The majority of the 350k houses sold are established houses, not the new ones. So the cost of the actual house in most cases is close to 0 as it has depreciated already.
It's a Great Time to Buy a New Home
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The majority of the 350k houses sold are established houses, not the new ones. So the cost of the actual house in most cases is close to 0 as it has depreciated already.
Hi Boz
Nice reply but by any chance do you have data on house prices during the 70's? Did infact prices of real assets rise during this period? If not then rents would have been very high. Either way Governments prefer inflation to deflation simply because everyone feels richer even if it isn't necessarily so. As long as inflation does not get out of control.
Assets will continue to rise as long as wages continue to rise (over the long term)
cheers
I'm not that much interested in Australian home prices in the 70's as it was a very different country then now with far less debt and a lot of GDP growth to do to catch up with the other developed nations. I think rent yields in the 70's must have been good to compete with high yield of shares and bonds.
Government shouldn't have control on inflation, in any case at the end of the 70's government had enough of inflation and got rid of it (very painfully).
I really like the system in europe where CB is really independent, there you had governmentl ike spain and Ireland that had policies of fuelling inflation and growth beyond their mean and now are facing deflation. The people in charge of running the economy are aware that more inflation you get now and more trouble you'll get in the future.
I attach a chart showing the home prices in Australia related to GDP as it is one of the good long term measures
by the way, if we would have now a ratio of 15 on GDP we wouldn't be worried about Chinese or anyone else buying out Australia
Hi Boz,
I think they've got that trend line in the wrong place. I've re-attached it here with a better fit.
There's no reason why residential property prices have to remain a constant proportion of GDP. We've covered that ad nauseum and explained the relationship of disposable income to house prices as the primary determinant as we invest our disposable income in our highest "want" good which is our homes.
Here's an article which explains it nicely from some years back:
Housing crisis: We did it ourselves
Cheers,
Michael
I think they've got that trend line in the wrong place. I've re-attached it here with a better fit.
There's no reason why residential property prices have to remain a constant proportion of GDP. We've covered that ad nauseum and explained the relationship of disposable income to house prices as the primary determinant as we invest our disposable income in our highest "want" good which is our homes.
Here's an article which explains it nicely from some years back:
Housing crisis: We did it ourselves
Ross Gittins said:
Cheers,
Michael
Attachments
yes, you are probably right, also the total value amount of homes in australia would have to rise in relation to gdp as homes number (and value) growth is higher then GDP growth, in any case, it is a bit hard to estabilish the angle to the bubble line, also it is likely not be a straight line. But it does show Australia was different in the 70's and a similar economic scenario with high inflation will likely lead to a different oucome more similar with other developed nations.
there's so much on FHB's and increased credit risk and how this segment will crater in the near future. It may not happen. Particularly with so many people predicting it...
"The world is a product of mind, and love and youth make their own reality...If we know the future, then we change it..."
"The world is a product of mind, and love and youth make their own reality...If we know the future, then we change it..."
All this talk of rising interest rates and FHB bubbles and impending housing collapse. I just dont see how at the moment. Maybe we wont see massive growth, but I cant see massive collapse either. Stagnant prices and small decreases in price, but thats it really.
We are in the middle of one of the worst recessions since the war and our unemployment figures are still lower then our historical averages. EVen when things do hit us and unemployment creeps up, the chances of it hitting double digit figures are slim. We came off a major boom which created massive skills shortages and those losing jobs are not going to be out of work forever. SO chances are if things get bad, we probably wont go much over historical unemployment levels.
Household debt is high but it is manageable. Our banks seem to have thrown less credit around than American and European banks. Australians have more money in their pockets at the moment and you can see it at the shopping malls. They are packed.
The only thing that can cause a collapse in pricing would be massive unemployment. Seems to me as if many of the doom and gloomers are predicting the tidal wave will hit Australia like it did the USA and UK. They cant seem to understand that their economic issues were because of house prices and lending off the back of it. In the UK the banks were bankrupt and stopped lending. People stopped buying because they could not get credit. The US lent money to people they should never have lent money too. The collapse in house prices indirectly led to their unemployment levels rising. Our housing collapse would come off the back of unemployment. The fundementals ARE very different even if there are similarities you can find between them.
Why would the RBA need to raise interest rates? They dont need to protect the dollar. If its stronger its not the end of the world. If its weaker it suits our exports. Inflation is not out of control either. Nor should it be in the next year or so. Government spending may be up but wages are stable. People are spending money because the interest rates are low. They are pumping money back into debt they owe. Australians have been saving more and paying off credit cards and mortgages faster.
If America collapses, and it very well could with the levels of debt they currently have, then I will be worried. If there is a run on the dollar, that is going to throw us into a depression which will lead to massive unemployment here.
