House Prices Surge says QBE LMI Housing Outlook

Interesting support for the proponents of a rising market despite interest issues. Also interesting to see Fin Review telling the world that the RBA 0.25% was ill-considered and too early given state of the economy.


From The Age
http://www.theage.com.au/business/house-prices-set-to-jump-20091014-gwm3.html

House prices set to jump
CHRIS ZAPPONE
October 14, 2009 - 12:26PM

House prices may surge about 20 per cent or more in some of Australia's largest cities over the next three years, driven higher by on-going shortages.

Adelaide - previously considered among the more affordable cities - may lead the advances, with prices likely to be 23 per cent higher by June 2012 from a base of June 2009, according to the QBE LMI Housing Outlook.

Sydney prices may jump 21 per cent in that period, while Melbourne prices may be 19 per cent higher, the report said.

The increases are likely even with the expected rebound in interest rates as the economy recovers. The Reserve Bank last week lifted official interest rates from near half-century lows to 3.25 per cent and signalled more rate rises to come.

''While interest rates are forecast to rise over 2010-2012, the outlook for the Australian housing market looks positive,'' said QBE LMI chief Ian Graham.

''The current low interest rates will be the main driver for house price increases, which are expected to accelerate through to 2012, particularly in those markets with positive affordability and continuing undersupply of housing.''

Perth, Canberra lag

The report, prepared by real estate industry research group BIS Shrapnel, predicts Perth and Canberra, which have both seen huge rises in home values, will grow only 12 per cent in that time.

Brisbane can expect a 15 per cent rise, as can those living in Hobart, while Darwin prices may rise 17 per cent.

''Price growth in Perth is forecast to be influenced by a decline in investment in the resource sector after the record levels of recent years,'' said Mr Graham. ''Softer residential demand is also envisaged in Canberra due to weaker employment growth.''

Prices in the Australian housing market have been driven up by a chronic shortage of homes, estimated be about 56,600 in 2009.

The projected price increases will add to huge increases over the past decade.

Based on caculations from data contained in the report, provided by the Real Estate Institute of Australia and BIS Shrapnel, the median house price in Sydney increased by 101 per cent from June 1998 to June 2008.

Over the same 10-year period the median house price in Melbourne more than doubled, rising 116 per cent.

Brisbane values soared 202 per cent while Adelaide's increased 208 per cent during the same ten-year stretch. Perth's rose 211 per cent and Hobart's soared 203 per cent. The median house prices of Canberra increased 191 per cent, while in Darwin they increased 135 per cent.
 
*gasp*

Perth and Canberra to ONLY get 12% growth in 2 years?

you mean....it's returned to ... to ... NORMAL?

NOOOOOOOO!!!!!
''Price growth in Perth is forecast to be influenced by a decline in investment in the resource sector after the record levels of recent years,'' said Mr Graham. ''Softer residential demand is also envisaged in Canberra due to weaker employment growth.''

Prices in the Australian housing market have been driven up by a chronic shortage of homes, estimated be about 56,600 in 2009.

and then this....from The Australian.

A SENIOR WA banker has warned the Barnett Government the state's rebounding economy will come unstuck if the housing shortage is not urgently addressed.

NAB has been increasing its business presence in WA, adding an extra 37 business bankers last year, and planning up to 30 more this year. While part of the expansion was opportunistic, to try to gain market share from the fallout from last year's CBA-BankWest merger, Mr Whitechurch said the economy was the key factor.

"We've identified for the next 20 or 30 years there's going to be continued outperformance of the national economy," he said. "The net migration numbers alone are enough to give you a reasonable degree of confidence that this is going to be a great state."

hmmmm.......:rolleyes: sounds like another jealous reporter with the "i just don't understand! Sydney is the centre of Australia...not Perth" attitude.
 
I recall previous BIS reports (from a few years ago) that have been lampooned on SS for their supposedly wild and previously overly pessimistic outlook.

Do we give the same short shrift to these bullish future estimates? :rolleyes:
 
True, expected return isn't anything phenomenal - as Aussie said, 5% in the bank for 3yrs will get you close enough to 17% (sorry, can't be stuffed trying to work out daily compounding effect :)).

I'm more interested in the fact that this report is from an LMI provider, rather than the usual BIS bull$h!t they spew out every few months to grab some headlines. Glad to see their confident in the market, hopefully they'll be willing to take a chance on me in another year or so. :D
 
True, expected return isn't anything phenomenal - as Aussie said, 5% in the bank for 3yrs will get you close enough to 17% (sorry, can't be stuffed trying to work out daily compounding effect :)).

I'm more interested in the fact that this report is from an LMI provider, rather than the usual BIS bull$h!t they spew out every few months to grab some headlines. Glad to see their confident in the market, hopefully they'll be willing to take a chance on me in another year or so. :D

You are forgetting leverage with ur comment about about 17% growth

eg. 100k cash = 17k profit after 3yrs
100k as deposit on 1m property = 170k profit (not taking into consideration holding costs, in-costs)
 
Oh, here it is.

Didn't realise BIS were the ones behind it, sort of kills it a bit for me - though I guess QBE didn't mind putting their name to it.
 
