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Can Australian home prices keep rising?

February 1st, 2010 · Greg Atkinson · 894 Comments

Back in the 2008/2009 when home prices in parts of Europe and the United States were tumbling there were plenty of “experts” saying Australian house prices would also come crashing down. But alas the residential property market remained fairly robust during the global financial crisis and the experts who predicted a crash in property prices were wrong.

But the question we need to ask ourselves now is: can Australian home prices really keep rising?

Of course the answer to this question will depend on if we are talking about a time period of one month, one year or ten years. We also need to remember that the further we try to look ahead and forecast how house prices will perform, the less likely we are to be right. (unless we are very vague about our forecasts, a trick used by plenty of market commentators and self anointed financial gurus)

As it stands today we know that generally speaking average house prices across Australia have held up fairly well and even risen over the last coupe of years. Some luxury homes and developments have not fared so well, but the home price data appears to indicate that most home owners have come through the last few years in fairly good shape.

Many property investors however did not make it through the last few years in good shape and quite a few high flying Gold Coast property developers saw their little empires collapse similar to what happened back in the 1990′s.

So although it appears on the surface that the Australian residential property market looks bullet proof, the fact is that there have been some areas where prices have fallen and even dare I say it, crashed.

As a result a little heat has been taken out of the housing market and since many property developers have been finding the going tough, the supply of new housing has also been slowed.

But the demand for housing has held up fairly well, thanks largely to lower interest rates, continued high immigration and the money made available via the first home buyers grant.

Now if Australia were an economic island where money grew on trees then property prices would continue to rise, but what we need to take into account the following:

  • that much of the money we use to fund our lives in Australia is borrowed offshore and that Australia does not control how much interest needs to be paid on this debt.
  • that the RBA is focused on fighting on inflation and therefore interest rates will probably remain at current levels or creep higher this year.
  • that people can only afford to pay so much for housing. (i.e. there is not an endless amount of money sloshing around)

Back in September I wrote that I thought home prices in Australia would fall by around 10% in the next 12 months and at present my short term residential property market outlook remains pretty much the same.

I am not suggesting there will be a crash in the housing market, but rather I simply don’t see how prices will keep rising in 2010 as interest rates go up and with the first home buyers grant back down to “normal levels”.

As for the long term outlook for the housing market the simple truth is that nobody has a clue. There are simply too many variables to take into account not only within the Australian economy, but across the global economy as a whole.

We have no way of knowing what measures governments may take to address problems they see with the housing market. How would a massive increase in public housing for example affect property prices? Or perhaps steps will be taken to release more land for housing and/or existing areas will be rezoned to allow higher density dwellings to be constructed?

In addition we need to be careful when we make the assumption that a rising population will support house prices because this is not entirely correct. If people moving to Australia for example cannot find good paying jobs then house prices may actually fall.  People alone don’t make house prices go up, because at the end of the day prices are driven by the interaction of buyers and sellers, and the buyers need money. (plenty of it)

If Australia does not become more productive over the next decade or so then it is quite possible house prices will remain flat or even trend downwards. I am not saying this will happen, but what I am trying to highlight is that the long term trend of house prices heading upwards is not set in stone. An ever increasing population alone does not guarantee an economy will keep growing or that house prices will keep rising.

When you think about it, for Australian home prices to keep rising over say the next 10 years or so then we need to have a growing population and an economy that is able to keep growing while also creating new well-paying jobs. This might sound easy to do, but in practice it is quite tough to achieve.

Perhaps if the Chinese economy keeps growing then we have little to worry about in Australia, but there is also plenty of room for the Australian economy to contract if things don’t work out quite the way most people seem to assumed they will.

As I have written before, it has been over a decade since the last recession in Australia and many people in the workforce today with mortgages have never experienced an economic downturn.

The chances are that many of these people are also unprepared for a few lean years so the next recession in Australia could have a more severe impact on the housing market than would otherwise be the case.

Over the next 12 months or so I expect house prices to ease back (around 10-15%) and remain fairly subdued for maybe 18-24 months. I am aware that there is apparently a housing shortage (although I am not sure it is quite as large as commonly reported) but I just can’t see where the extra money will come from to keep pushing prices up.

Over the longer term (say 5 years plus) I believe it is almost impossible to make an accurate forecast, the best we can do as investors is make assumptions and adjust our outlook as conditions change. I know this does not sound particularly insightful, but it is simply the reality as I see it.

But perhaps I have everything backwards? Maybe house prices will rise in the short term and enter a period of long term decline? Or could Australia become a nation of people who prefer to rent and live without the life-long burden of a mortgage? If so how would that impact house prices?

