RBA just put rates up again to 4.25%

[Graemsay]

The GDP and wage growth figures that I've seen are that both grow at 3 - 4% per annum (on average). The cliché is that property doubles every seven to ten years (so a 7% to 10% growth rate).

Taking these together, property prices would double every ten to twenty years relative to income.

The cheapest property that I could find in the Melbourne area on Domain was a cabin at $39,000. Interest repayments will be around $3000 per annum at 7%.

I'm not sure of the median household income in Melbourne, but some figures from 2006 suggest just under $1100 per week, so around $60,000 per annum.

If house prices grow at 10% and salaries at 3% (i.e. doubling in real terms every decade) then that cabin would be unaffordable to anyone on a median salary in Melbourne in about 45 years. At 7% house price growth it would take 90 years.

Taking a more extreme example (around 3% growth in GDP, and 10% per annum in property prices) by the middle of the 23rd century that cabin would be worth more than Australia's GDP.

(See, you can't go wrong with property. )

Having worked through the mathematics, I can understand why long run studies have shown prices track inflation. And this puts me in agreement with Intrinsic_Value that something will limit growth.

 

[keithj]

If house prices grow at 10% and salaries at 3% (i.e. doubling in real terms every decade) then that cabin would be unaffordable to anyone on a median salary in Melbourne in about 45 years. At 7% house price growth it would take 90 years.

Sure, just the same as a median priced house today is unaffordable to a median wage earner.

It's fortunate that we're building extra affordable houses all the time. Every single one of our currently existing houses was affordable when it was built. Every single extra house that will be built will also be affordable.

Some of these houses will be low growth (your $39K cabin I'd guess and others that lack desirable features), and some will be higher growth (eg subdividable, close to CBD/amenities & beach), and the average will be somewhere in between.

When Australias population growth stops (around the year 2100?) we won't need to build any more houses. Only then will existing house price growth slow to match wages growth. Until then, we'll keep adding cheap (affordable) houses to the outskirts of the cities, and existing (more desirable) land closer to the CBDs will rise in value quicker. And the OOs will keep paying down principle.

Having worked through the mathematics, I can understand why long run studies have shown prices track inflation.

Work though some maths that doesn't use a fixed number of houses. Try some maths that adds cheap (low growth?) houses into the mix every year & also take a few of the expensive ones out of the mix when the land is put to higher use (subdivided or used for apartments) .

 

[oracle]

The GDP and wage growth figures that I've seen are that both grow at 3 - 4% per annum (on average). The cliché is that property doubles every seven to ten years (so a 7% to 10% growth rate).

Taking these together, property prices would double every ten to twenty years relative to income.

The cheapest property that I could find in the Melbourne area on Domain was a cabin at $39,000. Interest repayments will be around $3000 per annum at 7%.

I'm not sure of the median household income in Melbourne, but some figures from 2006 suggest just under $1100 per week, so around $60,000 per annum.

If house prices grow at 10% and salaries at 3% (i.e. doubling in real terms every decade) then that cabin would be unaffordable to anyone on a median salary in Melbourne in about 45 years. At 7% house price growth it would take 90 years.

Taking a more extreme example (around 3% growth in GDP, and 10% per annum in property prices) by the middle of the 23rd century that cabin would be worth more than Australia's GDP.

(See, you can't go wrong with property. )

Having worked through the mathematics, I can understand why long run studies have shown prices track inflation. And this puts me in agreement with Intrinsic_Value that something will limit growth.

Property prices in Toorak (One of the most expensive suburbs) is unaffordable to anyone on today's median salary with no existing equity. But still property is being bought and sold in Toorak. Somebody must be doing the buying. What are your thoughts on that? 50 years ago I assume property prices in Toorak might have been affordable to people on median wages (I haven't checked this).

