Is Australia Really That Different?

[Tony3008]

No doubt. But how does this mean that Australian housing is un-affordable for Australians? It doesn't.

No, all it means is that up to a year or two ago, the average home-owning Brit could sell up and come here to enjoy a much better standard of living (home wise anyway) than in the UK. Now they can enjoy the better weather, but will have to work just as hard to pay the mortgage as everyone else.

 

[blaster]

People seem to way underrate just what 50 or 100 billion can do for a small population like us and it mostly was pretty strategically placed to. Yes I know there were a few f ups but over all . It will all be very on going if you listen to some of the terms involved.
And all this only 20% of the home market stuff , as I 've said before you ask anyone with a business how much difference 20% can make. Personally I think on housing alone it's eventually created a much bigger effect than that as we were well and truly on the slide only 12 mths ago don't forget.
Who knows where we might have ended up .
Where to from here , I have absolutely no idea myself.
I think all the new projects and mining sparks , plus China now blowing the last of their stimulus , plus the fact that they can see now that we aren't going down and so they won't be able to buy the country after all , could all carry us for atleast a couple of yrs from here.
By then the rest of the world will be recovering and either feeding us from there or - we do actually get our delayed recession after all .
I think our housing will begin settling back down into next yr and from there , well if only I knew .
Just all theory .
Cheers

 

[Graemsay]

Joye's comparison is disingenuous.

• Ireland and Spain are probably having the worst property crashes in Europe, possibly worldwide. Both are significantly down on their peak, and continuing to fall.
• Prices in the Netherlands are going down. Note that the country has a real shortage of land (17 million in an area smaller than Tasmania), high rates of immigration, and a tax system that favours home ownership (interest on a mortgage is deductible from income tax).
• I believe that prices in France are falling, though at a lower rate than other countries.
• The UK suffered a drop, though prices have been rising this year. There is speculation that they will fall again next year.
• Prices have also fallen sharply in Denmark.
• However, Sweden's possibly undergoing a housing boom (or possibly a developing bubble) due near zero, or even negative, interest rates...

Joye's argument (and I know that this is only part of it) is basically that Australian property isn't overpriced. because prices tracked what's happening in other comparable countries. However he neglects to say that most of these countries are now having major downturns.

Not exactly an eggs-for-eggs comparison, is it?

I'm not in a position to pick holes in the rest of his argument, however a lot of economists base affordability solely on interest payments. Their argument is that repaying the capital is enforced saving, and doesn't really count.

I don't know about you, but I'm of the opinion that $100K at 10% is a whole lot more affordable than $1 million at 1%. (Especially with repayments of $920 versus $3780 per month on a 25 year term.)

 

[Aaron Sice]

negative interest rates - as in, the govt PAYS you to own a home....?

understand the Netherlands - didn-t they bring forward a lot of construction ala USA?

 

[Aaron Sice]

Joye's argument (and I know that this is only part of it) is basically that Australian property isn't overpriced. because prices tracked what's happening in other comparable countries. However he neglects to say that most of these countries are now having major downturns.

Not exactly an eggs-for-eggs comparison, is it?

I

nope - because they have what everyone else is offering - service.

Australia have what the world wants - commodities.

 

[Graemsay]

The infamous negative interest rate is basically that the Riksbank (Swedish central bank) charges an -0.25% per annum for holding deposits. It's being done to encourage other banks to lend money, rather than hoarding it as the British banks have done.

The farming and mining sectors account for around 10% of Australia's GDP (though 56% of exports), whereas services are around 70%. The UK's economy is 76% services, so it's not a vastly different mix.

 

[Aaron Sice]

but your coal seams are raped and pillaged, was it 3000 mines back in thatchers day down to 15 today? and we've only just scratched the surface of ore and lithium and uranium and diamonds and tantalum and....

56% of exports is huge - but only 10% of our GDP means that the value of said 10% must be HUGE.

 

[Ausprop]

north sea being the other plundered asset. not bad but worth bearing in mind that resources deplete. need somehting with longevity...like cradle to grave processing of nuclear power.

 

[Wibbly Pig]

Just came across this article discussing current Australian property prices which another forumite has posted. http://www.dailyreckoning.com.au/reports/property-swindle.pdf

It is very interesting reading and raises some of the concerns I had when I first started this particular thread.

Not quite sure what to make of it. I'm sure there is a degree of scaremongering and sensationalizing, however the author does raise some seemingly valid points.

