Interesting piece by Joye in the AFR

I am not expecting to see similar house price appreciation over the next 30 years as we have seen over the last 30 years. I think the price increases we have had were due to unique circumstances which I can't see being replicated over the next 30 years. Accordingly my investment strategy relies on steady growth slightly above inflation, not the dramatic doubling of house prices every 7 to 10 years.
Why would you expect the continued increase of prices above inflation (even if only a small amount)? Do you think that house prices can indefinitely rise in real terms?

You imply an expectation that the index in this chart will continue to rise infinitum?

ScreenHunter_10-Sep.-23-16.28.gif
 
Some may find this chart from CBA & RBA to be a little more relevant to reality. It shows how much we are paying in interest relative to our disposable income.

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Looks like it's the best it's been for 10 yrs! so we have plenty of spare disposable income to keep buying more expensive houses.

However, remember that the RBA may feel the same way & pull the rate rise lever.

Thanks Keith that is very useful chart :)

There are loads more useful charts from RBA

http://www.rba.gov.au/chart-pack/household-sector.html
 
Why would you expect the continued increase of prices above inflation (even if only a small amount)? Do you think that house prices can indefinitely rise in real terms?

You imply an expectation that the index in this chart will continue to rise infinitum?

ScreenHunter_10-Sep.-23-16.28.gif

actually quite possibly .

That's a linear scale . If you graphed it on an exponential scale it looks like it would be close to a straight line , and that is the real comparison ...

Cliff
 
Of course it is. Because it's a real price index (i.e. adjusted for inflation).

Same question to you: Do you think that house prices can indefinitely rise in real terms?

I've checked out Philip Soos in the past , source of that chart , and my initial reaction was I was impressed , but once I kept on reading I became less than impressed .

As we've seen with chart in recent times it's easy to find something to match any theory and once you start adjusting them , I find they become less relevant .

I don't have the expertise to start debating the use of an adjusted index . What I have seen in the past is long term charts of prices ( non adjusted for anything , property quality inflation etc ) which show a long term linear line when plotted on an exponential chart .

On that type of chart , I expect to see a continuing long term increase continuing until such time we have a seismic shift in the nature of the world economy eg the communists take over and freeze prices or SHIELD make it illegal to buy and sell property .... Or our alien overlords seize all property and charge everyone rent or dean and his brother ( can't think of his name ....) fail in their battle with hell and devils take over the world ...

Cliff
 
I've checked out Philip Soos in the past , source of that chart , and my initial reaction was I was impressed , but once I kept on reading I became less than impressed .

As we've seen with chart in recent times it's easy to find something to match any theory and once you start adjusting them , I find they become less relevant .
So you think the data source is suspect?

What data source is reliable? Your anecdotal 'doomers and gloomers' indicator?

So how about the charts from AFR & Christopher Joye (or are they also tainted)?
http://www.afr.com/p/business/property/house_prices_flash_red_record_debt_MPI3fve6eztNMyT62R4P1J

Do you think the price to income ratio can keep rising infinitum?

Can debt accumulation continue to outpace household income infinitum?

Is there any data that would make you believe that prices are too high or can't continue to rise as they have in the past or would it literally take the alien invasion you mention?

People ask me, when is a good time to buy property?
A: When hobo-jo starts breaking out the doom charts.
It is telling sign when the primary response from some users in the thread are ad hominem attacks. No interest in backing up the argument that prices can continue to outpace inflation or incomes forever? Oh...
 
No interest in backing up the argument that prices can continue to outpace inflation or incomes forever? Oh...

I don't think I've said that prices can continue to outpac inflation or income forever , or didn't you understand when I said made my comment about not paying much attention to adjusted figures .

Lies , damn lies and statistics ...

To be honest I personally don't pay much attention to the the opinion of so called experts like Christopher Joyce , Stephen keen and Dent et al . If I'd followed those people I would have spent the last ten years sitting on the sidelines doing nothing .

Instead I've listen to the discussions here , esp people like the wife , GeeCeeCee , Ross V , micheal Croft etc in the past while engaging in discussions with the group of newbies at that stage who are now the " elder statesmen " of the forum , such as Jacques , the " bears " , KeithJ , Dazz to name a few .

As a result I'm considerable more financial secure than I was ten years ago and contemplating a winding back of my working hours in the next 1-2 years.

How about you ?

Cliff
 
Do you think the price to income ratio can keep rising infinitum?

Can debt accumulation continue to outpace household income infinitum?
..

Again you are asking the wrong question.

Instead the question should be, can prices affordable double again if interest rates are cut in half, to levels that have been experienced by most of the rest of the developed world for the last five years?

The answer to that question is undoubtedly "yes".

If you don't think that is likely then my question becomes, why would the trend of reducing rates for the last twenty years suddenly reverse? From my point of view our IRs have been defying international gravity for the last five years courtesy of the mining boom. Now that is coming off the boil there is no reason for interest rates to stay this high in an international context. So either IRs in the rest of the world will rise or ours will drop, if the latter then house prices will rise again for the same reasons they have before, which have very little to do with incomes...
 
I don't think I've said that prices can continue to outpac inflation or income forever
That is the conversation you walked into when you quoted my post & said "actually quite possibly" to my question whether the inflation adjusted chart will continue to rise infinitum.

