Just how bad will this all get ???

[black dragon]

Just remember, that no matter what the housing market does, the best Australian real estate will only go to the most wealthy Australians. If Toorak prices fall in a terrible heap..e.g 60-70%, everybody else's income will likely have fallen as well and so your purchasing power will remain unchanged.

It is deluded to hope that the average (or even upper average) income earner will be able to afford Toorak one day. Unless the suburb gets nuked, Toorak will always go only to the most wealthiest members of our society.

I dont mean for this to sound elitist..just stating some hard laws of supply and demand.

 

[coastymike]

I too have spent time working and living abroad and although I agree that the cost of living seems to be more expensive the income levels can also be greater. Particularly if you are an expat which I think distorts things.

When living in London I had my rent (500 pound per week) paid for by the company, airfares (business class) for return trip to Oz where paid for and was earning a little over 100,000 pounds. This was back in 2000 when things were great and I knew about 60 other people all on the same deal.

Singapore even more obsence. Rent (10,000 SGD per month) paid for by the company. Golf Club membership (250,000 SGD per annum) paid for by the company. Company Car (they are ridiculously expensive in Singapore - a BMW 3 series costs about 100,000 SGD). Salary a little over 300,000 SGD. Most expats where on similar deals. At least the ones I knew.

So these things also need to be taken into account. In my view is why Singapore property is soo expensive as the expat market just prices others out. From memory about 80-90% of the population live in HDB anyway. Basically they can use their super to buy their apartment which isn't a bad thing.

 

[BoatBoy]

If the market 'crashes', I get to buy our new PPOR/land near the beach sooner than planned due to it becoming cheaper, if it doesn't crash and continues to rise - I get to buy our new PPOR/land near the beach sooner than planned due to my existing properties rising. Life's good!

Position yourself to benefit from what comes either way. Life is what you make it.

Don't forget the Marina berth Steve, gotta have the Marina berth

Dave

 

[steveadl]

Don't forget the Marina berth Steve, gotta have the Marina berth

Dave

I'm embarassed to admit to you Dave - I get seasick!

 

[Token Funder]

The Demographia survey has been thoroughly debunked by many people on many occasions. There are massive flaws in the Demographia survey. Median house price to median income is a very blunt tool. The survey fails to consider the following factors:

- Disposable income
- General cost of living
- Interest rates
- Rental yield
- Tax incentives such as negative gearing
- Block size (blocks in Sydney are bigger than in London for example)
- Dwelling size and quality
- Proximity to transport and infrastructure

It is comparing apples with oranges.

The other issue with the Demographia survey, is that it only compares Australia with five other countries, yet the media proceeds to claim that Australia is the most expensive in the world. The survey conveniently ignores all the cities in the world with much higher house prices than Australia. For example Moscow, Tokyo, Oslo, Seoul, Hong Kong, Geneva, Zurich, Milan, Paris, Singapore, Monaco...

Here are some alternative studies...

Alternative like alternative medicine I'm afraid.

The Demographia survey is flawed as BD has pointed out and may well be like comparing apples to oranges.

But comparing apples to watermelons isn't a step foward

GlobalProperty Most Expensive Cities 2008 (apartment price per sqm):
http://www.globalpropertyguide.com/investm...-cities-in-2008
Sydney - Number 13: US$7,085 per sqm

This is representative of course...not like that Demographia swill.

High-end apartments only.... "Prime" London includes Chelsea and Mayfair and is a step above "other luxury" London (I take it with "other luxury" your neighbour isn't a royal)....NY is Manhattan only.

Watermelon.

Mercer Most Expensive Cities (cost of living, including housing)
http://www.mercer.com/costofliving
Sydney - Number 21

Cost of living measure using a basket of 200 goods with a particular emphasis on the impact of exchange rates for expats.

That bad news of course is that Sydney is more expensive to live in than Dublin, Rome, New York and Vienna but at least it's cheaper than Tel Aviv.

Watermelon.

CityMayors Expensive Cities
http://www.citymayors.com/economics/expensive_cities2.html
Sydney - Number 24

Another cost of living index. Includes Rent.

Watermelon

Knight Frank Survey (prime residential property)
http://www.finfacts.com/irelandbusinessnew..._10010019.shtml
Sydney - Number 8: EU$13,100 per sqm

A 1.5 yr old report exclusively built around the buying habits of High Net Worth Indivduals, only looking at the worlds most expensive houses and dominated by cities where international buyers make at least 20% of the purchases.

And Sydney is still more expensive than Paris, Rome, Venice and Florence...second rate towns all

Watermelon.

