I'm calling it... 2015 is the peak

Discussion in 'Property Market Economics' started by TJamesX, 27th May, 2015.

  1. TJamesX

    TJamesX Member

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    Haven?t been on SS for a long long time.... but always enjoyed the economics forum and debate.

    I?m not a housing perm bear (bought first home in 2007 ? thinking I was buying at the top, for family reasons) but I have always been intrigued as to why house prices didn?t get hit that bad in late 2008 when the GFC hit... I thought at best it would hold its nominal value steady for a long time. The recent dramatic run up in (particularly east coast) prices has been the real surprise... and it has risen to such an extent that I'm happy to risk my nonexistent internet reputation and the potential to be cast as Steve Keen martyr on the following statement;

    In 2035 real house prices (average across markets) will be lower than in 2015 and this year will be remembered in hindsight as the peak in Australian house prices for a very long time.

    And I think the risk is that it could actually be longer. I'm not going to predict nominal price drops because I think the Govt will do everything it can to stop what could happen (including blowing inflation up in a big way). But my essential position remains that house prices in 2035 will be lower relative to everything else (incomes/food/rent etc etc) than it is today.

    A few of the fundamentals;

    1. Govt current account deficit will not be able to support broad based fiscal help (ie increase stimulus through lower taxes and increased spending)
    2. State Govt balance sheets are in bad shape
    3. Private balance sheets (read households) across the Australian economy are collectively stuffed. We would have fared much better if the peak was in 2008, but now there is no wriggle room.
    4. The economic fundamentals for our economy are much worse than in 2008/09, unemployment and underemployment is entrenched and getting worse
    5. No resource boom to support the economy
    6. No room left for monetary policy to go

    The trigger - jobs and income;

    Forget interest rates (they won?t go up), bond rates and inflation. The most significant factor holding pricing at current levels is the entrenched belief that real estate prices cannot go down in this country, this drives pretty much every buyer in the market..... and I think this belief is about to be tested in a big way....and once this nexus is broken the fundamentals will take over.

    I know these debates have probably been done to death, but I've never felt certain on this until now.... :eek:

    -------------------------------------------------

    Edit - added graph below of ABS real house prices which reflects my above post in chart form


    [​IMG]

    Data taken from http://www.propertyobserver.com.au/forward-planning/investment-strategy/market-trends/22658-ytc-monday-may-13-feature-soos.html
     

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    Last edited: 28th May, 2015
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  2. jerrybee

    jerrybee Member

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    It peaked in 2002, then we had a decade of stagnation, which is effectively a drop in real terms (I believe this is what you're referring to, not an "actual" drop / big drop). Your prediction isn't really different from what most of us here expect so it's not exactly a brave prediction. These things work in cycles.

    I'd be more interested in hearing crazy predictions, like it'll double again from this insane point, which we've seen in places like Hong Kong, Shanghai etc. Or it'll crash - houses in Mosman will be worth 100k after a triple back-to-back recession / war / flood. For the record, I DO NOT expect either of these scenarios to happen, but what you've said is not as bold as you think it is.

    Basically, if you're going to say "I called it!", you gotta give us something more ambitious than what 90% of this forum already predict:)
     
  3. pinkboy

    pinkboy SS Lookerafterer

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    I'm going to make myself a Dilmah and settle in for the evening.


    pinkboy
     
  4. see_change

    see_change Apprentice Timing Lord

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    I think this a normal cycle and we're getting closer to the peak ....

    In Sydney ...

    Seen it several times before and every time it happens , new entrants either predict that it will keep on going forever or it will be the mother of all crashes .

    Cliff
     
  5. jerrybee

    jerrybee Member

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    Both scenarios are "exciting". But the truth is painfully boring. It just stutters along, muted, for a decade.
     
  6. TJamesX

    TJamesX Member

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    I'll have to dig up the data, but I'm pretty sure real houses are much higher now than in 2002 and 2002 definitly wasn't any peak (real or nominal). The only reason for distinguishing is because there is a risk of inflationary break out...

    but the impact is the same, house price purchasing power in my view has peaked... which if it does occur (and I think it will) will be a fundamental break in a 20-30 year trend

    I'm being 'somewhat' cautious because of all the other bears that have tried and failed ;).... but I'm still saying its a fundamental break from trend to the downside and we will look back and say - yep 2015 was it...
     
  7. willair

    willair xx

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    Last time I had a look at the data,over 60% own their house outright,and the normal cycle the equities markets implodes first,then 18 months later the crying game starts in property,or just add the simple word "WHY" into the conversation if you are a independent thinker,and read six month old newspapers..
     