Secondly, your cabin example being unaffordable after 45 yrs to anyone on median salary. All I say is after 45yrs the definition of cabin might be different to what it is today. For eg. today the definition of property affordable by median wages is 30-40KM from CBD. 45 yrs from now might change that to 70-80KM CBD but may be 20-25KM from sattelite CBD (aka Paramatta in Sydney).

In capitalist society with population growth there will always be high achievers who would earn better than the average median salary and they would be the ones always pushing up prices when they either upgrade (with existing equity) or purchase their first property. Since they have the cashflow to support high mortgage.

Cheers,
Oracle.

 

[Ms Jade]

The cliché is that property doubles every seven to ten years (so a 7% to 10% growth rate).

OK I have now read this thing about property doubling every 7 years about 3-4 times. Only on SS and only in maybe the last year. All I ever heard ( and believed) for the last 10 years is that property doubles - on average - every 10 years. As Graemsay points out, there is a big difference. So where did this cliché (if it is one) come from? I have seen numerous house price graphs some years ago bearing out the "doubles every 10 year" rule over the past 40-50 years.
(Yes, yes, I know that this doesn't guarantee future returns ) Who presented any evidence of property doubling every 7 years? I don't mean "show me one 7 year period" either. My properties have also happened to double in the last 7 years. I just wonder if someone posted "7-10 years" one day it somehow slipped into folklore.

 

[redwing]

There was an interesting graph today in the Australian Fiancial Review which showed i think it was Melbourne residential property prices. Anyway the base year was 1989/90 at 100. Basically the graph diddled around the base until 1998 at which point it has exponentially increased to the current level of around 400.

I found that graph to be extremely useful. Firstly 'if property doubles every 10 years, then using the graph should read:
1990: base is 100
2000: base is 200
2010: base is 400
2020: base is 800

So over the last 30 years the property doubling every 10 years has held (as we are at the index level of 400 now).
However the interesting part is that its not a steady consistent increase.
Basically nothing happened for 8 odd years, then things have gone gang busters.

This leads to an interesting point, how many Somersofters out there could hold on to their properties if property did nothing for the next 8 years? How many rely on revaluations to support negative gearing?

How many people are on variable loan structures?
This point is interesting because, if property is to continue to double, at some stage incomes are going to need to be brought into alignment with property prices. If property prices dont drop, then this suggests to me a period of inflation (which will push up wages), and whilst inflation is good for property, inflation with variable interest rates are not (at least in the short term).

Just some food for thought.

Assuming the inflation genie comes out of the bottle and with the USofA putting the printing presses in overdrive..are you saying lock in your rates?

 

[topcropper]

This point is interesting because, if property is to continue to double, at some stage incomes are going to need to be brought into alignment with property prices. If property prices dont drop, then this suggests to me a period of inflation (which will push up wages), and whilst inflation is good for property, inflation with variable interest rates are not (at least in the short term).

Just some food for thought.

This has been done to death on here, and you know it too. Kiethj always brings this point up.

It's not average incomes to property prices that's important, it's disposible household incomes to property prices.

And property prices haven't doubled every 10 years since forever. They have doubled every 10 years since the 50's. I reckon I can prove that property before then didn't double every 10 years but went up far slower.

Property values have grown at faster than wage growth for 60 years as peoples disposable incomes increased faster than wage growth. I'll take some punts as to why disposable incomes increased so much in 60 years,....



50's, Agricultural mechanisation ment real food prices dropped. Farmers are always whinging that wheat was worth such and such in the 50's and here we are 60 years later it's worth not much more. Same with any food, but farmers are still in business because they are growing 4 times as much per hectare and farming 8 times as much land with a tenth of the labour. If wheat prices had increased at the same rate as inflation for 60 years I'd be making 20 million dollars a year profit.

60's, Dunno? Lets say improvements in manufacturing efficiencies. The start of cheaper consumer goods. Japan enters the manufacturing sector with cheaper and better cars. Mining mechanisation ment cheaper iron, coal, oil, gas.

70's and 80's. With high inflation and high interest rate for most of this time, property doubling every 10 years was only keeping up with inflation and wages growth anyway, so forget the whole period. Property prices didn't really do much over that period.

