will house prices continue to double every ten years?

[yarraboy]

and i'll put another one out there ... show me a chart that show "household income to mortgage ratio" and i'll be impressed. most highly mortgaged households nowadays have two income - even if one is part time.

to show a chart of mortgage against single income is not reflective of the times.

it also doesn't take into consideration that other household expenses have dropped - gosh, i bought an lcd tv the other week for 1/4 of the price that same tv cost me 5 years ago. my new car cost exactly the same as what my old car did 10 years ago (with same age and km's) - but wages have gone up since then.

oops - just read the rest of the thread and realised skater said the same thing (but better).

Great points Lizzie. True, the price of household items have dropped.

However don't forget that other things have increased. We now have mobile phone bills, internet connections, health care, private schools, and a lot of other things that were not part of household expenses 20 years ago.

 

[yarraboy]

According to the chart, prices started to climb fast mid 80's, which would co-incide with the banks starting to calculate the second income. When I bought my first home it was unusual because I was a single female. Very risky! I got across the line because I worked for the bank so had a stable job.

I think you would find that there was a major property crash in the late 80's. Prices did drop and stagnated back then.

 

[skater]

I think you would find that there was a major property crash in the late 80's. Prices did drop and stagnated back then.

Hardly a major crash. Things slowed and had a minor drop, followed by a time of stagnation. Nothing new! That's what property does. Overall, it has trended upwards.

 

[yarraboy]

Yes it has. It keeps in line with inflation (increase in credit). When that contracts (deflation) it falls back too.

Do you remember that period ? I remember a lot of people losing their house, and prices dropping quickly in a lot of areas. I remember a drop from 240,000 on a commercial property, that went to 180,000.

And the boom in the 80's is nothing compared to the one we had now......this one is WAY bigger.

 

[wylie]

When my parents bought their first house in the early 70's, they both worked. Same when they upgraded and required a mortgage.

Two wage households are not new. They have around for many years.

Your parents may have both worked, but I'll bet the bank didn't take your mother's income into consideration. Working mothers were not uncommon back then, in part time jobs mostly, very different to many of today's couples.

Great points Lizzie. True, the price of household items have dropped.

However don't forget that other things have increased. We now have mobile phone bills, internet connections, health care, private schools, and a lot of other things that were not part of household expenses 20 years ago.

Mobile phones and internet are "optional extras" and you have to be kidding about private schools. They have been around for a LOT longer than 20 years.

 

[yarraboy]

Your parents may have both worked, but I'll bet the bank didn't take your mother's income into consideration. Working mothers were not uncommon back then, in part time jobs mostly, very different to many of today's couples.



Mobile phones and internet are "optional extras" and you have to be kidding about private schools. They have been around for a LOT longer than 20 years.

Working mothers were VERY common in my neck of the woods.

Mobile phones, and internet connections (especially internet connections) are no longer optional extras. Finland, for instance, is introducing a law that every household MUST have an internet connection in the next few years.

As for private schools. You will find that demand for them has increased in the passed 10 years. (probably will decrease once the recession truly hits).

 

[truong]

Firstly, thankyou for coming to the table with data to analyse, a lot of the posts thrown around in this thread so far are simply anecdotal experiences, opinions or property myths that are not backed up by facts.
The first thing I note about this chart is that it is single income and not household income like the last chart.

Hmm... don't think so. This chart is based on household income as the last one. Two things were added:
- Capital cities Price-to-income in addition to All regions Price-to-income
- Standard interest rate

Look at it again...

Truong, what in your opinion was the main driver for price increases over wage increases over these two different periods? Do you think the same drivers? Different?

I'm no economist but would suggest the following:

- if you draw a straight line from 1980 to now, this line gives you the general trend of increase
-you can clearly see that the period from 2001 to 2008 is above trend, but from 2009 it is roughly back to trend.
- therefore I'd suggest that 2001-08 is an "anomaly".
- this "anomaly" corresponds exactly to the period of sustained low interest and ease of credit due to competition between lenders.

My conclusion: There are 2 curves that are superposed:
- one (the straight line) that is the long term "natural" increase due to population growth and perceived scarcity.
- and the 2001-08 hump caused by easy credit.

Now that we are back to trend and that credit is no longer easy, I feel relatively confident that we'll have "normal" growth in the few years ahead. Growth cannot be as high as during boom times - because we are pushing the limit of what people can pay - but still high enough to be worthwhile for astute investors and, most importantly, sustainable.

Truong

 

[battler]

When my parents bought their first house in the early 70's

Was this house the same size, and did it come with the same inclusions as what is supplied these days?

 

[yarraboy]

Was this house the same size, and did it come with the same inclusions as what is supplied these days?

It was a standard Californian bungalow, with 3 bedrooms, lounge, kitchen area, with a big backyard.

I understand what you are saying. No they did not have granite counter tops back then, but as Lizzie said earlier, household items (fridge, oven, t.v) were a lot more expensive back then.

 

[goldstar77]

My father in law was telling me recently about his house in Melbourne in the late 80's/early 90's. The suburb had absolutely boomed. Supply could not keep up. He literally had one guy knock on his door and offer him 300K to sell immediately.
He refused. He didn't want to move.
A matter of months later he got ill and needed to sell. The house was put to auction- passed in. Ended up selling shortly after for $220k.

 

[wylie]

Internet may be "standard" now, but it is one thing you can get rid of if things get tight.

