Westpac MD Gail Kelly says compound growth in house prices are over for good!

[hobo-jo]

Not only do we have Glenn Stevens (who some have said is out of touch, not worth listening to) suggesting the boom growth in housing is over, but the MD of one of the 4 banking pillars.

AUSTRALIA is unlikely to ever see the housing boom that sparked a massive rise in personal wealth across the country in the past decade, Westpac managing director Gail Kelly told the economic forum in Brisbane yesterday.

In a closed session, Ms Kelly told business leaders that the years of compound growth in house prices were over for good.

She also said Australians were rejecting the high levels of debt that allowed them to borrow vast sums against the equity in their house.

Read more: http://www.news.com.au/money/money-...od/story-e6frfmd9-1226395093277#ixzz1xiizvVsj

With historical levels of growth gone it's time to head back to investing in property based on yield and there is still a large gap in historical norms here... either prices still have a fair way to fall or we'll see rents boom. I know which I think is more likely.

 

[coastymike]

Gee what would Gaily Kelly know. I'm a mechanic in Parkes with an IP in mudgee and one in Townsville. I think property prices to the moon !!!

 

[hobo-jo]

Gee what would Gaily Kelly know. I'm a mechanic in Parkes with an IP in mudgee and one in Townsville. I think property prices to the moon !!!

I wonder how many investment properties she owns. If none then I think we can safetly dismiss per opinion

 

[buzzlightyear]

Assuming that is true then, a lower rate of growth in asset prices across the economy, more focus on yield/return on investment, restrained income growth through productivity, would imply a lower interest rate environment surely. The RBA has been doing the opposite for a while now. It would be nice if they joined the party

Notwithstanding, the effect that this will have on the finance industry, through lower profits. But I don't see the banks willingly progressing down that path if you look at demonstrated behaviour. Would be interesting if we had a consumer advocate spruiking at a closed session, that the days of banks shares returns should now be at more normal levels, more regulation to impose competition, executive pays restrained, the cries of indignation from the vested interest groups would be deafening.

Another observation, why it is that if we don't have housing booms, we have housing busts. What's wrong with a long term average 4-5% pa capital growth in a low interest rate and low inflation environment?

 

[Ausprop]

With historical levels of growth gone it's time to head back to investing in property based on yield and there is still a large gap in historical norms here... either prices still have a fair way to fall or we'll see rents boom. I know which I think is more likely.

"ever" is a long time indeed. Certaily in Perth rents are providing the needed bridge, however cap growth is leading away from it at the same time so so I think rents have a long way to run yet. Order and fair return on investment will eventually occur and it will be painful for tennats that have been getting quite a free run for many years

 

[coastymike]

What's wrong with a long term average 4-5% pa capital growth in a low interest rate and low inflation environment?

Because it would not make a spruiking seminar very exciting.

 

[hobo-jo]

What's wrong with a long term average 4-5% pa capital growth in a low interest rate and low inflation environment?

The way I see it growth of property above rents and wages is not sustainable, so what sort of increases would you expect from them in this environment?

 

[turk]

Good to see that we have finally changed human nature and that fear and greed will no longer affect our investment decisions.

Good to see that Australia will no longer be affected by what is happening in the rest of the world.

 

[buzzlightyear]

The way I see it growth of property above rents and wages is not sustainable, so what sort of increases would you expect from them in this environment?

That sounds reasonable.

Well I see in many industries, wage increases in many EBA/CBA's of around 4-5%. As for resi rents the past 12 months have been a real mixed bag for me, between -5% to 8%

I guess the choice of locations, changing demographics, local economic conditions and value adding will become more important than ever before.

 

[buzzlightyear]

Good to see that we have finally changed human nature and that fear and greed will no longer be affect our investment decisions.

Good to see that Australia will no longer be affected by what is happening in the rest of the world.

This is only trumped by the fact that we are a myopic bunch, and remember only those things that have happened within the last 5 minutes......