Instead the question should be, can prices affordable double again if interest rates are cut in half, to levels that have been experienced by most of the rest of the developed world for the last five years?

The answer to that question is undoubtedly "yes".

If you don't think that is likely then my question becomes, why would the trend of reducing rates for the last twenty years suddenly reverse? From my point of view our IRs have been defying international gravity for the last five years courtesy of the mining boom. Now that is coming off the boil there is no reason for interest rates to stay this high in an international context. So either IRs in the rest of the world will rise or ours will drop, if the latter then house prices will rise again for the same reasons they have before, which have very little to do with incomes...
I would take issue with the use of the term affordability as outlined here:

http://www.bullionbaron.com/2012/06/does-australia-have-housing.html

But yes, there would be an improvement in serviceability. I think it is unlikely that prices could double again (relative to incomes, based on a drop in mortgages interest rates from 6% to 3%), here is a quick repayment calc (based on constant repayment ability):

$300,000 borrowed @ 6%
Repayments of $2000 per month
23 years, 2 months to payoff loan
Total repayments = $555,903

$600,000 borrowed @ 3%
Repayments of $2000 per month
46 years, 4 months to payoff loan
Total repayments = $1,110,421

---------

That said, real interest rates are already slightly negative, I highly doubt the RBA will be cutting substantially while inflation is rising and almost above their target band. Can you describe in more detail the environment which you foresee rates falling substantially? i.e. it's my opinion that the end of the mining capex boom will bring about substantial difficulties for growth going forward, if that brings about an economic downturn & lower interest rates, it's also likely to be against a backdrop of rising unemployment (already above GFC levels now), not a good driver for a period of rising house prices.
 
Why would you expect the continued increase of prices above inflation (even if only a small amount)? Do you think that house prices can indefinitely rise in real terms?

You imply an expectation that the index in this chart will continue to rise infinitum?

ScreenHunter_10-Sep.-23-16.28.gif

One issue I have with drawing statements on property prices to wages or property price growth relative to inflation is much of this assumes property is bought with domestic capital only. In my view a significant source of property price growth stems from growing Asian wealth (diversified across numerous countries) and increasing asian investment engagement with Australian property (again diversified across a number of countries). The increasing signficance of these two factors reduces the relevance of australian property prices relative to domestic wages.

Australian will trend to look a bit more like Hong Kong (at least Sydney and Melbourne will) where domestic property prices are extremely expensive relative to domestic income because their prices draw little relevance to domestic income.
 
strange that any chart of any sort can convince people of the reality that surrounds them - seems the answer is not to question the data but to ignore the evidence

typical cheap villa in typical sort of suburb such as midland:

http://www.realestate.com.au/property-unit-wa-midland-115351159

worth pretty much what it was 8 years ago, yet apparently we are in the mother of all booms, median price heading for pluto and we are due for a crash. OMG how can we sustain these multiples!?! (has actually FALLEN dramatically on this property in real and nominal terms)
 
That is the conversation you walked into when you quoted my post & said "actually quite possibly" to my question whether the inflation adjusted chart will continue to rise infinitum.

Fair enough . I missed that when reading your thread initially .

Finally . You've proved someone wrong ....;) I'll concede that point.

Reality is it doesn't affect and has nothing to do what I've done and am going to do . I'm not relying on continued growth above inflation . Just continued growth which is happening .

Cliff
 
strange that any chart of any sort can convince people of the reality that surrounds them - seems the answer is not to question the data but to ignore the evidence

typical cheap villa in typical sort of suburb such as midland:

http://www.realestate.com.au/property-unit-wa-midland-115351159

worth pretty much what it was 8 years ago, yet apparently we are in the mother of all booms, median price heading for pluto and we are due for a crash. OMG how can we sustain these multiples!?! (has actually FALLEN dramatically on this property in real and nominal terms)

In the previous cycle we bought several properties for less than the seller had originally paid in some cases 8 -10 years before. There are people who will be buying in the next 1-3 years in Places like Mt Druitt who will end up doing the same.

Cliff
 
$300,000 borrowed @ 6%
Repayments of $2000 per month
23 years, 2 months to payoff loan
Total repayments = $555,903

$600,000 borrowed @ 3%
Repayments of $2000 per month
46 years, 4 months to payoff loan
Total repayments = $1,110,421

--

That said, real interest rates are already slightly negative, I highly doubt the RBA will be cutting substantially while inflation is rising and almost above their target band. Can you describe in more detail the environment which you foresee rates falling substantially? i.e. it's my opinion that the end of the mining capex boom will bring about substantial difficulties for growth going forward, if that brings about an economic downturn & lower interest rates, it's also likely to be against a backdrop of rising unemployment (already above GFC levels now), not a good driver for a period of rising house prices.

I prefer calculations using interest only loans. I fail to see what repayments have to do with the topic at hand. Is there a divinely ordained repayment period when buying a house? I didn't think so.

As for your last paragraph, it may well be that with the end of the mining capex boom, the only way to maintain full employment is with much lower interest rates than currently exist as the inflationary pressures disappear and stimulus becomes yet again the only way to maintain growth.
 
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