Perth - madness.

[cumown]

When you look at population growth, job growth, and wage growth you still can't go past WA.

Also worth keeping in mind the Sydney median price is some 150k more than Perth yet WA average wages are now greater than those of NSW. Plus WA average house and land size is the largest in the country, NSW being one of the smallest. So you still get more for your money in WA.

As for the resources boom and the end of such boom, the driving force behind the boom is China and China has a long long way to go. Even if things did slow in the near future, which there is no sign of, they would undoubtedly pick up down the track.

If there is one Country in the world you would want to tie the next 30 years of your financial future too, it would have to be China.

Cumown

 

[Quick Learner]

Boom already got the breaks on!!

After gains of 35% being typical in many perth suburbs I am seeing a big slow down in many suburbs and from what agents are telling me prices are holding with still average demand from buyers but they are no longer increasing atleast not while we are taking a pause in the market after recent events. People are thinking more about their purchases and I am seeing suburbs return to their normal levels of supply.

Will the boom continue forever -> no its already showing signs of a slowdown!
My 2 bobs worth

QL

 

[alexlee]

When you look at population growth, job growth, and wage growth you still can't go past WA.

Also worth keeping in mind the Sydney median price is some 150k more than Perth yet WA average wages are now greater than those of NSW. Plus WA average house and land size is the largest in the country, NSW being one of the smallest. So you still get more for your money in WA.

As for the resources boom and the end of such boom, the driving force behind the boom is China and China has a long long way to go. Even if things did slow in the near future, which there is no sign of, they would undoubtedly pick up down the track.

If there is one Country in the world you would want to tie the next 30 years of your financial future too, it would have to be China.

Cumown

I agree that WA is the best state for growth and jobs at the moment. However, WA and NSW hasn’t changed in size lately. What you’re saying about WA and NSW has always been true (cheaper houses, more land). Up until around 6 years ago no-one really thought about buying in WA. Why didn’t people ‘see’ all the potential growth in WA? And why, having ‘discovered’ WA’s advantages over NSW only in the last couple of years, will people keep believing in it? Wasn’t too long ago that Sydney was top dog and Perth considered a backwater. Now NSW is the 'sick man' of the economy and Perth is booming. The economy is cyclical.

I have no doubt China will grow long term. Just like Japan grew over the long term, but they still had temporary (and painful) busts in the 60’s and 70’s, to say nothing of the 90’s. The US has been growing long term, but even they have ‘temporary’ busts that last a good few years (savings and loan crisis, etc). All you need is a slight lowering of Chinese demand, coupled with increased capacity (South America, etc are also opening new mines) for commodities prices to take a hit.

All I’m saying is, if I were to buy now, should I buy in an extremely hot market like Perth, as evidenced by the % of investors and very low yields, or markets that have more realistic yields but still decent fundamentas? For that matter, do we really think Sydney will be eclipsed by Perth, now and forever? If you buy in now, are you going to get more growth in Perth or Sydney if (to my thinking, when) the tide turns again?

Just a few questions to ask anytime someone says 'the boom will go on forever' or 'this time it's different'.
Alex

 

[alexlee]

Also worth keeping in mind the Sydney median price is some 150k more than Perth yet WA average wages are now greater than those of NSW. Plus WA average house and land size is the largest in the country, NSW being one of the smallest. So you still get more for your money in WA.

A look at historical median prices shows that Sydney has been above Perth for the last 30+ years. Since 1980, Sydney has been at least 50% (in some years more than 100%) higher than the median in Perth.

Does that mean the Sydney median will always be higher than Perth? Not necessarily, but nor can you say Perth is cheaper than Sydney and therefore will catch up. It's all about the economy and jobs. Right now the mining markets are booming so naturally Perth, NT and Qld are doing well. When commodities comes back down, WA will also come back down, and the media will comment on how a state so dependent on mining and commodities will always suffer boom bust scenarios.

I'm not saying which city is better: simply that precisely due to the different economic make ups of each of the states, some state capitals are more attractive than others at any one time. While over the long term you'll do well anyway, timing will increase your returns. e.g. if you'd bought at the top of the Sydney market in 1990, you would, by now, still be making money. On the other hand, if you'd bought during the mid 90's instead, youd be making more money.

