Getting a bit hot?

On page 13 of today's (Feb 20, 2010) Herald Sun - that source of all wisdom and quality, well-researched journalism - is an article entitled "Broady's million-dollar future".

Herald Sun said:
A house in working-class Broadmeadows will cost $1.2 million in 10 years if prices rise by as much as they have over the past decade.

For now, a house in "Broady" can be snapped up for a median price of $357,500, despite a 240 per cent rise over the past decade.

The million-dollar Broady market is part of a scenario painted by the REIV.
[...]
Only 9 of the 121 suburbs included in the research will have a median of less than $1 million. These include Sunbury, Frankston, Deer Park, Keilor Downs, Taylors Lakes and Healesville.

REIV research manager Robert Larocca said there was a possibility prices could rise even more than the data predicted because demand for property was increasing and supply was still tight.
[...]
But Mr Larocca warned price rises were never guaranteed. "For the next decade, history tells us we are more likely to see more moderate growth with prices doubling on average every 7-10 years"
My emphasis.

There are also photos of 4 houses from disparate suburbs with a median and "Forecast 2019 median".
Suburb.........Today's asking price...Suburb median....Forecast median
Hawthorn......$1.5 million-plus........$1,406,000........$5,226,268
St Albans......$369,000.................$360,000...........$1,012,105
Bundoora.......$462,500.................$470,000...........$1,397,059
Moorabbin.....$600-680,000...........$642,500...........$1,629,713

On the same page article entitle: "Now up go home loans".

I've just come from an auction that was listed at $370-400,000, and it sold for $495,000!! :eek: I was expecting around $450,000!

What's my point with all this?
  1. An article in a tabloid newspaper that insinuates that "you'd better buy now because houses will be worth $1m in 10 years" is suggesting to me the market (at least in Melbourne) is overheated.
  2. Similarly, articles suggesting that "prices could rise even higher" without even contemplating that "prices could stagnate or fall" (but I guess that doesn't sell newpapers!)
  3. Commentators (such as the author of this article) ignoring significant factors that affect property prices such as income levels and income growth, unemployment, interest rates and changing demographics, yet still suggest that growth can (will?) continue based purely on apparent supply constraints.
  4. Auctions attended by 100+ people, with 5-6 serious bidders pushing the price past estimation by more than 20%, also suggests plenty of heat in the Geelong market. (10% I can handle, 20% to me suggests an agent who has no idea of values or a heated market)

Not a D&G'er, but does anyone else agree with my assessment or do you have a counter-argument?

(PS. Is there a neat way of entering a formatted table?)
 
Good post

Heres the thing.

You are sitting under an umbrella on the cayman islands thinking about which country you should live in, invest in etc.

Which country has a great legal system
Which country is safe
Which country has not felt the gfc
Which country has more natural resources than any other (energy wars heating up)
Which country is geographically near the worlds fastest growing nations.
Which country has no risk of sovereign default
Which country has a strong banking system

We know the answer. Hence the reason on a world scale we have become wealthier than other countries (comparitively speaking) over the last few years.

Its is also the reason retiring overseas could be supremely attractive. Double you wealth by moving address!

Point being - who thinks it isnt a real chance that aussie realestate could and should be the most expensive in the world? It could happen......
 
Point being - who thinks it isnt a real chance that aussie realestate could and should be the most expensive in the world? It could happen......

"Most expensive" by what measure!? ;)

Yield, affordability, US$/sqm. And then where do you measure it? The whole country, major metro? I think there's a topic for a whole other thread!!

But you've made some good points about justifying "high" (relative to what??) prices and strong growth. Thanks.
 
I've just come from an inner city auction. No price range was listed but my DD suggested it should be around $440 - $460. My max on it was $463K. When I arrived I was told $420-$460K - gave me confidence that my research was on the money.

Anyway, someone's opening bid was $450K and it went straight on the market so I guess reserve was around $440-$450. The median right now was $531, but this was a lower appealing worse location than most. It finally finished at $532 with one guy even bidding against himself!! True!!

Guy #1 had the bid at $528, auctioneer tries to get $529 from guy #2 but guy#1 says "I'll pay $530"... what??? Guy #2 ended up with the property. Good luck to him. I know I would have regretted paying that for it.

My opinion agrees - Melbourne is getting overheated. I've seen this happen in 2/3 last auctions I've been to.
 
The market is possibly overheated, but who knows, I stopped buying about 3 months ago.

When I started investing in Melb in 2007 and early 2009 I thought it was ridiculously cheap compared to Perth, I still believe this to be true.



Cheers, MTR
 
Am waiting for Sydney inner suburbs to play catch up to Melbourne price rises.

Its starting to happen...rents are moving up as well.
 