Overseas Property Mall Survey
http://www.overseaspropertymall.com/proper...tional-markets/
Average home values for select 2,200 square foot single-family dwellings with four bedrooms...
Tokyo - $785,818
Sydney - $683,109

A 2.5 year old extrapolation with no methodology for arriving at the foreign comparators and comparing high-end properties in suburbs suitable for "middle management corporate transferees". Where they found the 200sq.m, 4 bed, 2.5 bath, 2 car garage joint in Tokyo would be an interesting question.

Watermelon

Aneki (most expensive countries to live in)
http://www.aneki.com/expensive.html
Australia - Not shown in the top 20

No methodology. No sources.

Watermelon

Most expensive countries in the world
http://www.associatedcontent.com/article/1...the.html?page=2
Australia - Not in the list

Not an additional survey...just quoting aneki.com above.

Derivative Watermelon

Most expensive rental markets
http://www.forbes.com/2008/02/11/properties-world-rent-forbeslife-cx_mw_0212realestate.html
Australia - Not in the list

Source: Mercer quoted above. It's just talking about rents.

Second Derivative Watermelon

 

[yieldmatters]

It is deluded to hope that the average (or even upper average) income earner will be able to afford Toorak one day. Unless the suburb gets nuked, Toorak will always go only to the most wealthiest members of our society.

My salary puts me in the top 10% of income earners and I don't ever see me buying in to the top 10% of Australian real estate. That is one of the main reasons I have such strong views on it being completely out of balance. Low income earners are buying nothing (living off the generousity of negative geared landlords and governments), middle income earners are buying low end housing, high income earners are buying mid-range housing, and high end housing goes to the rest who either have old money or got in before prices took off. Sounds out of balance to me.

 

[black dragon]

I hear what you say. Remember though that Australia's wealthy can change in who they are. Many who regarded themselves as wealthy 12 months ago are now much poorer.

Those who managed to avoid the tidal waves are now relatively richer. The musical chairs have been swapped. Toorak is still going to go to the most wealthy only. However the composition of that wealthy have changed..and our wealthiest, on aggregate, are poorer (in nominal dollar terms). Whether that feeds right down to the rest of the market I am not 100% sure.

 

[ffc1883_1996]

...Low income earners are buying nothing (living off the generousity of negative geared landlords and governments), middle income earners are buying low end housing, high income earners are buying mid-range housing, and high end housing goes to the rest who either have old money or got in before prices took off. Sounds out of balance to me.

How is that out of balance?

Some properties, across all parts of the spectrum (not just the high end), are owned by people with very little income. Those people have equity that has been built up over many years of home ownership.

 

[Shadow]

Watermelon.
Watermelon.
Watermelon
Watermelon.
Watermelon
Watermelon
Derivative Watermelon
Second Derivative Watermelon

(Sorry, I snipped out all the 'filler' in your post to keep things tidy - just quoting the most intelligent parts).

Now, I'll have to assume that you hadn't had a chance to read my reply to CoastyMike before you began your rant, but I think if you read through it you'll find that most of your concerns are addressed there.

Basically, instead of looking at just one survey, I posted eight separate surveys that each address a different aspect of the affordability equation. I'm sorry if these watermelons are not to your liking, but that's life! Maybe if you're prepared to do some research yourself, you could find your own surveys and add them to the mix? Pineapples, carrots, aubergines even. Any form of animal, vegetable or mineral is fine with me.

Anyway, here is my previous post which I think addresses your watermelony concerns.

Cheers,

Shadow.

I agree, no survey is perfect. The perfect survey would take the following factors into consideration...

- Disposable income
- Employment rate
- General cost of living
- Interest rates
- Rental yield
- Tax incentives such as negative gearing and FHOG
- Land/Block size
- Dwelling size and quality
- Proximity to transport and infrastructure
- Currency exchange rates
- Economic and political stability

Of course, many of these factors are in constant flux, so a 'perfect' survey is really impossible. The best we can do is look at all the various surveys together - I linked to eight, and Demographia makes nine. Looking at them all we can get a general idea of where house prices in Australia lie compared to the rest of the world.

I have lived in Dublin, Belfast, London and New York at various times in my life, and I know that comparable accommodation in those cities is more expensive than in Australia. I believe the same can be said for Moscow, Tokyo, Oslo, Seoul, Hong Kong, Geneva, Zurich, Milan, Paris, Singapore, Monaco etc... but I've never lived there. I'm sure some other SSers can offer anecdotes based on their time in those cities...

Cheers,

Shadow.

 

[yorke]

And if he is wrong?

