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

[Shadow]

I consider 2003 recent history. What exactly is your point? All Australian cities have peaked at different times in the last 8 years or so.

You claimed property growth above rents and incomes was unsustainable, and that Australia's current price/income ratio is higher than anytime in history.

I responded by pointing out that Australia's price/income ratio actually peaked way back in 2003. House price growth for the past decade has simply moved in line with incomes, and the fact that the 2003 ratio has been sustained for a decade suggests that the ratio is quite sustainable.

 

[hobo-jo]

You claimed property growth above rents and incomes was unsustainable

Correct, over the long term (context provided by the post I was responding to) it is not sustainable for prices to just continuously increase at a higher rate than rent or incomes and your data showing that they haven't been able to rise faster than incomes on a national level in 9 years would tend to support this. Thanks for backing me up, glad we can see eye to eye on this one, kudos to you

 

[VYBerlinaV8]

I don't see any of these habits being limited to Gen Y though. It is simply society today at large. So why is it that only Gen Y are targeted with being abusers of them?

Probably because other generations perceive that they have 'done their hard yards', whereas Gen Y hasn't.

Whether or not this is really true isn't so much of an issue to me. People buy and sell property, and rent property. Personally, I couldn't give a rat's bum how old my tenants are.

 

[Indifference]

Incorrect. Why do you keep making this error? I've corrected you countless times!

Australia's house price to income ratio actually peaked a decade ago.

Prices today are lower, relative to incomes, than they were a decade ago.

ABS 8 cap city index
Dec 2003 – 101.5
Dec 2011 – 141.6
HOUSE PRICE RISE = 39.5%

Average Weekly Full Time Earnings Adults (RBA Table G6 column F)
Dec 2003 – $929.8
Dec 2011 – $1330.2
EARNINGS RISE = 43.1%

Comparing a MEDIAN (housing) metric with an AVERAGE (wage) metric.... really???

Unless the underlying data distribution is Gaussian for BOTH (ie. normal distribution which is symmetric) then this comparison is fundamentally flawed. We know that incomes are not defined by a Gaussian Distribution as the Mean & Median are different (Ie. both are not at the 50th percentile) hence, any rudimentary comparison is useless.

I am not inferring that housing is more or less expensive, I am merely stating a mathematical fact and that this comparison is misleading at best.

 

[buzzlightyear]

Comparing a MEDIAN (housing) metric with an AVERAGE (wage) metric.... really??? ........

Interesting this ratio of house prices to income measures (even if not these specific measures) is repeated ad nauseum by those those arguing property is historically overpriced and must deflate over years, if not decades.....

 

[hobo-jo]

Interesting this ratio of house prices to income measures (even if not these specific measures) is repeated ad nauseum by those those arguing property is historically overpriced and must deflate over years, if not decades.....

I think Indifference was pointing out the mathematical incompatibility between the two sets of numbers Shadow used, not commenting on the suitability of the ratio if comparing the right sets of numbers.

I think it depends on the area as to whether it's a suitable measurement to use e.g. I wouldn't consider it a fair measurement value in a high end coastal suburb, but when I see house prices in lower socioeconomic or mortgage belt areas (take for example Elizabeth here in SA) at 7x household incomes for the local zone... I can't help but think that's unsustainable.

 

[murtagh]

but when I see house prices in lower socioeconomic or mortgage belt areas (take for example Elizabeth here in SA) at 7x household incomes for the local zone... I can't help but think that's unsustainable.

How long is unsustainable? I keep buying them and people keep renting them and covering my costs.

Wouldn't want to be my landlord though, letting me rent such a fancy place in the inner city at 3% yield. Now THAT is unsustainable.

Numbers are fun, but don't mistake the map for the territory.

 

[hobo-jo]

How long is unsustainable? I keep buying them and people keep renting them and covering my costs.

Wouldn't want to be my landlord though, letting me rent such a fancy place in the inner city at 3% yield. Now THAT is unsustainable.

Numbers are fun, but don't mistake the map for the territory.

Unsustainable was probably the wrong word, more like I don't think such a high multiple will be sustained.

In either of the situations (including inner city apartment at 3%) such ridiculous mispricing (of rent or property value) is achievable, but having it stay at these high levels over the long term is unlikely... the saying goes "Markets can remain irrational a lot longer than you and I can remain solvent".

 

[Truly Exotic]

apologies if the question has already been answered

Has disposable income vs median house price or house prices in metro cities gotten worse over the years??? or is the ratio still teh same but people choose to live a certain lifestyle or want a certain lifestyle hence properties are now seen as unaffordable????

my not so detailed observation is that wages have not kept up with prices in terms of ratio,

so does this mean that as the older generations pass on, the overall demand will drop, and hence there may be no capital growth until wages catch up to ratios seen in the past?

and I guess if there is no population growth, then supply to demand for rents will be the same , where rents will rise by CPI, that being said, australias population is rising, so I guess rents will continue to increase until the yields get higher and higher thus pushing prices up, while being pushed down at the same time.....