An interesting contrarian view that will surely heckle some of the property bulls here.

 

[markpatric]

I do agree with the majority of what this report says.
What we have in Aussie is a population that has come to believe that property doubles every seven years, which translates to buying the most expensive house possible in order to double up at the highest level possible.
My gut is telling me it is not sustainable.
With the au$ being so high you can guarantee immigrants or overseas buyers would be insane to purchasing property at this point, it is a double whammy of currency conversion and already inflated aussie housing costs.
There is also a dubious belief that we are running out of land, coupled with the fact that we are becoming less and less dependant on the need for living close to big cities.
It is mind boggling that many home buyers are pointing to the fact that in Australia (unlike the US) we cannot just hand the keys back as a big positive for our market.

 

[Tony3008]

I don't think the paper is without merit, but to sell his case the author makes some very wild statements, particularly: "You see, until every penny of your mortgage is paid off, you don’t own anything. The bank who loaned you the money owns your house.".

This notion of mortgage stress being defined as having mortgage payments > 30% of take home is seriously flawed:if you bring home $2000p.m., paying $600 leaves you with precious little; if you bring home $10K, then you can still live well after paying $5K. And his example of Mr Average buying a $450K home on a single income doesn't reflect the norm, two incomes until the income/mortgage ratio has been brought down.

What is undeniably true is that 'helping' first time buyers with 95% loans, FHOG etc doesn't help them at all, rather it just increases prices.

 

[Francesco]

The Daily Reckoning mob and Steven Keen have been working in tandem to push the doom and gloom scenario. They held a get together confirmation of their world view at a Victorian museum to expound on issues including why Australian properties are way overpriced just a few weeks before SK had to concede that he will have to eat humble pie because he lost his bet against Rory Robertson of Macquarie. (I have my suspicions that Daily Reckoning afficionados bombarded SS forum in tag team style to try and hype the doom and gloom into reality at the heights of the GFC, but failed.)

The DR investment strategies and written articles are appropriately steered by the D&G mindset. If you have read one of their newsletters you can predict what you will read in the following newsletters as there is a large dose of confirmation bias with interpretation of data that is released. I would suggest that it is worthwhile to analyse the data but discard the hype if you wish to further your wealth journey.

Followers of their strategy have been consistently told to buy gold as paper fiat money is supposed to be worthless in due course. Although, hold this view and say this long enough and it may eventually come to pass. However, to not miss out of the cyclic opportunities thrown up by the market, they use technical analysis of shares to advise on share trading.

 

[JulieW]

A lovely quote from the Daily Reckoning which no doubt sums up their position

"Your editors here at The Daily Reckoning have no answers - especially when money is at stake - but we do have guesses. In fact, we have a lot more guesses than money. "

They're not alone there.

 

[BV]

One thing about these mainland chinese.

There are rumours (just rumours!) floating around that some are corrupt government officials using Australian property as a vehicle for money laundering, stashing ill gotten assets outside the reach of the Chinese government. That would somewhat explain why they don't even bother to get tenants.

As a chinese myself I would believe this in a heartbeat.

so we have mainland Chinese buyng our properties
Chinese gov owned companies are buying our blue chip companies
and our prime minister speaks chinese and does nothing to stop them....

 

[gooram]

I do agree with the majority of what this report says.
What we have in Aussie is a population that has come to believe that property doubles every seven years, which translates to buying the most expensive house possible in order to double up at the highest level possible.
My gut is telling me it is not sustainable.
With the au$ being so high you can guarantee immigrants or overseas buyers would be insane to purchasing property at this point, it is a double whammy of currency conversion and already inflated aussie housing costs.

Ah but what if house prices went up, and the AUD continued on it's current course? What's the opposite of a double whammy?

It's understandable that the population has that belief given that has been their experience. Granted there's alot of spruikers out there claiming it to those that may not have done their research, hence they eat it up and dive in. But there is some truth to it, given various assumptions about economic growth.

10 years is a long time.

 

[economist]

Here's the slides from a speech given this week (by the bullish Chris Joye). He compares Aus housing affordability with UK, US & various other countries.

A couple of snippets....

Without examining the slides on the surface this analysis is absurd. I can't think for one moment that CJ would publish this without substantial backup. I'll look at the slides later but superficially.