Dave

There is always Toora without the K, if anyone asks where you live just say it fast and you'll get away with it. Just don't invite anyone home or they'll wise up to it after they run out of fuel.

 

[keithj]

My salary puts me in the top 10% of income earners and I don't ever see me buying in to the top 10% of Australian real estate. That is one of the main reasons I have such strong views on it being completely out of balance. Low income earners are buying nothing (living off the generousity of negative geared landlords and governments), middle income earners are buying low end housing, high income earners are buying mid-range housing, and high end housing goes to the rest who either have old money or got in before prices took off. Sounds out of balance to me.

If you consider Income as the only determinant of how expensive a house you can afford they you're right it's out of balance.

But logic (& the real world) obviously differ from your sense of balance. How about introducing enforced savings (or even investment) as a 2nd contributory factor. Say someone (you) invested $800pm into something (emus, shares, an ING account or property... doesn't matter) for 20 yrs - you'd have a nice little nest egg at the end of it. Say your income was still median - should you only be able to afford a median house, or should you be able to afford an above median house ? Obviously the answer is that after your 20yrs of self-imposed saving/investing you should be rewarded. Now assume instead of stuffing around with emus & shares, you bought a PPOR & paid down the principle over 20 yrs. By cashing in this investment (tax-free), you can obviously afford to put down a juicy deposit on an above median house, with a mortgage that is easily serviced by your (still) median income. This is how the 'r e a l w o r l d' works.

Would adding that saving/investing factor restore a bit of balance ?

 

[Shadow]

My salary puts me in the top 10% of income earners and I don't ever see me buying in to the top 10% of Australian real estate.

Hi YM,

Lets say somebody hadn't sold their house in Brisbane just before the boom, and instead had spent the past few years paying it off as quickly as possible instead of renting, do you think they would now be in a better position to afford the top 10% of Brisbane real estate?

high end housing goes to the rest who either have old money or got in before prices took off.

What about those people who were in before prices took off, but sold up at the wrong time?

Cheers,

Shadow.

 

[Token Funder]

(Sorry, I snipped out all the 'filler' in your post to keep things tidy - just quoting the most intelligent parts).

Now, I'll have to assume that you hadn't had a chance to read my reply to CoastyMike before you began your rant, but I think if you read through it you'll find that most of your concerns are addressed there.

Basically, instead of looking at just one survey, I posted eight separate surveys that each address a different aspect of the affordability equation. I'm sorry if these watermelons are not to your liking, but that's life! Maybe if you're prepared to do some research yourself, you could find your own surveys and add them to the mix? Pineapples, carrots, aubergines even. Any form of animal, vegetable or mineral is fine with me.

Anyway, here is my previous post which I think addresses your watermelony concerns.

Cheers,

Shadow.

No it doesn't.

Looking at them all we can get a general idea of where house prices in Australia lie compared to the rest of the world.

No we can't.

You critique a pretty average survey about housing affordability by citing 8 surveys (well, 6 given that 2 simply reference the others )with poorer or unspecified methodologies that have bugger all to do with housing affordability in Australia relative to comparable countries.

Hell, most don't even talk about house prices.

And we finish the weighty critique of the research with....

I have lived in Dublin, Belfast, London and New York at various times in my life, and I know that comparable accommodation in those cities is more expensive than in Australia.

Couldn't everyone just save the money on statisticians by asking you

 

[Quasar217]

My salary puts me in the top 10% of income earners and I don't ever see me buying in to the top 10% of Australian real estate. That is one of the main reasons I have such strong views on it being completely out of balance. Low income earners are buying nothing (living off the generousity of negative geared landlords and governments), middle income earners are buying low end housing, high income earners are buying mid-range housing, and high end housing goes to the rest who either have old money or got in before prices took off. Sounds out of balance to me.

Just a couple of things to remember:

1. People don't buy houses to occupy, households do, and households have higher incomes than individuals - much of the growth in prices has been due to the rise of dual (and more) income households.
2. There have always been people owning due to inheritance or having bought a long time ago. Households with previous equity get the higher end housing, people don't just buy it with income.

 

[Quasar217]

Here is the link to that affordability study;

http://www.demographia.com/dhi.pdf

As for the soft depression I stand by my earlier posts last year;

1. Property prices in Australia wide will collapse 40-50% in 2009/2010

2. The ASX will drop to 2200 by October 2009

3 The Aussie $ will settle down around 38 cents

4. The reserve bank rate will bottom at 2% and mortgage rates at 4.5%

5. The liquidity crisis will put paid to negative gearing in the forseeable future

6. I said unemployment would not go over 6.5% but it may now go as high as 8.5%

7. Residential rents will continue to increase but at a fractional rate because not enough houses are being constructed.

8 It is going to become very difficult to borrow money to purchase property unless you have significant cash reserves

9 At some stage we are going to see some form of a devaluation of the world currencies and a link to gold in some form

Apart from the aussie dollar, that sounds wonderful! Like property investor paradise. Rents increasing, but interest rates down, so our existing properties become strongly cashflow positive, and property prices halving, making many areas much more affordable, and yielding 10-15% so they're CF+ from day one!

