Forecaster tips house price rise of 40 per cent in five years

[Gools]

House prices are expected to rise by as much as 40 per cent during the next five years, according to economic forecaster BIS Shrapnel..........

Adelaide Advertiser article.

You can guess what the non-investor comments will be like about the article.

 

[Spectre]

double your value in 7-10 yrs.... dontcha...........?

 

[Rixter]

Good old BIS.. that statement is like telling us the sky's blue on a fine day.

But then again they do derive and income for comment so have to write something!

 

[FelixL]

If enough people believing the price will rise and act on it, it will

I attended the BIS seminar and their prediction is not without grounds, population is rising, new dwellings supply is much lower than demand, rental vacancy at its lowest, Asian economies are still going strong etc

Of course everything is based on things continue the same way in the near future, and in the finer points of the BIS report, it did mention that a recession is not impossible

 

[Rixter]

Of course everything is based on things continue the same way in the near future, and in the finer points of the BIS report, it did mention that a recession is not impossible

Nothing like them placing a bet each way.

 

[Ms Jade]

LOL - I'm with you, Rixter. I've often wondered whether the "I" belongs in BIS or perhaps it would be more fitting without it....

 

[steveadl]

Whilst it's nice to hear healthy growth predictions, I don't pay much attention to such sweeping statements covering so many markets - whether it be negative or positive.

Like saying cars will rise 40% over the next 5yrs. Which ones? The Audi's and BMW's, or the Daewoo's and Tata's?

 

[Nth Brisbanite]

I don't think that an average yearly increase of 8% is unreasonable. For the last 20 years I think that it has been 7.9% per year.

 

[rambada]

A few years ago a lot of people bagged BIS with their % rate predictions (me included), but so far they are on track. So I'll eat humble pie & now will not rubbish it.
40% - clearly possable given the supply restrictions. As so many people are stating, experts & nonexperts, if there is demand, and land supply is restricted, then somethings gota give. And even if the govts moved today, supply would not come together very quickly at all. So 40% is well in within reason.
Devils advocate - prices & yield will be an anchor. To me, there is a finite amount or threshold of rental affordability - sure wages are constantly going up but disposable income that can be used for rent is a finite resource. So unless there is continuing wage growth above real affordability, then again, somethings gota give. No doubt the shallow media will tag this a crisis yet again.

So therefore post 40% increase, high prices & decreasing yield (% terms) will yet again redefine the market.

And as always ........supply & demand rule!

 

[sailor]

Heard an interview on the radio yesterday with someone from BIS. They predicted the RBA would raise int rates twice again this year...and one would come out just about the same time people get their tax refunds. Go figure!

 

[yieldmatters]

I don't think that an average yearly increase of 8% is unreasonable. For the last 20 years I think that it has been 7.9% per year.

First of all when you look at data over time you must adjust for inflation (look at it in real terms). Anything else gives you a misleading picture.

Secondly, why would the next 20 years look like the last 20 years? We have a trend line that is unsustainable so it will change direction at some point. We already have dual incomes, large debt, large percentage of income servicing debt. People won't / can't pay 20 times their income for a house - it simply isn't possible - unless of course they have 5 kids and send them all to work in factories!

 

[yieldmatters]

A few years ago a lot of people bagged BIS with their % rate predictions (me included), but so far they are on track. So I'll eat humble pie & now will not rubbish it.
40% - clearly possable given the supply restrictions. As so many people are stating, experts & nonexperts, if there is demand, and land supply is restricted, then somethings gota give. And even if the govts moved today, supply would not come together very quickly at all. So 40% is well in within reason.

BIS forecast everything - up, down, sideways - you name it, somebody there has forecasted it. It's clever because they will always get something right if you make a forecast in every direction. I think they are a bunch of overpaid clowns.

40% with nobody paying for it? Who will pay for it? Supply and demand dreams aside there is a hard reality on finding the cash. The situation where an investor pays for it, makes a loss from their tenant and recoups this by selling to the next investor for more money is just DELAYING payment - somebody, sometime has to pay for it.

 

[willair]

Secondly, why would the next 20 years look like the last 20 years? We have a trend line that is unsustainable so it will change direction at some point. !

I know several people that said the same when i bought the first IP in 1982, they said the same in 1990,and 2000,real estate is and always will be a market within a market,20 years in investing terms goes very quickly even quicker for those that think the prices in upmarket areas will drop and sit on the sidelines and complain..willair..

 

[Rockstar]

People won't / can't pay 20 times their income for a house - it simply isn't possible - unless of course they have 5 kids and send them all to work in factories!

You never know - aren't we becoming more and more part of SE Asia. Probably be healthy for a lot of people to learn how to live more within their means. What's wrong with making their kids do more work instead of providing them with a stream of the latest time wasting gadgets and toys which increasingly conditions them into receiving rather than earning.

 

[steveadl]

40% with nobody paying for it? Who will pay for it?

Remember that a 40% rise in median price (as much as I hate talking about an irrelevant median figure), doesn't mean that everyone has to have that amount of debt for it.