Then again maybe prices will rise in 2010 and keep heading upwards for decades? Maybe the GFC has just spooked me a little and I am starting to see asset bubbles where they don’t exist?

Anyway I certainly don’t have all the answers so I invite readers to share with readers of this blog and myself their view of how the housing market will fare over the short and long terms and if needed, set me straight on a few things!

Over to you…..

Search terms:  politics affect property prices, how banks keep property prices high, how much does property price rise, can house prices in sydney keep going up, how to guess property price in australia, how much could australian house prices rise

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894 responses so far ↓

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  • 801 Ned S // May 22, 2010 at 4:00 pm

    You’re just trying to cheer me up I take it Greg?

    Heck, even just one little bubblepedia style crash of a paltry 50% would mean I could gallop out and buy 4 more houses with my cash -- Rather than a miserable two. So instead of trying to retire on 5, I could retire on 7. (According to the We wanna cheap house now Oz populist version of economic theory.)

    That version of the theory would be nice though -- I might even start believing in the Tooth Fairy and Santa Claus -- Which would be a bit of a turnaround for me; Given that I’m about as sure as I can be, that I never ever did! :)

  • 802 Ned S // May 22, 2010 at 4:52 pm

    “My concern is that as a nation with low savings, we need to import capital from overseas.”

    Just playing devil’s advocate in some ways -- But our “savings” aren’t actually all that low maybe? Some (albeit overlapping) asset bases for perspective with any guestimate numbers thrown in same in as I recall them:

    * We have maybe 1.3t in super (largely in Oz stocks I suspect; But some in cash and housing; Plus a bit in international stocks)

    * The All Ords is worth maybe 1.25t

    * We have maybe 3.5t in housing (on present values anyway); With the very great bulk being owned outright I’d expect; And the equity in that which is investment housing representing “savings” anyway

    * Plus some cash -- Not sure how much?

    * And a few bucks equity in private businesses and farms and commercial buildings I imagine

    Plus we also have a rather considerable untapped minerals resource sitting in the ground as a bit of a hedge/hope for the future

    I don’t like those big foreign financials -- I’d love to get my fingers into Oz’s books and see how our figures really balance out. And if all possible, make them balance out! So we could then say, We don’t need ya foreign loot -- Bugger orf and use your freshly printed paper to buy stocks and bonds from countries that do!

    Just a thought? :)

  • 803 Ned S // May 22, 2010 at 5:06 pm

    I suspect it would also sum up “the big foreign financials’” response to my thoughts? :)

  • 804 Anon // May 22, 2010 at 7:03 pm

    Thanks Ned!
    Wont need to do much now that everything has been set -- so can go and rest and hopefully this flu will pass.

    Looks like banks across the board have dropped those 8% for 5 year term deposits! haha what a bad mispricing.

    http://www.infochoice.com.au/banking/savings-account/term-deposit-interest-rates.aspx

  • 805 Anon // May 22, 2010 at 11:30 pm

    It looks as tho the Consumer Metrics Growth Index is getting worse!
    End of July US GDP may follow the path of the CMGI? The problem with this is will the correlation hold up…who knows?

    In any event, it looks like theres a several month lag so we might have till end of July to work out what to do…

    Also note it contracted in 06 and the market just went sideways … with rallies in between.

    http://www.consumerindexes.com/commentary_2010_dailygrowthindexvsgdp.png

    None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.

  • 806 Ned S // May 23, 2010 at 12:00 am

    I just had a significant breakthrough re what I’m gunna do with these few insignificant little properties of mine Biker. It’s taken 18 bloody months of chewing around the edges and hehawing it all up and down. (Whilst also waiting for the KHR [response] in case it counted … Which it didn’t if one was in property and cash. Nevermind.)

    But yes, I finally have a damn plan and can begin to execute same. What a very, very, very nice feeling!

  • 807 Ned S // May 23, 2010 at 12:29 am

    It’s the stuff that isn’t specifically relevant that’s specifically most useful I suspect? :) No value in trying to keep info in a box. And Greg has certainly never shown any inclination to do that -- And it’s appreciated!

  • 808 Anon // May 23, 2010 at 12:31 am

    Yeah I know…thats what separates this blog from other sites…the ability to post outside a thread topic in addition to positing topic related posts.
    Hate to see that lost.

