK and especially the London economy is very much based on the financial services sector. And we know how that sector is going. The UK economy is in a far worse position than Australia.' This is a point of difference between the UK and Australia, not a similarity!

What is Australia's economy based on, and how is that sector going?

 

[manderson]

Hi boz, I was wondering how long it would take a GPHC'er to accept HiredGoon's challenge and post that article here! Anyway, it was a very weak effort from HG in this case. I already addressed the points mentioned here in my first post in this thread...

.

I was wondering the same thing, the puppet master has spoken, the puppets have acted on those requests.

 

[warmed_cockles]

Do have I missed something? I thought RBA was increasing rates duriing 2007 and early 2008 because of debt problem and the economy in need of a soft landing. Did RBA say that everything was fine? or perhaps you got that info directly from someone within RBA?

The RBA did an analysis in September 2007. They found that the level of debt held by households was nothing too much to worry about. It concluded as such:

The final point I would like to talk about is the implications of rising household debt for financial stability.

There are two perspectives here.

The first is from the point of view of the lenders. Has the rise in household debt left lenders exposed to excessive risk? Any number of indicators – arrears rates on loans, exposure concentrations, capital ratios and profitability – suggest that the answer to this is ‘no’.

This was also the conclusion reached in the Financial Sector Assessment Program conducted under the auspices of the IMF last year. As explained in the September 2006 issue of the Bank’s Financial Stability Review, even under the very extreme assumptions made in that stress test, banks remained profitable.

The second perspective is from the point of view of household finances. As outlined in the Financial Stability Review published yesterday, overall household sector finances remain in good shape: average real income is rising, even after interest payments; financial net worth has increased noticeably; gearing levels are not out of line with international standards; and the proportion of households experiencing financial difficulties, though higher than a couple of years ago, remains historically very low. There are some pockets of stress, but the low numbers involved – less than 20,000 of the 5,300,000 housing loans in Australia are 90 days overdue on repayments – mean that this is not a macroeconomic problem, even though it is no doubt causing distress among those households and communities directly affected.

http://www.rba.gov.au/Speeches/2007/sp_dg_250907.html

 

[Shadow]

What is Australia's economy based on, and how is that sector going?

Australia's economy is a lot stronger than the UK economy right now.

 

[Sunfish]

Australia's economy is a lot stronger than the UK economy right now.

Damned by faint praise.

 

[boz]

Hi boz, I was wondering how long it would take a GPHC'er to accept HiredGoon's challenge and post that article here! Anyway, it was a very weak effort from HG in this case. I already addressed the points mentioned here in my first post in this thread...

'The UK is one of the biggest financial centres in the world due to its favourable tax laws. This brings in Billions of £'s into the countries economy.'

Exactly. And this is why I said in my first post that 'the UK and especially the London economy is very much based on the financial services sector. And we know how that sector is going. The UK economy is in a far worse position than Australia.' This is a point of difference between the UK and Australia, not a similarity!

'With hundeds of thousands of migrant workers working in the UK there is a mmassive rental market.'

Yes, thousands of unskilled migrants from Eastern Europe who packed their bags and went home at the first sign trouble. Compared to Australia's hundreds of thousands of highly skilled and well paid migrants who move here on long term visas. As I said in my first post:

'Another important factor is the quality of overseas immigrants - while Australia has quite a restrictive policy to encourage 'skilled' migrants only, the UK has been taking in a large share of poor and uneducated migrants from Eastern Europe, who tend to send most of their money home to family instead of spending it in the UK, unlike our immigrants who contribute towards the Australian economy to a much greater extent (and can better afford to buy/rent houses).'

Remember...
UK population growth = 0.4%, includes many unskilled and low paid short term migrants.
Australia population growth = 1.7%, includes many highly skilled and well paid long term migrants.

Cheers,

Shadow.

I did post it because I think it is of good use for the forum. Not really to prove that Australia is like everyone else but more because it is important to focus on the big picture first then on the small differences. In UK they were right to say UK was different but did it matter? In any case I am not saying home prices in australia will follow the path of UK, I still think it is safe to put the savings in homes (specially when CF+), even if I prefer Gold or other assets at the moment. Anyway, how can you quantify the supply when you get data from US that the average home shrink from around 240 sqm to 215 sqm, it is just too many factors (and new ones are coming out every day)

 

[boz]

The RBA did an analysis in September 2007. They found that the level of debt held by households was nothing too much to worry about. It concluded as such:



http://www.rba.gov.au/Speeches/2007/sp_dg_250907.html

Thanks for that,
I did remember the imf report about australia's banks being able to face extreme financial difficoulties. It is good to go back and see how all these institution got it wrong and didn't predict the "black Swan" event.
I am sure that RBA wouldn't think now they were right back in 2007 when they got those conclusion on Australian private debt. Even Greenspan admitted he got it wrong
By the way, the GBPound is back at level had during the winter against the AU$, funny that if those country are so different the currency is following the same path, may be all currency trader like me are all puppet controlled by the puppet master HG

 

[Satanoperca]

Hi,

Thank-you to everyone who has replied to this thread. While I asked the initial question and now have a greater understanding of the difference b/w UK and Oz, I would like to ask what is the difference between NZ and Oz property markets?

I now that they are a smaller economy, however they have a very similar lifestyle to us without the wealth that is under our ground - resources.

I look forward to everyones comments as open discussion is appreciated.

Cheers

PS. Property vs Share Market? ASX down 4% today.
I have sold my PPOR for what was a fair and reasonable price given all the negative sentiment around while still making a reasonable profit. Prices in the area are holding at the moment but rents have gone through the roof in last few years at Yarras Edge, Docklands, Victoria.
Also my shares investments I have reduced down by 90% over the last year.
Out looking over the next 6months for the next property project, some land in the bay area of Melbourne.

 

[contrary]

I am not as bearish as Keen. I believe 40% falls are out of the question. 20% falls are the maximum and I am not even sure of that.

What I do know is that house prices must return to fundamentals in terms of income, and that the debt burden placed on households must be dramatically reduced. Central banks and financiers have overestimated the ability of the household to take on ever increasing debt.

Those are mutually exclusive statements. Either one is true or the other is. If we are to get back to average long term (ie regress back to the mean) in terms of property prices:average yearly income prices are going to have to go down by more than 20%. To deflate back to even the 5x yearly earnings, average prices would need to come off 30-40%. Hard to imagine now but easier to imagine when it happens !