My point is that the belief in some circles that the RBA will aggressively cut rates is misguided - doing so will cause a massive flow of funds out of the country. The RBA will ease slightly, but you won't see a return to official interest rates below 6% for a good while.
We will have a property crash, but this isn’t it! (M. Yardney)
- Thread starter Shadow
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My point is that the belief in some circles that the RBA will aggressively cut rates is misguided - doing so will cause a massive flow of funds out of the country. The RBA will ease slightly, but you won't see a return to official interest rates below 6% for a good while.
...yeah, well that's probably most on the forum.
Trouble is, it's nigh on impossible to learn the necessary intricate details to avoid the mistakes until you have lived and breathed it from conception to finalisation, pored over the contracts dictating the movement of funds, and been privy to the closed door negotiations that make up a deal.
Reading some glib horror story or success case on the internet case - you'd be none the wiser. Why ?? Because the first deal that you enter into will have the a level of detail and intracacies that are unique to that site and deal.
The people who have been involved previously as investors will be able to apply that level of detail learnt previously. their previous detailed knowledge may or may not be relevant. Your generalist knowledge certainly won't be.
You won't be able to avoid getting stung - as you've picked up disjointed snippets sitting on the sidelines.
This is the vast difference between doing the deal, and reading a book or an internet site about how deals are done.
Perhaps the above would be better phrased as "Not admitting that you may have made a mistake and refusing to learn from the experience is the practice of the foolish."
Has anyone thought about the immigration rate of
200,000 arrivals a year entering the country.
Property crash makes for interesting headlines.........only.
There is a huge difference between property crashing and a slowing down of the market .
Of course I guess its like the earthquake that rocked LA recently. When I saw the headiness on CNN I expected half of SAN Fransisco to be burning.........but was disappointed !
200,000 arrivals a year entering the country.
Property crash makes for interesting headlines.........only.
There is a huge difference between property crashing and a slowing down of the market .
Of course I guess its like the earthquake that rocked LA recently. When I saw the headiness on CNN I expected half of SAN Fransisco to be burning.........but was disappointed !
Hi Devo
I think opinions differ on this.
My personal opinion is that a crash is a return to historical growth levels and affordability.
For example, property grows 7% pa (or less in real terms) and has done this for about 30 years or so. An average house is historically about 3-4x average incomes. Right now it's at least 8x +.
Prices right now are trending at about 30% above where they should be. Debt levels for entry level home owners has peaked. Average income earners are devoting half their GROSS income to mortgage payments. This is unsustainable.
If we want the future generation of home buyers to be able to buy these properties off the current generation of homeowners, then property prices cannot continue at these rates of growth.
The quickest solution to this would be a crash in prices in a short time span.... or a Japan like stagnation over the long term.
Rogue... you seem to think that there should be a correct price for houses and that prices should just revert to this correct level.
There is no 'correct' price. The price is set by the market based on supply and demand.
If an extra 1 million houses suddenly appeared in Sydney, house prices would crash.
If an extra 1 million people suddenly appeared in Sydney, house prices would boom.
You can't just look at a historic price vs income ratio and state that prices 'should' be at this 'correct' level, regardless of other market fundamentals, especially supply, demand, and disposable income.
Should Picasso's paintings revert back to one weeks average wages? After all, that's probably all Picasso could sell them for back in 1910.
Should land in Sydney revert to being free? After all, that's all the first colonists paid for it.
Should DVD players jump back up to $1000... I can buy one for $50 now... shouldn't they just revert to the old price?
Shadow.
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Rogue, How would you explain the following then in relation to the ability of house prices to continue to grow in value over the long term:
1) The multitude of people who earn well in excess of the average wage and their ability and willingness to service much higher loans than an average wage earner.
2) People who have been in the market for a number of years with significant equity in their homes upgrading to better areas with limited housing supply. (ie inner suburbs where land is scarce and period housing styles are actively sought).
3) Those who have family inheritances to draw upon, or equity from parents or other relatives? These people could in fact earn an average wage and still be able to purchase a home in an expensive area.
4) An increase in the number of migrants in our capital cities who purchase property here with money bought in from their home country.
I would be interested in your thoughts in relation to the above. The 'average income' debate is a rather one dimensional way to assess the ability of the property market to continue to rise in value. This view ignores other factors (as mentioned above) which drive property values.