    But we probably do need to cut out the unnecessary chatter. Altho I must admit the unnecessary chatter is the reason why I come on here more often…entertainment :)

  • 809 Anon // May 23, 2010 at 12:42 am

    Also arguing small discrepancies in arguments and proving you are more intellectually superior to one another is boring zzz.
    It really adds no value in terms of market execution and your ability to generate higher returns on investment than the index offers -- over the longterm.
    I’ve seen lots of people argue the most indepth, carefully measured, ridiculously meticulous and intellectual arguments…only to bomb on execution and delivery.

  • 810 Ned S // May 23, 2010 at 1:00 am

    If I recall correctly, Sir Isaac Newton blew his bucks on the “market” -- And I don’t recall anyone ever feeling especially inclined to question his IQ? :) Different people just have different skill sets maybe.
    Ghandi mightn’t have been good at stock market picking either maybe. Or Churchill, or Stalin, or Hiltler … Or Coppernicus or da Vinci -- Each to their own perhaps? :)

  • 811 Anon // May 23, 2010 at 1:05 am

    “If I recall correctly, Sir Issac Newton blew his bucks on the “market” – And I don’t recall anyone ever feeling especially inclined to question his IQ? :) Different people just have different skills maybe.”

    Yep he got swept up into stock mania. I guess thats why university lecturers are usually bad investors aswell ;)

  • 812 Ned S // May 23, 2010 at 1:32 am

    Agreed -- The likelihood of those who seek security in truth suceeding in making a buck from stocks is low … :)

  • 813 Greg Atkinson // May 23, 2010 at 8:45 am

    All views welcome here. That is why I have included links to other sites although I may not necessarily agree with much of the content on those sites.

    Anyway, the reason I started talking about house prices is that they have an impact on the economy and hence also on the stock market and shares.

    When I first started focusing in on the Australian residential market it was just as the U.S housing market was imploding and my view at that time was, that there was no reason why prices in Australia should just simply follow that lead.

    During 2008-2009 I stood my ground; basically I said that I did not expect to see the housing market crash, that talk about a global depression was rubbish and that stocks would climb again.

    So here we are now. No global depression, stocks are a lot higher than the lows of March 2009 (despite the current correction) and house prices have actually risen.

    So now as you might have guessed from my recent comments, I have become somewhat bearish about house prices. Why is that?

    Well basically because I see a big disconnect between what the stock market is telling me about the health of the Australian economy and the housing market.

    Yes commodities exports are doing well, but basically all our other exports are down, our balance of trade is not in our favour and the nation is racking up more debt everyday. Yet people still want to take on bigger mortgages and buy bigger homes.

    While the corporate sector is trying to pay down debt, Australian households seem quite willing to still take on more long term debt..why? Why are individuals so confident about the economic outlook when businesses are not?

    Yes I know there is suppose to be a housing shortage in Australia, but frankly I wonder if that is true. Where are all these people who apparently cannot find a home?

    Something just doesn’t add up and it makes me worried.

  • 814 Biker Pete // May 23, 2010 at 12:36 pm

    “Greg can I ask a question. Have people emailed you complaining the threads are not exactly relevant to the topics?”

    Just checked. Yep, right at the top of this column, it reads
    “Can Australian home prices keep rising?”

    Yet we continually read comments like:

    “It looks as tho the Consumer Metrics Growth Index is getting worse!

    End of July US GDP may follow the path of the CMGI? The problem with this is will the correlation hold up…who knows?

    In any event, it looks like theres a several month lag so we might have till end of July to work out what to do…

    Also note it contracted in 06 and the market just went sideways … with rallies in between.”

    I take it that your references here are to the _property_ market, then, Anon?

    Be careful with the flu tablets… . ;)

  • 815 Anon // May 23, 2010 at 1:13 pm

    That was arguably a mistake, should have posted that in another thread. I will work on that. Sometimes I get abit caught up with an idea and am more concerned about posting it than fiddling around with where things needs to go…and I understand that would make Gregs moderating abit of a hassle. Additionally it would make the readability of a thread a nightmare. Obviously there have been complaints and I accept that.
    Appologies
    Altho Biker its not like you have been precise with your posts in terms of their relevancy of where you post them. So abit hypocritical there no? If I go back i’m sure i’d find lots of posts of yours that are in incorrect spots ;)
    And also that index could arguably be related to the Australian Housing market in terms of how Americas stimulus wearing off indirectly affects our Housing markets. So its not a black and white error ;)

    None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.

  • 816 Anon // May 23, 2010 at 2:11 pm

    Anyways I know people may want me to stop posting (or reduce posting)…but alas I will do the opposite :P Dont really give a damn what people think in all honesty ;)
    I will make an effort to conform to the moderation policies setout by Greg.

  • 817 Biker Pete // May 23, 2010 at 5:30 pm

    “If I go back i’m sure i’d find lots of posts of yours that are in incorrect spots ;) ”

    Doubt it. I get obsessed and stay obsessed. Property is my thang. I do get a little conversational at times, since I’ve developed an online friendship with one of you; but like you, prefer to remain anonymous for very good reason; in my case, my profile in my home community. I’d rather these folk don’t know we own a large number of properties.

    “Anyways I know people may want me to stop posting (or reduce posting)…but alas I will do the opposite :P ”

    Truly, it has never crossed my mind _once._ Feel free to post twenty blogs per day. Every now and again you offer something relevant… the five year fixed interest rate pullback, for example. Sent the link to our son, who appreciated the information, especially as he’s locked in to 6.8% and the Greeks are offering 6.6%… .

    “Obviously there have been complaints and I accept that.”

    Only one of which I’m aware. (818)

    In conclusion, if Greg objects to anything I write, it quickly disappears. That’s his right. I’ve never objected and I find it both educating and amusing to ponder which of several inappropriate remarks I made in that post got me sent to the corner! :)

    Greg has also very kindly ‘pulled’ a link which identified me; posted after I’d exceeded the recommended 250mL of daily shiraz. Thanks, Greg! ;)

  • 818 Biker Pete // May 23, 2010 at 5:44 pm

    Ned: “I just had a significant breakthrough re what I’m gunna do with these few insignificant little properties of mine Biker. …I finally have a damn plan and can begin to execute same. What a very, very, very nice feeling!”

    Great to hear, Ned. Was just saying today how brilliant it will be to have this particular project completed within the fortnight.

    Yes, the KHR slowed it all down to walking pace. I needed to catch my breath anyway… . As you say, it’s nice to be going forward!~

    I get a real buzz when a plan comes together as well as this one has…. on budget, when the budget is so low… and such a neat concept that around 2% of passing drivers come back for a second look!!~ Neither event has ever really happened before. Must admit we have been a little lucky. The quality of home which has risen around us totally amps up the halo effect. It’s just a sweet location: park, lake, little stone bridge…
    and all the houses are singing the same song… .

    I’ll miss it in a coupla weeks. The old drama of evacuation…

  • 819 Anon // May 23, 2010 at 6:00 pm

    “Anyways I know people may want me to stop posting (or reduce posting)…but alas I will do the opposite :P ”

    Truly, it has never crossed my mind _once._ Feel free to post twenty blogs per day. Every now and again you offer something relevant… the five year fixed interest rate pullback, for example. Sent the link to our son, who appreciated the information, especially as he’s locked in to 6.8% and the Greeks are offering 6.6%… .”

    Well thats good…i do post the links/comments on here to help others -- so its good that some of it can be useful :) It doesn’t benefit me really in anyway, but if it helps others -- it was worth it.
    Although I must admit I do withhold some of the stuff I find (as most of us do). It is very competitive out there of course!

    None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.

  • 820 Greg Atkinson // May 23, 2010 at 10:18 pm

    By the way, and totally off the subject at hand, let me just say that my tweaks of the moderation system were not aimed at anyone in particular. So please relax lads :)

    Sorry for any comments that were deleted or moved or otherwise messed up over the last few days.

    I am an engineer by background remember, so I have to keep making adjustments or I cannot sleep :)

  • 821 Ned S // May 23, 2010 at 11:58 pm

    I’ve got a few reservations about this:

    http://www.news.com.au/money/property/revealed-the-home-loan-that-could-save-you-a-fortune/story-e6frfmd0-1225870019522

    Anon: “I must admit I do withhold some of the stuff I find” -- Seems reasonable -- If I found a property I was hot to trot to buy, I wouldn’t be giving the vendor any free advertising until I’d at least had my best offer declined. :)

    A 250 ml rule Biker? -- I breached that rather spectacularly last night!

  • 822 Biker Pete // May 24, 2010 at 8:58 am

    Interesting read, Ned. Thanks. I’ve sent the link home for some further analysis.

    We pay a sizeable deposit and then interest only, on every block we purchase, in the first stage of each project. Then, at the point of construction, we switch to an offset account, cash it up, and repay principal and interest (which is minimised).

    I was pleased to see Noel Whittaker advocating a similar strategy in yesterdy’s Sunday Times, mainly because every now and then, it occurs to me we’re hardly leveraged, tax-wise.
    Mind you, we need no tax relief whatsoever… .

