Housing may be flat, but its future has a solid foundation

EVERYONE is asking whether property can "hold up" in the face of the stockmarket downturn. I've seen estimates suggesting house prices will drop by up to 30% and similarly there are forecasts that commercial property is set to decline sharply.

Certainly the housing market is flat just now. But things are changing fast and I'm not convinced house prices are headed for a plunge.

The government's surprise doubling of the first-home buyer's grant might just be the push buyers needed to get back into the market. And though the ink is barely dry on the new subsidy package there are already indications of improved sentiment.

In the `black spot' of the national housing market - Sydney's western suburbs, where prices have declined most sharply - the last few days have seen a burst of activity. There has been a 40% lift in registrations of interest in new land packages over the last week and a tripling of home sales for NSW's biggest builder, Landcom.

I expect this trend will be repeated across the entire market very soon.

Economists will tell you the housing market is weak, rates won't slow enough, credit will be tight . . . yeah, sure. They forget you only get to buy your first home once.

Most first-home buyers are oblivious to the housing `market'; they simply want a place of their own (not everyone wants to live with mum and dad forever!). First-home buyers should underpin stable residential home prices for the next year at least (the expanded grants must be taken up by June 30 2009).
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Housing may be flat, but its future has a solid foundation | theage.com.au

 

...and don't forget the immigration and mining booms, oops, strike that one.
...and don't forget the record low unemployment, opps, strike that one.
...and don't forget the rising wage/salary rates, opps, strike that one.


ok, ok I 've got it this time,

...and don't forget the sunshine premium you must pay to live in god's own.

Yes dammit, Oz is the place and if you want to live in a suburban lean-to on a postage stamp of dirt you must pay 8 times your salary ...and more.

Oz dollar to 0.49c ...why? because ozzies refuse to acknowledge their over capitalisation in shelter.

 

You've previously said that the cause for the low $
is the death of the carry trade so why the change in your story?

Why do you insist on saying that our properties are overpriced
when they are no more expensive than those in other intl cities?

You are also very quick to cross out our mining industry, continued imigration and low unemployment. You will be wrong on all 3 fronts, just wait and see.

Why did you cross out our wage increases?
Payrises at my workplace this year were 5% or more.
Most industries would have had similar increases.

cheers

 

Bill,

I think the ozzie $ is going lower ...under 0.50c to the USD.

Oz properties are hugely overvalued compared to everything else I've seen anywhere (except Ireland). I simply don't understand how you can claim they're not. Do you realise the average ozzie income is a mere 58K AUD?

Real estate throughout Australia is priced like the Bay area of California (ie same income ratios). At least the Bay area still has Silicon Valley , what does Sydney have? ...sunshine and house flipping.

 

02

You've probably picked an area where wages are well above US average but let's ignore that fact.... What is the median price in the bay area of LA? $500K US? i.e approx $830K Oz?

Sydney median would be around $500K Oz which is approx 40% less than your US figure. The median in other cities (exept Perth) is lower (Melbourne $480K Brisbane $450K, etc)

cheers

 

Bill, the only important statistic is the average local salary.

You absolutely cannot compare property prices simply via the sticker price alone.

If you did then you could argue that Detroit houses selling for $100 are very cheap compared to average NY salaries of 270K ..that would be stupid.

You would of course need to consider the average local salary in Detroit (...if you can find an employed person there that is) to determine the price of a house in Detroit.

Furthermore, the average California wage is about 50K USD (83K AUD). Now remember to bare in mind that California is considered to be bubble central for US house prices (even now).

So -

median house in California is worth around 400K and the average salary is 50K. => income ratio 8. (truth is the average house price is dropping so fast that 400K is no longer correct ..its probably closer to 330K).

median house around Sydney is worth 550K and the average salary is 58K. => income ratio 9.4
(58K salaries and 550K median house prices do not compute...and never will).

Want to keep abreast of the carnage, this site is updated weekly.
(click on the location of interest to see the historical destruction in prices).

HousingTracker.net: Collecting, Interpreting and Disseminating Real Estate Data

Lets check in on our sample house in Napa -

2509 Redwood Rd, Napa, CA 94558 | Zillow Real Estate

Current estimate 426K down from 447K just one month ago (21K lost equity in one month ...and the reality is its much worse than that).
You can just feel the noose tightening on that guys throat ..he paid 380K for it back in 2003. Did he withdraw equity and spend it on junk?
When will his for sale sign appear?

On a side note : I wonder if that fella went ahead and bought his investment flat in Paris?

How f..ked would he be now given 2.05AUD = 1EUR.

 

02

You are putting all properties into 1 basket.
Markets are different so you can't do that.
As long as you continue doing so there is no point in discussing property with you because I'll know the answer.

Anyway, after reading with interest your posts I have come to the conclusion that you are overtaken by web analysis paralysis and are not thinking sensibly.

I've told you to take a vacation (take a 2nd 1 if you have to) to clear up your mind..

cheers

 

If I was on $58K I certainly wouldn't be buying a $550k house

Last property purchase was in Sydney for $192.5K, so well below the median or even average, with a 6.28% yield and a view to redevelop the block in 4-5 years or so

 

Because Australia is actually a poor country. The price is pushed up to the current level simply by unsustainable private debt. Australian people can't afford them but were falsely convinced they can afford by easy credit.

1. Look at the personal debt to GDP ratio of Australia - almost a world record. Twice as bad as US. No wonder people are talking about the Australia being the next Iceland. Yes. that is why people are ditching AUD dollar.

2. 7-8 times of income to afford a house?!!!! that is another international joke. Forget about the supply/demand/whatever positive reasons you can think of, people in this country are POOR - that is fundamental.

