Why Perth is a Bubble ("This Time It Is Different")

I certainly don't mean to rain on anyone's parade but the figures for much of Perth do not add up. Buying the average Perth house now is akin to investing in emu eggs, internet stocks or tree plantations a decade ago. I do not say this lightly.

Take a look at median wages in WA and contrast them to the current median house price for Perth. Make a cutesy graph of the same going back 40 years. Even if you account for higher median wages in the future, there's no avoiding the fact that your graph will show that much of Perth is a hopelessly overpriced bubble.

For those who would happily behead me for being the messenger of bad news, I'm not saying prices will crash soon. Certainly, some areas will do better than others. That said, I do believe that prices will be going sideways for many years - this will be a lost decade for Perth. If you are borrowing money to buy your Perth IP, you will not be making any real gains unless you bought in very early, before the irrational exuberance set in.

My heart goes out for those who are paying $600 000+ for beautiful but overpriced houses in outer suburbs like Currambine or Baldivis. In a decade's time, the prices of these magnificent homes will be exactly the same, if not less than what they are today.

To the disbelievers who say "this time it is different" or "China is why Perth prices will rise exponentially" or (back in 2000) "everyone needs the internet, this is not a bubble market".......ask any resident of Tokyo or Dubai or Louisiana if the trees in their investment forest ever grew into the sky.

Take the time to crunch the numbers as I suggested above and you will be able to see past the hype. Graphs are honest and unemotional; they will tell you more than what you will read in the parochial Perth newspapers.

(And yes, I know about Gorgon etc. Reminds me of Bass Strait in the 70s - great news for the oil industry, with negligible trickle-down for most ordinary battlers).
 
According to RP Data, Less than 10 per cent of Perth localities are under a median price of $350,000

Hillman has a median price of $280,000
Armadale $284,000
Parmelia $288,000
Camilio $290,000
Brookdale $297,250

The years ahead will be interesting no matter what happens; what do you suggest then for investors meconium :confused:
 
According to RP Data, Less than 10 per cent of Perth localities are under a median price of $350,000

Hillman has a median price of $280,000
Armadale $284,000
Parmelia $288,000
Camilio $290,000
Brookdale $297,250

The years ahead will be interesting no matter what happens; what do you suggest then for investors meconium :confused:

One cannot go too badly wrong with the sort of prices you quoted above Redwing. Although I would not want to live in places like Armadale or Medina, I can't see the cheaper end of these suburbs crashing - even if the local yokels aren't the nicest of neighbors. Saw some enticing old houses in Armadale on bigger, developable blocks.....but these won't last for long in the buying frenzy taking place right now.

It saddens me to think that people are going to get hurt by being suckered into believing that Perth prices are an unassailable fortress. It's the highly overpriced junk that worries me......the sort of homes that sell for $600 000+ in outerlying areas that were bush barely a decade ago. The poor buggers who buy this kind of stuff will battle mortgages for a decade or more, only to see their houses making no capital gain, after costs.

I've sold most of what I own in Perth. Some of the money has gone towards outerlying bayside suburbs in Melbourne. The rest I will put under my bed.
Perth is not the sure thing that it was a decade ago, when everything one bought would turn to gold.
 
What Redwing wrote makes perfect sense. You just haven't read it properly and twisted around the term "a median" with the term "the median".


Redwing said :

Less than 10 per cent of Perth localities are under a median price of $350,000


So if there are 50 localities in Perth, only 5 of them have median values for that particular suburb under 350K.

The top 10% of Perth localities might have a median of 1.6m or over.

He is not commenting anything about the overall median for Perth properties.
 
:confused: http://www.rpdata.net.au/ says Perth median is $475K... close to the national median is $455K.
And how can only 10% of localities be below the median... surely closer to 50% should be below the median.

Feel free to correct me if I am wrong but I think what he means to say is this: Of all the many suburbs in Perth, less than 10% have a median that is below $355 000. The remaining 90% of suburbs in Perth have a median price in excess of $355 000k.

I'm guessing that the upper quartile of Perth suburbs may well be a bubble that will eventually pop. Prices may not crash but they will go sideways for a decade or more. People who borrowed to invest will get hurt, particularly in the outerlying suburbs. Iluka, very popular with nouveau rich miners, is just one of the many bubble suburbs in Perth that comes to mind.
 
I'm guessing that the upper quartile of Perth suburbs may well be a bubble that will eventually pop. Prices may not crash but they will go sideways for a decade or more.