I attended an auction on a 2 bedroom apartment in collins st on Saturday. No carpark, no storage space and not a particularly great apartment - went for 550k!! I am amazed....surely not an accurate indicator for the rest of the market? I may consider selling up an IP or two if people are going to pay such inflated amounts!

cheers
 
I see very little value in Melbourne at present. Forget positive or neutral cashflow; the cheapie suburbs have played catch up with the stimulus, boosts to the FHBG, very low interest rates, etc.........those suburbs have now caught up.

Even from a negative gearing perspective, praying on consistent growth after the bonanza in appreciation we've just seen is likely to disappoint. Back to the cheapie suburbs that have now lessened the price distance between their middle ring (median priced) neighbours, the problem is now woeful yields. There is a cap that renters in these areas are able to (or willing to) pay to be a tenant. The limit relates to blue collar employment income, Centrelink benefits and how they choose to dispose of their discretionary income.

I do not think we will see growth this year as we have in the past 18 months (in Melbourne) and what I've followed in Geelong and Ballarat is also now showing a level of rental affordability where the gearing (by rental cap and rising interest rates) will become risky as future growth may be more sedate IMHO.

There will be exceptions and more active strategies that may allow manufactured growth and yield, however for the traditional buy, hold, set and forget........the entry price from hereon is becoming more and more significant.
 
So they forecast prices tripling or a bit more over 10 years.

Its not impossible, but it sounds pretty unlikely to me. 14% growth a year. In outer suburban areas?

My look at history say 2001 Hawthorn median was $550K, 2009 $1.16M. So roughly double in 8-9 year.

In that period there were 5 years of >10% growth. One year of negative growth and one year of 30% growth.

As I now say in every post about rising house prices. This is a 3 component game, house, land and inflation. Building costs and expectations have gone up. Land values have gone up dramatically, especially in desired locations, inflation ticks along at 3% a year so about 35% of that 10 year increase is just inflation.
 
So they forecast prices tripling or a bit more over 10 years.

Its not impossible, but it sounds pretty unlikely to me. 14% growth a year. In outer suburban areas?

My look at history say 2001 Hawthorn median was $550K, 2009 $1.16M. So roughly double in 8-9 year.

In that period there were 5 years of >10% growth. One year of negative growth and one year of 30% growth.

As I now say in every post about rising house prices. This is a 3 component game, house, land and inflation. Building costs and expectations have gone up. Land values have gone up dramatically, especially in desired locations, inflation ticks along at 3% a year so about 35% of that 10 year increase is just inflation.

You have to put things in perspective

Aussie homes cant double the next 10 years. Can you see the aussie median being over a million bucks in ten years time? Where are the wages going to come from to pay for those increases? Imagine the interest payments alone on mortgages of that size.

Aussie median homes went from 4x median income to 8-9 times median income in the last 10 years. Do you think people could afford 15-16 times median income? I dont. Not in a million years. The higher median does not mean we will see a crash, but it does mean that capital growth will have to slow eventually. The economy cannot afford for housing to reach that point. It would be a disaster and would lead to the kind of unemployment that sees 40%-50% crashes.

Maybe the correction was for property prices to rocket? Maybe housing was so undervalued that its only now reaching the stage where its at the levels it should have been? A correction does not always need to be negative, and no doubt the quality of our homes compared to most countries is way better.

Massive capital gains cant come unless the banks throw credit at people again OR we see massive increases in wages. I dont know who is going to able to afford million dollar homes on 80k a year pre tax wages...
 
Couples are paying a million or more for a house, when thier combined income is around $150k for example.

They could have:

~$200k inheritance
~$300k from the sale of thier first home, purchased ~10 years ago, which they put plenty of tlc into.

I think this average joe $150k earning couple could afford a million dollar house, if that's what it costs to buy where they want to live, when everyone else at auction can afford a similar amount.

If others with a bigger inheritance, and/or bigger net worths from investing or whatever turn up at auctions, then maybe we'll see 2 million dollar houses before long :eek:
 
So we are relying on an inheritance now for the deposit on larger mortgages?

The only thing that can support rapid capital growth is wage growth or cheap money. The more people spend on accommodation the less they spend elsewhere. Which puts pressure on the economy as a whole. Lets not forget that retail employs more people than any other industry sector. Whats going to drive wage growth if spending drops?

Homes cannot ever reach 15x-20x average annual wage. Hoping and praying that dual income families with a large inheritance are going to prop up million dollar median's is asking a bit too much I think. There are a lot of dual income families, but there are a lot of single income homes too.

People will stop buying homes. Just like they did in Europe. More people house sharing, more people staying with family. Ownership patterns will change before you see those kind of increases.
 
