What do you believe will happen to Australian property prices in the next 3 years?
- Thread starter Aceyducey
- Start date
I have selected a rise between 6% and 10% on average.
The reason why I think this is based on the following:
it is a buyers market - there are more sellers in the market than buyers which is causing a change in the dynamics between supply and demand. With more product on the market than limited supply this allows buyers to be more selective in their purchase as well as having more negotiating ability in keeping the price lower
renting can be cheaper than buying - although there have been wide spread reports of home loan affordability issues for first home buyers, it is still potentially more viable financially to rent and hence other than the incentive of "buying your own home", there is no impetus for change for this group if they can rent cheaper. This group will probably "keep looking" for a few years, saving up, for a property they like to come along. With less urgency to buy, this will cause growth in the property market to slow.
interest rate rises - the last two interest rate rises have had a significant effect on cooling the market. It is a hot topic of conversation, and anyone who mentions the property market is quickly followed by the question "but I am worried about the effect of an interest rate rise". If you analyse the effect of Interest rates on your property portfolio, most investors wouldnt be that worried. But for people who dont necessarily understand the effect of interest rates on their finances this does have significant effect on there disposable income and hence will have an effect on people either buying in or buying more product. This will cause house sales to slow and therefore house prices to slow.
% of Loan repayments to Employment Income - we may have a climate of low interest rates, and low unemployment, but in real terms making repayments on a property valued at todays prices, is the equivalent of repayments made in the 80's with 18% interest rates with employment in that time. As an eg, in NSw, the repayment made on a median priced home as a % of the average income comprises of approximately 48% of pay packet. In SA, the loan repayment % of employment income is 24%. With banks generally comfortable with the % of loan repayment to employement income being in the vicinity of 30% this does represent a real affordability issue for the family, particularly being able to survive an interest rate hike or affording multiple properties within the portfolio. With rents static, or decreasing, this means this % repayment of income is increasing so disposable income is decreasing. This will also have the effect of decreasing growth as housing sales slow.
Overall, statistics sourced from REIA released today, for the December Qtr 2003 indicate that the average growth is 7.9%.
Capital City Dec Qtr Median Change
Hobart ` 15.1%
Brisbane 11.1%
Darwin 8.0%
Perth 7.9%
Canberra 6.8%
Adelaide 6.7%
Sydney 6.4%
Melb 0.8%
Average 7.9%
www.reinsw.com.au/rei/reihome.nsf
So on this basis, and the above analysis, I think that factoring in rises between 6% and 10% in realistic and acheivable over the next 3 years.
As an aside, before I knew a thing about property, I was factoring in rises of 4% for my property and went to get it revalued and found it had increased a whopping 100%!!! Even still, I have still factored in 6% increases on my own portfolio calculations even over the last 2 years, so depending on the product, anything could happen.
The reason why I think this is based on the following:
it is a buyers market - there are more sellers in the market than buyers which is causing a change in the dynamics between supply and demand. With more product on the market than limited supply this allows buyers to be more selective in their purchase as well as having more negotiating ability in keeping the price lower
renting can be cheaper than buying - although there have been wide spread reports of home loan affordability issues for first home buyers, it is still potentially more viable financially to rent and hence other than the incentive of "buying your own home", there is no impetus for change for this group if they can rent cheaper. This group will probably "keep looking" for a few years, saving up, for a property they like to come along. With less urgency to buy, this will cause growth in the property market to slow.
interest rate rises - the last two interest rate rises have had a significant effect on cooling the market. It is a hot topic of conversation, and anyone who mentions the property market is quickly followed by the question "but I am worried about the effect of an interest rate rise". If you analyse the effect of Interest rates on your property portfolio, most investors wouldnt be that worried. But for people who dont necessarily understand the effect of interest rates on their finances this does have significant effect on there disposable income and hence will have an effect on people either buying in or buying more product. This will cause house sales to slow and therefore house prices to slow.
% of Loan repayments to Employment Income - we may have a climate of low interest rates, and low unemployment, but in real terms making repayments on a property valued at todays prices, is the equivalent of repayments made in the 80's with 18% interest rates with employment in that time. As an eg, in NSw, the repayment made on a median priced home as a % of the average income comprises of approximately 48% of pay packet. In SA, the loan repayment % of employment income is 24%. With banks generally comfortable with the % of loan repayment to employement income being in the vicinity of 30% this does represent a real affordability issue for the family, particularly being able to survive an interest rate hike or affording multiple properties within the portfolio. With rents static, or decreasing, this means this % repayment of income is increasing so disposable income is decreasing. This will also have the effect of decreasing growth as housing sales slow.
Overall, statistics sourced from REIA released today, for the December Qtr 2003 indicate that the average growth is 7.9%.
Capital City Dec Qtr Median Change
Hobart ` 15.1%
Brisbane 11.1%
Darwin 8.0%
Perth 7.9%
Canberra 6.8%
Adelaide 6.7%
Sydney 6.4%
Melb 0.8%
Average 7.9%
www.reinsw.com.au/rei/reihome.nsf
So on this basis, and the above analysis, I think that factoring in rises between 6% and 10% in realistic and acheivable over the next 3 years.
As an aside, before I knew a thing about property, I was factoring in rises of 4% for my property and went to get it revalued and found it had increased a whopping 100%!!! Even still, I have still factored in 6% increases on my own portfolio calculations even over the last 2 years, so depending on the product, anything could happen.
I see the Perth property market as still presently undervalued and is likely to continue to grow at its long term sustainable growth rate of 5%-8% over the next 3 years.
I think the Goldcoast property market has slowed down significantly this year and will continue to slow down over the next few years including achieving a negative growth rate of - 2%-4 % p.a.
I further expect both the Sydney and Melbourne property market to slow further over the next few years to an average of - 4%-8% p.a negative growth rate over the next 3 years.
My 2 cents worth.
regards,
Kenneth KOH
I think the Goldcoast property market has slowed down significantly this year and will continue to slow down over the next few years including achieving a negative growth rate of - 2%-4 % p.a.
I further expect both the Sydney and Melbourne property market to slow further over the next few years to an average of - 4%-8% p.a negative growth rate over the next 3 years.
My 2 cents worth.
regards,
Kenneth KOH
Kennethkohsg said:
Ken, sounds good but how did you come to your conculsions?
Crystal balls, tea-leaves, open palms,and it's 11 minutes past 11.
Hi all,
I love the prediction game, we are usually so wrong. The overriding factor is always the unknown. When you read about forecasts in the media, there is an overwhelming tendancy of the pundits to predict pretty close to a historical average. This applies to property,shares, commodities, amount of rain etc. Reading the papers at the end of the year is the best to gain all the mundane predictions.
The consensus on this poll so far is no different. My opinion is that majority consensus is usually wrong. I have chosen at the extremity.(any guesses which end?)
At the end of the last boom, interest rates were almost triple the gross yield on average property. But everyone knows that this time it will be different.
My planning and actions assume that I could be wrong.
bye
Hi all,
I love the prediction game, we are usually so wrong. The overriding factor is always the unknown. When you read about forecasts in the media, there is an overwhelming tendancy of the pundits to predict pretty close to a historical average. This applies to property,shares, commodities, amount of rain etc. Reading the papers at the end of the year is the best to gain all the mundane predictions.
The consensus on this poll so far is no different. My opinion is that majority consensus is usually wrong. I have chosen at the extremity.(any guesses which end?)
At the end of the last boom, interest rates were almost triple the gross yield on average property. But everyone knows that this time it will be different.
My planning and actions assume that I could be wrong.
bye
Dear Aceyducey,
It's just my own inner gut feel;- basing on my own personal assessment of the current market trends development and my last experience of riding the house prices roller-coaster ride in the Goldcoast property market during the last property cycle from 1993 to 2003, with 2 investment properties.
I do not have a scientific/logical basis for my assessment at this point in time and even if I do have, I probably do not know how to explain it to you at this point in time myself.
While I'm prepared to have my assessment proven wrong anytime and until I am proven wrong then, I willl still use it for my own future investment planning purposes.
Regards,
Kenneth KOH
It's just my own inner gut feel;- basing on my own personal assessment of the current market trends development and my last experience of riding the house prices roller-coaster ride in the Goldcoast property market during the last property cycle from 1993 to 2003, with 2 investment properties.
I do not have a scientific/logical basis for my assessment at this point in time and even if I do have, I probably do not know how to explain it to you at this point in time myself.
While I'm prepared to have my assessment proven wrong anytime and until I am proven wrong then, I willl still use it for my own future investment planning purposes.
Regards,
Kenneth KOH
Dear Acey
I know you love polls and so do I, but this ones a little broad for me. So in the spirit of "having a go" for Sydney general I will punt 0% growth.
FYI
I will add in Sydney General First Home Buyer Market ($250 to $400k) I have noticed from a diverse but small test pool at one of my client's offices that,
those who were in a position to buy in the last few years have done so and those with no deposit have not.
So even if prices go down, they cannot get in. The working poor so to speak. PS they hate IP investors as well.
FYI Peter 147
I know you love polls and so do I, but this ones a little broad for me. So in the spirit of "having a go" for Sydney general I will punt 0% growth.
FYI
I will add in Sydney General First Home Buyer Market ($250 to $400k) I have noticed from a diverse but small test pool at one of my client's offices that,
those who were in a position to buy in the last few years have done so and those with no deposit have not.
So even if prices go down, they cannot get in. The working poor so to speak. PS they hate IP investors as well.
FYI Peter 147
I hope that the 4% who voted "Fall at least 26% on average " get it wrong.
A 26% average drop per year for 3 years would mean a $500k property would drop to $202k .
A 26% average drop per year for 3 years would mean a $500k property would drop to $202k .
abcdiamond said:
I don't. Though unlikely to happen, such a sustained fall would wipe out just about all real gains over the last 20-30 years. We'd have close enough to positive cashflow in the cities again and it would be the best ever time to buy!
Peter
abc diamond,
as a comparable of major city property price collapses, its worth mentioning the central London suburbs of Kensington + Chelsea have seen 20% drops in price over the last 3 months.
Thats 500,000 pound apartments that have dropped to 300,000+ pounds. Other London suburbs have seen drops of 3 - 5 % in the same period.
This is despite Int. rates of only 5%.
see www.rightmove.com
tiga12
as a comparable of major city property price collapses, its worth mentioning the central London suburbs of Kensington + Chelsea have seen 20% drops in price over the last 3 months.
Thats 500,000 pound apartments that have dropped to 300,000+ pounds. Other London suburbs have seen drops of 3 - 5 % in the same period.
This is despite Int. rates of only 5%.
see www.rightmove.com
tiga12
£500k down to £300k is a 40% drop, and something I hadn't heard of. It must be a specific anomaly, something like the Melbourne Apartments. The info I get from London is "the general trend has been for property prices to be fairly steady for the last 6-9 mths BUT in the last 2-3 mths they have taken off again in London - one of the forecasters is expecting 8% for this year"tiga12 said:
This report says that during March, all 33 London boroughs recorded price rises.
London Resurgent 29 Mar 2004
I've seen a UK property that I paid £105,000 for in 1999, reach £250,000 this year, outside London, and it isn't dropping yet..
However, the quoted 26% py average drop for Australia is supposed to be nationwide, not area specific, and I feel that would hurt a lot of people.