Mind you, I started thinking Sydney prices were crazy around 2001, especially when compared to Brisbane. (What, only 5% yield in Sydney compared to what I can get 6.5% in Brisbane???)
Alex

 

[Pete]

Perth rents in the next few years

If the resource boom does continue, are property yeilds going to remain very low until the boom runs its course? Or do people think that once the Perth medium hits a certain value owner occupiers (ie 70% of the market I think) will just stop buying and rental demand will increase again?

hi Tulip,

I thought two years ago that there would be a 50% increase in Perth rents in the next two years - that is, by now. It hasn't happened. I'm still predicting the rents will increase significantly in coming years, but I am now more accepting that such increases will occur at a gentle pace. The history of rental increases seems generally to be a slow & steady one - there are exceptions, of course.

Although rents will increase, yields will remain low because the capital growth has been so strong.

regards,

 

[Ausprop]

"Just a few questions to ask anytime someone says 'the boom will go on forever' or 'this time it's different'."

I'd be happy if the 'boom' just tracked along as is - these projects are too huge to be influenced by over night spot prices and they aren't go to vanish. I think of the resource booms that have come to Perth to be more of a ratchet effect.

Is it different this time? Manufacturing is on the decline in this country, so that is different this time. The industrialisation of China is different. I would say every day is different.

So now it is just the lag effect whilst we wait for rents to rise. Like Pete I thought this would happen quicker but owners are a timid bunch and tenants complain loudly, but I have a feelign rents are on the move, albeit slowly.

 

[Dazz]

owners are a timid bunch and tenants complain loudly

Never a truer word spoken.

 

[Pete]

I see it more as "supply & demand". Normal market forces & inertia/volatility.

 

[cabo wabo]

a clarification....

Good people,

Just as clarification about the thoughts behind my previous post. I believe the fundamentals behind the market for our commodities will be strong for a good while yet as evidenced in my previous post.

What i meant by a 'firm' housing market is that its not gonna drop, it won't stall, and will continue to give solid appreciation, but not neccessarily at "boom" appreciation levels - the affordabilioty of the average Joe has to play a part here. Rises in interst rates may cause small pauses.

I believe the resource industry will continue to BOOM (not neccessarily the housing market). I belive the housing market will be 'FIRM' as a result of the resource boom, and will be a good investment with good appreciation returns.

When people say Perth prices are "crazy" i say "thats not true".

Remember, the fundamentals of the housing market are linked to the resource industry. The fundamentals of the resource industry is NOT linked to the housing market....(big big difference) and its the resource industry that drives the economy.

When reading stuff in the newspapers, remember a slowing (moderating) of the housing market does NOT indicate a slowing of the WA economy or resource sector. Pay attention to articles about the resource sector, china and the world economy, and less attention to all the negative articles that pop up when interest rates rise.

I'm not saying ignore the negative housing articles by sticking ur head in the sand, i'm saying don't forget to understand the resource articles thats all.

Not telling people how to suck eggs or anything.... its just the way i look at it and judge the risk.

 

[<KS>]

In regards to the thing about rising rents....I am not so sure the increase is slow in all sectors.

When I began renting my unit out 4 years ago I put it on the market at $115/week

2 Years ago I increased it to $135/week.

Last week I increased it to $150/week and I am confident I could have gone as high as $170/week as other airconditioned units the same size ar emanaging as much as $180/week!!

Based on the potential of $170/week thats and increase in rent of 48%....I would say thats pretty big jump in 4 years?

Also 2.5 years ago you could get a nice 4x2 in the Rockingham area for around $200-$220/week. Now you need around $280-$300 for the same quality in rental.

I think many landlords are underestimating there position, and that people can afford to spend a lot more than what a lot of us may originally perceive.

<KS>

 

[stretchy]

In my opinion house prices became detached from fundamentals a long time ago. Thats why I would not be suprised at a small fall in prices (under 5%) but an extended flat period is the most likely scenario.

For all those expecting the economy to support prices - you may want to study the US and Shanghai housing marking - both slowing down and the US has already registered a fall in prices. Parts of Shanghai are even worse. Note that the US is not suffering from a recession (although the economy is slowing down) yet house prices are still falling. Employment is growing, spending is fine (in fact the US economy is in better shape than NSW and VIC) yet house prices are dropping. Why? Because speculation pushed prices well above fundamental values.

