Housing affordability & long term gains

[topcropper]

If things are rosy for you then why the D&G,

Am I really that doomish though?

I started a thread on Jan 1 with my predictions for the year,....

http://www.somersoft.com/forums/showthread.php?t=48442

...and I predicted cheap property to be flat and expensive to drop another 10%. Hardly a doomish forecast? And it's not like my unemployment forecasts are wild. Even the government and property sprukers are going for 8% but they were no where near that figure Jan 1. My 8% forecast is looking like a best case one now, as the job loses excellerate.

I think the FHOG is stupid, and you will see why shortly. Of course there's always the chance that the silly fools might even increase it I suppose



Australia deserves to have the worlds most expensive housing. Look at our wealth and situation. Stable government, and our flexible interest rates and a dollar that automatically crashes in a commodity slump is fantastic.

Australia's house prices 12 months ago were priced to a booming economy, full employment, and a never before seen terms of trade. So now that that is over, why a boom?

I just comment every now and then when someone like yourself and others here suggests we are about to have a property price boom at the start of a recession. I can't see how it can happen, when hundreds of thousands lose their jobs. There was no house price boom after the 1981 recession. House prices were flat until 87. There was no house price boom after the 1990 recession. House prices were flat until 1996. And remember both these periods were high inflation, high interest rate periods, so flat house prices in real terms was a substantial loss.

I see no house price gains, so I choose not to invest now. But if house prices did come off, I'd be interested. The share market seems way better value to me, so that's where I'm looking.

I'll keep puting in my two bobs worth as does everyone else.
We will soon see whos correct. I hope you bulls are, as I don't want to see me and my mates and other Aussies lose money and I definately don't want to see anyone lose their jobs.
Good luck.

See ya's.

 

[BayView]

Over here the glazing is used mostly to keep the rain, bugs and dry leaves out.

Isn't it just to keep the Global Warming fanatic element that influences the Gubbermint happy?

 

[keithj]

There was no house price boom after the 1981 recession. House prices were flat until 87. There was no house price boom after the 1990 recession. House prices were flat until 1996. And remember both these periods were high inflation, high interest rate periods, so flat house prices in real terms was a substantial loss.

Here is a short peice about what happened in the early 90's recession.

And graph of prices using 5 different indices.

 

[topcropper]

Thanks for that Keith.

That's a bit different to what I remember, and I've seen information that disputes those figures.

Anyway, lets say they are correct, interest rates in 1990 were about 16% and fell to 10% by about 92. Forget what inflation was, but it was high too, so in real terms there was no price gains. [perhaps the figures I've seen are in real terms, ie, after inflation]

See ya's.

 

[keithj]

Anyway, lets say they are correct, interest rates in 1990 were about 16% and fell to 10% by about 92. Forget what inflation was, but it was high too, so in real terms there was no price gains. [perhaps the figures I've seen are in real terms, ie, after inflation]

Absolutely... in real terms housing lost value. I'd say a range of +3% to +10% over 3 years as just about flat. The 1st 2 years was 0% to +5%.. even flatter.

Inflation fell from around 7% to <1% over that period......

I've no idea what inflation will be like over the next 5 yrs, but I'm pretty sure IRs will be higher than todays. I too would expect housing to be flat, and -ve in real terms.

 

[boz]

this is suppose to be in real term at net of inflation

 

[The Fence]

We've (TC & Me) discussed this chart before Boz...the unemployment line swings betwen 10 and 5......the median house price is an ever increasing upward moving line on average...and I have pointed out that those lovely arrows that point towards each other are revealling an ever incresing gap between arrow heads...fair to say...?

I also heard somewhere that 5% unemployment is considered full employment...so a pull back is expected ...not...?

Unemplyment average...what is it...?

Current unemployent I dare hazard a guess would be well below the av...? Coming off record lows...what does one expect in a recession....to revert back to the average by going over it...thereby creating an average...a long term indicator of emplyment history...long term being the operative.

Interest rates average...who knows it...?
I do know that the horrendous high rates do not last very long over history and neither do the very low rates...long term that is..... but the average I would think is closer to the lows than the ridiculous high(s).

House pricing in the USA.....dropping 30-40%...?...BUT...coming off ridiculous high...?...I expect this to be normal market forces and obviously exacerbated by the credit shennanigans.....

Is this thread forgetting supply and demand figures (of property)...oh sorry it's in my signature, just in case.

Is it right that 30% rent, 30% own outright, and the others are mix of OO's (with mortgage) and investors (with or without mortgage).....?