How does growth comparisons between sovereign states align with affordability? Someone is going to have to explain to me as quite frankly it's nonsense and CJ knows it. To even commence on this type of analysis one needs a base on all variables not one, and then they need to be indexed to account for fluctuations. It's that ludicrous I'm a tad annoyed.

Forecasting property movements in Australia is not that difficult and hasn't been since the dollar was floated and we started playing on a level playing field. Follow the cash. At the moment we are flush and funds are roaring in through carry trades, prices will hold and even increase with this scenario. I am not talking about OS investors buying houses (that is small fish) but OS investors funding Australians loans through our banking industry.

In this scenario track the currency it is a leading indicator of property prices.


Mike

 

[Hooray]

Forecasting property movements in Australia is not that difficult and hasn't been since the dollar was floated and we started playing on a level playing field. Follow the cash. At the moment we are flush and funds are roaring in through carry trades, prices will hold and even increase with this scenario. I am not talking about OS investors buying houses (that is small fish) but OS investors funding Australians loans through our banking industry.

In this scenario track the currency it is a leading indicator of property prices.

So since you know how to predict prices, you must have invested heavily into property after the bottom of about 50 US cents! You must be rich by now! But how does it explain how Sydney flatlined from 03-07, and Perth flatlined from 05-08 or so, and the other states generally did well? Is overseas money flow state-specific?

 

[keithj]

Without examining the slides on the surface this analysis is absurd. I can't think for one moment that CJ would publish this without substantial backup. I'll look at the slides later but superficially.

How does growth comparisons between sovereign states align with affordability?

CJ is quoting an IMF report. The IMF acknowledges that affordability in countries cannot be compared directly because there are so many differences eg govt policy, tax, yields, attitutes, houses size, popln diversity, etc

So the IMF has produced a report that compares growth from a fixed base. Doing it this way means all the above differences are irrelevant, because they are constant. So assuming everything was 'normal' in the start year, then the changes in price give an indication of changes in affordability between countries.

Forecasting property movements in Australia is not that difficult and hasn't been since the dollar was floated and we started playing on a level playing field. Follow the cash. At the moment we are flush and funds are roaring in through carry trades, prices will hold and even increase with this scenario. I am not talking about OS investors buying houses (that is small fish) but OS investors funding Australians loans through our banking industry.

In this scenario track the currency it is a leading indicator of property prices.

I'd be interested in this leading indicator.... could you consider starting a new thread to expand ?

 

[markpatric]

Ah but what if house prices went up, and the AUD continued on it's current course? What's the opposite of a double whammy?

It's understandable that the population has that belief given that has been their experience. Granted there's alot of spruikers out there claiming it to those that may not have done their research, hence they eat it up and dive in. But there is some truth to it, given various assumptions about economic growth.

10 years is a long time.

Oh yer, this is the only reasoning behind thier buying but it is clearly sheep mentality if they are.
They should have bought when the dollar was just 55 cents over a year ago but the majority had no faith at all in the aussie dollar at that point since it dropped so fast, its like buying in an area that has already shown incredible capitol gain, on the surface that would appear to be smart move, a sure thing but we all know it`s too late at that point, capitolism is built on one long ponzi scheme, it`s being played out, no difference whatsoever to the old pyramid schemes, only real values/services play a role.
If instead of jailing Madoff you give him an open cheque book what would happen?.
To my thinking the graph in that article is big reason for concern given the state of the global economy.
I am just waiting on the big leveller, australia is the only ponzi scheme still growing, when the gig is up, the gig is up bigtime.

 

[Raja]

I am just waiting on the big leveller, australia is the only ponzi scheme still growing, when the gig is up, the gig is up bigtime.

Assuming you are right and based on what a Ponzi scheme is,

"A Ponzi scheme is a fraudulent investment operation that
pays returns to separate investors from their own money
or money paid by subsequent investors, rather than from
any actual profit earned. The Ponzi scheme usually entices
new investors by offering returns other investments cannot
guarantee, in the form of short-term returns that are either
abnormally high or unusually consistent. The perpetuation of
the returns that a Ponzi scheme advertises and pays requires
an ever-increasing flow of money from investors to keep the scheme going."

For the Aussie Ponzi scheme based on house prices to collapse your suggesting one day everyone will all of a sudden stop buying houses? That might not be anytime soon as we would need the supply of houses to actually meet the current demand first.

Also a positive or neutral geared PI does not need money paid to them from subsequent investors as the rent already covers the short fall.