90's. Double income families. Falling oil prices. China starts manufacturing widgets.

00's. China boom, rapidly falling electrical and consumer goods. Cheaper real car prices, more double income families, cheaper real food prices still.



In the 50's, food might have made up 40% of a houshold budget, so if today it's 15% then people can spend more on a house.

In the 60's, a TV might have cost a month of wages, so if today a TV costs 2 days wages then people can spend more on a house,....

and so on and so on,....



So what is the next catalist for real household incomes to continue to increase so that houses can continue increasing value at 7% growth per year? I must say that I can't see what it will be. Food production has to double in the next 50 years. That ain't going to happen despite many scientists saying it will. Food is going to start increasing faster than inflation from now on. Oil is running out. All the cheap oil is done and dusted. Two marriage partners working is the max. It's not like the kids will be sent to work as well. Electricity prices are set to skyrocket.

Currently immigration rates have gone silly. Kev ramped it up as another way to contain the GFC and artificially prop up house prices. At current pop growth rates over 2% we are headed to 50 million in 40 years, not 35 million. Immigration will need to drop heaps to bring it to the 35 million. 35 million is immensly unpopular with most Australians. Traffic and congestion gridlock will awaken the silent masses and elections will be won and lost on this issue. Both political parties are now talking more sensible immigration rates, and good on them.

Perhaps it's whats going on now with wealthy Chinese buying up Melbourne? Does Australia become the asset safe haven of the whole world. Manufacturing leaving China and getting even cheaper from African workers? A new power source? Nuclear fusion?


See ya's.

 

[HandyAndy888]

Interesting comments topcropper.

The main concern for me about property as an investment vehicle, is the "doubling". It implies that the rate of growth is exponential, hence:

2010: A house is worth $300,000
2020: Same house $600,000
2030: Same house $1.2million
2040: $2.4million

Here is where I think we will run into trouble. For an average house in the burbs (and current 300k is the lower end), we will be paying 2.4 million. Let's say wages rise in the same manner:

2010: Wage $100,000
2020: $200,000
2030: $400,000
2040: $800,000

Is this realistic? I think not. The gap between wages and house prices is going to continue to increase and in 2040s/2050s, the doubling from 2.4 to 4.8 million for an average house will be a signal for change. What sort of change, I can only guess, but I think it won't be pretty...

 

[alexlee]

What you're not considering, HA888, is that the 'average house in the burbs' will move. 30 years ago, the lower end house in the burbs was not where it is now. The city gets bigger, and people get pushed out. That 300k house in an outer suburb will become a 'great piece of land to build a new house in a mid-ring suburb'. As new housing gets built around the fringes, the city grows outwards, and outer becomes inner.

I have a street directory that's 20 years old. It's interesting to see that 20 years ago, what are now considered fairly established suburbs didn't even exist. So the edge of that map would have been the fringe suburbs, and now there are houses stretching another 20 km outwards.

This is the pattern one sees in bigger cities than ours, like London or Tokyo or New York.

A GIVEN house can become more and more expensive, as long as there is population growth and increase in nominal incomes.

 

[WinstonWolfe]

Graem, the cognitive biases regarding property growth will be unmasked by plotting the value of Australia's total dwelling stock against Gross National Income over the last few decades.

edit:
Keep in mind also, that much of Australia's productivity is tied up in housing construction.
Michael Matusik said last year Brisbane employment was 15% related to property construction, whereas the Sunshine and Gold Coasts had 40%.

Obviously, if population growth slows/stops, or the supply of credit, unemployment will rise drastically in some areas. Qld Treasury knows this, as does Rudd, which is why they are pro big population.

Population growth is masking serious structural flaws in Australia's economic sustainability.

 

[Intrinsic_Value]

Sure, just the same as a median priced house today is unaffordable to a median wage earner.

