What do you guys make of this?

P

Phiber

Hi guys,

So I came across this graph on another forum I visit I and thought it would be interesting to get people's thoughts on this..

realhousepriceindices_sep2012.png


I am not too sure what to make of it... Not looking too good to be honest, but reality does not show any signs of slowing down, quite the opposite...

Cheers
 
even if we didnt compare ourselves to the US or any other country and the graph was one line only,

the question is from an economic viewpoint, is there anything from stopping from this trend to continue? eg will there be a point at which it becomes too expensive that demand drops so much that prices have to retreat like a bubble (for example) or any other factor

but looking at the other side of the coin, affordability aside, house prices have
basically continued to grow since records started, so what is stopping it from continuing, like inflation for example, a can of coke in 1800s might have cost 5c, then 10, then 20, then 50, then 100, then 150, then 200c (using a vending machine price as the subject)
 
Melb + Syd = 45% of Australia population

NYC + LA + Chicago = 8% of USA population

Try tracking NYC prices vs Sydney and come back and tell me about them. As always the informed make money, the people who get spooked by fear mongerers (and post comments on the Sydney Morning) miss out on another boom and get stuck in the rent cycle.

Same story every time.
 
Please have a look at that graph more carefully, Gentlemen. You will see that the labels on the x axis and the text boxes pointing to the graph do not correlate.
Fail.
 
The graph is in "real" inflation adjusted prices, the nominal graph would be much more impressive.

Looking at the graph, if you had bought in at the peak of the post WW2 boom you would have no "real" growth until 1970 or 20 years later.

Or had you bought at the peak in 1950 you would have had to wait until the year 2000 to "double your money". that's a 1.4% pa return after inflation

The moral of the story is to be wary of buying at the peak. The question you have to ask is, are we at the Peak yet?
 
Graphs like this are not particularly meaningful because they ignore factors like real household income growth (which has also been quite large). It takes more than one data set to tell a story.
 
VYBerlinaV8 said:
Graphs like this are not particularly meaningful because they ignore factors like real household income growth (which has also been quite large). It takes more than one data set to tell a story.
Click to expand...

its unrealistic to think that house prices can continue to grow at more than double the rate of inflation and wages without some sort of major correction.

it will happen eventually, Australia was fortunate enough to scrape through the GFC with what were fairly marginal decreases in house prices due to the mining investment boom, but the mining investment boom that brought all of the overseas immigration etc is out of puff, coupled with that is an ageing demographic that will strain future government cash flows, adverse climate change and a hollowed out economy that now has little else to offer apart from commoditities, its only a matter of time.

uncle sam is broke too. its only a matter of time before he gets knocked back on his credit limit increase and/or defaults and the **** hits the fan there as well - and that will have implications for Australia (and everywhere else) because it calls into question the entire financial system. :D

we need a default, the markets need a dose of reality (and not just equities markets either).
 
tambourineman said:
its unrealistic to think that house prices can continue to grow at more than double the rate of inflation and wages without some sort of major correction.
Click to expand...

Depends on the timeframe. If inflation and wages grew faster than house prices for a while then there'd be a period of playing catch up.

In reality, we also have the issues of households now using two incomes, low interest rates, larger and higher quality dwellings, etc.

I agree that house prices generally can't outpace inflation and wages forever, although I believe it's definitely possible for certain properties to.
 
Deltaberry said:
Melb + Syd = 45% of Australia population

NYC + LA + Chicago = 8% of USA population

Try tracking NYC prices vs Sydney and come back and tell me about them. As always the informed make money, the people who get spooked by fear mongerers (and post comments on the Sydney Morning) miss out on another boom and get stuck in the rent cycle.

Same story every time.
Click to expand...

Compare the major industries in NYC and Sydney. There's absolutely no comparison and I really can't believe people still compare the two. Economically, Sydney would be a second tier US city at best
 
simtr said:
Not really, check 1970 boom for example, looks to be around 1975. 1980 boom, appears to be on 1990. Sure that might be peak point of boom period, but isn't that the definition of a boom?
Click to expand...

I am guessing the author wanted to point out "the boom of the 70s" rather than exactly pinpoint the exact year. Regardless, it does not impact the interpretation of the chart.
 
The original graph is (in part) based on the work of Robert Shiller who knows a thing or two about bubbles, and has been getting a bit of press recently for winning a certain Swedish prize so he's hardly an uninformed commentator. :D

Anyway, picking up on Deltaberry's point about NY and Sydney, there was a paper a few years back on Superstar Cities, which it was claimed would grow significantly faster than their more humdrum counterparts.

Shiller's response was that the prices of the superstars didn't grow much beyond 1% or 2% faster per year than average between 1950 and 2000, which hardly makes them out to be a fabulous investment.

I'd agree with VYBerlinaV8's comment that house prices can't outgrow wages over the long term, and that the obvious game changers (two incomes, low interest rates) have played out.

Foreign investment is a possible factor, but there are surprisingly few Chinese millionaires - 1.05 million with over 100 million Yuan / $1.6 million in 2012. They can't afford to buy all the houses...
 
Maybe there is a correlation between the spike and treasurer Keating floating the dollar and freeing up the banking sector to competition.

Between 1983 and 1985 Treasurer Paul Keating deregulated the system by (a) floating the Australian dollar in December 1983; (b) granting 40 new foreign exchange licences in June 1984; and (c) granting 16 banking licences to 16 foreign banks in February 1985.

I can remember applying for my first home loan at the bank before deregulation.
The manager told me loans were basically rationed over their different branches as they were funded by older depositors who had their money in the bank earning little interest so they still qualified for the pension.
A big deposit compared to these days was required and if you couldn't get a loan through a bank, building society or insurance company then the other option was finance companies, run by the banks, that charged like wounded bulls.
The banking model before the GFC of borrowing short term from overseas and lending long to locals is what caused the mortgage lenders problems post GFC.
 
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