Will Australia's next property boom be the greatest boom we've ever seen?

What will happen to Australian property prices over the next 10 years...

  • Big boom first, then bust (bigger boom & bust than the last one)

    Votes: 20 20.6%
  • Small boom first, then bust (smaller boom & bust than the last one)

    Votes: 25 25.8%
  • Recession first, then big boom (bigger boom than the last one)

    Votes: 17 17.5%
  • Recession first, then small boom (smaller boom than the last one)

    Votes: 24 24.7%
  • Continual stagnation or falling prices for the next 10 years

    Votes: 11 11.3%

  • Total voters
    97
  • Poll closed .
I'm more interested to know, Shadow, whether you own property and if you do which cities the properties are in?

I have a couple of median priced properties on Sydney's Northern Beaches (they are median priced for the Northern Beaches - i.e. a bit higher than the general Sydney median). Hoping to buy at least one more per year, for the next few years, enjoy the next boom, and then be in a position to retire comfortably if I want to.

Cheers, Shadow.
 
Peter is this correct?
Why does the bank count cash at bank as income.?

I thought I was doing the right thing going in applying for a loan with 30-40 thousand sitting around.

Because it earns interest being a significant amount. However they dont count it as equity because they have no control over it. I could cash out and buy a Ferrari at a whim, perchance...I could I assume put it with CBA at X% on fixed term but I do better with Bankwest at call.

Despite this they do count the income.

Hope this helps, Peter
 
Here's another interesting log graph, from AMP

amprealoriginalaqv5.png


A bit more about this subject has been covered by Foundation over at GHPC:
 
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Note the difference between Shadow's and AMP's graph. Shadow's shows the last / current boom as moving the market back towards the long term trend. AMP's shows the last / current boom pushing the market AWAY from the long term trend (implying a period of low returns up ahead).
Alex
 
Possibly the flaw in both trends is that a low inflationary environment may not trend the same way. Can we compare 1926 to today? ;)
 
Possibly the flaw in both trends is that a low inflationary environment may not trend the same way. Can we compare 1926 to today? ;)

Inflation isn't always a bad thing re investment property, because inflation drives the 'real' value of your MORTGAGE down as well.
Alex
 
I wouldn't be spooked. If markets dropped by 12% I would be out there buying. I keep a pretty low LVR, cash, and ungeared shares for risk management purposes.

I agree Alex. To me it doesn't matter if the value of an IP drops 50% so long as the rent pays most of the loan. The loan doesn't change and the rent only increases so what the heck if you are not going to sell then the value is totally irrelevant.

And, as mentioned, it will be a good opportunity to buy.

Cheers,

Bazza
 
Interesting graph, thanks FHB. Same graph is below with trend line extended to 2026.

Some differences between your graph and mine (I'm not saying mine is better by the way) is that yours is for all of Australia while mine is by city. So it may be the case that some cities are above trend and some are on, or below, trend.

Also I am not convinced about the accuracy of the data going back as far as 1926. Still, it is good to see an alternative viewpoint to remind us all to be careful with our IP selection!

Another interesting point to note is that growth was well above trend for a very long period between 1968 and 1984 (approx 16 years above trend) which probably almost 'cancels out' the long below-trend period from 1940 to 1960.

However, we have only been above trend for approx 6 years (2001-2007) in the most recent growth period... so, do you think we could be in for another 10 years above trend, similar to the 1968 to 1984 period? There is still that 15 years period below trend from 1986 to 2001 to be 'cancelled out'...

I still feel, even from this graph, that we will remain above trend until around 2016, after which the bust will take us back to the trend line (regardless of whose trend lines we use).

AUHousePriceChart6.gif


Cheers,

Shadow.
 
Inflation isn't always a bad thing re investment property, because inflation drives the 'real' value of your MORTGAGE down as well.
Alex

Yes, which is what happened in the past. Inflation and wage rises at over 10% helps erode the real value of a loan, and support higher prices through higher incomes in the future.

We no longer live in a world of double digit growth in wages or inflation (well we could move to Zimbabwe). Will this have an impact on the trend of the 60 years leading up to 1990, compared to post 1990?
 
so, do you think we could be in for another 10 years above trend, similar to the 1968 to 1984 period? There is still that 15 years period below trend from 1986 to 2001 to be 'cancelled out'...

Thanks for your thoughts shadow,

I don't necessarily agree with AMP's analysis, but it does indicate that when we allow for the effects of inflation and exponential growth, the boom starting from the late 90s (starting from well below the trend line) has been on a scale to rival previous huge booms, such as the late 20s and late 60s.

There is a difference between above trend growth, and real prices remaining above the trend line. If we think that actual prices will again approach the trend line by 2016, real growth would be approaching zero, or about 3-4% pa in nominal terms for that period. Not really ideal conditions for a bigger boom occurring again so soon. All previous large booms have started from on or below the trend line, and taken at least 20 years of below trend growth to repeat, if we follow the AMP analysis.
 
Do you not consider that factors like the SUB PRIME problems and the widening GAP between WAGE growth and property price will conspire to puncture the boom before 2009 is out?

Hi Giddo,

No, in fact I think the opposite. The US sub-prime phenomenon will help drive Australian investors away from the stock market, and into the property market!

This move away from shares and towards property as the preferred investment vehicle is just one of the many factors I see driving the next boom.

You mention 7 or 8 years before a big bust.
I would love to have your iron clad guarantee on this.

Only Tony Abbott can give those... my comments are my opinion only and could of course be completely wrong. OK... yes, in that case, perhaps I can give a Tony Abbot style iron clad guarantee...

Do you consider "a big bust" to be a larger squiggle on the trendline than is current?

Slightly larger, but not massive.

Cheers,

Shadow.
 
No, in fact I think the opposite. The US sub-prime phenomenon will help drive Australian investors away from the stock market, and into the property market!

This move away from shares and towards property as the preferred investment vehicle is just one of the many factors I see driving the next boom.

Even when the liquidity crunch moves interest rates up and decreases available loans? Even Australian mortgage backed securities sales have taken a hit recently. Most people can't buy property if they can't borrow.
Alex
 
Even when the liquidity crunch moves interest rates up and decreases available loans? Even Australian mortgage backed securities sales have taken a hit recently. Most people can't buy property if they can't borrow.
Alex

And its not only lending to households directly, what happens when business can no longer fund those projects and expansions they had planned? Households need to maintain increases in cash flows (ie. job growth) to fund borrowing and consumption.
 
Even when the liquidity crunch moves interest rates up and decreases available loans? Even Australian mortgage backed securities sales have taken a hit recently. Most people can't buy property if they can't borrow.
Alex

USA and UK are already moving to decrease interest rates, and their interest rates are already much lower than ours. I think we will follow suit pretty soon. There may be one or two more increases early this year, but I think Australian interest rates will start dropping mid to late 2008. This is another one of the factors that I think will drive the next boom. There, I've mentioned two of them now... who can guess the others?
 
My theory on what will drive the next boom, or at least create the conditions facilitating the next boom: a recession.
Alex
 
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