The renters won't sell, the outright owners are less likely to sell, and granted, the rest may well come under pressure of unemployment and recession, but surely they don't represent the whole market about to tank...?

I choose to take a glass 1/2 to 3/4 full outlook ALL the time....

I agree with TC's sig...long time dead....

 

[chilliaa]

Hey you know i think we are all actually moving into a pretty much consensus view

Topcropper's and Keithj's posts are basically saying the same thing but from different angles (ie on a 5 year view point overall property will probably meander (spelling?) up or down 10% odd.

Shadow provides some excellent reasons why average residential property prices wont fall by 40% accross the whole of the country.

But this is very different from those extreme calls out there for residential property to fall accross the WHOLE country on average by 40%. (By the way what happened to Non-Recourse, i noticed he has disappeared into the Sunset!!!!!!!)

Just as you have to be carefull listening to uber-optimists during bullish economic conditions i think you have to be very careful paying to much attention to the ultra D&G'ers during tough economic conditions, BOTH can be serious wealth destroyers over the long term.

 

[WinstonWolfe]

(By the way what happened to Non-Recourse, i noticed he has disappeared into the Sunset!!!!!!!)

NR was banned......who would have thought.....

Besides, he genuinely had a business proposition fall in his lap that would eclipse anything reported on Somersoft, apart from some of Daz's feats.

I keep in touch with him because we are involved in the same commercial sector.

 

[Perp]

This seems like as good a place as any to share this Dilbert strip that appealed to me:

 

[Sunfish]

NR was banned......who would have thought.....

Actually he wrote a note to say he he was leaving voluntarily, received some good will messages and the thread was nuked. Policy is such that you can't say "goodbye" if you sit on the wrong side of the chamber.

But then, those on the right side of the chamber just roll up their swag and ride off, with no message to their faithful at the time and at a higher rate (of parting). :bummer: Maybe 'twas into a bright new dawn, maybe into a dark moonless night. They don't come back and tell us. LOL

Kerry Packer hasn't come back to tell us that he was wrong when he said There ain't nothing (expletive deleted) there!. But I am still waiting for a Postcard from Hawaii from the dozens of Full speed ahead! Damn the torpedoes! property investors who were assuring me, and others, in '04 to forget rental return, go for cap gain and that is only happening in Sydney. Forget Perth or Townsville! (Seriously, I do not exaggerate.)

Why am I posting this? Am I some sort of masochist?

 

[WinstonWolfe]

Why am I posting this? Am I some sort of masochist?

Nah SF, you aren't a masochist.....you're just showing the wisdom of your years and broader life experience.

I still believe there's no way the median property value across Australia can be sustained at >6 times median wage. Eventually, one way or another, prices will come down in real terms......or the std of living for many Aussies will deteriorate.

 

[yorke]

...and I predicted cheap property to be flat and expensive to drop another 10%. Hardly a doomish forecast?

And it's not like my unemployment forecasts are wild. Even the government and property sprukers are going for 8% but they were no where near that figure Jan 1. My 8% forecast is looking like a best case one now, as the job loses excellerate.

I think the FHOG is stupid, and you will see why shortly. Of course there's always the chance that the silly fools might even increase it I suppose

Is it because it upset your prediction of cheap properties staying flat or were you actually looking to buy a cheapie only the FHBs stuffed up your plans ?
If you mean that the FHOG is stupid because its not fair then I agree with you. Instead of a fixed $7K which disadvantages FHBs the more the median prices goes up they should work it out as a percentage of the median property price, say 5%. That way the current buyers would get a similar benefit as someone who bought theirs when median prices were $150K

As for you being doomish I don't know, first you say look from the top and are bearish

I'd disagree there. Perhaps it shows how some of us on here can have such different views on where things are going. I, and I'd guess most of the others who are bearish are starting at the top and working down. Going from bottom up, I agree, things look great. Where's the doom and gloom?

Manufacturing is buggered. Meaning primary industries in Australia are even more important to us than they've ever been. It's either primary or secondary industry that starts generateing the wealth, which then allows most people to work in tertiary or service industries where the wealth then snowballs as it moves on.

then you look around you and say

Yep, rosey in my parts too. I don't know a single person who's lost a job nor anyone even in trouble. My part of the world has never had it better. New industries in town started up, couple of good seasons and prices so the farmers are cashed up, worker shortage, rental shortage.

Don't you find that a bit contradicting ? Or do you see something in your crystal ball that causes you to be bearish ?

Australia's house prices 12 months ago were priced to a booming economy, full employment, and a never before seen terms of trade. So now that that is over, why a boom?