G'day

I know a bloke who lives in Wantirna, outer eastern suburb of Melbourne. He watches the property market all the time to see what his house is worth.

A house of similar location, and standard within a block of his place was put on the market for $550-$580K.

It sold for $690k.

Evidently, he tells me there is a lot of cashed up Indian and Chinese buyers out there with cash, prepared to enter a bidding war.

Slim:)
 
Inheritance was just one example.

Another example is a couple I know, that paid off thier $200k home in ~10 years. Also spent $100k renovating it, and then sold it for $700k. They are now buying a house around $950k, with a $350k loan. Thier combined income is around $150-160k

And just because a block of land is worth millions, doesn't mean it has to be sold or rented as a whole. Units, townhouses, apartments, etc can be built.

The density of europe is higher than Australia's density, so I think affordable housing is going to be around for a while here in Australia. The same people that can afford a house in a new suburb however, can afford an inner metro unit, or a cbd apartment. Aussies don't have to live with mum and dad, but it's an option, always has been for many.
 
re

I agree with the posters here that the house price is becoming more and more out of reach. I mean, when I was looking for my previous IP back in 2008, a 2 bedder unit in affluent Eastern Suburbs would be around mid 400s - finaly sale price as a ball park figure. Now, over the last 2 months, the price had been at least mid 500s or close to low 600s - and thats for 2 bedders without a wow factor (e.g. larger backyard or double garage).

I have also noticed that there are so many overseas investors who are able to accept just about any offer. I believe this is because of recent relaxation of foreign investment legislations.

I feel lucky that I got into the market early, but I strongly fear for the next generation who would not be able to afford much if the median price prediction on the OP post came true. In fact, I doubt even I would be able to afford any more IP if broadmeadows are selling for 1 mil +, well, at least not in Melbourne anyway.

I am trying to buy at the moment. But every property inspection I went, there seemed to be a feeling of despiration from buyers around me - perhaps through numerous failed auctions in the past, and that usually push price way beyond what I consider as reasonable price to pay. Hard time for us investors.

Warrenkh.2010
 
Cough....cough!!!.....bulls^t!!!

The figures they are quoting are represents 14-16% per annum growth rates....this is unlikely to happen.

A more realistic growth rate at say 7% per annum would look like this:
Suburb.........Today's asking price...Suburb median....Sash's Forecas
Hawthorn......$1.5 million-plus........$1,406,000........$2,671,400
St Albans......$369,000.................$360,000...........$684,000
Bundoora.......$462,500.................$470,000...........$877,800
Moorabbin.....$600-680,000...........$642,500...........$1,220,750

Of course some of these suburbs may grow slightly faster but I used 7% as it is realisitic growth rate. Still not bad and if you think that is not possible....today the Melbourne median is $470 and average wage is 60k that means it takes about 8 times income. In 2019 assuming average wage is 893k (based on 7% growth) the average salary will be about 105k so that ratio will be slightly higher but will remain at 8-9 times salary.

Still a great profit!

On page 13 of today's (Feb 20, 2010) Herald Sun - that source of all wisdom and quality, well-researched journalism - is an article entitled "Broady's million-dollar future".

My emphasis.

There are also photos of 4 houses from disparate suburbs with a median and "Forecast 2019 median".
Suburb.........Today's asking price...Suburb median....Forecast median
Hawthorn......$1.5 million-plus........$1,406,000........$5,226,268
St Albans......$369,000.................$360,000...........$1,012,105
Bundoora.......$462,500.................$470,000...........$1,397,059
Moorabbin.....$600-680,000...........$642,500...........$1,629,713

On the same page article entitle: "Now up go home loans".

I've just come from an auction that was listed at $370-400,000, and it sold for $495,000!! :eek: I was expecting around $450,000!

What's my point with all this?
  1. An article in a tabloid newspaper that insinuates that "you'd better buy now because houses will be worth $1m in 10 years" is suggesting to me the market (at least in Melbourne) is overheated.
  2. Similarly, articles suggesting that "prices could rise even higher" without even contemplating that "prices could stagnate or fall" (but I guess that doesn't sell newpapers!)
  3. Commentators (such as the author of this article) ignoring significant factors that affect property prices such as income levels and income growth, unemployment, interest rates and changing demographics, yet still suggest that growth can (will?) continue based purely on apparent supply constraints.
  4. Auctions attended by 100+ people, with 5-6 serious bidders pushing the price past estimation by more than 20%, also suggests plenty of heat in the Geelong market. (10% I can handle, 20% to me suggests an agent who has no idea of values or a heated market)

Not a D&G'er, but does anyone else agree with my assessment or do you have a counter-argument?

(PS. Is there a neat way of entering a formatted table?)
 
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