Hi Jingo,
To answer your questions:
I am talking average income earner. You see Jingo, that is how we calculate averages.... we factor in those many people who earn less than average and those many people who earn more.... and that's what gives us the average wage. Of course, not everyone finds it unaffordable. There are always some people who can afford a Ferrari and some who can't, but if an average earner couldn't afford even a Ford Falcon.... then Ford would go broke.
Equity from parents - Again, this is just debt/wealth transfer from one person to another.
To put it another way Jingo, say I can afford with my wage a $200k home, but my parents leave me $100k, so i can afford a $300k home. This may increase the demand by one person on $300k homes and therefore might increase prices in that price range, but it also removes demand by one person for homes in the $200k price range, which would lower prices in this range. So all this really is is wealth TRANSFER. It does not generate an increased demand for property, it creates an increased demand for 'quality' properties.
Immigration is a somewhat valid reason for price increase expectations as a result of increased demand for houses, and we certainly have a higher than average net migration into Australia currently. However 190,000 new migrants does not create a need for 190,000 new houses.
Some will be couples, or families of 2, 3 or more people. Some are singles that will perhaps meet another Australian, marry and move into a family household. Some are not permanent migrants so can only alter demand temporarily. We are currently building around 150,000 new houses p/year. Our population has increased by 330,000 p/year. Our average household size is 2.5 people. So we're building a house for every 2.1 people when there are 2.5 people to every house. The Govt is currently looking at releasing more land for building to increase supply in the near future.
Building supply and migration are transitory. We might have good figures this year and bad figures next year. It cannot be relied upon as a sole indication of strong capital gains growth into the future.... it didn't help in Ireland, where prices are dropping substantially despite record migration and a housing shortage.
Migration also puts more demand on employment, which can have possible future implications on the unemployment levels, which in turn will not be good for the economy.
To answer your questions:
I am talking average income earner. You see Jingo, that is how we calculate averages.... we factor in those many people who earn less than average and those many people who earn more.... and that's what gives us the average wage. Of course, not everyone finds it unaffordable. There are always some people who can afford a Ferrari and some who can't, but if an average earner couldn't afford even a Ford Falcon.... then Ford would go broke.
I did specify 'entry level' in my post. These are the future generation of home buyers and the very people that investors will want to be paying big sums for their homes when they sell to fund their retirement. I agree those who have sufficient equity from buying post boom probably have nothing to worry about, unless of course they drew on that equity to buy boats and caravans and holidays and such. But they are the recent generation of home owners, not the current and future generation of home buyers.
Family Inheritances - This has always been around and is effectively only wealth transfer. Even so, with the current average age of death, i don't expect my parents to die until i am retirement age, so i'll be taking out a 30 year mortgage sentence off my own back... just like most other people.
Equity from parents - Again, this is just debt/wealth transfer from one person to another.
To put it another way Jingo, say I can afford with my wage a $200k home, but my parents leave me $100k, so i can afford a $300k home. This may increase the demand by one person on $300k homes and therefore might increase prices in that price range, but it also removes demand by one person for homes in the $200k price range, which would lower prices in this range. So all this really is is wealth TRANSFER. It does not generate an increased demand for property, it creates an increased demand for 'quality' properties.
Immigration is a somewhat valid reason for price increase expectations as a result of increased demand for houses, and we certainly have a higher than average net migration into Australia currently. However 190,000 new migrants does not create a need for 190,000 new houses.
Some will be couples, or families of 2, 3 or more people. Some are singles that will perhaps meet another Australian, marry and move into a family household. Some are not permanent migrants so can only alter demand temporarily. We are currently building around 150,000 new houses p/year. Our population has increased by 330,000 p/year. Our average household size is 2.5 people. So we're building a house for every 2.1 people when there are 2.5 people to every house. The Govt is currently looking at releasing more land for building to increase supply in the near future.
Building supply and migration are transitory. We might have good figures this year and bad figures next year. It cannot be relied upon as a sole indication of strong capital gains growth into the future.... it didn't help in Ireland, where prices are dropping substantially despite record migration and a housing shortage.
Migration also puts more demand on employment, which can have possible future implications on the unemployment levels, which in turn will not be good for the economy.
Yes, there is a correct level of affordability for the average earning population, which would indicate a correct price range to keep houses within that realm of affordability.
Yes.
