will house prices continue to double every ten years?

[yarraboy]

Also don't forget that there are people who DO NOT care about owning real estate whether it be investment properties or homes to live in.

They understand that renting, in the current market, actually saves them money. They say to themselves "why pay $5000 in mortgage payments, when I can rent it out for $1800".

In other words, buyers will slowly but surely run out.

 

[devo76]

I think we are in the middle of many factors that will likely push house values much much higher. Not down as suggested. We will see House values double in the next few years possibly even X3 if things happen as i think they will. This is happening at the coal face now and will spread soon. Rents will probably keep up also i believe so yields should stay the same.
Like i said things will not head down as yarraboy and demographics suggest.

 

[yarraboy]

I think we are in the middle of many factors that will likely push house values much much higher. Not down as suggested. We will see House values double in the next few years possibly even X3 if things happen as i think they will. This is happening at the coal face now and will spread soon. Rents will probably keep up also i believe so yields should stay the same.
Like i said things will not head down as yarraboy and demographics suggest.

Can you tell us some factors that will contribute to this ?

 

[devo76]

Can you tell us some factors that will contribute to this ?

Woops.Sorry wrong web site. I thought i was trolling on a different doom and gloom forum.

My bad

 

[Luv2Travel]

In other words, buyers will slowly but surely run out.

I'm only skimming this thread and certainly don't have the knowledge or experience to get involved with statistical facts, but you're saying people are going to turn to renting because buying is too expensive. There are still X number of people needing X number of homes, whether they are owner occupied or rentals. Just means the owner occupiers may go down, but the number of investment properties will increase won't it? Renters put pressure on rental properties leading to increased rents, leading to more investment. Doesn't the basic rule come down to supply and demand, and whilst our population is increasing, won't demand outstrip supply in the CBD areas where there is limited supply but increasing demand? There will always be people on much higher than median salaries prepared to pay for location.

Just my two cents worth, no fancy graphs, statistics or facts.

 

[goldstar77]

Oh, well done Devo!
But you know what? For all your sarcasm, I actually see things written in the media and various fora that make those claims all the time.
Anyway, who's being doom and gloom here?
Some people here are of the opinion that house prices cannot continue to double every 5/7/10/whatever years.
Others disagree.
Doesn't mean anyone's trolling.

 

[devo76]

Oh, well done Devo!
But you know what? For all your sarcasm, I actually see things written in the media and various fora that make those claims all the time.
Anyway, who's being doom and gloom here?
Some people here are of the opinion that house prices cannot continue to double every 5/7/10/whatever years.
Others disagree.
Doesn't mean anyone's trolling.

Fair call but i think most would agree there is a bit of a trolling push going on right now. no worries but i guess. It will die down as always.
As for what happens. Who knows. scratch that. Not one single person knows.
Each person must look at their own situation. That is,cashflow,income,property choice,location,future goals etc and plan with this in mind. No negative nellies can know all this for each investors on here and give blanket investing advice.

Myself. 20 year min investing window and a near neautral gearing. I think ill be right.

 

[Perth Investor]

Myself. 20 year min investing window and a near neautral gearing. I think ill be right.

I'm with you Devo. Can someone explain how the following scenario won't work out for me:

I buy a house for $500K. It only increases in value at inflation rate, 4%, which means it doubles in 18 years, and again 18 years later. I'm 30 now, so when I'm 66, I'm retired and I have about a hundred years to live, and my house is worth $2 mil. Debt is still $500K, so net is $1.5 mil which equates to "only" $400K in today's dollars due to the aforementioned inflation.

Then lets say I do this 2 or maybe 3 times (or 4 or 5 or 6 ...). If y'all are telling me this is the worst case scenario, that my property will double only every 18 years, I'm sold.

And I'm pretty confident that if I can control $2 Mil + in IP's now, then I'll be pretty sweet in 36 years time.

 

[truong]

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?

Over the next 25 years? I have no idea. I'm just looking at the next few years.

My feeling is that property in Australia is still not "mature", in the sense that Europe is, because:
- we're still a young nation with huge population growth
- people still expect to be able to live near CBD on large blocks
- there's still not much unit development near CBD
- people still feel ownership is a birth right
- and we're still infatuated with property.

In more "mature" societies, all of the above have mellowed quite a bit.

Therefore for the time being I still expect price growth to be above income growth until the trend curve plateau's out and becomes horizontal at some point in time.

This is why I suggested in another thread that we could expect:
- general inflation 3%
- wage growth 4%
- disposable income 4-5%
- property price growth 5-6% i.e. only fractionally faster than income, resulting in prices doubling every 12 years approx.

It goes without saying that this is not a prediction but only an assumption for planning sake.

Truong

 

[yarraboy]

I'm only skimming this thread and certainly don't have the knowledge or experience to get involved with statistical facts, but you're saying people are going to turn to renting because buying is too expensive. There are still X number of people needing X number of homes, whether they are owner occupied or rentals. Just means the owner occupiers may go down, but the number of investment properties will increase won't it? Renters put pressure on rental properties leading to increased rents, leading to more investment. Doesn't the basic rule come down to supply and demand, and whilst our population is increasing, won't demand outstrip supply in the CBD areas where there is limited supply but increasing demand? There will always be people on much higher than median salaries prepared to pay for location.

Just my two cents worth, no fancy graphs, statistics or facts.

Some good points, but I think your logic runs around in circles....like a dog chasing it's tail.

The only thing I can say in order to answer your queries is that rents are not generally affected by this supposed "population growth", but what the "buyer can bear".

Let me give you an example. If you have a place in let's say Footscray, in Melbourne. A place that has had substantial capital growth over the years. You rent out this place. You will be renting out to a certain demographic (generally working class, migrants etc.). Just because this area has a high amount of immigrants living there does not mean rents will increase substantially......because they are not high wage earners.

 

[D.T.]

I think we are in the middle of many factors that will likely push house values much much higher. Not down as suggested. We will see House values double in the next few years possibly even X3 if things happen as i think they will. This is happening at the coal face now and will spread soon. Rents will probably keep up also i believe so yields should stay the same.
Like i said things will not head down as yarraboy and demographics suggest.

Will there be income growth to support those doubling and tripling of rents if they keep up?

 

[Lamingtons]

Erm Yarraboy .. I didn't grow up here. But I sure as heck know that Coburg, Brunswick, Brunswick West are 'working class'. Check out how much rent there is now. I used to live in Brunny West so I know the reputation. A friend of mine moved out further from Richmond - went to Hawthorn - cos rent was cheaper. Don't think that is true anymore.

I also heard Port Melb was undesirable back in the day. -> Can someone else confirm?

 

[cadence]

No-one on a $67,116 wage is going to be buying a $524,500 property.
No lender is going to let you make repayments on a loan that consumes 85% of your wages.
But this argument has been done to death......where's Keith with his charts?

Prop I agree with most of the things you say ... but I have managed something similar recently so I must have been an exception or got lucky with the lender!

 

[devo76]

Will there be income growth to support those doubling and tripling of rents if they keep up?

I was having a light hearted dig mate. I doubt we will see that growth in the short term.

But i fully expect to be telling my son/daughter to buy there first home up around the $800,000 mark in 20 or so years. I will also be telling them how back in my day you could buy a nice house for around $300,000 or less.

Wow Dad you are so lucky. Houses are so dear now.I hear people talking about a crash in 2042. What should i do ?

 

[cadence]

When people refer to a property market 'crash' ... what are you referring to?
What % do the average prices have to fall before you consider there to be a crash?

Personally, I think if you purchase a structurally sound property in a good area, within a reasonable distance to the CBD, with good infrastructure (roads or public transport) and access to shops, and not too much above the average median price ... I find it hard to see how the prices will drop too much. The demand for that kind of property will always be greater than the supply. The most that will happen is probably a stagnation in price - which is pretty much a reduction given the cost of servicing the loan and inflation ... It is unlikely the prices of those properties will drop significantly.

 

[devo76]

When people refer to a property market 'crash' ... what are you referring to?
What % do the average prices have to fall before you consider there to be a crash?

Personally, I think if you purchase a structurally sound property in a good area, within a reasonable distance to the CBD, with good infrastructure (roads or public transport) and access to shops, and not too much above the average median price ... I find it hard to see how the prices will drop too much. The demand for that kind of property will always be greater than the supply. The most that will happen is probably a stagnation in price - which is pretty much a reduction given the cost of servicing the loan and inflation ... It is unlikely the prices of those properties will drop significantly.

thats the thing. There is a good chance that the lines will not be that clear. People might say we had a correction of 10 to 15% and that is not a crash. Then up pop the isolated examples of bigger drops and people saying the drop was bigger blah blah blah. So yeah. The middle ground is going to be verry muddy if it happens.

 

[yarraboy]

I think it will be a drop across the board. Certain areas may fair better, but drop still.

 

[Graemsay]

I just want to throw in a few thoughts to this discussion.

The first is that house prices are at historically high levels on virtually any metric. When people say that they cannot foresee them falling then I get nervous because punters are ignoring downside risks, and possibly even showing a bubble mentality.

(Incidentally the arguments that there's a housing shortage, high immigration and so on were all used in the US, Ireland and the UK.)

The second is that even with a pessimistic set of assumptions, including a Keen style market collapse, inflation makes virtually any property investment a one way bet over a 15 to 20 year timeframe, in that it will ultimately break even. But you need to be able to hold it for that time.

 

[Perth Investor]

The second is that even with a pessimistic set of assumptions, including a Keen style market collapse, inflation makes virtually any property investment a one way bet over a 15 to 20 year timeframe, in that it will ultimately break even. But you need to be able to hold it for that time.

And that's exactly my point. The only thing that scares governments more than high inflation is DEFLATION, and they actively legislate for inflation and against deflation. Which means using other people's money to buy quality assets will always work out over the long term.

 

[Luv2Travel]

You rent out this place. You will be renting out to a certain demographic (generally working class, migrants etc.). Just because this area has a high amount of immigrants living there does not mean rents will increase substantially......because they are not high wage earners.

I said buy somewhere desireable, i.e. close to CBD where land is scarce which will be in high demand. Not somewhere that has a big fat fence around it that says "only for working class migrants with no money". As regards to Footscray, it wouldn't be my first choice to live today, but if it is having such high capital growth, the demographics will probably no doubt change. As someone pointed out, Port Melbourne used to be considered undesireable too once, but has had big growth now and you can spend $500K just to get a one bedroom apartment there. I can assure you, it's not full of people on low incomes who refuse to budge and allow rental growth.

Your arguments are weak Yarraboy and you reak of "trolliness", so that's all I'm going to say. I'm not saying property is guaranteed to go up huge amounts every year, but in general I believe it will continue to grow and given that I have 20+ years of investing ahead of me, I'm confident that I will continue to make good gains in that time. You believe what you what, if term deposits do it for you, then go ahead, each to their own.