It's fortunate that we're building extra affordable houses all the time. Every single one of our currently existing houses was affordable when it was built. Every single extra house that will be built will also be affordable.

Some of these houses will be low growth (your $39K cabin I'd guess and others that lack desirable features), and some will be higher growth (eg subdividable, close to CBD/amenities & beach), and the average will be somewhere in between.

When Australias population growth stops (around the year 2100?) we won't need to build any more houses. Only then will existing house price growth slow to match wages growth. Until then, we'll keep adding cheap (affordable) houses to the outskirts of the cities, and existing (more desirable) land closer to the CBDs will rise in value quicker. And the OOs will keep paying down principle.

Work though some maths that doesn't use a fixed number of houses. Try some maths that adds cheap (low growth?) houses into the mix every year & also take a few of the expensive ones out of the mix when the land is put to higher use (subdivided or used for apartments) .

Keith, i'm sorry but i am starting to loose confidence in this argument.
The general argument is correct, but it doesnt justify price rises of ANY DEGREE, which the current sentiment seems to justify.

Every bubble is based on 'fundamentals', but the greater the continued confidence (or belief) in those fundamentals the more opportunity exists for bubble like conditions to occur.

Under this argument, prices could rise to any degree and still be justified.

Over the long term incomes have to rise to match property prices. It doesnt have to be the medium, it can be incomes 'appropriate' to the suburb.

 

[Intrinsic_Value]

This has been done to death on here, and you know it too. Kiethj always brings this point up

.

It's not incomes to property prices that's important, it's disposible incomes to property prices.

Yes quite agree with this comment. But your comment becomes interesting, because i would add its disposible incomes relative to interest rates and relative to property prices.

Now disposable incomes have risen over the last 15 years odd because of reductions in the tax rates, or expansion of the tax brackets. But this does not last for ever and also has its cycles. Gartman picked up on this in regards to the US, where i think tax rates increased from the 1930's to about the 70's, and then decreased from the 1980's to present, and the cycle could be about to swing again.

Then consider interest rates, the overall global trend has been down since the early 80's. But this cycle could also be about to change.

And property prices haven't doubled every 10 years since forever. They have doubled every 10 years since the 50's. I reckon I can prove that property before then didn't double every 10 years but went up far slower.

Property has doubled at faster than wage growth for 60 years as peoples disposable incomes increased faster than wage growth. I'll take some punts as to why disposable incomes increased so much in 60 years,....



50's, Agricultural mechanisation ment real food prices dropped. Farmers are always whinging that wheat was worth such and such in the 50's and here we are 60 years later it's worth not much more. Same with any food, but farmers are still in business because they are growing 4 times as much per hectare and farming 8 times as much land with a tenth of the labour. If wheat prices had increased at the same rate as inflation for 60 years I'd be making 20 million dollars a year profit.

60's, Dunno? Lets say improvements in manufacturing efficiencies. The start of cheaper consumer goods. Japan enters the manufacturing sector with cheaper and better cars. Mining mechanisation ment cheaper iron, coal, oil, gas.

70's and 80's. With high inflation and high interest rate for most of this time, property doubling every 10 years was only keeping up with inflation anyway, so forget the whole period. Property prices didn't really do much anyway.

90's. Double income families. Falling oil prices. China starts manufacturing widgets.

00's. China boom, rapidly falling electrical and consumer goods. Cheaper real car prices, more double income families, cheaper real food prices still.

Good points but then consider is this just a cycle within cycles. Are we extrapolating too much from just a sub cycle within major cycles.

So what is the next catalist for real incomes to continue to increase? I must say that I can't see what it will be. Food production has to double in the next 50 years. That ain't going to happen despite many scientists saying it will. Food is going to start increasing faster than inflation from now on. Oil is running out. All the cheap oil is done and dusted. Two marriage partners working is the max. It's not like the kids will be sent to work as well. Electricity prices are set to skyrocket.