Assuming that those 1 million could afford those booming prices, but you would have a whole other generation of previously economically viable purchasers priced out, which might decrease that previous demand by a million people also..... or more. Every new entrant into the country that puts a demand on housing supply that is not catered for in building supply reduces the demand at the same time, because someone else might get priced out by higher prices.
I don't just look at historic price vs income ratios. I use this as a guideline for making predictions on percentage falls only.
A picasso painting is a piece of historical significance. Not a good comparison with something that is as essential to life as shelter.
Again, comparing a mass produced, non-essential and disposable item with shelter. It's just not a good example.. Sorry.
Not only that, the majority of Aussies retire on a pension according to stats, so there aint gunna be no significant inheritances passed along to any significant number of kids.
I respect the arguments people come up with from the D&G side but sometimes i think it becomes too clinical and analytical regarding the "value" of homes in oz
Its the only assett class that has the illogical demand createing variable which we cannott put a % of $ value on and i am not quite sure what to call it.
i am going to call it the "the castle" mentality
Approx 70% of all transactions are by owner occupiers, whether they are singles, young couples, families etc, they all want thier own castle, whether it makes the most financial sense to buy or rent, 70% of the general population buy a home to live in.
They want thier own castle.
As long as people want the castle, how can we measure the value that peoples emotional attachment to thier "homes" or of wanting to own thier own home has on supporting/rising prices?
We can't, its no a stat the ABS keeps track of, but it is very powerful.
Ahh.. i hear the D&G saying, but without access to easy credit it can't continue, so people will change thier attitudes, they wont care about owning thier own home like in the past.....
yeah maybe for those who are contemplating buying a first home who have no kids, little in the way of financial responsibility who are still living at home into thier late 20s early 30s just waiting for property prices to fall so that it becomes "financially sensible" to buy again....this is an easy argument to "believe".
but no economic climate lasts forever, it changes daily if you believe the mass media.
People need a roof over thier heads, we will always want our castle our own little bit of Oz to be proud of....it is powerful.
Cheers,
Its the only assett class that has the illogical demand createing variable which we cannott put a % of $ value on and i am not quite sure what to call it.
i am going to call it the "the castle" mentality
Approx 70% of all transactions are by owner occupiers, whether they are singles, young couples, families etc, they all want thier own castle, whether it makes the most financial sense to buy or rent, 70% of the general population buy a home to live in.
They want thier own castle.
As long as people want the castle, how can we measure the value that peoples emotional attachment to thier "homes" or of wanting to own thier own home has on supporting/rising prices?
We can't, its no a stat the ABS keeps track of, but it is very powerful.
Ahh.. i hear the D&G saying, but without access to easy credit it can't continue, so people will change thier attitudes, they wont care about owning thier own home like in the past.....
yeah maybe for those who are contemplating buying a first home who have no kids, little in the way of financial responsibility who are still living at home into thier late 20s early 30s just waiting for property prices to fall so that it becomes "financially sensible" to buy again....this is an easy argument to "believe".
but no economic climate lasts forever, it changes daily if you believe the mass media.
People need a roof over thier heads, we will always want our castle our own little bit of Oz to be proud of....it is powerful.
Cheers,
Arguing about affordable home for the average guy over time is problematic. I can only reiterate that the concept of affordable home has been ratcheted up over time. Most people want the affordable home to include rooms for the gym, sewing room, guest room, study room, office room, etc.
The humble home as it used to be is no longer in this time and age. When we talk about average home of the past and compare it with the present, these distortions have to be adjusted for.
What is the household income now for owing an average house? The household income in years past come mainly from a bread winner. Nowadays, it is more likely to come from dual income earners with additional streams of income from the side. Can all these be factored in?
Until all these anomalies are seriously addressed, continuing reliance on a ratio such as this and assuming that it should have a linear relationship over time is less than dd.
The humble home as it used to be is no longer in this time and age. When we talk about average home of the past and compare it with the present, these distortions have to be adjusted for.
What is the household income now for owing an average house? The household income in years past come mainly from a bread winner. Nowadays, it is more likely to come from dual income earners with additional streams of income from the side. Can all these be factored in?
Until all these anomalies are seriously addressed, continuing reliance on a ratio such as this and assuming that it should have a linear relationship over time is less than dd.
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I definitely think these things need to be taken into account. Which is why I don't believe those 40% fall predictions, despite being a D&Ger. My thoughts are we'll see nominal 10% falls, maybe real falls up to 15% Australia wide, but not much more than that.