I still stand by my statement that your mother's salary would not have been included in servicing.

Private schools are more easily afforded by more people now but have been around for a long time, and you said they were "not a part of household expense" 20 years ago, which is just wrong.

Maybe not part of some households who can now afford them with two incomes, but certainly part of plenty of "rich" households for many, many years.

 

[yarraboy]

My father in law was telling me recently about his house in Melbourne in the late 80's/early 90's. The suburb had absolutely boomed. Supply could not keep up. He literally had one guy knock on his door and offer him 300K to sell immediately.
He refused. He didn't want to move.
A matter of months later he got ill and needed to sell. The house was put to auction- passed in. Ended up selling shortly after for $220k.

These sorts of stories were common back then. Plenty of people were selling because they couldn't afford the repayments. Mortgagee sales were plentiful.

Food for thought.

 

[goldstar77]

Oh, Yarraboy, it wasn't a mortgagee sale. He owned the house outright. He and the MIL bought it in 1970 for 21K. She also worked, full time.
They said that they were so nervous, they thought the mortgage was so huge. A couple of years later was a wages breakout, and huge inflation and the debt seemed like nothing.
Out of interest, the value of that house did not get anywhere near 300K again until the late 90's. None of this 20 percent plus per year growth, it just stagnated.

 

[yarraboy]

I know that in your case it wasn't a mortgagee sale. I understand that the reason he sold were due to health reasons.

I said that back then mortgagee sales were quite common.....

 

[goldstar77]

Yes...
I suppose what I am saying is this..
One day the 'market' was saying his house was worth 300K.
And very soon after the market (his auction) put that value at 220K.
So property prices do indeed go down, as well as stagnate for years.

They were also fortunate in that rapid wages growth and high inflation took care of thier mortgage. That wouldn't happen today. The RBA won't let it happen. Thier policy is low inflation.

These fanciful REA sponsored 'articles' in the paper saying the median price will be over 1 million in ten years are ridiculous.
Who will be able to afford it?
Wages need to catch up for house prices to grow further. And they are not going to double anytime soon.

 

[hobo-jo]

See 1st graph in post #78 .

You mentioned a dozen "booms" prior to the current one that did not rely on easy credit and then point to a graph that has perhaps 5 periods that could be considered booms (1890, 1950s , late 1970s, late 1980s, 1999-current, 2 of which (1890 & current) could be attributed to easy credit based on the 2nd chart in the same post.

Fair shake of the sauce bottle keithj!

Hmm... don't think so. This chart is based on household income as the last one.

Yes you are correct, my mistake.

You mention drawing a trend line (on the chart you posted), however if you have the expectation that this trend continues then you are of the belief that house prices will increase even further against household income? As a multiple of household income using your chart we have seen over a doubling from 2x to 4x household income, so you are expecting another doubling to 8x household income or thereabouts over the next 25 years? How do you gather that this is sustainable?

 

[yarraboy]

agree totally goldstar......

 

[keithj]

You mentioned a dozen "booms" prior to the current one that did not rely on easy credit and then point to a graph that has perhaps 5 periods that could be considered booms (1890, 1950s , late 1970s, late 1980s, 1999-current, 2 of which (1890 & current) could be attributed to easy credit based on the 2nd chart in the same post.

You're avoiding (or maybe conceding) the point I'm making that we've had booms (or doubling in house prices) for decades (a dozen or so). Only the most recent had 'easy credit' as a contributory factor. The point I'm making is....

We've had many instances of doubling of house prices without easy credit.

OTOH you appear to be of the opinion that this last boom was caused solely by easy credit and therefore prices must fall/stagnate because credit is no longer easy.

 

[hobo-jo]

You're avoiding (or maybe conceding) the point I'm making that we've had booms (or doubling in house prices) for decades (a dozen or so). Only the most recent had 'easy credit' as a contributory factor. The point I'm making is....
We've had many instances of doubling of house prices without easy credit.
OTOH you appear to be of the opinion that this last boom was caused solely by easy credit and therefore prices must fall/stagnate because credit is no longer easy.

Okay so your claiming for 120 years we have doubled our house prices every 10 years? I can't say I would have the data to prove or disprove this, but I think it's unlikely we saw this sort of growth for the 80 years you are including prior to 1970...for example Melbourne median house price was $12,800 in 1970 according to the chart on page 4. Working backwards from there to 1890:

1970 12800
1960 6400
1950 3200
1940 1600
1930 800
1920 400
1910 200
1900 100
1890 50

Do you have anything to backup these prices approximately?

End of the day my problem is not with house prices doubling in value in nominal terms which they will likely do as inflation takes it's course and wages rise, my problem is with the prices increasing in real terms against wages, gold, a carton of milk or any other asset which should be appreciating at roughly the same pace along side it.

I would say credit is still relatively easy (and cheap), certainly not as much so as it was 3-5 years ago mind you.

 

[yarraboy]

OTOH you appear to be of the opinion that this last boom was caused solely by easy credit and therefore prices must fall/stagnate because credit is no longer easy.

Yes, basically that is the reason for the boom. Easy credit, and various government grants who's sole purpose were to prop up the real estate industry.

Once they do go away prices will start heading down.

Also be aware of the mortgage resets, when people start refinancing their mortgages. I can virtually guarantee you that once banks catch a wiff of lower house prices, it will make re-mortgaging a little bit harder....and I am sure you understand what affect that will have.