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;
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....
-------------------------------------------------
Edit - added graph below of ABS real house prices which reflects my above post in chart form
Data taken from http://www.propertyobserver.com.au/forward-planning/investment-strategy/market-trends/22658-ytc-monday-may-13-feature-soos.html
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;
- Govt current account deficit will not be able to support broad based fiscal help (ie increase stimulus through lower taxes and increased spending)
- State Govt balance sheets are in bad shape
- 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.
- The economic fundamentals for our economy are much worse than in 2008/09, unemployment and underemployment is entrenched and getting worse
- No resource boom to support the economy
- 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....
-------------------------------------------------
Edit - added graph below of ABS real house prices which reflects my above post in chart form
Data taken from http://www.propertyobserver.com.au/forward-planning/investment-strategy/market-trends/22658-ytc-monday-may-13-feature-soos.html
Attachments
Last edited: