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

[jweg]

Fingers Crossed

So if less property changes hands for say 10 years --- surely the owner occupied versus tenants ratio will adjust -- with more choosing or having to rent. Will this increase rent levels or stifle them as a higher proportion of properties become tenanted ?

I'd like to hope rents will rise -- increasing the affordability gap & lay ground work for the next boom when incomes & 10 yrs of savings make everyone more choosy.

Don't know. I know I'd be in trouble without negative gearing

 

[equitymate]

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 !!!

Well you might know more than Gail! She purchased her place in Terry Hills for 9 mill in 2010 previously owner purchased for 3.6 mill in 2005. I dont know what the previous owner did to add value but Terry hills values certainly didnt do much in that time..

http://www.smh.com.au/business/west...s-a-slice-of-the-good-life-20100201-n8w8.html

 

[Aaron_C]

Well you might know more than Gail! She purchased her place in Terry Hills for 9 mill in 2010 previously owner purchased for 3.6 mill in 2005. I dont know what the previous owner did to add value but Terry hills values certainly didnt do much in that time..

Such a shame cause on her income she could have quite a nice investment property portfolio. Could easily service a $30m portfolio or more, then retire.

 

[locko24]

I guess Westpac will stop lending money on residential ips then! Oh well...

 

[HotRod]

Well you might know more than Gail! She purchased her place in Terry Hills for 9 mill in 2010 previously owner purchased for 3.6 mill in 2005. I dont know what the previous owner did to add value but Terry hills values certainly didnt do much in that time..

http://www.smh.com.au/business/west...s-a-slice-of-the-good-life-20100201-n8w8.html

She probably thinks she is quite the property mogul and knows all the inner working of how the market works across Australia with that astute overpriced purchase.

 

[sanj]

She probably thinks she is quite the property mogul and knows all the inner working of how the market works across Australia with that astute overpriced purchase.

or she is more than rich enough to knowingly overpay for a property because it suited her needs

i dont think the purchase is evidence of anything to be honest, no matter how much we speculate...

 

[HotRod]

Where's, that sarcasm symbol when you need it?????

 

[coastymike]

Well you might know more than Gail! She purchased her place in Terry Hills for 9 mill in 2010 previously owner purchased for 3.6 mill in 2005. I dont know what the previous owner did to add value but Terry hills values certainly didnt do much in that time..

http://www.smh.com.au/business/west...s-a-slice-of-the-good-life-20100201-n8w8.html

Might be like my parents who paid $1m over market value for a weekender property that had in their opinion "calming qualities". Property wasn't for sale but soon became available at the right price. Will never recover the overpayment but then they don't worry too much about paying $7 for a coffee in the Westin Hotel if they go there. Some people just do things because they can.

 

[equitymate]

Indeed it is probably a lifestyle thing. After all things considered it only cost her about a year salary.

 

[sash]

This is great news....if Gail and Stevens (RBA Guv) are saying this....then it must be true. The Lemmings will follow??

So lets look at what the Lemmings in Australia will do when they start processing this information.....

1. They are going to read in that prices will not rise and will drop. So what happens .....,they put off buying. Prices then fall and buidling starts reduce.

2. Australia having a high immigration rate....will have less places to rent. So what happens? Rents push up.....particularly in the 5 major cities.

3. The Lemmings then whinge how high rents are due to the lack of rental properties....

4. Guess what happens next???....the Lemmings realise that there is hardly any difference to buy vs rent....so they buy. The lack of supply in the market dries up quickly as due to reduced building....guess what happens next???

5. Prices rise....as demand increases.

Notice a pattern here. This is what the market does over 7-10 year period. Whilst we might not have 10% growth under a high inflation environment...we are more likely to have 4-5% increase...this is more like 2-3% inflation with 1-2 percentage real growth.

 

[Deltaberry]

As some have mentioned, "ever" is a pretty long time.

I think someone said the same thing to my father when he bought his 1500sqm $30k house in East Melbourne.

 

[Peter_Tersteeg]

In 2001 a collegue questioned how properties could double every 7-10 years. Properties in South Melbourne were selling for $300k and it was inconceiveable that they'd be worth $600k some day.