Lastly, having lived overseas and recently immigrated to Australia, I for one can say that the quality of the houses alone does not make them expensive. There are few places you can purchase the equivalent of the middle class aussie home on a normal salary. People who think housing is expensive have never had to live in Europe or Asia. As a percentage of our income, the nice 4x2 15 minutes from the beach with a park across the road is not impossible to own. This nonsense that you cant afford a home on 4x salary is rubbish. You can buy a home for that. You just have to live in an area which wont suit you. The house will be smaller and you may not have your own block of land (perish the thought). You will also have to spend an hour each way to commute to work (try 2-3 hours for many Japanese middle class)
I have saved up a healthy deposit and intend to buy at the end of year. Regardless of the situation. I dont know enough to even bother trying to time the market. There is no good time to buy. Im just going to buy and roll with the punches.
We are in the middle of one of the worst recessions since the war and our unemployment figures are still lower then our historical averages. EVen when things do hit us and unemployment creeps up, the chances of it hitting double digit figures are slim. We came off a major boom which created massive skills shortages and those losing jobs are not going to be out of work forever. SO chances are if things get bad, we probably wont go much over historical unemployment levels.
Household debt is high but it is manageable. Our banks seem to have thrown less credit around than American and European banks. Australians have more money in their pockets at the moment and you can see it at the shopping malls. They are packed.
The only thing that can cause a collapse in pricing would be massive unemployment. Seems to me as if many of the doom and gloomers are predicting the tidal wave will hit Australia like it did the USA and UK. They cant seem to understand that their economic issues were because of house prices and lending off the back of it. In the UK the banks were bankrupt and stopped lending. People stopped buying because they could not get credit. The US lent money to people they should never have lent money too. The collapse in house prices indirectly led to their unemployment levels rising. Our housing collapse would come off the back of unemployment. The fundementals ARE very different even if there are similarities you can find between them.
Why would the RBA need to raise interest rates? They dont need to protect the dollar. If its stronger its not the end of the world. If its weaker it suits our exports. Inflation is not out of control either. Nor should it be in the next year or so. Government spending may be up but wages are stable. People are spending money because the interest rates are low. They are pumping money back into debt they owe. Australians have been saving more and paying off credit cards and mortgages faster.
If America collapses, and it very well could with the levels of debt they currently have, then I will be worried. If there is a run on the dollar, that is going to throw us into a depression which will lead to massive unemployment here.
Lastly, having lived overseas and recently immigrated to Australia, I for one can say that the quality of the houses alone does not make them expensive. There are few places you can purchase the equivalent of the middle class aussie home on a normal salary. People who think housing is expensive have never had to live in Europe or Asia. As a percentage of our income, the nice 4x2 15 minutes from the beach with a park across the road is not impossible to own. This nonsense that you cant afford a home on 4x salary is rubbish. You can buy a home for that. You just have to live in an area which wont suit you. The house will be smaller and you may not have your own block of land (perish the thought). You will also have to spend an hour each way to commute to work (try 2-3 hours for many Japanese middle class)
I have saved up a healthy deposit and intend to buy at the end of year. Regardless of the situation. I dont know enough to even bother trying to time the market. There is no good time to buy. Im just going to buy and roll with the punches.
Massive collapse is 30%-40% like we have seen in the US and some parts of Europe. The 30%-40% you see on the blogs and forums. A 400k house losing 30% would be a hard lesson for anyone. 30% recovery could take a few years thats for sure.
Im starting to think that the only people who really believe in the impending massive crash are the union members who think they are entitled to a house the same day they collect their unemployment benefits. The same people who probably 5 years ago were telling everyone not to buy. The same people saying that oil was going to hit $300 a barrel next week. The same people who are bitter because their neighbour bought a new Holden.
I dont know. Dont know what to believe anymore. The same newspaper can have two different stories on the same day. Reporting is sensationalised to the extreme and journalists misrepresent figures at times.
I think once the FHB grant is gone, things will slow a little. Most people think the grant is keeping this whole thing afloat. I think its low interest rates more than the grant to be quite honest.
Like I say, if the USA goes into depression then jobs will be lost in Aus. With that will come the house crash. Other than that, what else can really create the situation where unemployment hits double digits? WA, which is the state everyone was saying would be hardest hit, are still seeing massive capital inflows. There are projects being announced almost monthly. We have pipelines being built, new mines being opened, private ports being built. Its slowing down, but there is so much to still come I cant see how people are going to starve.
Im starting to think that the only people who really believe in the impending massive crash are the union members who think they are entitled to a house the same day they collect their unemployment benefits. The same people who probably 5 years ago were telling everyone not to buy. The same people saying that oil was going to hit $300 a barrel next week. The same people who are bitter because their neighbour bought a new Holden.
I dont know. Dont know what to believe anymore. The same newspaper can have two different stories on the same day. Reporting is sensationalised to the extreme and journalists misrepresent figures at times.
I think once the FHB grant is gone, things will slow a little. Most people think the grant is keeping this whole thing afloat. I think its low interest rates more than the grant to be quite honest.
Like I say, if the USA goes into depression then jobs will be lost in Aus. With that will come the house crash. Other than that, what else can really create the situation where unemployment hits double digits? WA, which is the state everyone was saying would be hardest hit, are still seeing massive capital inflows. There are projects being announced almost monthly. We have pipelines being built, new mines being opened, private ports being built. Its slowing down, but there is so much to still come I cant see how people are going to starve.
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