Looks like house prices are on the up...

[hobo-jo]

Are you capable of pointing out where these figures are incorrect and explaining why the presently low interest rates would not be supporting the market?

Yes the low interest rate environment is (in part) supporting higher prices. However, looking at loan servicing costs as the main factor when judging affordability is a fools errand. I think the best definition for 'afford', as it relates to housing, is:

"Afford: To manage or bear without disadvantage or risk to oneself."

So tell me turk, do you think that by borrowing more at lower interest rates doesn't pose risk or disadvantage to new mortgage holders?

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

I know you have a thick skin

Have to around these parts

 

[turk]

Yes the low interest rate environment is (in part) supporting higher prices. However, looking at loan servicing costs as the main factor when judging affordability is a fools errand. I think the best definition for 'afford', as it relates to housing, is:

"Afford: To manage or bear without disadvantage or risk to oneself."

So tell me turk, do you think that by borrowing more at lower interest rates doesn't pose risk or disadvantage to new mortgage holders?

Can't see where anyone has claimed that servicing costs should be the main factor when judging affordability.

As you well know all investments pose there own set of risks including housing, so how would the average person be able to meet your definition of "afford"

When would housing investment ever be risk free?

 

[hobo-jo]

Can't see where anyone has claimed that servicing costs should be the main factor when judging affordability.

From the article you linked to:

"Despite widely publicised dwelling price increases in some markets in recent months, affordability has continued to improve as a result of reduced interest rates," HIA senior economist Shane Garrett said.

 

[turk]

From the article you linked to:

"Despite widely publicised dwelling price increases in some markets in recent months, affordability has continued to improve as a result of reduced interest rates," HIA senior economist Shane Garrett said.

All this article simply points out that with the drop in interest rates housing is more affordable now than 10 years ago.

It does not say, as you are trying to imply that current affordability should be the main or only criteria when buying property.

Still waiting for your explanation of how property could ever be risk free?

 

[hobo-jo]

All this article simply points out that with the drop in interest rates housing is more affordable now than 10 years ago.

Which was my point, lower interest rates don't improve affordability (especially when it means borrowers are taking on a larger amount of debt as a result), they improve serviceability.

I've never said property can be without risk.

 

[turk]

Which was my point, lower interest rates don't improve affordability (especially when it means borrowers are taking on a larger amount of debt as a result), they improve serviceability.

I've never said property can be without risk.

If you think there is no relationship between affordability and sevicability thats fine.

Interest rates can keep heading lower for the next 30 years too, soon enough the banks will be paying us to take on debt.

 

[7smurfs]

In contrast, has the sentiment been correct that rentals have gone down as buyer demand has gone up?

 

[pieman]

House price growth and no personal credit growth...
Who would've thunk

Imagine house price growth when that red line climbs

 

[MrCrumbpacker]

Still renting?
Gold off 40+% from peak I see..ouch. Looks like keen got his asset class wrong

Where does that leave it after the last 15 years?

 

[pieman]

Where does that leave it after the last 15 years?

Gold
1998 400$ US
2013 1350$ US
But no yield, no ability to add value, inability to load up debt and buy more than you could with cash etc but no maintenance costs

Houses
Too many markets, some probably wouldn't have shown that much growth, but I purchased a wreck of a house in sth Melbourne at about that time for 230k which would be worth now 1m+ but with net rental income and the ability to borrow 95% to magnify exposure you'd be miles in front in dollar terms

 

[Dazz]

Pieman,


Is that blue line of "actual house prices" a median for all houses in Australian, or some weird select little sample from western Toowoomba or maybe eastern Wodonga ??


The blue line of market history bears absolutely no resemblance to what Perth metro houses have done.


If I had to guess it looks a bit like metro Melbourne, cos Sydney had a much longer and flatter period after 2003 and Perth's kept going thru the roof until 2007.

 

[pieman]

That blue line is credit growth for housing Dazz

We've seen a return to house price growth here in the east and yet there has been little or no credit growth. Where has the money come from for the increase in house prices?

 

[hobo-jo]

inability to load up debt and buy more than you could with cash

Plenty of leverage available in the Gold market if you're so inclined.
http://www.cmegroup.com/trading/metals/goldfutures/gold-futures.html

 

[Dazz]

blue line is credit growth for housing

Roger that.