I used to think it boiled down to supply and demand but I think that is a simplified view. Psychology plays a massive part and its that factor which has driven prices 30% year-on-year. Not fundamentals.

 

[Keen]

There once was a strong concensus that the WA market would keep growing strongly. However there has become an ever growing dividing in views - each day this seems to grow stronger.

The more "will nots" that continue to grow in number the stronger indication that the market is softening.

It is now a matter of whether the majority of the public feel the tide has turned that will govern where property prices will go from here.

Keen

 

[tropic]

One thing I notice is the large number of listings in suburb where my IP is.
The last couple of months it has almost trippled. I think they are still selling but isn't it an indication that people (investors) are cashing in?
I feel that the rents need to go up significantly for many people to continue holding their IPs. Not all of us (including myself) bought our RE long time ago. For people that are still -GE in a big way, they will have to justify holding IPs if the capital appreciation is only going to be 6-7%.
I think the next year of two will be interesting, if it slows down I fell more people will be selling. Remember that investors buy around 50% at the moment, if that dries down the market will certainly will it. Supply and demand.

 

[redwing]

My personal thoughts (guess) is that it will slow and even retreat in the future, maybe 5-10%; it cannot continue forever, there has to be some point where it settles or slows..where that point is and when it will occur, who knows; up until that point i think demand on housing and rents will still be a steady albeit slower rise.

If we are only building 19,000 houses a year and immigrants numbering around 21,000 entering the state, let alone interstate migration, young people moving out of home etc then there seems to be some demand still?


*

 

[Les]

G'day Redwing,

If we are only building 19,000 houses a year and immigrants numbering around 21,000 entering the state, let alone interstate migration, young people moving out of home etc then there seems to be some demand still?

If all houses are one person households, then I'd go with you. But, most of the time, we are talking 2 person (or more) households.

Does this mean, then, that the 19,000 households would need 38,000 (or more) people to fill them? As opposed to the 21,000 entering the state, young people, etc... To me, it's not quite so "cut and dried"...

Regards,

 

[tropic]

Redwing,

The chart is interesting. It took over 13 years for median price to double from 1987 boom and 10 years to go up from $100K to 150K.
If the history repeat itself buying now on -GE 100% is a bad move?

 

[gooram]

7% increase in September quarter

Reiwa has reported a 7% increase in the median house price for the September quarter, down from 8.5% in June, things starting to turn?

http://www.news.com.au/perthnow/story/0,21598,20588354-948,00.html

 

[Kennethkohsg]

Reiwa has reported a 7% increase in the median house price for the September quarter, down from 8.5% in June, things starting to turn?

http://www.news.com.au/perthnow/story/0,21598,20588354-948,00.html

*****************************
Dear Gooram,

1. The average house price in your reference report is not neccessarily the same as to the median house price which you are referring to.

2. I suspect that Rob/REIWA is trying to talk up the market.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

If we are only building 19,000 houses a year and immigrants numbering around 21,000 entering the state, let alone interstate migration, young people moving out of home etc then there seems to be some demand still?
[/QUOTE]
++++++++++++++++++++++++++++++++++++++++++++
Hi Redwing,

1. Where do you get the figures referred to, "building 19,000 houses a year" and "21,000 immigrants entering WA"?

2. Until the recent resource boom + increased immigration figures into WA since 2003, I sort of recalled reading that only some 12,000-13,000 houses were sold or "supplied" each year previously, with the Perth property market.

3. "Building 19,000 houses a year" will mean some 50% increase in the annual housing supply figures.

4. For your further comments/discussion, please.

5. I also look forward to learning from you further, please.

6. Thank you.

regards,
Kenneth KOH

 

[HotRod]

*****************************
Dear Gooram,

1. The average house price in your reference report is not neccessarily the same as to the median house price which you are referring to.

2. I suspect that Rob/REIWA is trying to talk up the market.

Cheers,
Kenneth KOH

The author probably meant median. It never surprises me, the numer of people that think that the median house price is the same as the average.

Anyway, with a 7% growth for the September quarter no wonder REIWA are talking up the market, oh the pain.