Yep, you're guessing. You cannot possibly state that, certainly not over that timeframe.
 
I'm guessing that the upper quartile of Perth suburbs may well be a bubble that will eventually pop. Prices may not crash but they will go sideways for a decade or more. People who borrowed to invest will get hurt, particularly in the outerlying suburbs. Iluka, very popular with nouveau rich miners, is just one of the many bubble suburbs in Perth that comes to mind.


Why is Perth a bubble but not say Melbourne then?

I'd agree that Perth is a bubble if China implodes, but then the whole Australian economy would go down as well, just a few months later, as we would then be no different to Greece or Great Britain. We'd just be a nation of service workers and consumers and no way to pay for our imports.


Nouveau..?? Thats a bit flash for me. Had to look it up to see what it means.

......."Nouveau riche (French for "new rich"), or new money, refers to a person who has acquired considerable wealth within his or her generation.[1] This term is generally to emphasize that the individual was previously part of a lower socioeconomic rank, and that such wealth has provided the means for the acquisition of goods or luxuries that were previously unobtainable. The term can also be used in a derogatory fashion, for the purposes of social class distinction, to describe persons with newfound wealth as lacking the experience or finesse to use wealth in the same manner as old money—persons from families who have been wealthy for multiple generations"......



Oh dear! Not having a go at bogan miners here are you? They are good hard working people who deserve all the rewards they get.


See ya's.
 
Yep, you're guessing. You cannot possibly state that, certainly not over that timeframe.

You'd have to be as blind as a welders dog not to see it. My suggestion to the naysayers is that they should not believe me. Instead, they should crunch the numbers themselves and graph it out as I have suggested. Graphs, unlike hype and the Sunday Times, are completely unemotional and devoid of pride.

Anyone who takes the trouble to crunch the numbers will see that much of the upper two quartiles of Perth property is a massive mispricing that may take many years to correct itself - those getting in now will get hurt if they are using borrowed money. It they are using cash to buy, then I guess they can afford to hold as real prices go sideways for a decade or however long the bubble takes to deflate.

It is hard to figure out the top of any market. I thought the internet boom of the late 90s would end in but it just kept going until it was unsustainable. "Everyone will need the internet back in 2000 is akin to "China and high commodity prices will keep WA booming forever" today. The same with the property boom in the USA, I thought it had to end back in 2005/2006. But it kept going and it ended in tears and so much despair.

Killing or abusing the messenger who brings bad news is the perogative of the uninformed. If you are intelligent enough to get a loan or to contemplate buying an IP, then you will be smart enough to spend the time crunching the numbers - you will soon see that, in inflation adjusted terms or even relative to real median wages, most of Perth isn't as cheap as it was a decade ago.
 
Not having a go at bogan miners here are you? They are good hard working people who deserve all the rewards they get.

Absolutely, our miners work damn hard, just as our farmers do. The country will be buggered without them. Battlers like our miners don't deserve to be duped into believing that the trees will grow into the sky and that house prices will rise exponentially from here. I've seen hard working miner friends being conned into buying tree farms, emu egg investments etc. I'd hate to see it happening again, this time on borrowed money. Mining is a tough job and these guys won't be able to drive a truck aged 70, which is why it's crucial they not lose what they earn on overpriced follies into questionable IPs.

Why is Perth a bubble but not say Melbourne then?

Much of inner Melbourne is also a bubble IMHO. Basically, it's all about numbers, it's not rocket science......anyone who takes the time can see for themselves.....median wages divided by median house prices, graph this series back 40 years and take a look for yourself to see that now is not a good time to be buying the upper quartile of homes in either Perth or Melbourne.
 
You'd have to be as blind as a welders dog n

Killing or abusing the messenger who brings bad news is the perogative of the uninformed. If you are intelligent enough to get a loan or to contemplate buying an IP, then you will be smart enough to spend the time crunching the numbers - you will soon see that, in inflation adjusted terms or even relative to real median wages, most of Perth isn't as cheap as it was a decade ago.
That's the problem everyone is faced with when they enter any market you pay the price,or sit on the sidelines there are no inbetweens in investing,10 years ago you could still buy properties in Brisbane within 10 klm's of the CBD,for less then 60k,they may have been fibro,and needed a 10 k reno,but it was a house in what was then a very rough area,fast track too today those properties now would sell for above 450k on the land value alone,so if they all go back to 60k i don't care less,because it's not going to happen,not in those areas we have invested in,might well be different if you paided 400k for a slick 4 bedroom box on 1000sqm,50klm's from the CBD in the Brisbane Valley some of those properties have gone down over 30% over the past 2 years,just market within markets..imho willair..
 