Why not ?
But seriously, who is talking about a boom ? If we go back to the old average growth rate of "house prices double every 7 years" I'll be happy, at least until the next boom.

I just comment every now and then when someone like yourself and others here suggests we are about to have a property price boom at the start of a recession.

Sorry but I recollect saying that, perhaps you could paste a link to the post where I said that here. Or maybe you've read that I said that on some other site ?
I do remember saying that it was a good time to buy when the FHOG got increased and the prices did move up nicely, but I wouldn't go as far as calling the 10%-20% rise in the lower end market a boom. Boom is what we'll see after/if the inflation rate goes into double digits. LOL

I can't see how it can happen, when hundreds of thousands lose their jobs. There was no house price boom after the 1981 recession. House prices were flat until 87. There was no house price boom after the 1990 recession. House prices were flat until 1996.

Really ? Are you talking about a specific area or the whole country ?
Because here in Perth it was business as usual and in the 7 years between 1981-1987 prices did double.

I see no house price gains, so I choose not to invest now. But if house prices did come off, I'd be interested. The share market seems way better value to me, so that's where I'm looking.

And you are telling me this because....
If prices did come off I'm sure you wouldn't be the only one who'd be interested in getting some bargains. As for investing in the share market I've had some of my assets invested in shares for 20 yeas now, you don't need to convince me that some stocks are good value.

 

[topcropper]

Don't you find that a bit contradicting ? [that things are so good right now] Or do you see something in your crystal ball that causes you to be bearish ? .

I can't believe you keep bringing up this point about how good things are now? When things are so good that it's hard to see how things can get any better, that's a sure sign that it's time to be bearish. And conversely when things are bad.

All markets are forward looking, doesn't matter if it's property, shares, wheat, gold, oil, or anything. It doesn't matter how things are now or last year, the important thing is the future. Now, or the past is irrelevant.

This is a simple rule of any market.

But seriously, who is talking about a boom ? If we go back to the old average growth rate of "house prices double every 7 years" I'll be happy, at least until the next boom. ..

OK, great stuff. So you think it's steady as she goes then. You must think what's happening in the rest of the world regarding trade and the lower commodity income we will now get has no effect on aussie property. I hope you are right and I'm wrong then. I happen to think property will be flat for a while.

Are you talking about a specific area or the whole country ?
Because here in Perth it was business as usual and in the 7 years between 1981-1987 prices did double. .

Did property prices really double in Perth from 81 to 87? There was a massive boom from 87 to 89. I'd love to see some more accurate figures than the ones on that chart you posted. Does anyone have the actual figures? Anyone have some RP data or something?

Don't forget, inflation and interest rates were huge at that time. I remember getting 14% in a term deposit in the 80's. Property doubling every 10 years is going backwards at such high interest rates and inflation. The important figure is growth after inflation. All the booms in the 80's weren't really as big as most think.




Look, I usually just put up my point of view and then leave a thread. I don't like going on and on, and I think most people on here get sick of that too.

So you think property will be good from here, and I think it will be flat for a while. Lets leave it at that eh! In 12 months we will know who's right, and if you are right there is big bucks to be made, so get in there and buy up.

See ya's.

 

[WinstonWolfe]

Thanks for that Keith.

That's a bit different to what I remember, and I've seen information that disputes those figures.

Anyway, lets say they are correct, interest rates in 1990 were about 16% and fell to 10% by about 92. Forget what inflation was, but it was high too, so in real terms there was no price gains. [perhaps the figures I've seen are in real terms, ie, after inflation]

See ya's.

TC, I recall things the way you did.

The figures Keith has quoted are national averages.

And if Andrew Forrest and I were in the same room, the average wealth of the occupants would be $1.2billion.

I recall the property markets of the capitals were not synchronized at the time. Sydney went through strong growth during the mid and late 80s (I had a friend sell his Bondi Junction terrace for a huge profit around 87 and move to a period house in one of the blue chip burbs of Perth for similar money. He then cleaned up on growth in the Perth market which lagged Sydney.

When you have a rolling property bull market, from a previous recession, and then a rolling slow down, the national figures are going to mask how bad things were at a local level.

 

[yorke]

I can't believe you keep bringing up this point about how good things are now? When things are so good that it's hard to see how things can get any better, that's a sure sign that it's time to be bearish.

"how good are things now" ? We are in the middle of a GFC , what are you waiting for, WW3 ?

Did property prices really double in Perth from 81 to 87? There was a massive boom from 87 to 89. I'd love to see some more accurate figures than the ones on that chart you posted. Does anyone have the actual figures? Anyone have some RP data or something?