 

[Propertunity]

Not only do we have Glenn Stevens (who some have said is out of touch, not worth listening to) suggesting the boom growth in housing is over, but the MD of one of the 4 banking pillars.

I don't care if its Gail Kelly, the Treasurer, or the Pope. I think if anyone on the planet predicts the end of the boom-bust economic cycle (or anything else for that matter - like child poverty perhaps ? - yes Mr Hawke I'm looking in your direction), then they may as well go down to the beach and try to hold back the tide back with a stick.

 

[Aaron Sice]

good!

thank goodness we can finally end this excessive boom on bust on boom cycle and have those nice, stable markets - ie what property was always meant to be.

and no, there is NO sarcasm there.

or there....

or there, either....

 

[HotRod]

good!

thank goodness we can finally end this excessive boom on bust on boom cycle and have those nice, stable markets - ie what property was always meant to be.

and no, there is NO sarcasm there.

or there....

or there, either....

But never really has been. It's just that the boom and busts were a lot smaller.

 

[HiEquity]

She never actually said whether she expects values to fall or rents to rise. If it's the former why is she still lending for housing? I can only therefore conclude it's the latter...

And never ever ever is a very long time. While I respect her opinion, particularly in the short to medium term (given she holds a large proportion of the available levers on the subject matter at hand), I have big doubts about anyone's ability to forecast that far ahead.

 

[Jake D]

We need the sarcmark!

http://02d9656.netsoljsp.com/SarcMark/modules/user/commonfiles/loadhome.do

 

[devo76]

While not a great thought. Things will still roll for me. If property tracked say 5% from here i will still see enough growth to pay off a few houses well before retirement.Add some active property investment and likely lower rates and a steady increase in rents. Life will continue.

Plus im sure we will still see booms and busts just smaller under the above scenario. still plenty of opertunity. But as others have stated. A lot can happen and a lot can change over the years ahead.

Basically today they throw the wet blankett. Tomorrow they talk up property investing again. It will happen thats a safe bet.

basically im still not scared sorry.

Infact im glad i have built up some property already. A neutrally geared $1.5 million portfolio growing at 5% still sound ok to me.

Cheers

 

[evand]

Thats 2% growth ex inflation.

Infact im glad i have built up some property already. A neutrally geared $1.5 million portfolio growing at 5% still sound ok to me.

Cheers

I dont think compound is gone for good, but the booms times are over for a long time. I'd say 10-20 years, maybe closer to 20.

 

[mattnz]

Compounding will come back with avengence.... after the crash.

 

[Peter_Tersteeg]

If property values aren't going to rise significantly in the future, the banks are going to have to dramatically change their business models, given their primary income streams all rely on property growth.

* Residential property doesn't grow, so they just canabalise each other and themselves for existing mortgages. Some lenders might get an advantage, but on the whole there won't be an increase in overall lender.
* Same goes for commercial property.
* Fund managers face the same problem as they invest heavily in property.

It could also be argued that this type of statement has been made before. Anyone remember the 87 market crash then the subsiquent property slump of the 90s? The numbers are way bigger, but the way the market behaved is very similar, then after almost a decade of little growth (although yields did increase), we had a decade of generally good times.

 

[evand]

PPOR buyers dont care too much about growth. That's 70% of the banks loans.

No big deal to the banks.

If property values aren't going to rise significantly in the future, the banks are going to have to dramatically change their business models, given their primary income streams all rely on property growth.

* Residential property doesn't grow, so they just canabalise each other and themselves for existing mortgages. Some lenders might get an advantage, but on the whole there won't be an increase in overall lender.
* Same goes for commercial property.
* Fund managers face the same problem as they invest heavily in property.

It could also be argued that this type of statement has been made before. Anyone remember the 87 market crash then the subsiquent property slump of the 90s? The numbers are way bigger, but the way the market behaved is very similar, then after almost a decade of little growth (although yields did increase), we had a decade of generally good times.