Why is Perth a bubble but not say Melbourne then?

I'd agree that Perth is a bubble if China implodes, but then the whole Australian economy would go down as well, just a few months later, as we would then be no different to Greece or Great Britain. We'd just be a nation of service workers and consumers and no way to pay for our imports.

Who knows? But something doesn't feel right when a city with 1.7 million people (a town in China's standards) has similar prices to a city with 4.0 million people.
 
You'd have to be as blind as a welders dog not to see it.

Haha. Brilliant !! I've been called many things on my time here on the forum, and are justifiably proud to wear any label that anyone wishes to pin on me....the more the merrier I reckon. But "blind as a welder's dog" is top shelf. I'm ecstatic. :D

Blind as a welder's dog, added to my list.


My suggestion to the naysayers is that they should not believe me - those getting in now will get hurt if they are using borrowed money.


OK, OK, you've got me. I'll take your word for it and not get in now. Come back and let me know when I can buy something. Anything at all will do.

Naysayer, added to my list.


Killing or abusing the messenger who brings bad news is the perogative of the uninformed.

Uninformed, added to my list.

I'm getting quite a little collection of tags here. Very chuffed with myself. :)
 
Killing or abusing the messenger who brings bad news is the perogative of the uninformed. If you are intelligent enough to get a loan or to contemplate buying an IP, then you will be smart enough to spend the time crunching the numbers - you will soon see that, in inflation adjusted terms or even relative to real median wages, most of Perth isn't as cheap as it was a decade ago.

I understand what you're trying to say and somewhat agree.

But the problem I have with what you're saying is you've got to pin a time down and say when you think the crash/deflation is. Because right now you sound like my father who always said "this will all crash soon." After 10 years of a roaring sharemarket, he was finally able to say "See? Told you!"

Same problem I have with people talking about China's bubble. It may be a bubble but it doesn't help me much if the bubble doesn't pop and keeps going for another decade, in which case there'll be plenty of lost opportunities.
 
Who knows? But something doesn't feel right when a city with 1.7 million people (a town in China's standards) has similar prices to a city with 4.0 million people.

this is irrational thinking. by this logic the median in karratha should be about 20000/4000000 = $2,500
 
My heart goes out for those who are paying $600 000+ for beautiful but overpriced houses in outer suburbs like Currambine or Baldivis. In a decade's time, the prices of these magnificent homes will be exactly the same, if not less than what they are today.

prices in those outlying suburbs are still down about 20%. not as much as the 40% that some of th epremium suburbs suffered but it certainly reduces the risk of buyers. most houses are selling at about repalcement cost... depending what you put the land in at but larger developers such as satterly are warnign of a severe land shortgae soon. this hardly sounds like the stuff of doom and gloom:

http://au.news.yahoo.com/thewest/a/-/newshome/7112763/rates-tipped-to-top-8-per-cent/
 
most houses are selling at about repalcement cost... depending what you put the land in at but larger developers such as satterly are warnign of a severe land shortgae soon.

Perhaps a bubble exists but how will it pop?

The population is growing. People have to live somewhere. To buy a house they pay market price. If market price relates to replacement cost (building) and land value - one of these has to give for prices to fall.

So meconium, enough theory, which is going to fall and how? Construction costs or land value?
 
Basically, it's all about numbers, it's not rocket science......anyone who takes the time can see for themselves.....median wages divided by median house prices, graph this series back 40 years...
Are you saying that median prices should continue to be 3 or 4x median wages ? If so, then I'll take a dozen in both Melb & Perth please :).

Do you think anything has changed in the last 40 year to cause the price/income ratio to change ? Is the cost of a car or TV still the same ratio ? or has it plummeted giving us all more to spend on other stuff (like houses) ? Has discretionary income has increased at 6%pa since then ?

The price/wages ratio is a great tabloid headline grabber.... but it doesn't relate to the real world. See the RBAs view on affordability - the ratio they use is median wage of a FHB to median price of a 30th (not 50th) percentile house...... and it's currently v. close to the best it's been for almost a decade.
 
this is irrational thinking. by this logic the median in karratha should be about 20000/4000000 = $2,500


I think it's irrational thinking too.

Byron Bay, Margaret River, plus any number of other tiny idyllic coastal towns can have high property values. And there can be massive overpopulated hell holes overseas that you wouldn't want your dog to live in let alone pay much for property.


See ya's.
 
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