In any event, I don't think the short term economic environment will make it a good idea to buy as a FHB.
I also feel that many are waiting for there target areas to drop in value and then buy. Sydney cbd as a example. But i feel its areas like this that will not see falls like some other areas. Just a slight correction,some stagnant values for a while the upwards motion again. A boom to me will be some time off. 5 years at least.
I totally agree with you there Natedog. The emotional aspect of home ownership is one of the main reasons that so many people have been buying homes they can't afford. If it was merely a financial decision based on yield and/or capital gains, then many less properties would have been sold for the prices they have been in recent years.
Regardless of what happens to house prices in the next few years, my partner and i still intend to buy around 2010, because this is when we will have a deposit that we are comfortable with (around $200k or 50%). I want a home of my own just as much as the next person (mostly because i am a nester and want my own vege patch and a stable home i won't potentially be evicted from), but with the current economic uncertainty we are choosing to wait and enter with a much larger deposit than is normal in order to protect us in the event of potential sickness, loss of job etc. People who base their mortgage on a combined income servicibility instead of a single income put themselves in an extremely vulnerable position in the event of a crisis or put themselves in a position whereby they choose being a slave to a mortgage over living life. Buy at the right time and capital gains might save you in a crisis. Buy at the wrong time.... and you better hope that you don't get sick/lose your job/blow a car engine/unexpected pregnancy etc.
The fact that everyone needs a roof over their heads, and have done for thousands of years, is the reason i'm confident that house prices will always revert to a level of affordability. After all, if the next generation can't buy your house, who will?
But Where Will the Money Come From?
Said it before and I'll say it again, it doesn't matter how much demand there is for property if the supply of money is limited or less flexible in comparative terms.
Vendors won't take pigs and chickens.
The second stage of the sub-prime crisis - the US contagion spreading to their prime and Alt A borrowers - is only just underway. And if you think international capital markets are looking at Australian institutions as unaffacted by the reduced lending standards/poor judgement that led to the dramas in the US, can you say ANZ and NAB, boys and girls?
As yourself what would happen to your purchasing power if (possibly when):
Less money chasing same or more assets equals flat or shrinking CG for 2008 and most of 2009.
Said it before and I'll say it again, it doesn't matter how much demand there is for property if the supply of money is limited or less flexible in comparative terms.
Vendors won't take pigs and chickens.
The second stage of the sub-prime crisis - the US contagion spreading to their prime and Alt A borrowers - is only just underway. And if you think international capital markets are looking at Australian institutions as unaffacted by the reduced lending standards/poor judgement that led to the dramas in the US, can you say ANZ and NAB, boys and girls?
As yourself what would happen to your purchasing power if (possibly when):
- each lender has the ability to see all your financial commitments and/or balances held by/with any other lender, thereby getting a complete picture of yor financial position.
- banks won't let you access equity for unspecified, future purposes.
- Lo Doc LVRs dip below 65% or aren't available to anyone who can't provide a BAS statement.
- No Doc disappears.
- Valuers avoid getting sued by placing valuations 10% below their best guess
Less money chasing same or more assets equals flat or shrinking CG for 2008 and most of 2009.
If this happens and people cannott buy, CG may be going nowhere but they still need to live somewhere, new households forming, population rising, divorces happenning......hang on for the rental boom of the century!!!!....
Don't be too quick there Natedog.
Population increase is plodding along at historical levels (less than the global rate of natural increase actually). Birth rate even dropped for a long while there and it's just catching up. Divorce rate has remained stable for the last 2-3 decades and there has been an increase in co-habiting couples (remember - divorced people can and do remarry or have relationships after divorce!). Participation by women in the workforce is higher, but participation by men is lower, so net participation rates are only marginally higher (about 2%) in the last 15 years. Also, a high percentage of the female workforce is still part time (41%), so their contribution to the dual income of the household is not as high as you might think and their contribution does not create demand for extra housing, only perhaps quality of housing (decreasing demand in lower-quality housing at the same time).
Right now we are seeing a massively increasing supply of properties for sale on the market. If prices come down and mortgage payments become more in line with rents, there will be less demand on rentals as it would make more sense for one to buy.
When rents get too high - history shows that young people just stay at home longer and more people co-inhabit together, rather than just coughing up ridiculous rents they can't afford.
