Why it really is 'different here'

[tcocaro]

nice graph.. given these are "real" prices i would say thats a pretty good result.. given prices would have moved 0% overall.

more importantly look at the US.. i would have though that would be higher.

(honestly) I am surprised that the world prices where that good.

Thanks for the links Gremlin. I tracked down the Klyuev (2008) econopaper which will be very informative on the model construction. Did you see this most interesting chart at one of your links?

They had a real price decline of 4% for H1 2008. Interesting?

 

[tubs]

I tried to argue that such factors as supply are clearly different between the countries in question, but we go round in circles.... given the ultimately the comeback is... "demand and supply" no longer applies "this time".

Its funny how people keep pointing to graphs, and saying "it will happen here too" and looking at what happened in a certain country 20 years ago etc.

Like all markets, the rule of supply and demand is what sets the price. Other factors influence supply and demand, but it is, has been and will always be supply and demand that sets prices.

Remember, SUPPLY and DEMAND. Sorry for sounding like a stuck record, but its all abou supply and demand.

 

[tcocaro]

Your sure? but how... that oh so convincing Keen has made me believe that its got something to do with planetary alignments? Rudds haircut.. and that Demand and Supply is so out of vogue...

For every BOOMER that says things will never go down.. theres a GLOOMER that says it will never go up.. the only thing both have in common is how they both start their explanations as to why.... "its different this time because.."

sigh.

Its funny how people keep pointing to graphs, and saying "it will happen here too" and looking at what happened in a certain country 20 years ago etc.

Like all markets, the rule of supply and demand is what sets the price. Other factors influence supply and demand, but it is, has been and will always be supply and demand that sets prices.

Remember, SUPPLY and DEMAND. Sorry for sounding like a stuck record, but its all abou supply and demand.

 

[Bill.L]

Hi all,

When comparing "median house prices" or "average house prices" between the different countries, we need to know what we are comparing.

I would contend that the average suburban house (with backyard) in Australia is a much better living environment than the 'average' for other countries.

The average accommodation in most European cities is likely to be a 2 bedroom apartment from what I saw last year.
As soon as you start talking about a free standing house on a block of land, you are into mega euros.
In England last year, tiny terraced houses in Luton, 45 k out of London (commuter territory), and IMHO a very undesirable area to live in, were almost double the price (when converted to $Aus) than a 3 bdr house in a place like Hoppers Crossing. Yet you would have double the internal house space in the Hoppers Crossing house and quadruple the backyard (and the climate to use it )

All these statistics comparing the relativities between different countries fail to take into account this lifestyle factor that affects Australian property (suburban houses), and why Australians are prepared to pay a higher proportion of their incomes to support it.

I raised such an issue at GHPC a while back, and the silence was deafening.

bye

 

[piNoob]

Remember, SUPPLY and DEMAND. Sorry for sounding like a stuck record, but its all abou supply and demand.

What about supply of money?

 

[tcocaro]

or the lack off..

credit only effects demand and supply not replace its existences as implied by some..

if you need proof, imagine there was no credit at all.. 0.. zilch would that make the price of a house 0?

Ive already commented on Keen enough so i wont anymore but really... demand and supply its a core principal.

What about supply of money?

 

[tubs]

Yes Bill

And you have to consider when comparing things like house prices to income that different countries have different tax rates, so somewhere like Switzerland where tax rates are very high may have low house prices in comparison to wages, only because disposable income is lower after you take out taxes.

It might still be harder to pay for a home there, because they have less 'take home' money to begin with.

You then have to factor in the cost of living with what's left over. If things like petrol and groceries are really expensive then it also leaves people less left over to pay for housing.

And all this means that comparing income to house prices between countries is utterly pointless.

I bet that would get a silent response over at 'that' forum too!

piNoob - Yes. Access to money is one of many demand side factors.

 

[Max Carnage]

I would contend that the average suburban house (with backyard) in Australia is a much better living environment than the 'average' for other countries.

But ultimately Bill, there has to be a relationship between the price of housing and the income of the people. I'd suggest that home size is a function of population and land constraints, while home price (over the long term) is a function of income?

All these statistics comparing the relativities between different countries fail to take into account this lifestyle factor that affects Australian property (suburban houses), and why Australians are prepared to pay a higher proportion of their incomes to support it.

That seems a bit of a backward way to look at it? If we've got more space to put all these bigger homes and bigger blocks, why would we choose to pay more? Get where I'm headed?

Regardless of the quality/size/type of available housing, the ratio of home price to income is a very valid one (I prefer to use the sum of all private housing assets vs the sum of all employee income). There may be some difficulties with direct inter-country comparisons, but comparing the movements in the ratios over time is certainly worthwhile.

I've yet to find a country/city where this ratio has exceeded 8x, then risen over the following decade. In all cases I'm aware of, prices have fallen.

 

[Shadow]

I'd suggest that home size is a function of population and land constraints, while home price (over the long term) is a function of income?

I'd suggest house prices are a function of...

1) Disposable income
2) Tax breaks
3) Incentives (FHOG etc.)
4) Rental income
5) Interest rates
6) Credit availability
7) Investor vs. owner-occupier market participation
8) Supply vs. demand (this is the number one driver)

Shadow.

 

[Max Carnage]

I'd suggest house prices are a function of...

