Interesting piece by Joye in the AFR

[mgs4]

Interesting piece just out by Joye in the AFR, who is one of the better market commentators. Not sure exactly how he works out its 10% overvalued. Streched valuations seems to be mainly associated with certain suburbs, not necessarily broadly based.


http://www.afr.com/p/personal_finan...ices_headed_for_record_gSdGyBWsYfyuDcVBwatptN

Property prices headed for record high
Australian dwelling prices have jumped more than 10 per cent over the year to March 2014. In Sydney and Melbourne, which make up 55 per cent of the metropolitan population, home values leapt by 15 per cent and 11 per cent, respectively. Yet disposable incomes per capita only rose by 1.7 per cent over 2013. Photo: AFP
CHRISTOPHER JOYE
The $4 trillion Australian housing market is now overvalued by at least 10 per cent. Every day, valuations get more stretched. Indeed, Australia is just months away from having the most expensive residential property market in history.

Anyone with exposure to the banks, which account for one-third of the sharemarket's value, or to housing, should be focused on two questions.

When will a bona fide bubble emerge and how steep are the price falls likely to be when borrowing costs are normalised?

 

[perthguy]

My message is: buyers beware.

Interesting article, thanks for posting. I agree with the message "buyers beware". This applies to all stages of the property cycle.

 

[FelixL]

Articles that talks about the aus property as a whole tends to be generalizing too much. Sydney and Melbourne is booming to bubble level while Brisbane Canberra Adelaide is lacking far behind and on different cycle

Previous peaks drops related to RBA raising interest rates, which is in turn because of inflation pushing wage up. Currently mining boom is over, unemployment edging up, low consumer/business confidence. It will take some drastic changes for RBA to hike up rates massively

Come next year if syd/Mel have another double digit growth then its danger imo

 

[datto]

All baloney. In prior bubbles I saw prices double in one year. That hasn't happened yet. We are still safe, IMO, no responsibility if you decide to invest and lose it all and finally touch wood it doesn't happen soon.

 

[Ausprop]

All baloney. In prior bubbles I saw prices double in one year. That hasn't happened yet. We are still safe, IMO, no responsibility if you decide to invest and lose it all and finally touch wood it doesn't happen soon.

agreed, completely ridiculous. East Dumpsville 20kms out of Sydney does not equal the australian property market.

Beer is also on the verge of being the most expensive in history - doesn't mean it will collapse any time soon (but we can hope)

 

[hobo-jo]

Beer is also on the verge of being the most expensive in history - doesn't mean it will collapse any time soon (but we can hope)

Is it the most expensive it's ever been RELATIVE TO INCOME?

Did you even bother to read the article? Seemingly not.

 

[House_Keeper]

Is it the most expensive it's ever been RELATIVE TO INCOME?

How can that be for Sydney?
Sydney prices are not much more above the 2004 peak.
In 10 years, income growth would have lifted wages by about 30% in nominal terms.
Interest rates are lower than 10 years ago.
How does that make today's the most expensive ever?

 

[hobo-jo]

How can that be for Sydney?
Sydney prices are not much more above the 2004 peak.
In 10 years, income growth would have lifted wages by about 30% in nominal terms.

ABS Syd Index: 88.2 (Dec 2003) to 118 (Dec 2013) = 34% rise.
Residex Syd House Prices: $573,500 (Jan 2004) to $786,500 (Feb 2014) = 37% rise.

 

[truong]

All baloney.

agreed, completely ridiculous.

CJ is neither a prophet of doom nor your usual property knocker. I wouldn't brush him aside just like that.

In fact during the 2010 mini-boom when the house price vs household disposable income ratio was about the same as now, he was most vocal in dismissing out of hand any talk of bubble.

Anyone knows why he has changed his tune? And what, in his mind, is so different between 2010 and now?

 

[Ausprop]

Is it the most expensive it's ever been RELATIVE TO INCOME?