What the matter, Reiwa data not good enough for you ? I'm not sure they had RP data back in the 80's and if it doubled at the top end as well but I am sure that the low end of the market did. Some of the cheapie 1 & 2br flats in the CBD area even tripled.

Don't forget, inflation and interest rates were huge at that time. I remember getting 14% in a term deposit in the 80's. :eek

ah , the old ' but in real terms' argument. If you had the cash to get 14% on your money you could also use it to buy a property and save yourself the rent money.

: Property doubling every 10 years is going backwards at such high interest rates and inflation. The important figure is growth after inflation. All the booms in the 80's weren't really as big as most think.

Add the rent you save by owning your own place and the numbers start to look even better. Or do you think you could still rent a house near CBD for $60/week ?

So you think property will be good from here, and I think it will be flat for a while. Lets leave it at that eh! In 12 months we will know who's right, and if you are right there is big bucks to be made, so get in there and buy up.

I think you've been saying they'd be flat for a few months now.
Buy up now ? sell in 12 months ? I think you've got your timing wrong TC. Another couple of months or so and I'm looking at selling the ones I got 6-8 months ago. If I knew they go up so nice and rates so low I would have bought an extra one to sell it to you now.

 

[yorke]

TC, I recall things the way you did.

The figures Keith has quoted are national averages.

Of course you would, Keith's figures are national averages and Reiwa's as median prices for Perth so they can't be right.

I recall the property markets of the capitals were not synchronized at the time. Sydney went through strong growth during the mid and late 80s (I had a friend sell his Bondi Junction terrace for a huge profit around 87 and move to a period house in one of the blue chip burbs of Perth for similar money. He then cleaned up on growth in the Perth market which lagged Sydney.

Is that really true ? (no, not about you having friends ) Are you really recalling that or is it just some anecdote you've read somewhere ? I didn't think you'd be old enough to remember the 80's let alone have a friend old enough to own property. For some reason I was under the impression that you'd be a young whipper snapper who hates BBs.
Anyway, during that time I used to live in Mosman Park and worked across the river in South Freo but my recollection is slightly different to yours. Perth property prices in blue chip areas started to pick up just after Bondy won the America's Cup and further accelerated from around 1985 so by 1997 they already reached silly prices. It was all on the the back of false promises of $$$$$/week rental prices that yanks were supposedly going to pay before/during and after the race. (specially along the ocean from Fremantle to Scarborough and along the Swan river to Perth. )
After 1987 the high end flattened and got further affected by the stock market crash so the growth over the following years was minimal. The boom between 87-89 was caused mainly by the low end pushing up median prices. ( like we're likely to see happening in Sydney when the median prices for this quarter will come out, high end prices flat but median prices pushed up by the low end of the market)

 

[Perp]

For some reason I was under the impression that you'd be a young whipper snapper who hates BBs.

Having met WW, I can assure you that he's a bit too ... let's say "mature" ... to be classed a "whipper snapper", except perhaps by somebody in their 80s.

 

[topcropper]

ah , the old ' but in real terms' argument. If you had the cash to get 14% on your money you could also use it to buy a property and save yourself the rent money.
.

You have shown you are not real bright yorke. If your not smart enough to realise that all investments must be compared to inflation, then I reckon you are wasting your time investing here. You should head over to Zimbabwe and check out what's happening there. It's the boom of a lifetime mate.



That's it for me on this thread. Lets save the rest of the abuse or congratulations for 12 months time when we know the outcome. Good luck.

See ya's.

 

[yorke]

If your not smart enough to realise that all investments must be compared to inflation, then I reckon you are wasting your time investing here.

Is that so, since you are an astute investor what would you suggest was the best investment for the 80's ? Keeping the money in the bank to earn a whopping 14% and then pay half of that in tax ? (you may also recall the tax rates during that times) Perhaps a small gamble on the stock market ? No , wait ! You'd buy gold at US$600 and sell it at US$400
You talk about real terms and compare only the property CG against inflation, what about rental income or rent saved if you were a renter, should you also include that ?
And you telling me that I'm wasting my time on a property investment forum. LOL

You should head over to Zimbabwe and check out what's happening there. It's the boom of a lifetime mate.

But I'm sure you'd rather keep your money in the bank there, to earn the high interest.

That's it for me on this thread. Lets save the rest of the abuse or congratulations for 12 months time when we know the outcome. Good luck.

Yeah, no worries...if you think that your 12 months from now prediction will be more accurate then one you made at the beginning of the year I'll congratulate you.