However as Spiderman says, it would be a great time to buy. But not for those that would be so negative in equity following such a drop.
abcdiamond said:
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Dear All,
I've just came across the following table yesterday, which might be helpful to our discussion here:
Sydney Quarterly Median House and Unit Prices
Year House Unit
1987 92,100 70,200
1988 117,000 88,200
1989 183,000 143,000
1990 180,000 138,000
1991 171,000 144,000
1992 176,000 144,000
1993 188,000 141,000
Extracted /Quoted from :
Fred and Brett Johnson's Book on "Wealth Power of Property - Chapter 2 page 2 of 4.
Assuming the a/m extracted data provided by the authors, is reliable, we can thus see only a $12,000 drop in the Sydney's quarterly median house price over a 2 year period from 1989 till 1991, which is a mere 6.5% drop off its last price peak in 1989.
As for the unit price, the drop in the quarterly median unit price was $5,000 from 1989 to 1990, a mere 3.49% drop off its last price peak in 1989.
As I do not have the subsequent years data to compare, my tentative deduction is that the 26% price drop over 3 years is not in line with the past market trend as the last 1989 property cycle data has shown.
(Personally, I am a bit surprised at the small drop in the Sydney median house price during the last 1989 property cycle myself.)
Not withstanding the a/m observation, I still think that given the huge price growth in the Sydney median house price from $180,000 in 1990 to more than A$300,000 in 2002 over the last 10-12 years period, personally I do not rule out that a heavier fall in the Sydney median house price this time, in line with the commonsense principle as the faster and higher one gets, the heavier the fall can be expected.
This is in view of the present widespread news-reporting of the heavy price drop in the Sydney and Melbourne house and unit apartment prices recently. Though the news-reporting may not be accurate in reporting the extent of the price falls, they could still be relied upon, as a general picture as to what is really going on in the syney and Melbourne property market in general.
Moever, from my own investing experiences, I also know that even my 2 Goldcoast properties have suffered more, a price drop of more than 10%-20% from its last property cycle peak in 1994 between 1996-1998 when the Goldcoast property market underwent its last property cycle downturn;- even though its price increase during the 1993-1994 price peaks has not been as fantastic as the recent price increase enjoyed by houses in the Sydney and Melbourne property markets.
However, I am ready to stand corrected on my a/m thinking where neccessary, please.
Thank you.
regards,
Kenneth KOH
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I have been looking at median prices, sourced from: Real Estate Institute of Australia, at the Navra websiteKennethkohsg said:
It shows Sydney median prices as vey different to the figures above:
I was going to quote some figures, but then I saw the copyright notice !
But you can look for yourselves at the link. 1988 for example is $61,300 different to the above quoted figure.
Overall, one set shows a 47% increase from 1987 to 1993, the other shows a 200% increase.
It now makes me wonder about the accuracy of some figures,Any ideas which are the correct figures ?
On to something here.
As history does repeat perhaps we need to find the magical figure at which the market seems to drop each slowdown?
Anyone out there who can add these figures?
Peter 147
As history does repeat perhaps we need to find the magical figure at which the market seems to drop each slowdown?
Anyone out there who can add these figures?
Peter 147
Peter 147 said:
Hi Peter 147,
History DOES NOT repeat!!
It looks the same, sounds the same . . . but the words are different.
Regards,
Steve
Aceyducey said:
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Dear Steve and Aceducey,
1. Please clarify and elaborate what do you mean? I like to properly understand your views on this matter and to be further educated myself, especially when both of you says that "History does not repeat itself".
2. The way I was brought up to understand one aspect of History is that although future events seldom repeat itself in the exact form, amount or/and exactly the way the things have happened before or use the same key actor/players in the past as in the future, yet the general trend and underlying principles governing the event recurrence, will remain the same and get repeated again in future and that is why it is important to know HISTORY.
3. Thus, the present property cycle is "cyclical" and will or at least is more likely play up itself again reliably into the next cycle. While the past cannot gaurantee the future, nonetheless it remains a useful guide for know what to expect for the next property cycle.
4. Looking forward to your guidance and education again.
5. Thank you.
regards,
Kenneth KOH