I seriously hope this happens, but I doubt it will. With yields getting even close to that, surely they'll get snapped up by investors and FHBs escaping the rent trap long before that.

 

[Shadow]

No it doesn't.

Yes it does.

No we can't.

You critique a pretty average survey about housing affordability by citing 8 surveys (well, 6 given that 2 simply reference the others )with poorer or unspecified methodologies that have bugger all to do with housing affordability in Australia relative to comparable countries. Hell, most don't even talk about house prices.

And what have you provided (aside from sneering comments that is) to further this debate. For example, results from your own research, additional surveys that you believe are superior, witty anecdotes from your own time spent living in other cities. Have you got anything? Anything at all? Nope...

And we finish the weighty critique of the research with....

Couldn't everyone just save the money on statisticians by asking you

Glad you liked my anecdotes. You will note that I did refer to them as anecdotes. You probably missed that, so consumed were you with the task of firing out a sneering reply as quickly as possible.

Statisticians don't usually base their analysis on anecdotes, so that's why I provided the links in addition to my anecdotes, which were simply a little personal touch from my own experience of house prices in various countries.

You are of course perfectly welcome to relate your own anecdotes from your years residing in a Central Asian yurt, which was clearly much less expensive than living on Sydney harbour, therefore harbourfront prices must surely crash to Kazakh yurt levels with the year etc.

Cheers,

Shadow.

 

[yorke]

Apart from the aussie dollar, that sounds wonderful! Like property investor paradise. Rents increasing, but interest rates down, so our existing properties become strongly cashflow positive, and property prices halving, making many areas much more affordable, and yielding 10-15% so they're CF+ from day one!

I seriously hope this happens, but I doubt it will. With yields getting even close to that, surely they'll get snapped up by investors and FHBs escaping the rent trap long before that.

I doubt it 2, some of the predictions are contradictory.

AUD at 38c but prices down 50% ?
Rents up but prices down 50% ?
Liquidity crisis putting an end to NG ?
With AUD at 38c every foreign speculator that could afford to buy a house here would do so. An end to NG ? Sure, if rents are go up and prices down 50% almost every property would be PG

ASX at 2200 ? Yeah, right....and by Oct 2009 no stocks will be allowed to trade above $10 by order of the MJ-12.

These are not predictions, sound more like wishes from someone who expected Armageddon and loaded up big on silver at US$20/ounce and gold at US$1000/ounce. That 38c is probably the break even point.

 

[yieldmatters]

Just a couple of things to remember:

1. People don't buy houses to occupy, households do, and households have higher incomes than individuals - much of the growth in prices has been due to the rise of dual (and more) income households.
2. There have always been people owning due to inheritance or having bought a long time ago. Households with previous equity get the higher end housing, people don't just buy it with income.

Regarding household income that is actually what I was referring to. My income is in the top 10% of household incomes and even under Keith's scenario of upgrading over a lifetime I would still not be anywhere near the top 10% of realestate. Hence your second point - it requires old money.

 

[Token Funder]

And what have you provided (aside from sneering comments that is) to further this debate. For example, results from your own research, additional surveys that you believe are superior, witty anecdotes from your own time spent living in other cities. Have you got anything? Anything at all?

You criticised the Demographia research (rightly...if remarkably close to SQMs public comments) and, clearly as a counter to their view, put up examples that were irrelevant, had poorer or missing methodologies, or both.

If your purpose was to highlight how much irrelevant information can be obtained but cutting and pasting but not reading, mission accomplished.

If your intention was to provide superior data to the Demographia survey supporting a different conclusion, we both know you failed.

Man up and cop it on the chin.

Happy to contribute an anecdote as requested:

Last year I was at a briefing session where ANZ's economist delivered a presentation (subsequently referenced here) summarising their view that there was very little chance of a correction in house prices in Australia.

I was interested that there was little in the way of discussion as to what ANZ were actually seeing in their mortgage business. The economist, as economists do, was looking purely at the macro numbers

ANZ subsequently came out and reduced maximum LVRs on housing loans to 90%.

Why do you think they made the move?

 

[buzzlightyear]

Schadenfreude is alive and well