You are forgetting leverage with ur comment about about 17% growth

eg. 100k cash = 17k profit after 3yrs
100k as deposit on 1m property = 170k profit (not taking into consideration holding costs, in-costs)

Absolutely spot on RH, the leverage of the property will leave you massively in front. Just pointing out that whilst 22% sound like a good figure, broken down into yearly returns makes it a much more normalised return for an asset class.

Hope they're right.
 
Keep your money in the bank getting 5 percent for the next 3 years and the returns wouldnt be too dissimlar...
Mate, you're joking right? :confused:

That property projection is capital gain only and doesn't account for rental yield nor any negative gearing deductions either.

So, property would be 10% pa(5% CG + 5% yield) and cash in the bank is a flat 5% (yield only).

Cash in the bank is half the projected performance of property.

Cheers,
Michael

* edit *

I wasn't going to post this personal specific stuff but thought I'd be brave and put it out there. If these projections come off then this will be the making of my personal portfolio. I've been slowly investing for a while now and am about to press the accelerator by developing my Mona Vale site. I know others are sick to death of my personal details but I also know others are interested due to the "reality" of the numbers and how it is a real life example of a Novice Newbie moving through the learning process and then the expanding portfolio phases.

So, my current portfolio is worth $1.6M with $1M debt. I'm now looking to develop Mona Vale at an additional $1.2M cost. Upon completion, assuming no capital valuation changes 12 months on, I'll have a $3.6M portfolio and $2.2M debt. Equity increases from $600K to $1.4M. Now, if I factor a 20% increase over three years and allowing for the fact that I'll be neutrally geared so not have to service it with my own cash flow, then my portfolio goes to $4.3M and still only $2.2M in debt. My equity increases from $600K to $2.1M in three years and I'm at about 50% LVR.

So, in effect, the next three years could see me go from neutral and $600K in equity to neutral/CF+ and $2.1M in equity. Watch this space, I'll blog the development as it plays out. I'm not getting too caught up in the potential, just getting on with the development while interest rates are low and vacancies still extremely low. Lets see what happens.

* endedit *
 
That property projection is capital gain only and doesn't account for rental yield nor any negative gearing deductions either.

It also doesn't account for the leverage available to property investors.

Now, if I factor a 20% increase over three years...

Okay genuine question here, does *brand new* property appreciate at the same rates as established? I was under the impression that the value of a brand new property stagnates for a few years because part of the value is that it's brand new. Hence it takes a few years to become an established property and then start having normal growth rates.

I'm in a similar situation to you Michael, but once mine are built and have been valued as brand new, I'm not expecting any real growth for at least 3 years, even if established properties are moving up.
 
Okay genuine question here, does *brand new* property appreciate at the same rates as established?
Ian,

That works for me. In effect then, new properties have a premium associated with the fact that they are new relative comparable product. In time that premium erodes and the rest of the market catches up. All that really means is that you pull forward your growth when building new and get ahead of the market for a bit. Just makes the build to sell argument a bit stronger, but for me I'm still build to hold. The early gains just means I get my LOCs in place sooner and buy more sites quicker.

Cheers,
Michael
 
True, expected return isn't anything phenomenal - as Aussie said, 5% in the bank for 3yrs will get you close enough to 17% (sorry, can't be stuffed trying to work out daily compounding effect :)).

I'm more interested in the fact that this report is from an LMI provider, rather than the usual BIS bull$h!t they spew out every few months to grab some headlines. Glad to see their confident in the market, hopefully they'll be willing to take a chance on me in another year or so. :D

I do not think you were correct. Citibank - 6mth rate 5%. Bankwest - 5 y term - 7%. I think in new months when another 0.25% up, the 3 year rate would be 7% and 5 year would be 8%.
 
I do not think you were correct. Citibank - 6mth rate 5%. Bankwest - 5 y term - 7%. I think in new months when another 0.25% up, the 3 year rate would be 7% and 5 year would be 8%.

Doesn't really matter. It's a losing proposition without leverage and after tax on the interest income, with inflation kicking out that majority of left over.
 
That works for me. In effect then, new properties have a premium associated with the fact that they are new relative comparable product. In time that premium erodes and the rest of the market catches up. All that really means is that you pull forward your growth when building new and get ahead of the market for a bit. Just makes the build to sell argument a bit stronger, but for me I'm still build to hold. The early gains just means I get my LOCs in place sooner and buy more sites quicker.

Yep, on your wavelength, doing the same thing.
 
so... we are about to experience a resources super boom, yet the resource states will lag the rust belt states? would love to see the assumptions behind this forecast
 
Guys - I can tell the exctiement is palpable.

I never saud that Putting your money in the bank was a better investment that having your money in property. Nor did I disagree that leverage, income etc were not great benefits of property.

The point of my post was that the 'article' and the 'headlines' are a beat up.

I have experienced those returns over the last 2 months let alone over the next 3 years (on property). The headlines were very A current affair and it had the desired effect.

Its like a headline coming out saying 'breaking news economists predict your bank savings account will appreciare by 40 percenbt over th enxt 8 years'

Cheers
Aussie
 
Top