Strong Growth in Brisbane

[urban cowboy]

My view is the $400K median is the absolute peak for Brisbane. People in Brisbane earn around $50K to $60K (household income) so despite the lack of supply or otherwise they simply won't be able to get the cash. Especially with the availablity of credit tightening. I actually predict a "lack of credit" induced price drop - to $350K median (or less) by mid 2008.

Feel free to save this post and laugh at me mid next year but I'm pretty confident.

The only thing that might keep it up there (post $400K) over the medium term would be government intereference in some way (higher first home buyer grants, tax relief for owner occupiers, allowing shared equity schemes or some other stupid policy like that).

I wont laugh at ya mate!! not in my nature

no seriously...I can't comment well on brisbane wide, but what i do know well (inner north and north west) is many of the buyers in these brackets aren't relying THAT much on finance that a credit squeeze will hurt them - most have money to burn or are borrowing small portions of the total cost.

where it will hurt is the first timers and lower incomes - how that affects things in general - God only knows...my bet is it will still keep rising based on what i am seeing on the ground every day.

cheers
UC

 

[yieldmatters]

A prediction that the Brisbane median will fall from 400+ to 350 is a poke in the eye to historical records going back to European settlement in this country.

A jump from 200 to 350 in only a few years is also a poke in the eye to historical records ... so whats your point? Increases above historical trend are OK but decreases (corrections) aren't?

In fact, if debt levels were constant the recent dramatic rises simply couldn't of happened. So my conclusion that credit tightening might have the opposite affect on the Brisbane market is actually fairly rational.

 

[yieldmatters]

You go ahead and do what you do. I'm the one with real money on the line in Brisbane.
Alex

The banks money plus on paper equity is probably what you have on the line. But uno, hope it works out for you and your bank.

 

[Andrew_A]

A jump from 200 to 350 in only a few years is also a poke in the eye to historical records ... so whats your point? Increases above historical trend are OK but decreases (corrections) aren't?

In fact, if debt levels were constant the recent dramatic rises simply couldn't of happened. So my conclusion that credit tightening might have the opposite affect on the Brisbane market is actually fairly rational.

Do some research.

** sorry if that is hostile, but I started this thread to get some on the ground feedback on Brisbane prices, not speculation about what will happen in the future.

 

[wylie]

I have been in the Brisbane market with IPs for 25 years and sudden, quick booms are not uncommon. Then we have long flat periods or slowly creeping periods. I would hate to be sitting waiting for prices to come down.

Wylie

 

[Andrew_A]

Of no avail likely

Note the roller coaster ride that is the Brisbane median, some huge buy the crash opportunities based on medians I note (sarcasm). Log scale.

Residex data since January 1979.

Dust of your history books if you are indeed looking for scary bedtime crash reading and read 'The Land Boomers'.. Now that was a real party and manifestly different to what we are experiencing presently if just due to the massive oversupply of stock they built back then.

** edit.. added (sarcasm) just to be clear.

 

[yieldmatters]

Note the roller coaster ride that is the Brisbane median, some huge buy the crash opportunities based on medians I note (sarcasm). Log scale.

Residex data since January 1979.

That supports what I am saying (which you didn't address). The bid up in prices from 2001 to 2005 has never happened before. It was steeper and faster AND it was in a time of low inflation (so real prices are even higher). So the logic that a drop has never happened before doesn't hold much weight considering the price rise we've just seen hasn't happened before either.

I'm sorry - you haven't changed my mind! We will see - hope you are still posting this time next year!

Quick afterthought (edit) --> If you are into time series analysis I'd suggest you overlay your chart with median household debt, median wages, and median contruction costs. It will become very obvious that the path we are on is not sustainable.

 

[Debt Junkie]

Andrew_A

Don't know if you are going to bother with overlaying your graph with anything further (since it isn't really adding anything to answering your initial question) ... but if you did ... how about number of people moving to Brisbane & number of houses being constructed.