Currently immigration rates have gone silly. Kev ramped it up as another way to contain the GFC. At current pop growth rates over 2% we are headed to 50 million in 40 years, not 35 million. Immigration will need to drop heaps to bring it to the 35 million. 35 million is immensly unpopular with most Australians. Traffic and congestion gridlock will awaken the silent masses and elections will be lost on this issue. Both political parties are now talking more sensible immigration rates, and good on them.

Perhaps it's whats going on now with wealthy Chinese buying up Melbourne? Does Austalia become the asset safe haven of the whole world. Manufacturing leaving China and getting even cheaper from African workers? A new power source? Nuclear fusion?

These are all valid comments, but you are actually highlighting potential risks that will end the status quo.

 

[topcropper]

These are all valid comments, but you are actually highlighting potential risks that will end the status quo.

I basically agree with you and most of what you've posted on here for a while.


See ya's.

 

[Intrinsic_Value]

What you're not considering, HA888, is that the 'average house in the burbs' will move. 30 years ago, the lower end house in the burbs was not where it is now. The city gets bigger, and people get pushed out. That 300k house in an outer suburb will become a 'great piece of land to build a new house in a mid-ring suburb'. As new housing gets built around the fringes, the city grows outwards, and outer becomes inner.

I have a street directory that's 20 years old. It's interesting to see that 20 years ago, what are now considered fairly established suburbs didn't even exist. So the edge of that map would have been the fringe suburbs, and now there are houses stretching another 20 km outwards.

This is the pattern one sees in bigger cities than ours, like London or Tokyo or New York.

A GIVEN house can become more and more expensive, as long as there is population growth and increase in nominal incomes.

But can urban expansion continue indefinately.
I do note with some caution, my comments re those properties with large land holdings, as the utility value of the land increases over time.
But what about apartments/town houses, these are also going gang busters, and the utility value of apartments is very low.

I would argue three main factors that are influencing the overall market:
*immigration and recent changes to the laws as to who may buy existing property
* government interference that is limiting the ability of the natural market to increase supply.
* demographics, whereby the buying age for property has been pushed out. People getting married later, having children later, is a new concept in the whole scheme of things. This resulted in initially surpressed demand, but is now pent up demand. (ie its a timing issue)
* a potential fourth factor that is not as strong but still relevant is the movement in investor preference from shares to property after the recent GFC

Now what will happen to the market if these factors are removed?

Like everyone i cant be 100% certain of the future movements, nobody can predict with 100% certainty the future.

All i can emphasise is that the risk factors are increasing.

 

[alexlee]

Can urban expansion continue indefinitely? Maybe not, but there are clearly many cities far bigger than ours that still haven't hit limits. So I don't think Australia cities are anywhere near the limits of urban expansion yet.

I disagree that townhouses / units have low utility. For one, if houses in an area are simply too expensive for most people, redevelopment into more 'affordable' units makes sense, and many people make the tradeoff between space and convenience.

I continue to look at other major cities in the world, and Australian cities aren't anywhere near that. People keep saying London and New York, for example, won't go up further, but they do.

Clearly, though, price growth isn't inevitable. If we have a prolonged recession and we start losing population, then prices won't go up (see Japan). This is of course for long term trends. As the 90s showed, you can have a decade of non-existent price growth even if the demographics are ok.

 

[Witzl]

this whole argument of "wages vs house price" is silly.
You should be looking at wages vs MORTGAGE.

As indicated by a few people already - over the course of time, the average house moves further and further out from the CBD.

Here is an old post i made on this same argument. Giving an example of how affordability changes over time for individuals, as they build EQUITY and pay down their mortgage - allowing them to buy much more expensive homes over time that are worth much much more than the much touted "4x income", at a very affordable comfort level.

http://www.somersoft.com/forums/showpost.php?p=612517&postcount=50

NOTE - post edited a little below to make it more in context on its own.

Assume the following is true:
Let's say that FHBs have 1.5 times their salary as a deposit, plus 3.5 times as a mortgage. They can then afford a house worth five times salary. Salaries rise by 4% per annum and house prices by 7%.