 

[HotRod]

Same thing when we were looking at properties where my wife and I now live.

I remember the agent saying that properties will be worth in excess of $1M and we scoffed at that when they were about $500K, this about 2003.

We bought in 2006 for $780K and it was valued by the bank recently at $1M, so it could go for $1.1Mish on the market.

This in an area where the blocks were going for about $220K with lake and river views.

Now have some properties going for $1.5 to $2.0M.

Go figure.

 

[sanj]

Same thing when we were looking at properties where my wife and I now live.

I remember the agent saying that properties will be worth in excess of $1M and we scoffed at that when they were about $500K, this about 2003.

We bought in 2006 for $780K and it was valued by the bank recently at $1M, so it could go for $1.1Mish on the market.

This in an area where the blocks were going for about $220K with lake and river views.

Now have some properties going for $1.5 to $2.0M.

Go figure.

yeah my folks were told by a few people they were mad when they bought a 1400sqm block in mosman park with ocean views for $550k in 2001...

imagine that, people pay that to live in bloody jindalee now

 

[INXS]

This is great news....if Gail and Stevens (RBA Guv) are saying this....then it must be true. The Lemmings will follow??

So lets look at what the Lemmings in Australia will do when they start processing this information.....

1. They are going to read in that prices will not rise and will drop. So what happens .....,they put off buying. Prices then fall and buidling starts reduce.

2. Australia having a high immigration rate....will have less places to rent. So what happens? Rents push up.....particularly in the 5 major cities.

3. The Lemmings then whinge how high rents are due to the lack of rental properties....

4. Guess what happens next???....the Lemmings realise that there is hardly any difference to buy vs rent....so they buy. The lack of supply in the market dries up quickly as due to reduced building....guess what happens next???

5. Prices rise....as demand increases.

Notice a pattern here. This is what the market does over 7-10 year period. Whilst we might not have 10% growth under a high inflation environment...we are more likely to have 4-5% increase...this is more like 2-3% inflation with 1-2 percentage real growth.

Perth is at number 4, close to 5.

 

[Rolf Latham]

A simple logical method to approach such an opinion, and to see if its of value is to see where its coming from.

if I want to know how to run a bank well, I would ask someone that has done it, and would take their advice quite seriously.

If I want macro economic advice on housing markets "holus bolus" I would ask Bill Evans ( One Of Gail's employees).

I want advice on the Summer Hill Unit market Id Ask Propertunity.

She is neither right, nor wrong, she is voicing a view where good argument can be made for and against as evidenced on this thread.

ta
rolf

 

[alexlee]

yeah my folks were told by a few people they were mad when they bought a 1400sqm block in mosman park with ocean views for $550k in 2001...

imagine that, people pay that to live in bloody jindalee now

There are a couple of things here, amongst them:

Anchoring (remembering what prices used to be, as a result thinking current prices seem high, and not remembering that new buyers don't have the same memories),

Not realising how much nominal salaries can rise (current average wages of 50-ish seem very high to those who started at 25k, for example, and people who started on 25k would be making much more now due to promotions), and

Not realising how an increase in population, with a corresponding increase in the number of higher earners, will create more 'expensive' homes because more people can afford them. Gentrification, basically, but in a more general sense.

 

[Jake D]

yeah my folks were told by a few people they were mad when they bought a 1400sqm block in mosman park with ocean views for $550k in 2001...

imagine that, people pay that to live in bloody jindalee now

...on a 250m2 cottage block

 

[Deltaberry]

Well I hope she predicted the mining boom before the boom and got rich on that. Otherwise I don't know if I can put much value on what she says.

Because the only time someone casually predicted mining would be the next big thing over lunch in 2002, last I checked he was worth over $10bn.

 

[hobo-jo]

No time to address the multiple users who have posted about cycles, but simply showing how prices have double in the past when it seems impossible is being ignorant of the fact that prices are higher (or were recently) than about anytime in Australia's history relative to incomes and rents (based on available data).

If the boom is so strongly tied to real demand then why are rents still lagging?

I do agree that prices will boom ridiculously again one day (so they are not over for good), but it will probably take decades rather than a couple of years before it happens.