 

sphinx
Stop dreaming
Australia's GDP is quite good and we are a resource rich nation
Where do you want to start?
Oil, Gas, Coal, iron ore, precious metals, Uranium etc

From wikipedia
Australia - Wikipedia, the free encyclopedia
Australia is one of the most laissez-faire capitalist economies according to indices of economic freedom. Australia's per-capita GDP is slightly higher than that of the UK, Germany, and France in terms of purchasing power parity. The country was ranked third in the United Nations 2007 Human Development Index and sixth in The Economist worldwide Quality-of-Life Index 2005. Australia also broke a record in 2008 when four of its major cities ranked in the top ten of The Economist's World's Most Livable Cities

 

Agree with O2bsure and sphynx here. Lets just put some numbers on it:

Sydney house price median: $550k. Assume gross rental payment of 4% so thats $22k/year rent being paid by someone. Median income of $54k so rent represents 40% of pre tax income.

wind the clock forward 10 years, lets assume a happy continuation of 7.5% hosue price growth and salary growth of 4%. Median income is then $80k, rent is $45k/yr or 58% of Pre tax salary. At 20 years in increases to 87%!

And the above salaries are all pretax - so somewhere in the next 10-15 years the average Australian will be spending more than 100% of their post tax income on their house!!

Clearly something has to give eventually (soon?) and the obvious candidate is the death of 7.5% CAGR in house prices.

 

I think the one thing people tend to forget when it comes to property is that the property market doesn't correct like the stock market.

Firstly preoperty isn't liquid and transfer are always going to be slow. Secondly unlike shares, if you told your average Australian household that was raising a family that their home that they thought was worth 500K, was actually worth 450K due to declines in the last 12 months, and is looking like being worth 425K in 6 months times the vast majority still wouldn't sell. Why... because its their home, and moving home is expensive, not just in fees, charges etc but its time consuming and requires a lot of effort. Not to mention that many didn't buy their homes primarily as an investment and as such their future decisions are unlikely to be based purely on economic rationales.

My point is that even if their should be a correction in housing prices, doesn't mean there will be because the housing market doesn't operate like the stock market.

I did an assignment for my economics degree on Australian housing bubbles a year or two ago and for the most part the conclusion was that housing bubbles in Australia has traditionally tended to not burst, rather have just extended periods of relatively flat growth. This isn't true of commericial property however.

I mean look back 6 months ago, interest rates had just gone up again, pretrol and food prices were through the roof, yet housing prices weren't collapsing around the country unlike the rest of the world. What makes people think that with easing interest rates and petrol prices that the collapse is still likely.

I think the biggest threat to housing prices is going to hindge on unemployment over the next year or two. Obviously if it blows out to 6 - 7% then I think housing prices will begin to suffer, though I don't think they will collapse.

I'm backing that housing prices will be flat for two or three years and will most likely start taking off again once Australia's mining boom moves back into full force again after what looks like being a slow year or two for our major mining companies due to this supposed world recession.

 

When you find a way to explain away the terrible private debt level of this country (and the affordability problem), let me know. Quoting wikipeidia on some high-level fluffy stuff is not going to help. Dream whatever you like or lock yourself in the "denial" stage. Not everybody will be fooled by a housing "recovery" at this stage. The reality:

averaging housing down 25% from now.
high end down 40-50% from now.

That is not a pessimistic prediction.

 

Can someone tell me please when people in Sydney were able to afford to buy a median price house on average wage? The only affordable housing was built on outskirts of the city with 2k deposit. Yes, $2000 deposit for land and house package in 1993 – tag price 165K. What changed? (price) People can’t afford to buy a house for cash; they will always get a loan from the bank. It all comes to individual decisions. Poor people – poor decisions. If we want to play statistics lets talk about cars. How many cars are purchased by cash and how many is financed? Car is always loosing in value so statistically we should already have affordability crisis 20 years ago due to the levels of dept cased by bed credits financing car industry. As of this doom and gloom, four years ago media was warning us about rising sea levels due to the climate change, a year ago there was an “oil pick” today housing market is collapsing. I some times wonder what happened to cool people on this forum. If you think sky will fall and earth open you may be better off enjoying your VB and watch the news and let the world go by.

 

Bill, you criticised me for putting all properties into one basket (which of course I'm not) because as you claim all markets are local but just prior to that you remarked that Sydney prices are not overvalued because they have a cheaper sticker price than NY or San Francisco, Copenhagen etc.

You can't have it both ways, are markets local or are they not?

 

?????
People always had to struggle to get a deposit together and always had to buy their first home out in the suburbs.

Nothing is different this time around and those who wish to sit on their a..ss
waiting for property prices to come crashing will be dissapointed.
With the recent cuts in interest rates prices have already stabilised, we also have the doubling of the FHOG and interest rates will be falling even further therefore putting upwards pressure on prices.

if nothing else, at least the low end / entry level properties will be moving
and as for 02bsure and sphynx, I bet their rents will be going up for xmas

 

I believe I've said that other intl cities are not necessarily any better
than Sydney so we could by way of association and comparison apples vs apples say that they could have a similar price tag.

However, they don't, Sydney is cheaper and so are our other cities
so the theory that our cities are overpriced because the median price is a little high and properties are unaffordable is inaccurate.

Ok first home buyers can't buy a property in Vaucluse but they shouldn't have that ability anyway, they will have to buy their first property out in suburbia just like we did when we were first starting out.

cheers

 

Bill, I don't rent ....unfortunately.

 

Don't worry, IMO that's a good thing
On the other hand, is it too late to sell?
Think of all the cheap shares you could buy with all that money...

 

property price being almost 8 times of income (NOW) vs. 3 times is the difference.
private debt being 170% of GDP (NOW) vs. 40% in the past in the difference - almost a world record

I am still waiting for your explanation on these two points. Stop posting the fluffy stuff.