    Yes, I overdid it, too, at my son’s thesis party Friday night. Eight Mexican beers and a bottle of good red. Had to drive the missus to a Maths Conference the next day. I was OK, but I might have been just a little over the limit… .

  • 823 Greg Atkinson // May 24, 2010 at 11:01 am

    It seems even people on fairly good incomes are getting into trouble at an increasing rate according to this story in the SMH: http://www.smh.com.au/business/rise-in-middleclass-bankrupts-20100523-w41p.html

    I found this paragraph particularly interesting:

    A major cause of rises in bankruptcy among the middle class, said Professor Ramsay, has been due to unsustainable home loans. Excessive use of credit as a cause of bankruptcy has jumped significantly in recent years, he added.

    Looks like another red flag to me.

  • 824 Greg Atkinson // May 24, 2010 at 11:05 am

    Oh I just read the article posted by Ned and nearly fell off my chair laughing when I read this:

    “It has worked fantastically in Europe as a way for people to get home ownership and build wealth throughout their lives. It just requires a change in mindset about how you live with debt,” Mr Koch said

    Yes, let’s follow the European example of managing debt! Are these people serious?

  • 825 Biker Pete // May 24, 2010 at 12:34 pm

    Yes, I too had a good laugh reading your comments, Greg. :)

    Middle class debt is an interesting concept. In an earlier post I briefly recounted the tale of two MC families who overextended.

    In both cases they had:

    * Beautiful ‘resort-style’ homes;

    * Expensive vehicles;

    * Several investment properties (few income-producing);

    * Countless luxury items of all kinds;

    * Incredibly expensive lifestyles: “I want that, now.”

    When the slump hit, both couples were forced to sell the main home. Three $100K+ cars also went. So did one marriage.

    Interestingly, no-one went bankrupt(!) In both cases, the sale of that single large asset, the family home, got them (all) totally out of debt. And one family went straight back in again, picking up a fantastic high block above the water.

    Not my way of doing things at all!!!~ But it brought home to me what a safety net their equity in those palatial homes was, even during a plateau.

    Has either couple learned anything from what would be, to our family, a very major trauma? I very much doubt it.

    What was reinforced, for us, was that there’s a tendancy, even here in Australia, to use home equity as an ATM to fund the cars, the wall-size TVs, the expensive lifestyles.

    I’d argue that _this_ is where the nouveau riche most frequently become unstuck.

  • 826 Ned S // May 24, 2010 at 2:02 pm

    For anyone who has followed the GFC, the article has all the makings of a parody -- Even the bit where the CEO of a bank tells the yarn with a straight face.

    What would it mean for house prices? Well, to the extent that it becomes accepted, it’s obvious it will push them up -- Same old storey of more capacity to borrow feeds higher house prices. At least until something breaks. And then the debt gets socialised. And everyone pays. Except the banks. Who obviously know that’s how it works too.

    Whenever I see anything written about regulating Financials, I just naturally assume it must be a good thing these days. But don’t trust the pollies to really do it; Despite their rhetoric. If only for the simple reason that the economy of the US is so heavily reliant on the Financial sector.

    The banks have got us all by the throat -- Even if we don’t personally owe them anything.

  • 827 Biker Pete // May 24, 2010 at 4:37 pm

    “The banks have got us all by the throat – Even if we don’t personally owe them anything.”

    I see it in less threatening terms, Ned. Our relationship with the ANZ has been a productive partnership. Having said that, our mistrust and hatred of Westpac is infinite!~

    When interest equals rent… and there’s expertise in taxation matters… the partnership can be quite beneficial and productive.

    I see this thread has been bumped… ! :)

  • 828 Greg Atkinson // May 24, 2010 at 4:49 pm

    Biker I couldn’t agree more with your comment about people using their home loan like an ATM.

    Your observation that “….there’s a tendancy, even here in Australia, to use home equity as an ATM to fund the cars, the wall-size TVs, the expensive lifestyles.”

    Is a very important one in my opinion.

    This is one of the things that worries me about the level of household debt in Australia.

    People are not always borrowing to get a roof over their heads, they are often borrowing to fund a lifestyle which for me, is not a very sensible thing to do.

    So the question is, what % of home owners are doing this and does this present a threat to house prices?

    I don’t expect canny players like yourself to get into trouble if property prices slip a bit and the economy hits a rough patch, but I would guess there are plenty of property investors and home owners out there that have over extended themselves.

    But how do we get a handle on what the situation is really like out there?

    Remember, people who have over extended themselves don’t need to default on their loans to cause problems for the economy, they just need to stop spending as much.

  • 829 Ned S // May 24, 2010 at 4:55 pm

    If I recall correctly, it was a top Brit banker, who in the first half of the last century, passed a comment to the effect, that If people understood the banking system, they’d riot in the streets! (With Karl Marx being one example of a chap who had a bit of an understanding of it maybe? :) )

    Given that Marx’s solution sucked, and that knowledge is supposed to be power (whilst also bearing in mind the old storey about what Absolute Power does -- And the fact that the banks have it), I guess the trick really is to figure out how one makes the best of it all? (As you imply.)

  • 830 Ned S // May 24, 2010 at 5:23 pm

    I was talking to a young bank employee a few months back -- About the issues youngies face getting a home. We were going just fine (with me making the appropriate commiseration type noises -- with same being honestly felt), until she mentioned, that To top it all off, one has to buy a houseload full of nice new furniture too -- At which point, My eyes popped open and I said Gawd NO … You go to Vinnies and get it all for under $1K !!! (The conversation just sort of died at that point.)

    I’m definitely NOT saying all youngies think that way! But, one’s who’ve had nothing but happy experiences with banks to date might? There’s potentially useful debt, and pretty bloody useless debt maybe?

  • 831 Ned S // May 24, 2010 at 5:44 pm

    “people who have over extended themselves don’t need to default on their loans to cause problems for the economy, they just need to stop spending as much” -- Which is why house prices are so important to an economy. (And the fact that houses are the source of collateral for a lot of private “business” loans maybe?)

    It is still a bit ugly “out there” -- For small businesses -- Another “I was recently talking to” yarn goes along the lines of a local businessman I deal with, whom I’d actually guess is in way better shape than a lot(?), but is still feeling a bit insecure seeing others fold, and as part of his business gets to see old pensioners’ bank balances sometimes -- The chap (late 50′s ?), commented to me what a waste it is to have these old buggers sitting on big amounts like $40K -- As they don’t need it; And will never spend it! :)

    Gawd, even our businessmen are bloody socialists!

  • 832 Ned S // May 27, 2010 at 11:36 am

    Terry Ryder (of hotspotting.com.au reknown) reckons ‘The “chronic housing shortage crisis” is a myth’ -- And also gives his thoughts on affordability plus a report on each state:

    http://www.jenman.com.au/news_subscribers_item.php?id=25&Section=Reports

    I’m not quite sure what to make of some of his thoughts on affordability.

  • 833 Biker Pete // May 27, 2010 at 11:58 am

    “You go to Vinnies and get it all for under $1K !!!”

    I hunt for Arabia Ruska there, Ned. With folk my age dropping like flies, the kids don’t recognise its value… and I now have quite a collection of my favourite dinnerware.

    Visited the next door neighbours recently… couple about 26, I guess. Every single item in the house brand new… and very expensive. Mind you, they’re on around $220K per year. They could no more imagine stepping inside Vinnies or Sammies than they could landing on the moon…

    As Greg notes, there’s very little data about the group who, leveraged out to the max, don’t actually get to the ‘bankruptcy’ stage, but simply reduce spending. One of the two couples I mentioned did that. When the fancy cars went, along with the main residence, the flow of luxury items dried up. No more toys. What is interesting, however, is that they immediately bought two more properties with the proceeds of the Big Fire Sale! And one of those blocks is a humdinger!!!~

    Read recently that there are now well over 1500 Perth streets where the median is a million plus. Now _that’s_ inflation…

  • 834 Ned S // May 27, 2010 at 1:03 pm

    Hmmmm …

    http://www.businessspectator.com.au/bs.nsf/Article/Housing-affordability-has-remained-steady-over-6-y-pd20100122-ZX524?OpenDocument

    Christopher Joye is the Rismark CEO -- And while I don’t know much about him, I do know he isn’t the property bears’ most favourite fellow.

  • 835 Biker Pete // May 27, 2010 at 1:38 pm

    Two thought-provoking links, Ned. I’ll forward them.

    You’re right, the Bears hate Joyeboy, as they call him.

    Some quick responses:

    * Over the road from our current project, two full families share a house. Four late model cars, including a Merc.

    * We know of half a dozen ‘Steven cases’ where mid-twenties remain at home. These tend to _not_ be happy families… .
    If it’s by choice, it tends to not be the parents exercising that option… . :)

    * We currently have two ‘empty’ homes, according to the criteria. One is our guest cottage… the other this project, which should be ready for occupancy 14th June. 99% complete, gets daily mail, ready for occupany… but empty. Tradies are so bloooody slow. Too much work on… . But technically, we contribute two homes to the ‘pool available’…

    * Just three houses in this suburb vacant, waiting for tenants:
    $420 pw, $400 pw, $350 pw. All will go withing a month. A few weeks back, _none_ were listed at all.

