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Why do people think prices will not crash and continue to grow at the every 7 or 14 year rate?
asdlellel,
Inflation....
There is no limit on money. It is a creation of man out of thin air.
Why do you think there is a limit of money to stop growth??
In the late '50's my father earned 10 pounds a week ($20 for the youngsters). Without being any more productive I can earn $20/hour. In 50 years time, my grandchildren will probably be earning >$600/hour with inflation never going above 10% pa.
bye
I'm quite pessimistic about the prospects of capital growth in Australia for the next 5 years or so (at least), and I do think our prices are still a bit too high, but I don't think we'll see absolute drops of any substantial size. There are several reasons for this, but here are my two primary culprits for the reasons why Australia's market is different to the USA:Why should things be different here in Australia? Why wont it happen here?
I'm quite pessimistic about the prospects of capital growth in Australia for the next 5 years or so (at least), and I do think our prices are still a bit too high, but I don't think we'll see absolute drops of any substantial size. There are several reasons for this, but here are my two primary culprits for the reasons why Australia's market is different to the USA:
1) US' split market for properties
The USA has always had a split wholesale/retail market for property. I don't 100% understand why market forces don't collapse the dichotomy, but it seems that they don't. A property which would sell for $100K retail (eg a "normal" transaction between a willing buyer and willing seller), has always sold for around $60K "wholesale" (in distressed circumstances - could be that it needs some rehab, is in foreclosure, is sold on the courthouse steps due to back-taxes, etc). For some reason, homeowners don't tap into the wholesale market, even though there's no reason that they couldn't; I think it's partly because they're not aware of this market, and partly because it seems risky (may not be able to put as many conditions in). It's so entrenched it's a "rule of thumb" for investors - at foreclosures and auctions, you never offer more than 60% of appraisal (market value).
When, in 2007/8, US prices began to drop a little (rather than the anticipated rises), and then mortgage rates adjusted (5-year honeymoon rates from 2002/3 "early peak" began expiring), the market began to shift. Whereas beforehand it might have been 80% of properties sold "retail" and 20% "wholesale", more people went into foreclosure, or couldn't afford their taxes, at the same time as fewer people were buying retail because the market was weak. Gradually the ratio of wholesale and retail sales changed, to the point where now, in some areas, 80% are sold "wholesale" and 20% "retail". So, even if the market had not moved at all in the past 5 years, if prices were absolutely the same, the median sale price of $100K 5 years ago, is now a median sale price of $60K, because the median is now within the wholesale market.
2) Enthusiasm for ownership and investing in Australia
In the USA, they primarily buy their own homes because of 1) the tax deductibility of your own mortgage (yes! You can claim PPOR interest and expenses! ), and 2) high yields mean that in many places it's cheaper to buy than rent. (Excluding some of the very high value markets such as southern California and NYC.) Both factors are related to cashflow, not equity. In Australia, we almost exclusively buy our own homes for capital growth (from a financial perspective). Thus we're much more sensitive about capital values, and movements in value. Americans don't consider their homes an appreciating asset (to anywhere near the same extent). In Australia, those who don't yet own their own home are always concerned that they'll either miss out on spectacular growth, or be priced out of the market, because growth is historically strong and has been our focus. So as soon as prices drop 5 or 10%, both homeowners and investors are thinking that "it's a great opportunity to buy" and rush in to buy, propping the market up. This puts a natural floor on prices. Whilst prestige property (>$800K) is somewhat different (because not everybody can afford to play in that market), and has seen larger drops in some areas, I can't see the sub-$800K market dropping more than 10%, due to the above dynamic. It may drop more than that in real terms by having slower growth over a number of years - ie only 2% absolute price increases in a period of 3.5% inflation for 10 years - but I don't believe that absolute prices will retract more than about 10% from peak (unless there are further major structural changes, eg more credit tightening etc).
Hi OzPerp,I'm quite pessimistic about the prospects of capital growth in Australia for the next 5 years or so (at least), and I do think our prices are still a bit too high, but I don't think we'll see absolute drops of any substantial size.
SMH said:A TYPICAL home is worth a little over four times the average household's annual after-tax income, down from almost six times five years ago, Reserve Bank figures show.
Strong growth in incomes and a period of more sluggish median house price growth are working in the interests of would-be home buyers. "This is a dramatically better picture on Australia's housing affordability," the chief economist at UBS, Scott Haslem, said.
*edit*
The governor of the Reserve Bank, Glenn Stevens, said yesterday that the gradual improvement in affordability suggested Australian house prices were not heading for the same large price falls witnessed in other countries.
"In Australia's case, the ratio of the median dwelling price to average household income has declined quite noticeably since 2003, without a very large absolute decline in housing prices.
"This is evidence for at least the possibility that these adjustments can take place over reasonably lengthy periods and without being terribly disruptive to the economy."
Please excuse my happy feeling today but a share of mine, last night, doubled for the third time since I bought it six (about) years ago.
Excel shows a 701% gain.
I couldn't post the chart but any who care can look at the 5 year chart of RBI.TSX, consider that I bought earlier, cheaper and that the price is quoted in Loonies.
Gross profit is also net profit because it does not cost a cent annually to own the shares.
I am still well below where I was early '08 overall, but I survived and, recently, I'm thriving.
Never leave yourself so vulnerable to a bad outcome that you are wiped out. Without capital you are a wage slave. If you "only" lose 50% you still have cash to buy assets that show a 50% discount. If you are broke you can't buy them at 10c in the dollar.
Thommo,Never leave yourself so vulnerable to a bad outcome that you are wiped out. Without capital you are a wage slave. If you "only" lose 50% you still have cash to buy assets that show a 50% discount. If you are broke you can't buy them at 10c in the dollar.
Never leave yourself so vulnerable to a bad outcome that you are wiped out. Without capital you are a wage slave. If you "only" lose 50% you still have cash to buy assets that show a 50% discount. If you are broke you can't buy them at 10c in the dollar.
I hope people are not so offended by some of my posts that are in line with D&Gers. Just sharing my honest opinion. Hoping for some interesting discussion, not trying to upset people who don't like hearing negative opinions.
I saw a comment about Steve Keen. I admit he hasn't be proved correct yet, but he also hasn't been proven wrong in my opinion. In places like the US people make dire predictions years ago and they are being acted out in what is happening in the US.
Why should things be different here in Australia? Why wont it happen here? Why do people think prices will not crash and continue to grow at the every 7 or 14 year rate? (really, I am asking for your thoughts about that - why is Australia different?).
I hope people are not so offended by some of my posts that are in line with D&Gers. Just sharing my honest opinion. Hoping for some interesting discussion, not trying to upset people who don't like hearing negative opinions.
I saw a comment about Steve Keen. I admit he hasn't be proved correct yet, but he also hasn't been proven wrong in my opinion. In places like the US people make dire predictions years ago and they are being acted out in what is happening in the US.
Why should things be different here in Australia? Why wont it happen here? Why do people think prices will not crash and continue to grow at the every 7 or 14 year rate? (really, I am asking for your thoughts about that - why is Australia different?).