 

[truong]

A different graph that paints a similar picture but draws a more nuanced comment from NAB:
http://www.businessinsider.com.au/n...be-about-to-explode-but-for-one-thing-2013-10

NAB's Chief Economist Shares A Chart Showing House Prices Could Be About To Explode - But For One Thing
GREG MCKENNA OCT 29 2013, 4:38 PM 24

This spectacular chart by NAB Chief Economist Alan Oster shows the relationship between house prices and borrowing capacity, the ability to service loans, of Australians in the six capital cities.
Oster, as an econometrician, has built a model with the hypothesis that Australians love property and want to borrow as much as possible to buy a home. This would drive prices.
Not much room for argument there.
The model that results measures the deviation of house prices on average from a borrowing ability embedded in average lending standards across the market.

Prices are currently way below household borrowing capacity, so no stretched conditions or bubble here.
The chart shows a lot of room for rises. House prices could be at the start of what could be an explosive move upwards.
Business Insider asked Oster what he thought the chart signalled and he said that there was no housing bubble, and:
"It suggests if anything house prices could go up 12% on average across Australia (or 20% in Sydney) and it would just bring relationships back to historical norms (as per the early 1980s)"
But he added an important caveat: a move like that "supposes consumers want to gear up like they used to. Clearly they don't."
Australian consumer behaviour has, at least for the moment, changed.
At the Customer Owned Banking Association conference in Melbourne, Oster also showed a chart of the stickiness of the household savings rate since the GFC which, taken with this housing story, paints a picture of Australian households still hunkered down and wary of debt and spending.
Once the economic sunshine comes out again - or at least if Australian families feel more relaxed about borrowing more - that's when house prices might really rocket.

 

[tambourineman]

A different graph that paints a similar picture but draws a more nuanced comment from NAB:
http://www.businessinsider.com.au/n...be-about-to-explode-but-for-one-thing-2013-10

Agree insofar as the previous housing 'boom' was fuelled by a reckless generation (often critical of everyone else) who for some reason had an insatiable appetitive for debt and houses and happened to be in the rught place at the right time as far as income growth goes. Future generations are and will be different. SMH has a good article in this and the future challenges here:

http://www.smh.com.au/comment/tony-...by-boomers-debt-explosion-20131201-2yjlm.html

I know what you're thinking , more doom and gloom from a left leaning news paper. The reality is most economists of any merit acknowledge that ageing demographic and significant debt will prove a significant challenge in the years to come. Infact its even acknowkedged by the Productivity Commission (also referenced In the SMH article).

In the circumstances and despite fanciful predictions of population growth I struggle to see who will have the same appetite (or income) as the boomers to underpin unsustainable house prices (in some areas).

 

[MrCrumbpacker]

Gold
1998 400$ US
2013 1350$ US
But no yield, no ability to add value, inability to load up debt and buy more than you could with cash etc but no maintenance costs

Futures and options on the futures markets gives you plenty of opportunity to leverage up with regards to gold, and is how a few traders have been making obscene amounts of money, even shorting the pullbacks, but you do need balls.

If you can short a market, and get in and out quickly, you don't need it to go up to win, just to move.

 

[pieman]

If you can short a market, and get in and out quickly, you don't need it to go up to win, just to move.

Sure, big risks as you say, but nothing beats property to generate cash virtually risk free as an investment vehicle for so many reasons. If a dufus like me can make a quid at it, then there must be some hope for most if you follow some basic somersoftian proven logic

 

[BayView]

If you think there is no relationship between affordability and sevicability thats fine.

Technically; there isn't.

A large number of folk have good serviceability for loans (especially now that they are cheaper).

Those same folk may have no access to those loans because they haven't got enough deposit to put in for a Bank to give them the remainder.

My brother was one of those folk for a number of years - earnt decent coin, but no deposit (savings) - certainly not enough to buy anything decent, or where he wanted to buy.

This is related to the purchase price of course.

But, this has always been the case for FHB's since god's grandfather was a toddler, as we all know.

The only significant difference these days is the expectation of the buyers.

If you want to buy a little 2 x 1, use sec/hand furniture (or none at all), blankets on the windows, location at the end of civilisation, or a "doer-upper" closer in...there's some affordability everywhere.

But, the "Dennis Family Homes"/"Metricon"/"Jennings" etc ads we are bombarded with never show those types of places to buy...

 

[pieman]

Yikes, biggest loss in 30 years!
http://www.theage.com.au/business/m...annual-plunge-in-30-years-20131231-303m2.html

All of a "sudden" the buy and hold as the simplest form of property investment looks like a bullet proof investment strategy for mum and dads