Housing back to 1997 prices??

Hi All,

I have just finished reading Harry Dent Jr’s book ‘The Next Great Depression’, and he states that US housing prices will correct themselves in line with 1997 prices. What do you all think? He believes that housing prices have increased too fast in comparison to building costs and population increases. He also believes that the recession will be a long term process and we are only seeing the start of it.

What do people think will happen in Australia. I would like to think that we are not going to be as affected as the US, but Harry Dent Jr’s predictions are quite scary.

I currently am in the position to buy a house/unit around the $350K mark, but think I should sit on my hands for the time being. I am eligible for the FMOG but I am starting to believe that prices here will continue to drop especially in areas of high unemployment.

Any advice for me?
 
He believes that housing prices have increased too fast in comparison to building costs and population increases.
.......

I currently am in the position to buy a house/unit around the $350K mark,

It is hard to imagine a house of $350k has a lot of fat built into it - the value of the govt charges/diesel to cut the block up plus the developers holding costs plus the value of construction materials and labour would be....?
 
Any advice for me?

Yes, stop reading crap :eek:

Read our Autumn newsletter instead LOL. (I have removed the advertising)

The #1 question we get asked all the time: “Is it is a good time to buy now?
Let's look at a number of factors affecting the property market in an attempt to expose the answer to the #1 question we get asked all the time: “Do you think now is a good time to buy?”
Low Interest Rates:
Interest rates have been cut again in April by the RBA. Admittedly, only by 0.25% this time, with less than half that (0.1%) passed on by 3 of the big 4, with the hold-out being NAB which passed none of it on. We believe variable rates will continue to come down. With Westpac saying in their Market Insights Report of April 2009, “We continue to expect the cash rate to fall to 2.0% by year’s end”.
On the flip side, some fixed rates are on the rise because, according to our money market contact, “Interbank swap rate for the 3 and 5 yr products had a bounce and were looking to stay up. This increases the cost of funding to the lender, thus for the lenders to maintain their % margins they must raise by at least the same as the increased cost of funds, or in fact slightly higher”. This of course may just be a bounce.
So, to fix now or stay variable? Most long term investors choose to have at least some of their loans fixed. This gives them certainty and allows them to budget for their mortgage repayments. Choosing to go variable allows you to benefit from falling rates but you have no protection when they rise again. There is no right answer, it is an individual’s choice.
Credit getting tighter:
The major lenders are now requiring evidence of genuine savings and most have pulled back from 100%, 97% and 95% lends that were around a few months ago. 90% LVR’s are still available but it looks to be scaled back to the standard 80% lends for most of us soon. Some investors see this as a good thing, as only those with the ability to save or draw on other equity (and not actually rely on the FHOG & boost for their entire deposit, as per many First Home Buyers) will qualify for finance.
Short Supply:
The HIA, Australia’s largest building industry association forecasts a shortfall of over 46,000 dwellings in 2008/9 and this is predicted to continue into 2009/10 and 2010/11. According to John Edwards of Residex, NSW has 63% of Australia's unmet demand, Victoria has 16% and WA has 14%.
So this must point to NSW being one of the best places to invest in residential property and goes some way to answering the #2 question we get asked : “Where should I be buying?” But you can’t just buy anywhere in NSW and expect to do well.
Huge Demand:
Demand: The Federal Government did announce a cut in immigration in March: The 14% cut in skilled migrant arrivals is around 18,500 people, or an overall cut of 8.7%, as there were 213,000 permanent overseas migrant arrivals in 2007/08. (according to John Edwards of Residex). However, we believe this will have almost no impact on demand. Why? It is interesting to see what the official figures for immigration do not contain. For example, the official figures do not include arrivals from NZ (as we have a pretty much open border policy with NZ) nor do they include foreign student arrivals (many of the wealthy parents of whom, buy property here for their kids to live in while attending university). We are advised the real immigration figure is something more like 300,000! So a cut of 18,500 is just a drop in the bucket.
Unemployment expected to have no effect on the Housing Recovery:
In our last newsletter we indicated that unemployment was “possibly the only dark cloud on the horizon”. Since then Westpac has published its Market Insights Report of April 2009, which states (in part):
The housing recovery arguably is already on track and the last two recessions confirm that the housing recovery will not be derailed by rising unemployment.
We are happy to defer to the Westpac economists’ view in this instance.
Our View of the Market, in Summary:
We are active in the marketplace every day and we observe 3 distinct markets in 1 at present. The lower end, where First Home Buyers (FHBs) are very, very active has experienced price rises of up to 10% in the last few months. Mid-priced properties are holding steady – no falls or rises but sales being achieved. Top end properties $1M+ are taking a hit of 10 – 20% in some instances. Therefore, all things considered, we believe now to be possibly one of the best times to be buying.
End of newsletter.
 
It is possible for a house to drop back to 1997 prices, but I'd doubt it will happen.

For example; my own house is currently worth around $700k.

It is a 24 square house.

To rebuild it would cost no change out of $300k.

The land under it is worth about $350k.

The price for us to buy the property in 2000 was $307k.

In 1997, the price might have been $250K, or $200k? I don't know. Maybe the price didn't move from 07 to 00? Call it $250k.

There is no way the place would drop back to this figure ever in the future, by my estimation.
 
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And we are still not in a RECESSION !