At least that'd be relevant to housing prices, as against discussions of affordability ... eek! Sorry, I try to stay out of affordability discussions, mostly because what I consider affordable and worth buying (generic buying, not just property) doesn't seem to match up with the Gen Y's who surround me and require the best of everything now ... invincibility is a fine thing

FYI - I see the market continuing to move upwards, rentals remaining difficult to find, hard to catch and increasing, and properties for sale getting snapped up very fast. What I can't see is a slowing down or a likely drop in house prices. No predictions here, just what I literally see happening in the 'burbs around me. (Brisbane's South West)

Bye!

DJ

 

[markpatric]

Very interesting thread on Brissie.
What will happen when interest rates hit 12% or more next year?.
Major correction anyone?, say 30%?.

 

[Debt Junkie]

Massive correction! Investors and home owners alike will go to the wall, prices will drop at least 50% and Hired Goon will come in and buy madly! By the end of the year, I'll be renting from him!

DJ

 

[WinstonWolfe]

Haven't plotted the cap city indices for a few years.
Interesting last two years. Though wouldn't mean much if it includes new homes (McMansions, luxury appointed townhouses etc).
Repeat sales of 20+ year old houses would mean more I should imagine.

 

[yieldmatters]

Andrew_A
Don't know if you are going to bother with overlaying your graph with anything further (since it isn't really adding anything to answering your initial question) ... but if you did ... how about number of people moving to Brisbane & number of houses being constructed.
DJ

Even if there was a shortage (and I'm not sure there is) that only has a temporary impact on prices while the supply side catches up.

Is there some fundamental reason why we can't supply more houses at a reasonable cost? Do we have inefficient construction? NO. Do we have a land shortage? Definetly NO - one of the lowest population densities in the world. Are our governments broke and can't provide infrustructure? NO.

So migration to SE QLD that doesn't sell me either on long term sustainable price rises. By all means though - add it to the graph if you think it is relevant. The most relevant though is household debt and wage growth.

My only point which nobody wants to acknowledge is that eventually there is a limit on house price growth (at the aggregate level) that is constrained by wages. Debt can suplement wage growth for a while but it is not sustainable - eventually you hit a point where you can't take on any more debt. Next year this will make an impact - credit will be hard to come by. That is all I am saying. Maybe I'm wrong, maybe I'm right - that is the fun of speculating on property!

 

[BoatBoy]

My only point which nobody wants to acknowledge is that eventually there is a limit on house price growth (at the aggregate level) that is constrained by wages. !

How much have we got to go before we catch up to where Japan was?

How long will that take?

Dave

 

[alexlee]

Is there some fundamental reason why we can't supply more houses at a reasonable cost? Do we have inefficient construction? NO. Do we have a land shortage? Definetly NO - one of the lowest population densities in the world. Are our governments broke and can't provide infrustructure? NO.

Inefficient construction? Compared to what? We want brick houses with granite benchtops. If we were willing to live with cheaper construction, maybe. Lowest population density, on a continent that's mostly desert. LIVEABLE land, close to work, transport and amenities, is scarce. Are our govts broke? No, in fact they have very low debt. But they have no political will to borrow to provide infrastructure. Why have highways and trains been so underfunded?

My only point which nobody wants to acknowledge is that eventually there is a limit on house price growth (at the aggregate level) that is constrained by wages. Debt can suplement wage growth for a while but it is not sustainable - eventually you hit a point where you can't take on any more debt. Next year this will make an impact - credit will be hard to come by. That is all I am saying. Maybe I'm wrong, maybe I'm right - that is the fun of speculating on property!

People living in London and New York would disagree with you about a limit on house price growth. At the very least it's a lot higher than we're seeing in Sydney. So what if the market drops 10% or even 20%, anyway? It'll come back in a few years, higher and stronger. I have a 30 year horizon for this.

I know this: if you have never bought property, it's VERY hard to pull the trigger. If the market is falling, it's even harder because you keep looking for the bottom. If credit becomes scarce (and I think it will), what makes you think that you will be able to get it any more than we will? Or that you will be able to say 'now it's time to get in' even though you have no experience in the market?

