What does "affordability" mean to you?
- Thread starter hobo-jo
- Start date
10 years give or take will most likely be enough to see this mess into the history books. Just a hold on if you can kinda thing now. I know some are still suggesting to take a loss and sell just to get out but I feel that for the majority this would not be required. Even investors well into there 50,s could probably ride this out if they had to. Investors in their 20,s or 30,s will be fine.
For me personally. My job is guaranteed for another 14 years thanks to a government contract. That should see the cashflow being secure well into the next boom. Possibly even the one after that.
For me personally. My job is guaranteed for another 14 years thanks to a government contract. That should see the cashflow being secure well into the next boom. Possibly even the one after that.
I know, I know another "affordability" thread
But seriously I am interested to find out whether we can reach a 'general consensus' on what makes property in Australia affordable or unaffordable
The best way to work out whether houses are affordable is to use some common sense...
1 - Would we choose to build the largest houses in the world if houses were unaffordable?
2 - Would half a million families and individuals buy homes each year if they couldn't afford them?
3 - Would we have one of the lowest mortgage default rates in the western world if people couldn't afford their homes?
I think the answer those questions is 'no'.
How did that turn out for the Americans? They built larger and larger houses during their bubble as well. After the GFC the size suddenly started shrinking from the peak.
So volume of sales somehow directly relates to affordability?
Given our volume is currently around 33% lower than 2002/2003 (or around 29% lower than the 2007 peak) does that mean affordability is the same percentage less affordable than at those times?
http://blog.rpdata.com/2011/06/same-amount-of-pie-just-fewer-slices/
Spain and many other 'property bubble' countries went into unaffordable bubbles that popped with default rates basing almost as low as ours (under 1%)...
The Spanish property bubble was less about affordability than oversupply and easy credit, both to developers and buyers. There are more than 1 million empty, unsold dwellings in Spain at the moment. Regardless of how affordable Australian property is or isn't, it's not the same ball game as what happened in Spain.
Well I'm not suggesting things are exactly the same. UK & US also had default rates starting under 1% before they blew out in their respective housing corrections.
Easy credit has been a contributor to our high prices as well.
Yes, they did build. And they built and built and built. And they lent with no deposit to people with no jobs or income.
2002/2003 was the peak of a huge boom. We're back to normal steady annual sales levels now. Half a million individuals and families can afford to buy a home every year. So who is housing unaffordable for?
Spain (like America) had a huge construction boom.
The link above suggests 400k sales turnover, not half a million. Where are you obtaining your data from pre-2002 which indicates the turnover then was an anaomoly? What is your explanation for the huge supply now on market (50%+ more than same time last year) and price discounting that is occurring?
By the way, obviously this is city specific but it appears Melbourne has also gone through a construction boom which is likely going to result in oversupply:
http://macrobusiness.com.au/2011/06/melbourne’s-apartment-glut/
For people to understand what default rates of 1% mean they have to understand what they are.
They are actually not a default rate if you were to use the ordinary english meaning of such a phrase, i.e. how many places are going into default over a time period. They are the ratio of houses currently in default prior to being sold by banks V mortgages not in default. You can imagine a swift sale process in a bank would mask a problem around default rates.
In theory 50% of people could have defaulted and if the bank can sell them in the day they are repossesed the default rate can still be much lower than it is now.
The default rate will always be manageable for banks while there is liquidity in the property market. A rising default rate speaks much more about the market than it does the state of affordability.
The banks can sell the homes as they take them into possession and as they are no doubt conscious it is a measure investors use to invest in a banks bonds along with keeping the 90+ day and these impaired assets to a minimum by simply selling them moving them from imparied to normal assets albeit at various degrees of value writedowns.
While banks can sell properties onto the market default rates will remain around 1% or lower. If it goes USA these will rise but I would not use them as a leading indicator myself.
They are actually not a default rate if you were to use the ordinary english meaning of such a phrase, i.e. how many places are going into default over a time period. They are the ratio of houses currently in default prior to being sold by banks V mortgages not in default. You can imagine a swift sale process in a bank would mask a problem around default rates.
In theory 50% of people could have defaulted and if the bank can sell them in the day they are repossesed the default rate can still be much lower than it is now.
The default rate will always be manageable for banks while there is liquidity in the property market. A rising default rate speaks much more about the market than it does the state of affordability.
The banks can sell the homes as they take them into possession and as they are no doubt conscious it is a measure investors use to invest in a banks bonds along with keeping the 90+ day and these impaired assets to a minimum by simply selling them moving them from imparied to normal assets albeit at various degrees of value writedowns.
While banks can sell properties onto the market default rates will remain around 1% or lower. If it goes USA these will rise but I would not use them as a leading indicator myself.
Agreed. Another indicator people use to point out the health of the property market (and the state of our economy) is the unemployment rate, but Unconventional Economist on MacroBusiness has shown this rate to trail the housing corrections in UK, US and other busted bubble countries.
Residex puts it at 430,000 sales over the past 12 months, which is 10% down on last year, but that's still 430,000 people who can afford to buy...
http://blog.residex.com.au/2011/06/23/australia-as-a-whole-5/
Stock on the market is lower now than it was in 2008...
http://www.sqmresearch.com.au/graph_stock_on_market.php?national=1&t=1
And rental vacancy rates are falling...
http://www.sqmresearch.com.au/graph_vacancy.php?national=1&t=1
I agree Melbourne has had a recent construction boom, and Melbourne prices are likely to fall a bit, especially units. But that doesn't mean Australian houses are unaffordable. Hundreds of thousands of them are bought every year, very few buyers are unable to service their mortgages, and we continue to choose to build the largest homes in the world.
My blog goes into quite a lot of detail on why Australian houses are not unaffordable, and also why Australian homes are actually more affordable that homes in many other comparable countries. Google 'Demographia Debunked' to read the blog if you're interested. I can't link to it as it's hosted on the Australian Property Forum which I don't seem to be allowed to link to from Somersoft for some reason.
Cheers,
Shadow.
Still not really shore how you are specifically linking affordability with volume. Even if we are only 10% down on last year, does that also mean that properties are 10% less affordable now? Or does it mean properties were unaffordable last year and this years buyers are realising it?
A family could be down to eating two minute noodles every night and never going out so they can save for and buy a home.... if they went to these sorts of lengths before purchase was it still affordable? Not in my opinion.
Certainly not as black and white as you make it out to be.
Not sure why you would want to link that site full of trolls shadow. They have impersonated me and other online identities to draw hits to their trashy site:
http://www.bullionbaron.com/2011/06/bullion-baron-being-impersonated-by-apf.html
They are also trying to draw hits using the names of other property investing forums, e.g. this text is on the bottom of their page trying to draw web search hits for those trying to get to this site as well:
I would not touch that site with a 10 foot pole. The owner is clearly a shadowy character, who knows what he is doing with the user details of those who signup!
Pretty sure there is blog functionality on this forum, why not setup your blog here on a reputable site instead (or use blogger like I did, 5 minutes to setup)?
Even if houses are less affordable than last year (yes, they are because prices and interest rates both went up) that doesn't make them unaffordable. McDonalds could raise the price of a Big Mac by 10, 20, 30% or more tomorrow, but Big Macs would still be perfectly affordable.
If people in Australia couldn't afford homes, then we wouldn't have one of the highest rates of home ownership in the world, we wouldn't build the biggest homes in the world, and our mortgage default rates wouldn't be some of the lowest in the world at the same time as interest rates are some of the highest in the world!
Not sure why you would want to link that site full of trolls shadow. They have impersonated me and other online identities to draw hits to their trashy site:
http://www.bullionbaron.com/2011/06/bullion-baron-being-impersonated-by-apf.html
They are also trying to draw hits using the names of other property investing forums, e.g. this text is on the bottom of their page trying to draw web search hits for those trying to get to this site as well:
I would not touch that site with a 10 foot pole. The owner is clearly a shadowy character, who knows what he is doing with the user details of those who signup!
Pretty sure there is blog functionality on this forum, why not setup your blog here on a reputable site instead (or use blogger like I did, 5 minutes to setup)?
Well, I already have my blog set up over there, so I wouldn't want to maintain in it two places. Thanks for the heads up on all those nasty trolls - sounds scary... I'll be very careful then, in case they troll me (hasn't happened yet!).