Unemployment does seem to be a factor so we will have to wait and see what happens there. Lots of factors at play.

Interesting times, yet again.

Regards
Graeme
 
Hi All,

I have just finished reading Harry Dent Jr’s book ‘The Next Great Depression’, and he states that US housing prices will correct themselves in line with 1997 prices. What do you all think? He believes that housing prices have increased too fast in comparison to building costs and population increases. He also believes that the recession will be a long term process and we are only seeing the start of it.

What do people think will happen in Australia. I would like to think that we are not going to be as affected as the US, but Harry Dent Jr’s predictions are quite scary.

I currently am in the position to buy a house/unit around the $350K mark, but think I should sit on my hands for the time being. I am eligible for the FMOG but I am starting to believe that prices here will continue to drop especially in areas of high unemployment.

Any advice for me?

Is your first name Glenn?...................
 
.....but I am starting to believe that prices here will continue to drop especially in areas of high unemployment.

And another thing.........why would you start a search for your first property in areas of high unemployment?:eek:
What kind of DD criteria is that for a property you want to have high CG?
 
Is your first name Glenn?...................


Ha, ha, good one.


gstevens, I agree with the others. Most decent houses around the 350k mark are about at cost of production for the labour and building materials then the land. How could this then drop back to 200/150k or so? Considering how many developers are going under right now, there couldn't be much fat in there surely.

OK, I suppose it could happen in an event worse than the great depression. So you need to decide if we are headed for a greater than great depression event.

See ya's.
 
Hey all thanks for the comments.
I think some of you may have missed the point of the post. I was trying to get some opinons of what you think the market will do in Australia.

Sorry I should not have mentioned the 350k - 5 bedroom house in a high unemployment area...lol

It appears that most of you think that the market is heading up with the economy which is good news! (I just hope that your sources are not A Current Affair and Today tonight...lol)

Thanks again
Glenn
 
By the way. I have a good friend that just bought a 3br Villa at Casuarina Beach at Kingscliff, Northern NSW. It is one block from the beach and cost him 345K down from 600K(apparently).

Also have a friend that lives in Inverell, NSW - just bought a new 3br unit for 220K or 195K after FMOG.

Cheers
Graeme
 
Hi All,

I have just finished reading Harry Dent Jr’s book ‘The Next Great Depression’, and he states that US housing prices will correct themselves in line with 1997 prices. What do you all think? He believes that housing prices have increased too fast in comparison to building costs and population increases. He also believes that the recession will be a long term process and we are only seeing the start of it.

What do people think will happen in Australia. I would like to think that we are not going to be as affected as the US, but Harry Dent Jr’s predictions are quite scary.
In the US, yes. Here no.

- we have low government debt, low inflation
- we have not had a complete collapse of the economy like the US.
- The US government put $20B in to GM then let it go bankrupt, our government may be a bit loony but its not that loony.
 
Hi all,

I know about the FHOG( First Home Owners Grant), but what is the FMOG??

To think about what our world would be like in a situation worse than the great depression, does not warrant the time. With massive unemployment, foreclosures everywhere, food shortages and starvation, it is just not possible to prepare yourself for it. There would more than likely be wars, conscription, and anarchy. Nobody can prepare for that other than leaving the country for a 'safer' place. Basically not worth thinking about. Therefore......

The other options left worth considering include a deep recession (I believe we are there despite nice numbers saying otherwise), possible inflation, and/or boom somewhere down the track. Buying a PPOR for $350k, does not have much downside, with the risk of missing the boat should/when conditions return to 'normal' (even though there is no such thing as normal).

I'll hedge my comments about the property you are looking to buy with a depends on where you want to buy. If it is the middle of nowhere with declining population, then that is different to the main cities.

bye
 
Thanks for the comments. Just to sum up what people have written:

Ausprop - sorry don't understand (may have been at the pub when written)
Property Unity - Very good answer, cheers
Bayview - Offers good opinon
quoll - funny
big tone - funnier
PropertUnity - missed the point - probably has trouble reading
topcropper - decent
rahvi99 - pessimist
ColonialBoy - optimist
Bill.L - spelling be or is it bee, otherwise good comments
farmilor - Harry Dent fan aka legend

The most unfortunate trait a human can have is a closed mind.

Cheers
 
I read that book a few weeks back and found it to be quite interesting. It needs to be noted that this is the same guy who was predicting a massive boom when it happened although the share markets never hit the peaks he suggested they would. SO he has made some good calls in the past and he has made some bad ones.

If you read through the entire book, he was actually very positive about Australia. He felt that our close location to Asia, increased skilled immigration and vast resources meant that we are not going to see collapse like the Americans have. So while things may slow a bit we should not get smashed as badly as a lot of people seem to think we will.
 
1997 prices eh ... boy, I'd love to be able to buy my first house again for $35k. That area is well in the $250k+ now. Be a good $120k to build it from scratch too.

Or this house ... it was $40k in 2002 so probably also $35k. Currently $180k, again $150k at least to build. Bit of room there to drop.

Or my last house .. that time was right after the place crashed, so maybe $20k in 1997. Would cost about $350k to rebuild. Can't see that happening either, most I could see it dropping to is $70k or so.

But I could see things going back to 2004 or 2005 in SA, things have got a wee bit pricey of late. Pick a different year for Sydney.
 
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