You haven't speculated on property at all, though? You're just talking about it.
Alex

 

[BoatBoy]

Very interesting thread on Brissie.
What will happen when interest rates hit 12% or more next year?.
Major correction anyone?, say 30%?.

Up 4% between now and next year?

Doubt it

Dave

 

[yieldmatters]

You haven't speculated on property at all, though? You're just talking about it.
Alex

I have actually. Bought an apartment in late 2002, sold it mid 2005 for about an $80K gain. Nice bit of speculative luck. Since mid 05 apartments in that area haven't moved much at all - too many apartments I think. Does it make a difference though? Any monkey could have done what I did.

I'm debating the logic of property always outstripping wages - it can't happen. You can pick areas though and do well as new money is coming to the area - no doubt about that - I think we agree there.

Regarding London, New York etc I would encourage you to look at the "Demographia Housing Affordability Survey 2007". You can google it and its freely available. Sydney ranks as the 7th most unaffordable city with median house price at 8.5 times median income. London comes 9th at 8.3 times median income. New York comes in 18th place at 7.2 times median income. All the cities that were rated worse (edit: by worse I mean more unaffordable!) than Sydney except for Honolulu were in California and are now in freefall (hasn't happened before though! Not since the early 40s anyway).

When (IF - I could be wrong) the correction comes I am pretty confident I can get debt. I have no debt - large income - secure industry. Should be OK.

 

[yieldmatters]

How much have we got to go before we catch up to where Japan was?

How long will that take?

Dave

Great question. I haven't seen house price to wages graphs for Japan.

I expect it got to ridiculous levels at the peak because they were talking about shared equity loans, loan terms over generations etc etc. The wages just weren't there to support the prices so they needed access to lots of debt. And as I'm sure it has been pointed out before somewhere on this forum Japan still hasn't returned to those prices 15 years later.

I will see what data I can pick up - the Japan government release a lot of statistics in English.

I think I know where you are going with this - if its unsustainable long term but it has a while to go yet why not ride it a bit longer? Fair point.

 

[BoatBoy]

Sydney ranks as the 7th most unaffordable city with median house price at 8.5 times median income. .

And Sydney is Australia ?

Dave

 

[alexlee]

I've read the study. I've also lived in London. The average place in London is a LOT crappier than the average place in Sydney. If people in London are willing to live in hovels for 8 times average pay, Sydney has a long way to go.

Ah well. You have more choice than I do. I can't sell and buy back without paying 20% of the portfolio in fees and CGT. So there's no point in me trying to take advantage of a 10% drop. You have the flexbility to move in and out of the market without big tax consequences. Enjoy it while it lasts, because if you hold property for at least one cycle that flexibility vanishes. As it has for many forum members, who, rather unfortunately, are forced to just keep holding onto their properties.
Alex

 

[yieldmatters]

I've read the study. I've also lived in London. The average place in London is a LOT crappier than the average place in Sydney. If people in London are willing to live in hovels for 8 times average pay, Sydney has a long way to go.

Ah well. You have more choice than I do. I can't sell and buy back without paying 20% of the portfolio in fees and CGT. So there's no point in me trying to take advantage of a 10% drop. You have the flexbility to move in and out of the market without big tax consequences.
Alex

Fair enough - a median place is not always the same. Studies like that have their complexities but they are better than time series in my view. Time series has lots of issues because everything else is changing at the same time.

It cost me to sell out - mainly fees - I'm on an awful marginal tax rate but my wife doesn't work so its still possible to arrange things to reduce some tax.

Of course now that you have sucked that out of me I lose all credibility (if I ever had any before) ... because people will now think I am biased! I am either trying to vindicate my own decision OR talk the market down so I can buy back in and keep the cash! Maybe some truth in that - but same for the others on here that have positions the other way. Anyway - at the time of selling out I did the numbers and thought it to be a fairly solid gamble to try and short the market.