Investors could create housing bubble: RBA

[hobo-jo]

Interesting article, it seems that the RBA is trying to turn things around one step at a time. Change the Australian delusion that money can be made from housing no matter when or where you buy...

Investors could create housing bubble: RBA

Investors buying rental properties on the proviso of capital growth could create a housing bubble which would lead to problems, a central bank official says.

Reserve Bank head of financial stability Luci Ellis, in an address to a CPA Australia conference in Brisbane, said lower rental yield will mean there is a limit on how far house prices can go.

Asked if the lower yields meant a limit to the rate of price appreciation, Dr Ellis said: "The short and simple answer is - yes".

"If rental yields are very low, investors are buying properties without really thinking abut the rental yield," Dr Ellis said.

"Buying an asset just because you are expecting the price to rise in the future, well that is actually the academic definition of a bubble.

"So that would be undesirable and be seen as a problem."

 

[adso]

its a good article.. and it all makes sense.. im certainly finding not a lot of competition for property where im looking, so I think prices have fallen a little... but in other suburbs I have been to, there are still queue's out the door to get into an open house.

 

[Aaron Sice]

investors make up what percentage of active home buyers.....?

 

[tom32]

investors make up what percentage of active home buyers.....?

I know renters are about 30% of households in Australia so I imagine while it varies up and down over time 30% of homes bought are by investors in the long run. Presumably some own more than one home so it is not going to be 30% of the population that own IP's it will be less, i.e. if on average they own 2 IP's each then 15% of the population are residential IP owners.

The free suburb profile by RP data will tell you what it is for a particular suburb. It varies wildly depending on the kind of suburb. It is one of the disadvantages of being a renter the kind of burbs you want to live in are not usually where the high vacancy rates are...

 

[Gools]

It's not the best article I have read, nor the others quoting what she had to say. She seems to believe that rents will not ever increase.

Some of my reason for buying is the belief that rents will increase. I therefore can't see the problem.

Gools

 

[hobo-jo]

investors make up what percentage of active home buyers.....?

In Victoria earlier this year investor finance exceeded owner occupier finance (at least for a short period, not sure if that ratio continued).

Just like investors though, OOs are not considering the financial implications of paying a lot more than renting to own the same property.

 

[WinstonWolfe]

In 1985 PIs made up 11% of dollar lending commitments.
Now it's 34%. Annual housing turnover averages 6%.

However, keep in mind investors buy cheaper properties on average, so may purchase more than 34% of housing property turnover.

 

[tom32]

In 1985 PIs made up 11% of dollar
However, keep in mind investors buy cheaper properties on average, so may purchase more than 34% of housing property turnover.

Though I suspect investors buy on average at a higher LVR which possibly goes some way to cancelling out the lower prop values that they tend to buy.

 

[devo76]

COULD create a bubble.
So we are not in one yet.
Back into it then.

 

[hobo-jo]

COULD create a bubble.
So we are not in one yet.
Back into it then.

Exactly!

I mean the fundamentals are there for prices where they stand....it's not like we've got Australia's premier investment property magazine relying on daytime TV stars to keep the property market propped up...oh dang I've spoken too soon

Oprah visit could benefit property market

Oprah Winfrey’s visit to Australia is likely to spark considerable international interest in the domestic property market, according to RE/MAX International chairman and co-founder Dave Liniger.

Along with 300 of her fans, Oprah will visit the country in December to film at least two episodes of her talk show.

“When the episodes are aired, it’s most likely we’ll begin to see increased interest among American property investors in the Australian property market – both residential and commercial,” says Liniger, adding that the visit will improve America’s overall awareness of Australia.

 

[Ms Jade]

^LMAO. Now I have seen it all. The Americans who still have jobs (but were not generally in love with property investment in the first place), burnt by massive falls in the US housing market, decide to put their money into property on the other side of the world - which US hedge fund spruikers keep telling them is a massive bubble. There is more chance of Oprah 'coming out' at her Sydney gig.

 

[HomeBuyerStrike]

I know renters are about 30% of households in Australia so I imagine while it varies up and down over time 30% of homes bought are by investors in the long run. Presumably some own more than one home so it is not going to be 30% of the population that own IP's it will be less, i.e. if on average they own 2 IP's each then 15% of the population are residential IP owners.

You also have to consider speculators, there will be 'some' that will leave their properties empty (or may have bought off plan) i.e. flippers. There will be others that use their PPR for speculation. Also, I think the ATO statistics for persons claiming rental income / loss was 1 in 7 taxpayers.

 

[WinstonWolfe]

Though I suspect investors buy on average at a higher LVR which possibly goes some way to cancelling out the lower prop values that they tend to buy.

In addition to having a higher refi rate as many PIers would be on IOs.
I am unsure how refi's are treated in the quoted RBA interpretation of ABS data.

^LMAO. Now I have seen it all.

A really vacuous thing for Liniger to say considering fx, US debt reduction, and Aussie gross yields.

 

[HomeBuyerStrike]

It's not the best article I have read, nor the others quoting what she had to say. She seems to believe that rents will not ever increase.

Some of my reason for buying is the belief that rents will increase. I therefore can't see the problem.

Rents are mainly a factor of incomes and usually have a close correlation. You're really relying on incomes to increase.

 

[Brett IP]

Im quite certain that in the long term (5 to 10 years +) the incomes will be higher, in turn increasing the prices of houses and rental income on houses that are purchased now.

 

[Ausprop]

hope so. negative carry without it will be very painful

 

[HomeBuyerStrike]

Im quite certain that in the long term (5 to 10 years +) the incomes will be higher, in turn increasing the prices of houses and rental income on houses that are purchased now.

What's the basis for your confidence? Where do you see the growth coming from?

 

[Gools]

What's the basis for your confidence? Where do you see the growth coming from?

You haven't seen the inflation going on about the place? The increase in resource prices?

Adelaide Rental Figures article

 

[HomeBuyerStrike]

You haven't seen the inflation going on about the place? The increase in resource prices?

Adelaide Rental Figures article

Some of the effect of rising resource prices has to be negated by the rising AUD. Also, the I think the effect of the resources boom is wildly exaggerated.

 

[bene313]

While I can't see big boom times ahead for property, I can't see prices falling either.

People still need to live somewhere.