To be frank, I would have thought a 'troll' might be somebody who comes onto a property investor site, tells everyone property prices will crash, and recommends they buy non-yielding, non-productive lumps of metal mined from the ground in a manner than permanently destroys the landscape instead. But I guess everyone has their own definition of a troll.
Thanks for the warning anyway. I'll be on the lookout for the trolls today!
You're just rehashing the same material discussed over the last page or two.
Australia does have one of the highest home ownership rates, but it has been falling:
http://www.propertyupdate.com.au/australia’s-falling-home-ownership-rate.html
Not a large fall, but these figures don't change overnight. If the home ownership rate is a measure of affordability then homes are less affordable now than in the 1990s...
I think it's important to understand that homes won't be affordable then suddenly become unaffordable. It's a gradual change and there are levels of affordability. Low default rates, large homes, volumes of sale, in my opinion these indicators alone are not evidence of whether our homes are affordable or not.
Can't say I've seen anyone around here doing that, but I'll keep my eyes peeled
If that was aimed at me, then I don't think my personal expectations for property (15-20% nominal fall over several years) would be considered a crash scenario.
Well, it sounds like you're just saying that homes are a bit less affordable now than they were last year, but not necessarily that they're unaffordable. So perhaps we are in agreement. Here are a couple of charts you might like...
If inflation is running at 3% per annum, that could be a fall of 30-40% in real terms, similar to Steve Keen's original crash prediction (before he changed his mind).
I would agree they are only a little less affordable than the last couple of years, however are a lot less affordable than the 1990s. I don't necessarily think that Australia will be able to keep the low interest rates, permanantly, that we has enjoyed over the last 15 years. If rates rise then affordability may drop even without the need for prices to increase.
It would be interesting to see that affordability chart updated to 2011. No doubt that the spike into 2009 (making houses more affordable) was driven predominantly by interest rates which were slashed down to historical lows.
You may (or may not) recall that in early 2009 I created a couple of threads on the Global HPC forums listing a bunch of Adelaide properties that were suddenly affordable due to the low interest rate environment. As I recall I suggested buying at the time might not be a bad option if you took advantage of the historical low rates and locked in for a 5 year term.
Well I wouldn't really consider Keen's prediction (40% over 10-15 years) a crash so much as a slow deflation. I definitely think a fall of 25-30% is possible in real terms after inflation.
And if interest rates fall (as expected by the futures market)...?
Here's another chart. Taking interest rates out of the picture, it looks like the price/income ratio has been generally improving since 2003...
PS: so far, I have managed to survive 'untrolled' today, but I'm still on the lookout for them!
I expect they will (fall) in the short term (12-18 months), but will likely rise in the medium term. Though with the rest of the globe (Japan, China, Eurozone, US) on a precipice who knows just how things will playout... throw in a currency collapse/change, sovereign default, or Eurozone breakup, I imagine any of these sorts of events could change things in a hurry. I certainly wouldn't want to be geared 20:1 in Australian property when it happens.
Hey there Shad, long time no see.
Speaking of graphs and predictions, where's our boom dagnabbit!?
2007.... *wipes a tear*....so many memories.
Massive boom around the corner
Everyone out of equities and into property
Surges in upper-end properties dragging the bottom with them
Strong growth in 08-09, boom kicking off 10-11
Buy now or lose out.
Seriously, you should get a job with BIS Schrapnel
Speaking of graphs and predictions, where's our boom dagnabbit!?
2007.... *wipes a tear*....so many memories.
Massive boom around the corner
Everyone out of equities and into property
Surges in upper-end properties dragging the bottom with them
Strong growth in 08-09, boom kicking off 10-11
Buy now or lose out.
Seriously, you should get a job with BIS Schrapnel
Will Australia's next property boom be the greatest boom we've ever seen?
I believe it will... that property will continue to grow as per the trend lines shown below. Which means that the median price in Sydney will exceed one million dollars within the next 7 or 8 years. I expect this massive boom is just round the corner, and in fact that the preliminary growth phase has already begun in several cities...
But will it be followed by the worst bust in history? Again, yes I think it will.
Cheers,
Shadow.
