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In some places house prices have increased over recent months. Though medians have risen slightly (Perth etc) volume is down. FHBs are still failing to enter the market, so turnover is predominantly investors.
I'm thinking the money morning article is correct (ATM) Australia may avoid a US style crash and is likely to enter a long Japan style deflation. If this happens, IRs may not be able to rise for some time yet.
Besides, the banks wouldn't be letting you lock for 5 or more years so cheaply unless they were betting on low IRs for that time.
Will IRs get lower? Can they get lower? What does this do to the economy outside of house prices? Can someone answer that?
That's a great comment Dubstep and question. Both lots of my grandparents also lived through the depression. From what they told me, the securely employed fared ok.
The article linked to suggests what looms is 4 X as big, however. If it comes apart in a similar fashion, it could well be worse than anything our grandparents faced.
The government and RBA will try to support pricing, possibly offering stimulus and definitely using IRs as a blunt tool, to help the balance sheets of the big 4. No one wants to see an Ozzie bank go down, so their integrity will be defended as much as possible.
Freckle – who is holding the bag now is very important to how it unfolds in Australia, I believe. From what I understand, the greater majority of IPs are held by those currently in the 55-65 range. NG has been their friend but now this age group is starring down the barrel of retirement (forcibly in some cases).
Stock on the market is going to grow. Eventually, many sellers will become desperate. What happens then is what decides whether we crash or stagnate.
2007 was kind of the national peak. 2008 shaved a bit off the top. The Rudd handouts and FHOG boost (probably more to help his wife with her investment property than anything else:)) only served to get prices back to the peak by 2009/2010. Since 2010 the market has not been healthy but it is only really this year that concern seems to be becoming widespread.
Who knows what's going to happen. I have been saving cash and waiting. It's getting close to the point where buying would cost me no more than renting – but IRs are unreasonably low. I like to factor in a spend at average IRs of around 10%, rather than the current 7-8% most banks are offerring.
Seems to me the simple version of what Freckle and Simple are posting is something like:
The Oz government is fine and not carrying the debt levels of somewhere like the US. Private debt is pretty bad (mostly corporate and individual household debt). This debt is owed outside of Australia.
The question Simple poses is can the debt be ridden out until things are on an even keel. It does seem possible, say if house prices stagnate for 7-10 years and there is no real growth in business debt. But, the big but with this is, how does this allow wages across the board to grow at even 3% PA?
Australia's consumer economy is so used to 'equity mate'. How do other sectors grow if equity is not?
If it stagnates and become stable, it will still be bumpy and painful for the most indebted. The flip side is property takes a hit, as Freckle suggests.
Hey all – long time no post.
It does look very much like stagnation at this stage. Japan in the 90s = Australia in the 2010s
This means, though, if you haven't entered the market, saving is a better option than buying. If you are in the market, selling will be subdued for quite some time.
The test is still going to be BB retirements – no income means no NG. Those who have their IPs paid for can hold on, those who do not may have to sell.
http://www.smh.com.au/business/property/nation-of-lossmaking-landlords-20120430-1xuh4.html
been saying it for years – you can't NG when you don't have an income. It's going to get worse on bad without someone throwing money at it and, here's the kicker, no-one has any money left to throw.
Wether Australia has had the luckiest or unluckiest housing boom in modern history is immaterial – breaking point has been reached.
The market isn't picking up without another cash injection.
It will be alive and kicking until the ineviatable return to long term price vs wage ratios are again met:)
Jamie M wrote:They should submit all offers – in reality they don't. Cheers JamieSo is there a way to bring a REA to task if you suspect they don't submit an offer?
xdrew wrote:ummester wrote:Yes, you can sell your peas if there is demand and funded customers. Pretty hard to move them if the cutomers can't pay.Welcome to the market cycle. You see … if they arent paying ….. you dont fill places. If you dont fill places you REDUCE your rents to a level where the place will be filled. So if the rents are extraordiarily high .. and yet there are people out there who are MEETING the rent payments on a regular basis .. and there is a low vacancy rate, wouldnt you say that the market is doing what it is intended to do?
No wafty stuff needed. Thats whats happening. And if you feel in your part of the world that the market isnt doing that .. then you gotta ask why. Cos if your rents are at the right level .. and you got the right product for current demand .. then you got a tenant .. dont you?
I was talking more about sales of houses, not filling rentals.
Rental wise the vacancy rate is lowish but growing larger, just about everywhere, as far as I know. Cheaper rentals are in high demand and have been that way for the past 10 years, where as more expensive rentals have less demand. This suggests to me that people still need somewhere to rent with a greater demand for lower prices. Either way, it's still a shedload cheaper than buying, the property upkeep is someone elses problem and there is no risk of the asset depreciating.
But yes, rentals under 300-400 PW (location dependant) will still be tenanted quickly. People can afford that. Beyond 450 PW and rentals start moving into a space where average wage earners find it difficult to pay – not saying a nice place geared up for a high wage earner in a big city can't still be rented, just making an average assumption.
xdrew wrote:ummester wrote:Well, it's 2012 now. Let's see what happens. I think, of all things that could happen, growth like has been seen for the last 15 odd years (that property doubles every 7 years tripe) is the least likely. Flat is a safe bet because it also covers little bits up and down if spun correctly. Down 15% or more is a riskier bet but, I feel, more likely than up.And your basis for either suggestion is .. what?