Did you even bother to read the article? Seemingly not.

yes, reading the article doesn't affirm the content of it as correct

 

[Ausprop]

CJ is neither a prophet of doom nor your usual property knocker. I wouldn't brush him aside just like that.

he was often on switzer when i use to watch it and was coming out with bizzare opinions

 

[Trippy]

he was often on switzer when i use to watch it and was coming out with bizzare opinions

Because his opinions were not what you wanted to hear?

Like the original linked article above?

 

[Ausprop]

Because his opinions were not what you wanted to hear?

Like the original linked article above?

Anyone that thinks we are in a bubble (maybe Sydney, I have no idea nor interest) is in cloud cuckoo land. Certainly in this market I am in, once prices recover to where they were about 8 years ago and we get some decent growth then we can revisit the argument. I understand markets like the gold coast are still a basket case like mandurah, off 20% from 2006 prices. Bubble territory is cannington 2006, rising $10,000 a week

 

[hobo-jo]

yes, reading the article doesn't affirm the content of it as correct

The article says if the current trajectory continues prices will be the most expensive they have ever been (relative to income), within months. You countered this by talking about beer in nominal prices

Can you explain in more detail which part of the article is not correct and why?

 

[Richard Feynman]

 

[see_change]

[QUOTE[/I]=datto;1147958]All baloney. In prior bubbles I saw prices double in one year. That hasn't happened yet. We are still safe, IMO, no responsibility if you decide to invest and lose it all and finally touch wood it doesn't happen soon.[/QUOTE]

I'm puzzled by the view that as sydney had had one year of 15 % growth it's headed for a fall . As with you Datto , I've seen markets double in a year . We were renting a friends house which they had just paid 95 k for . About half way though the year some one bought the nice house next door for the outrageous price of 145 k . Six months later we bought a dump two streets away with an out door toilet for 205 k which went sideway for next seven years .

Our PPOR has gone side ways for the last few years and has only just recently increased in price over what it would sold for in the previous peak ( whenever that was ..)

I was amused by the comment in the article.

Indeed, Australia is just months away from having the most expensive residential property market in history.

Given that property does go up over time , and we are in a period of rising prices I'm surprised we aren't already at the point of having the most expensive property market in history , so if we're not already there it means that the market is still below its previous peak and so has a way to go ....

Cliff

 

[Ausprop]

The article says if the current trajectory continues prices will be the most expensive they have ever been (relative to income), within months. You countered this by talking about beer in nominal prices

Can you explain in more detail which part of the article is not correct and why?

Anyone that thinks we are in a bubble (maybe Sydney, I have no idea nor interest) is in cloud cuckoo land. Certainly in this market I am in, once prices recover to where they were about 8 years ago and we get some decent growth then we can revisit the argument. I understand markets like the gold coast are still a basket case like mandurah, off 20% from 2006 prices. Bubble territory is cannington 2006, rising $10,000 a week

 

[hobo-jo]

Indeed, Australia is just months away from having the most expensive residential property market in history.

Given that property does go up over time , and we are in a period of rising prices I'm surprised we aren't already at the point of having the most expensive property market in history , so if we're not already there it means that the market is still below its previous peak and so has a way to go ....

For the second time in this thread, the context (in the article) of it heading toward the most expensive it's ever been is when measured relative to income, not nominal prices. In nominal $ terms, prices have already exceeded the previous peak (when measured nationally).

 

[turk]

Looks as though its headed towards or exceeded this metric about 6 times in the last 10 or so years.

How many bubbles and how many corrections would this represent?

 

[keithj]

Looks as though its headed towards or exceeded this metric about 6 times in the last 10 or so years.

How many bubbles and how many corrections would this represent?

It's looking like it's the new normal for the current low interest environment. When does a change in a metric become the new normal ? We're unlikely to be going back to the ratios of the middle of last century.

And such a simple metric as price to income is fairly meaningless, I'd have thought that there would be a few other factors that were highly relevant.

And he's chosen his dataset to include the v. high affordability period around 2000, taking a 10 yr average (instead or 13yrs or more) would give a different result - pick a different dataset & get different result.

Some may think Joye is trying to sensationalise ?