70% (from memory) of the housing market is Owner Occupier - amazing since houses have been so unaffordable isn't it? Anyway, back to your question and my point. You asked who can buy it if the price is 40% higher in 5yrs?

Scenario: Joe & Jane who bought their first home in Salisbury (replace with cheap suburb in your city) last year at 80% LVR, and are making payments diligently - perhaps even paying a bit extra. By the time 4yrs comes around, their house has risen 40%, and they have meanwhile paid off a decent chunk of the principal. Hey presto their LVR has fallen to 50%. They now decide to upgrade their PPOR to a more expensive suburb which has also risen 40%, but they push their debt back up to 80% of the higher price. Wanting to keep up with their friends Bob and Sue - they do the exact same process again in another 5yrs at which point they have got their dream home near the beach.

Now this is a very generalised example without figures - but THIS is who will be buying in 4yrs time. These type of buyers are quite common in today's market (and always have been). Not all buyers are a) new to the housing market, b) expecting to buy the median house first, c) fit neatly into the income/debt/median scenarios.

 

[yieldmatters]

Remember that a 40% rise in median price (as much as I hate talking about an irrelevant median figure), doesn't mean that everyone has to have that amount of debt for it.

70% (from memory) of the housing market is Owner Occupier - amazing since houses have been so unaffordable isn't it? Anyway, back to your question and my point. You asked who can buy it if the price is 40% higher in 5yrs?

Scenario: Joe & Jane who bought their first home in Salisbury (replace with cheap suburb in your city) last year at 80% LVR, and are making payments diligently - perhaps even paying a bit extra. By the time 4yrs comes around, their house has risen 40%, and they have meanwhile paid off a decent chunk of the principal. Hey presto their LVR has fallen to 50%. They now decide to upgrade their PPOR to a more expensive suburb which has also risen 40%, but they push their debt back up to 80% of the higher price. Wanting to keep up with their friends Bob and Sue - they do the exact same process again in another 5yrs at which point they have got their dream home near the beach.

Now this is a very generalised example without figures - but THIS is who will be buying in 4yrs time. These type of buyers are quite common in today's market (and always have been). Not all buyers are a) new to the housing market, b) expecting to buy the median house first, c) fit neatly into the income/debt/median scenarios.

In your example the money for the rise comes from 3 places:

1) Their savings (paying down the principle)
2) The next buyer of their place in Salisbury (highly likely to be debt - just not their debt)
3) New debt for the new place

1 is good - but not as common as people might think! 2 and 3 are unsustainable if the growth outstrip incomes. I think at a macro level so see it differently. Might work for that couple that time, but not for the whole economy when added up.

 

[steveadl]

That's where we disagree then. I believe there will continue to be cheaper houses in cities that people can get as their first home if they choose - granted the location moves further out, or it may be a unit etc. They can then use these as stepping stones to more expensive houses.

Over the years, their incomes also increase which increases their ability to pay more after their humble first purchase. ie. they may be on a combined income of $80k at the start, but after 4yrs it's gone to $90k, and 4yrs later before the next move to $100k. This is also assuming they do nothing more than plod along with their 1 home loan and don't branch out into other savings/investments (which in today's society would be a dangerous assumption).

 

[rambada]

And for every first home buyer in the market, there is a flow on effect, heard 1 to 4 - and wages will still be growing, and unless deflation occurs, compunded inflation will also occur as part of that 40%. Remember that is 40% from todays prices, if broken down into annual compounded growth, its not so hard to grasp.

 

[RPI]

I have a prediction for the next 20 years. In 20 years time there will be people on this forum predicting that that house prices can't continue to rise and that they are waiting for the housing price to crash so that they will then buy an IP. Of course they will have been waiting 20 years for that while those silly people who bought overpriced houses at $500k, $750k, $1m etc. over the next 20 years will be around here with their $2m IP's wishing they had bought more of them

A great quote when talking to an ex of mine's dad about when he bought his 1st house. His dad took him to the pub for a drink, sat him down and said something alone the lines of 'son you are f...ing crazy, how are you ever going to pay for this new house. You should of bought something cheap or just rented a house. Your young, got your first kid on the way and now you're going to be stuck with this $18,000 loan hanging around your neck for the rest of your life. I know you want listen to me anyway but I just had to sit you down and tell you' This poor guy sold the same house recently for over $600k and somehow managed to pay off that milstone of a loan years ago.

 

[yieldmatters]

I have a prediction for the next 20 years. In 20 years time there will be people on this forum predicting that that house prices can't continue to rise and that they are waiting for the housing price to crash so that they will then buy an IP. Of course they will have been waiting 20 years for that while those silly people who bought overpriced houses at $500k, $750k, $1m etc. over the next 20 years will be around here with their $2m IP's wishing they had bought more of them

To be blunt I find this kind of "blind belief" naive. Lets say in 20 years houses are $2m dollars and wages have only gone up by 50%. Then people simply can't pay for them - it's as simple as that.

I'm not saying it can't happen for particular house - a good investment somewhere that turns into something people particularly want. But sitting back and expecting the market (on average) to do so something that is plainly impossible is surprising to me to say the least.

How did it happen before then you ask? Answer is inflation and unsustainable growth in debt.