Now lets look at what happens over time!!

The "average" first home buyer in year 0 is NOT THE SAME as the "average" first home buyer in year 10 - because the guys from year 0 has had capital appreciate and mortgage reduction help him build up equity... unlike the FHBer from year 10, who only has a deposit.

I'll try and simplify.....

• Lets say that your FHB (lets call him Joe) in year 0 buys a $100k house, 20km from the CBD. His salary is $20,000. His deposit is $35K, and his mortgage is $65k (3.25 times salary)
• In year 10.... Joe, that bought his $100k house in year ZERO has now paid down his mortgage by say $20k (1/3rd), and his house has INCREASED in value by $96k up to $196,000.
• He now has a sizeable chunk of equity ($141K). His salary is now almost $30k, in line with 4% increase of the average wage.
• Based on the metric of 3.25 times salary is what mortgage he can afford, he can now afford a $97,000 mortgage... plus his $141,000 equity as deposit... so he sells his old house, and moves into a swanky house closer to the CBD at just 15km from the CBD worth $238,000.
• At the same time, in year 10, Tom is a FHB and is looking for a house to buy. His salary is also the "average" of the day, being $30,000. He has a $45,000 deposit (1.5 times wage), and can afford a mortgage 3.25 times his wage... $97,000. This equates to buying a $142,000 house.
• Of course Tom cannot afford to buy Joe's original house....... well derrrr!!.
• The city has naturally grown in size in 10 years, so Tom has to look further out for WHAT HE CAN AFFORD TO BUY, at around say 30km from the CBD.
• ..... now lets fast forward to year 20.
• Joe's new house, 15km from the CBD, has increased in value from $238K to $468K. He paid down his mortgage by 1/3rd (mortage now only $65K), so he now has $403,000 in equity. (niiiiice!)
• Tom's house has also increased value from $142K up to $279K. He also paid down 1/3rd of his mortgage (like Joe, only $65K remaining)... so he now has $214,000 in equity.
• Both Tom and Joe, being the SAME average wage earners of the day, now both earn $44,400pa. Therefore they can both now afford a $144,000 mortgage (using the 3.25 times wages "metric").
• Joe can therefore now upgrade to a $547,000 home.
• Tom can now upgrade to a $358,000 home.
• ... and Joes first home, bought for $100,000 in year 0, is now worth $387,000 in year 20.... so Tom can now *almost* afford it.

So as you can see - it is really the build up of equity and wages that aids the growth in like property prices. The MEDIAN price continues to rise due to more homes in the market, and a growing proportion of those homes being at the higher end of the market.

Affordable housing still exists - it is just added to the market, further out from the CBD.

This is the way the system works.
You can either fight it, or benefit from it.

I chose the latter.

 

[boz]

Here is an old post i made on this same argument. Giving an example of how affordability changes over time for individuals, as they build EQUITY and pay down their mortgage - allowing them to buy much more expensive homes over time that are worth much much more than the much touted "4x income", at a very affordable comfort level.

I agree with some points, but it is very important to clarify the people in australia are not paying down the mortgage (as you can work it out in the RBA Financial aggregate), I agree that equity has been increased. There are country like UK where central banks gives data on equity withdrawal from property

 

[Ms Jade]

Glad you re-posted that Witzl; a very clear illustration. To pick up on your point, it's important to note not only that the median house is not the same house, but that the buyer is not the same buyer. As population grows so will the gap between the rich & the poor. As time goes on, a smaller percentage of the total Melbourne population will be able to afford to buy in Toorak (Where's deltaberry & his alter-ego? I feel like I've just said "Candyman" 3 times at the mirror?). If it's the wealthiest 1% of the population now it may be the 0.4% in 10 years time. But those people are likely to be proportionally more wealthy as regards the "average wage" than they are now. It may not seem logical that this demographic will pay higher & higher prices in Toorak & push up its relative price. But if they all still want to live there, this is exactly what will happen. It probably doesn't matter how "sustainable" these prices look to everyone else.