    I see Rudd is backing off the mining taxes. ;)

  • 836 Ned S // May 27, 2010 at 4:28 pm

    The follwing is taken from an article posted by Joye today:

    “The latest auction results from RP Data provide us all the evidence we require to know that house price growth is going to slow right down.”

    http://christopherjoye.blogspot.com/2010/05/housing-market-cooling.html

    That doesn’t sound like the ravings of a totally unbalanced property bull to me?

    This is also an interesting graph:

    http://3.bp.blogspot.com/_5ko-n37P8OI/S_KdxfvxPLI/AAAAAAAAAZg/_fcWkfg9eAU/s1600/afr6.bmp

    Taken from the following article where Joye talks about Housing Risk:

    http://christopherjoye.blogspot.com/2010/05/so-how-risky-is-your-home.html

    Might try to read a bit more of Joye’s stuff.

  • 837 Greg Atkinson // May 27, 2010 at 5:05 pm

    Hi all. I have set up a forum area where those who wish to, can expand the discussion regarding house prices.

    See: http://www.shareswatch.com.au/blog/discussion-forum

    If you are a registered/sign in user you can add topics, post items etc.

  • 838 Biker Pete // May 27, 2010 at 6:06 pm

    Among the best links you’ve ever posted, Ned. Thanks!
    I’ve sent them to family members and a couple of friends.

    Auctions? Attended one in my whole life. Highest bidder, too.
    Never again. B*stard withdrew it from sale! :)

    850 posts! Fairly popular topic I’d have thought… . ;)

  • 839 Anon // May 27, 2010 at 6:36 pm

    Great blog link there Ned, thanks.

  • 840 Ned S // May 27, 2010 at 10:36 pm

    Thanks fellahs.

    As Greg has said, there seems to be dearth of decent info/stats on Oz housing. So it’ll be interesting to go through the Rismark stuff. On the chance Joye is trying to come up with unbiassed stats -- Why would he do that? Well, it is my understanding there is the possibility of the ASX and Rismark working together to set up some sort of virtual housing market. (Senator and Greg will recall me mentioning the possibility of using it to “short” housing as a hedge many months ago I fully suspect?) So maybe Joye figures if he can put together some reasonable indexes, he can make his fame and fortune that way? Rather than by necessarily going out of his way to especially back any bias or lobby group??? His yak here would certainly seem to try to give the impression he is out to develop (has developed?) some pretty respectable indexes:

    http://christopherjoye.blogspot.com/2010/01/house-prices-for-dummies.html#more

    And based on same, I do note that he says: “The ABS only examines detached house in capital cities and therefore excludes all ‘attached’ forms of accommodation such as apartments, terraces and semis (which account for around one quarter of the housing stock).”

    I’ve also had a look at the Demographia stuff again -- And they could certainly be seen as having an axe to grind? They make no secret of the fact that they are anti high density dwelling; With the preface being written by Dr. Tony Recsei, President, Save Our Suburbs, Sydney. And they don’t exactly seem embarrassed to state “The Demographia International Housing Affordability Surveys, with their focus on the relationship between household incomes and house prices, have been instrumental in stimulating public discussion of housing affordability, especially in Australia and New Zealand.” Plus I’ve got to admit, that if there is anything in their “survey” to indicate they include apartments (which have been bouncing around in the back of my mind as being important for a while now), as opposed to the detached housing they have a stated preference for, it hasn’t hit me in the face yet?

    A problem for another day perhaps? :)

  • 841 Biker // May 28, 2010 at 11:08 am

    Well, apartment living certainly appeals to the young. Both our kids could buy beachfront homes, but prefer to rent apartments.

    And, yes, as you say, the data seems skewed, Ned. And you probably have figured out Joye’s angle.
    (Follow the dollars… . :) )

  • 842 Ned S // May 28, 2010 at 3:39 pm

    A few more numbers:

    http://www.numbeo.com/property-investment/rankings.jsp

  • 843 Biker // May 30, 2010 at 11:11 pm

    Another brilliant link, Ned.

    Sent it to The Montreal Kid. The rental returns there look impressive… but I guess that if Canada raises its interest rates to our level, returns will shrink somewhat.