What it has always been. That the market is overvalued relative to national incomes.
xdrew wrote:We got two main pressures on us now. One is the big overbloated debt scene overseas. If we think it wont affect us in the hip pocket .. we are mistaken. The other is encroaching inflationary pressure .. brought on by feeding stimulus money into a depressed economy. It does nothing but revalue money. Thats going to pan out as inflationary pressure reflected in increased prices for housing materials .. tiling .. bathroom accessories .. etc etc.Why are you so sure? Perhaps it will result in less spending on inflated prices. Look at retail. Do we need new consumer items all the time? Probably not – that's why people are buying less. Likewise, do we need bathroom makeovers as often as we have them, or do we just need bathrooms that work? One way to get a guaranteed working bathroom without having to worry about paying for it is rent.
xdrew wrote:Do we have the desperation of NEED TO SELL yet? Thats the type of thing where prices plummet. Outside of that .. people just hold on .. property gets harder to get hold of at any price. So the people out there looking for a property are prepared to PAY more to get it.That's not what is happenning ATM. I agree there is no desperation to sell yet but no-one is prepared to pay more either. There is an OS – 300k places up for sale nationally and rental vacancy increasing. 22 mil people, living an average of 2.5 people per house, means the country requires around 8.8 mil houses. We can round that to 9 mil. 3% is for sale and another 3-5% is up for rent. If all of those places are needed, there should be about 1.7 mil displaced residents. When massive genocides occur in a place like Africa, you end up with that many displaced peoples and the UN is called in – I don't see them here?
xdrew wrote:There is no magic bullet that will stroke this market. The market is .. a market. The same as if you went out to the local grocers market and asked for beans and peas. If there is ready supply you get a good price. If there are issues with supply you may pay a different price to what you are USED to paying. The leader will be rentals. If people decide to stop renting and move into property due to low rates .. the whole property cycle takes off again. With less demand for rentals .. and less rental pressure. But .. more demand on existing housing supply.If the bank will extend the credit to them. I agree that people are sheep and they will blindly follow the flock as they have in the era of easy credit and increasing house prices. These sheep aren't sobred enough by drops yet to not borrow if buying gets cheaper than renting but that is still a long way off. And, if it were to happen, the bank would have to be willing to lend to them. As we have seen recently and as I have preached for a while, the RBA and our banks will decouple totally. A 5% hit on property values like we have seen over the last year isn't enough to scare the sheep but it is enough to make the banks cautious of lending. For each percent values decrease, the banks will want roughly that as a deposit – they have to protect themselves.
This is a bigger cycle, it is a cycle that defines the cycles within cycles you mention. Demographic pressure and unsustainable credit expansion across the whole western world will force it to contract. Things will pick up again, when the contraction is deep enough for sustainable growth to resume.
xdrew wrote:It really is that simple. No need for wafty analysis .. or trying to use the paths of the stars to judge where we will be in 2020. If there is demand and customers .. you can sell your peas.My analysis was far less wafty than yours?
Yes, you can sell your peas if there is demand and funded customers. Pretty hard to move them if the cutomers can't pay.
Many bears who did their maths thought it was time for the Ozzie market to correct in 2008 – and without the Ruddprime stimulus it likely would have been. It's amazing how some extra LVR propped up the bottom of the market and allowed it to grow.
Oddly, at the time bears were preaching their stuff in 2008, there were some bulls running around on bearish forums claiming the bears were too early and 2012 would be the time.
Well, it's 2012 now. Let's see what happens. I think, of all things that could happen, growth like has been seen for the last 15 odd years (that property doubles every 7 years tripe) is the least likely. Flat is a safe bet because it also covers little bits up and down if spun correctly. Down 15% or more is a riskier bet but, I feel, more likely than up.
This graph (though a real index and not logarithmic) represents Ozzie property prices more as I have come to understand them.
I think a graph like this starts to get really interesting when you plot rental returns, wages and inflation against it aswell. Rental returns have basically dropped off as house prices have taken off, rent has increased a bit but not as much as prices. Inflation and wage growth have been more or less steady, though the seperation between upper wages and average incomes has widened significantly over the last 15 years. Oddly, the property rich in Austraiia are generally on average wages, which means the top earners are investing less in property than average earners making it likely that the very rich down under are getting so because of the debt average incomes are taking on.
I just read a bit more about log scales and they basically flatten exponential growth, right? So things that grow in multiples of themselves look steady but, when they drop, the drops look worse. I dare you to keep plotting a log scale of Brissy property until middle of 2012 and see how it looks.
Have you seen this?
http://www.youtube.com/view_play_list?p=6A1FD147A45EF50D
That said, I was under the impression most Ozzie property had grown by 3-5% PA (on average) from the 50s through to the 90s (give or take) and, after that time it took off and grew around 7-10% PA (on average) until 2005-2007 (state dependant). So, even on a log scale, wouldn't 7-10% growth show up as greater than 3-5% growth?
Is the growth above the 250k line at the same scale as that below?
Andrew_A wrote:A longer term chart of rates from the 1990's to place things in perspective. Rates will go up and down what remains is how you take action and advantage of the market that exists at the moment!
Yea, until they go up again:)
Last 20 years the av has been around 6%.
Long term, it's around 8%.
Pauk wrote:I see the party is going to move of capping rents. About time….
http://www.apimagazine.com.au/api-online/news/2011/12/why-capping-rents-would-be-disastrousNot sure if rent caps are a good idea – seriously, they might restrict growth outside of the capital cities. However, rent caps in conjuction with a phasing out of NG and CG tax exemptions – that may work.
DWolfe wrote:Hey FWord……I have to say……. I'm not pitying our kids…
They don't have to head off to a war, they wont starve on a boat headed here, they won't know abject poverty (hopefully), they will have the right to freedom and voting and equality, etc.
Don't be so sure.
Last time the global economy was this messed up it led to war.
I just hope, if it happens, it's over before mine are old enough to go.