 

[natedog]

Just on population growth,

I remember someone posted a population projection pyramid from the ABS that showed predicted population and age breakups for Australia as a whole and state by state out into 2050 or something like that.

I would link it if I knew how....if someone else knows what I am on about feel free to link it .

it actually shows (for Victoria....the state I focus on) having quite a large swell of household formation aged individuals through to the mid late 2030s.

And what I find interesting that this swell is larger than the baby boomer group going through before it....it paints a picture to me that demand for housing in Victoria at least "should" be strong heading that far ahead.

Obviously population predictions can be way off....we might have more than they predict!!!

Cheers,
Nathan

 

[Deltaberry]

Not sure why people make predictions like population that far out when it's all dependent on government intervention.

If we had 10 years of New Zealand's Helen Clarke or 10 years of Taiwan's Chen Shui Bian, I wouldn't be surprised if Australia's population fell back to 15 million by 2022.

 

[Van Persie]

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.


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.

'Over for good' is a very ordinary headline-grabbing generalization worthy of the front page of a tabloid to draw the readers attention.

Our history of predicting future events is next to pathetic at best, so I personally don't hold any weight to statements such as these.

At best these statements generate healthy conversation and debate, as is shown by the response in this post.

My two bob says make decisions quickly, and change them slowly. Then let everyone else say what they want to say.

 

[Ausprop]

Just on population growth,

I remember someone posted a population projection pyramid from the ABS that showed predicted population and age breakups for Australia as a whole and state by state out into 2050 or something like that.

I would link it if I knew how....if someone else knows what I am on about feel free to link it .

it actually shows (for Victoria....the state I focus on) having quite a large swell of household formation aged individuals through to the mid late 2030s.

And what I find interesting that this swell is larger than the baby boomer group going through before it....it paints a picture to me that demand for housing in Victoria at least "should" be strong heading that far ahead.

Obviously population predictions can be way off....we might have more than they predict!!!

Cheers,
Nathan

my geuss would be for well located smaller dwellings, not dream homes in far flung sand pits?

 

[natedog]

It will probably be similar to what it is now.....people will make thier purchase/rent decisions based on affordability of established inner versus new outer, the balance between the 2 will shift nobdoubt in each direction with incomes, "perceived" value of each type and how and where people want to live.
Nothing dramatically different. That's the beauty of OZ....people have the choice to live where they want!

Regardless of dwelling type and location....we are going to need more of them "if" population predictions are right

Cheers

 

[WillG]

There will be no change. Some properties will go up, some will go backwards & some will go sideways. The fundamentals of supply & demand will continue to be the main influence property values - in my opinion

I am sure that land prices in locations where people want to live will continue to go up. The local governments will continue to increase the UCV of land at least at the rate of inflation because rates & land tax are tied to UCV.

Generalisations about the "property amrket" are meaningless and only good for headlines in newpapers. There are at lease 5 property distinct markets in each capital city

 

[mattnz]

It seems population growth is actually much slower than assumed. 300,000 less people than thought in Australia.

http://www.smh.com.au/opinion/polit...-vanish-in-census-mystery-20120620-20oh5.html

 

[HotRod]

It seems population growth is actually much slower than assumed. 300,000 less people than thought in Australia.

http://www.smh.com.au/opinion/polit...-vanish-in-census-mystery-20120620-20oh5.html

Meanwhile, WA had the highest growth % and more than Queensland, only behind NSW/Vic in absolute terms.

 

[tonyc00]

Hi

I think someone one remarked that Stevens only has two levers to manage the economy - interest rates and jawboning.

I suspect that he is jawboning when he suggests that the housing boom is over (what housing boom - the market has been flat in Sydney since 2003 !!).

I suspect because interest rates are dropping and dropping, he wants investors to avoid rushing out to take advantage of the low rates and buying investment properties. Hence his warning that "the boom is over" to scare off any likely investors.

I don't think the boom has started, certainly not in parts of Western Sydney.

Tony

 

[Bigtone]

Hi

I think someone one remarked that Stevens only has two levers to manage the economy - interest rates and jawboning.

I suspect that he is jawboning when he suggests that the housing boom is over (what housing boom - the market has been flat in Sydney since 2003 !!).

I suspect because interest rates are dropping and dropping, he wants investors to avoid rushing out to take advantage of the low rates and buying investment properties. Hence his warning that "the boom is over" to scare off any likely investors.

I don't think the boom has started, certainly not in parts of Western Sydney.

Tony

i think u r on the money

 

[gooram]

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 !!!

All she is doing is stating the position of the bank, it does not in any way reflect the truth. Predicting the future... she is a bigger fool than I gave her credit for.