 

[keithj]

I'll take some punts as to why disposable incomes increased so much in 60 years,....

50's, Agricultural mechanisation ....

60's, Dunno? Lets say improvements in manufacturing efficiencies.....

70's and 80's. With high inflation and high interest rate ....

90's. Double income families. Falling oil prices. China starts manufacturing widgets.....

00's. China boom, rapidly falling electrical and consumer goods. Cheaper real car prices, more double income families, cheaper real food prices still.....

So what is the next catalist for real household incomes to continue to increase so that houses can continue increasing value at 7% growth per year? I must say that I can't see what it will be.

I'll bet that back in the 50's, 60's, etc, that no-one could guess that the next decade would bring about such significant changes. And I'll bet that v. few today can envisage with any degree of certainty what changes will give us more disposable income for the next decade.

Needless to say, I can't say with any certainty what will be the catalyst, but I'm 99% certain that something will. To think otherwise would mean that our standard of living has plateaued. We might as well stop investing in universities & research & send those 1 million Chinese PhD students back to work in the fields.

Food production has to double in the next 50 years. That ain't going to happen despite many scientists saying it will. Food is going to start increasing faster than inflation from now on. Oil is running out. All the cheap oil is done and dusted. Two marriage partners working is the max. It's not like the kids will be sent to work as well. Electricity prices are set to skyrocket.

In the medium/longer term, I believe that technology will give us cheap energy & cheap food & cheap entertainment. Maybe 'real' food will become a luxury, with the masses eating laboratory grown food. And there is still a huge amount of O/S cheap labour with a desire to improve their standard of living. The end result is that we'll have more disposable income to spend on stuff that making us happy.

Does Australia become the asset safe haven of the whole world. ? Manufacturing leaving China and getting even cheaper from African workers? A new power source? Nuclear fusion?

Maybe, probably, Almost certainly, maybe - but possibly tidal, solar, wind, geothermal, biological, who knows ?

 

[Ausprop]

In the medium/longer term, I believe that technology will give us cheap energy & cheap food & cheap entertainment.

it was the cheap energy that gave us technology, cheap food and cheap entertainment. it would make sense that as the cheap oil goes that everything else shrinks with it. can we find an alternive?

I believe there are limits to global population growth and resource consumption and that day is drawing nearer. the end result will be ugly, however hopefully I am very wrong!

 

[keithj]

Keith, i'm sorry but i am starting to loose confidence in this argument.
The general argument is correct, but it doesnt justify price rises of ANY DEGREE, which the current sentiment seems to justify.

Not quite sure I understand.... can you elaborate ?

Do some flow analysis on the lifecycle of a family unit - starting as a FHB, then an upgrader, and finally downsizer. And then add in 2% population growth pa, and add the extra cheap houses they'll need. And consider that some 'expensive' houses will be removed from the statistical population (& put to a higher usage either though apartments, or zoning changed to commercial). Also that 30% of us have no mortgage, and that 30% of us are paying P&I.

Every bubble is based on 'fundamentals', but the greater the continued confidence (or belief) in those fundamentals the more opportunity exists for bubble like conditions to occur.

Under this argument, prices could rise to any degree and still be justified.

V. early in their life bubbles as based on fundamentals, but as they progress they are based on momentum. In their later stages bubbles can never be based on fundamentals, only momentum & the fear of missing out or that there will be a greater fool.

Over the long term incomes have to rise to match property prices. It doesnt have to be the medium, it can be incomes 'appropriate' to the suburb.

I disagree - that does not reflect reality. Sunshine Coast is Demographias favorite example - prices are 10x incomes. But it's still affordable because the buyers are all retirees paying cash. Income is irrelevant, because they have no debt. That's an extreme example. In reality, most upgraders have a 50% deposit for the next PPOR, so they can move into a house that costs 8 times their income (instead of the normally accepted 4x).