1) Disposable income
2) Tax breaks
3) Incentives (FHOG etc.)
4) Rental income
5) Interest rates
6) Credit availability
7) Investor vs. owner-occupier market participation
8) Supply vs. demand (this is the number one driver)

Shadow.

Why did you structure your post as if there were 8 separate points within it? 1, 2, 3, 4, 5, 6, & 7 are merely a few of the components that make up Demand.

But ultimately the demand function has to be dominated by income:
I x (1+2+3+4+5+6+7)

Because otherwise it doesn't matter what the rest do, prices cannot be paid!

 

[ffc1883_1996]

Access to money is one of many demand side factors.

Limited access to credit can also have a limiting effect on supply. This is one of the reasons that the demand for housing in Australia won’t be met by supply for at least a few years - providing support to property prices.

 

[ffc1883_1996]

... ultimately the demand function has to be dominated by income:
I x (1+2+3+4+5+6+7)

Because otherwise it doesn't matter what the rest do, prices cannot be paid!

Not true. My wife’s grandparents live on not much more than the aged pension yet they can afford to (demand to) live in their million+ dollar house in Glen Iris.

 

[Shadow]

Why did you structure your post as if there were 8 separate points within it? 1, 2, 3, 4, 5, 6, & 7 are merely a few of the components that make up Demand.

But ultimately the demand function has to be dominated by income:
I x (1+2+3+4+5+6+7)

Because otherwise it doesn't matter what the rest do, prices cannot be paid!

Desperate much? Care to argue the point instead of getting caught up in technicalities. You said price is a function of income. I suggested there are other factors to consider, not just income. Do you agree?

 

[Bill.L]

Max,

But ultimately Bill, there has to be a relationship between the price of housing and the income of the people.

Yes, but it can be a different relationship here, because the houses and desires of the owners are different.

That is what is not recognized by those comparing between countries.

Taking the pure economic line that houses are 'worth' y times income for everywhere is a classic mistake.

There may be some difficulties with direct inter-country comparisons,

Ya think?? That is it in a nutshell, but most D&G types don't want to understand.

but comparing the movements in the ratios over time is certainly worthwhile.

In your opinion, but not mine. There is way too many demographic differences as well as household income differences over time, as well as lending practices, etc etc to make it a worthwhile exercise. For instance what year did they stop the practice of only including husbands income as the level used for repayments instead of husband and wife in the UK compared to Australia??

bye

 

[steveadl]

That seems a bit of a backward way to look at it? If we've got more space to put all these bigger homes and bigger blocks, why would we choose to pay more? Get where I'm headed?

Yes we have plenty of space, but the location is the key. For example the closer the house is to the CBD/water, the more people who want to live in that house as opposed to the house another 20 mins out.

There have always been cheap houses on the outskirts of cities where the land is cheap (granted construction costs have risen, but you get the idea), as the city continues to expand and population grows, people who can, choose to live in the houses closer to where they want to be as opposed to the outskirts.

If you exclude development/infrastructure and construction cost increases (which is obviously a fairytale), it's conceivable that the govt. can keep releasing land on the boundaries of the capital cities for the next 100yrs at the same price. eg. the price can be a set $50k per block, but in this exercise, the first lot you released today will be much more desirable than the one you release in 50yrs at that same $50k price but now 30km further away.

 

[Aaron Sice]

price a function of income? what is this....3rd year economic theory?

 

[Token Funder]

if you need proof, imagine there was no credit at all.. 0.. zilch would that make the price of a house 0?

.

No..but as I explain to my 4 year old son at the toy store, his "demand" is irrelevant unless he has the is money to purchase.

Doesn't matter how many people in Punchbowl want a Ferrari....they won't be building a dealership there soon.

 

[Shadow]

No..but as I explain to my 4 year old son at the toy store, his "demand" is irrelevant unless he has the is money to purchase.

Doesn't matter how many people in Punchbowl want a Ferrari....they won't be building a dealership there soon.

A Ferrari is a luxury item. A home is a basic necessity. You can't really compare the two.

I could just as easily say...

'Doesn't matter how many people in Punchbowl want a desirable luxury mansion....they won't be building many there soon.'

Or...

'How many people in Punchbowl want a basic second hand car....plenty of dealers exist there right now.'

Cheers,

Shadow.

 

[Token Funder]

A Ferrari is a luxury item. A home is a basic necessity. You can't really compare the two.

They are equally dependant of the capacity of the aspirant to purchase.

My point being that a suggestion the price of RE is not materially impacted by the cost and availability of credit is incorrect. If every lender in Australia pulled the plug tomorrow, prices would drop like a stone. Equally, if there is less competition among lenders and less capital available to lend relative to the last 4-6 years it will have an impact on RE prices.

How much...time will tell.

There is no magic pudding.

 

[tubs]

I was talking to my MB today.

He told me that he has not notice ANY difference in the supply of money coming out of banks.

I've heard a similar story from another MB last night.

We also know that Aus banks are not overly exposed to overseas finance and are considered to be very well regulated.

Default rates are still very low in Australia.

A lot of people are saying that lending will dry up, but to date, this has not shown to be the case.

Banks want to lend money. Its how they make a profit. They still seem to be capable of doing so.

So while everyone is saying that you wont be able to borrow, the reality is that people dont seem to be having any difficulty.