  8. Shadow

    Shadow Evil Specufestor

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    Since 2003, house prices and incomes have increased by roughly the same amount - i.e. Australia's national house price to income ratio today is pretty much the same as it was in 2003...

    [​IMG]
     
  9. dajackal

    dajackal Member

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    Meanwhile interest rates have come down to record lows increasing affordability, savings ratio has increased since the GFC, immigration has increased and vacancy rates are still low.
     
  10. see_change

    see_change Apprentice Timing Lord

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    The most interesting and informative chart shadow has posted is the long term average , on an exponential scale , which last time he posted it had just come back to its long term average .....

    Shadow , has it changed at all ?

    BTW , 2003 was the peak in Sydney .

    Cliff
     
  11. Aaron Sice

    Aaron Sice Seldom Seen Kid

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    the house price malaise been and gone, bruh - was called the "noughties".
     
  12. TJamesX

    TJamesX Member

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    House price to incomes is not the same as real house prices, household income has grown for a number of reasons (historically) - I've added a chart to the OP which explains more clearly what I'm talking about.

    Aus houseprices across the board have increased for 20-25 years (in real terms) - I'm calling for this trend to fundamentally break.
     
  13. Shadow

    Shadow Evil Specufestor

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    Actually, Australian house prices have been increasing in real terms since the 1950s. It's been going on for nearly seven decades now.

    It's a brave call, to call the end of a 70-year trend...

    [​IMG]
     
  14. Shadow

    Shadow Evil Specufestor

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    These are my latest charts...

    Residex House Price Index for Sydney - Linear and Log Scale... http://i187.photobucket.com/albums/x308/LPShadow/Residex-Sydney-April-2015.png~original

    Sydney House Price to Income Ratio... http://i187.photobucket.com/albums/x308/LPShadow/Sydney-Bubble-01.png~original

    Sydney Mortgage Repayment to Income Ratio... http://i187.photobucket.com/albums/x308/LPShadow/Sydney-Bubble-02.png~original
     
  15. TJamesX

    TJamesX Member

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    More or less yes... end of 50 year trend, but the last 35 years from 1980 were more pronounced (this is the key trend that cannot continue IMO)

    [​IMG]

    3 key factors driving real price growth in the last 35 years in particular will no longer continue in my view.

    1) Addition of another income to working households

    2) Rise in demand for private debt to fund purchases

    [​IMG]

    3) which was largely facilitated by a 35 year trend in the reduction of the cost of debt

    [​IMG]

    The underlying debt cycle is much larger than the grow/recession business cycle. In essence I think Keen's premise was right, he was just early, but I don't necessarily agree with all his conclusions.

    The media attention provided towards Govt debt in our economy is a total red herring. Private debt is much more of an issue.

    ?The household sector holds more debt than the non-financial business sector and all levels of government combined. And as a proportion of GDP more than any other comparable developed economy.? - Saul Eslake
     

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  16. TJamesX

    TJamesX Member

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    Agree with the logic, but I actually do think this time/point in the cycle is different - the trends that are driving this are longer than a most professional careers... hence it takes the market by surprise when it happens
     
  17. jerrybee

    jerrybee Member

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    How much do you have invested out of curiosity?
     
  18. TJamesX

    TJamesX Member

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    I'm not a seasoned property investor (I have a PPOR without mortgage), but have followed the market with interest for a long time. Most of my 'investments' are in private businesses and cash at the moment.
     
  19. Shadow

    Shadow Evil Specufestor

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    It only appears that way on the chart above because of the linear scale.

    In percentage terms, the most recent rise is smaller than earlier rises - i.e. a doubling of prices on the right of the chart displays as a steeper line than a doubling of prices on the left of the chart.

    In fact, if you look at Stapledon's actual data, the earlier rises were much stronger. Prices more than tripled in the decade from 1972 to 1982.

    10 YEAR NOMINAL HOUSE PRICE CHANGE (Stapledon and ABS)

    2002-2012 +81% (ABS index from 78.8 to 142.8)

    1992-2002 +90% (Stapledon $141,170 to $268,140)

    1982-1992 +145% (Stapledon $57,700 to $141,170)

    1972-1982 +225% (Stapledon $17,760 to $57,700)

    1962-1972 +109% (Stapledon $8,480 to $17,760)

    1952-1962 +56% (Stapledon $5,440 to $8,480)

    1942-1952 +182% (Stapledon $1,930 to $5,440)

    Here's the same data charted using a log scale. This is exactly the same data (from Stapledon) as posted in your chart above, except this is using a log scale rather than a linear scale.

    [​IMG]
     
  20. equitymate

    equitymate Member

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    Whatever happened to Steve Keen? It seems the media have appropriated the bear spokesman to that Lindsay David chap who comes across less convincing and more of an emotional missed the boat type.