    Mind you, a couple living in Canada can accumulate quite a nest egg, saving tax-free (and compounding) $10K annually. Makes Rudd’s token gesture look feeble in comparison… .

  • 844 Ned S // May 31, 2010 at 12:01 am

    It’s just so difficult to get good numbers Biker. (I don’t have a opinion about that last lot -- And can only say that I looked at a blog where they squabbled over same and at the end of it they seemed to settle for saying that in the absence of evidence to the contrary, they figured the numbers could be OK.)

    Either way, it’s pretty obvious that your market in WA is different to that in SEQ. But irrespective, at the end of the day I reckon it’s still about how to have enough coming in off rent that one can retire -- Outside of returns that bounce around based on other asset classes.

  • 845 Biker // May 31, 2010 at 8:01 pm

    Good points, Ned. Valid data is very difficult to come by… .

    Spent part of the weekend talking to our tenants (also ‘checking the traps’). One of them, the fella with rentals up north, has a tax refund of $44K due from 2009. That’s over double ours.. . And this bloke is pulling $245K pa in rent from just TWO of his houses up north.

    WA is a strange set of marketS. When I told our agent we were looking at three new blocks and two houses on the weekend, she was gobsmacked. Her problem is that she’s too close to a very parochial set of markets… and simply can’t see beyond that narrow field. Because we’re immersed in two _very_ different areas, we can see how brilliant our new area is. She simply hasn’t looked (in any depth) _anywhere_ else.

    Despite all that, I think I can see the writing on the wall for two of our major developers… . They’re working just too far from the action, too soon. May be some very cheap stuff on the horizon, but it would be a l-o-n-g wait for profit…. .

  • 846 Ned S // Jun 1, 2010 at 2:35 am

    Yes. It’s not much fun trying to do international comparisons. I just pulled up the ABS stats:

    http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6416.0Mar%202010?OpenDocument

    Sydney was an eye opener. For all the stuff one reads on it, the fact of the matter is that their established house prices basically went nowhere for 5 and a bit years until Mr Rudd waved his magic wand and gave them a 20% kick along over the 12 months to March this year. But that still only put them about 16% higher than they were back in late 2003 -- When their last “bubble” failed to “burst” I guess.

    The stuff that has doubled or a bit more over the last 7 years has been Perth and Darwin. With both of them having their own particular reasons for that pretty obviously.

    Brisbane has gone up by a much more conservative 55% over the last 7 odd years. Pretty much what one would expect I’d imagine -- Being about 6.5% pa compounding when averaged out. I don’t find that extraordinary for established houses.

    Melbourne is the one that’s probably been putting real pressure on price perceptions overall though. It’s only about half a mill behind Sydney population wise now -- I hadn’t realised that.

    The Sydney figures made me think of a comment in the Demographia report where they were complaining about so little new land being released there -- Down from 10,000 lots pa to 2,000 or some such.

    Very probably a method in that -- Why cut your own idustry’s throat by releasing heaps more land when existing house prices are struggling? Don’t know about the Yanks but apparently the Spanish have got about 6 years worth of housing supply on their hands and the Irish are owning up to maybe 3 years.

    As to those 800,000 vacant houses we read about in Oz, I know of two of them. But they are pretty special cases. The owner would be crazy to rent them as he’d expose his one hectare PPR that they are on to CGT. And selling them isn’t an option or even something he wants to do would be my guess. Apart from those, I don’t know of any others sitting around here vacant.

  • 847 Biker // Jun 1, 2010 at 7:02 pm

    “The stuff that has doubled or a bit more over the last 7 years has been Perth and Darwin.”

    And some of the regional stuff in WA trebled between 2004 -- 2007, Ned. We sold one block right at the top-of-the-market. Bought for $125K, sold for $310K. Then the GFC hit. The buyer, a Perth accountant, must have been expelling his cornflakes…

    There is just SO MUCH data. Interpreting it seems to be the issue. Take the latest WA news… . Construction has dropped 8% in April… latest figures. Probably too early for mining taxes. Certainly some of the FHB drift. Interest rates, too.

    Walked over one of our blocks on the weekend… and found that someone has dug four holes on it… probably representing the four corners of a proposed dwelling. So we’re waiting for a phone call. In the past, I’d have raised the stakes, marking our sign significantly higher… then accepting the original sign price. But I don’t have the confidence to repeat a strategy which has worked 95% of the time, in the past!!~ :)

    See support has dropped for both major parties.
    Interesting times!~

  • 848 Ned S // Jun 1, 2010 at 7:42 pm

    “There is just SO MUCH data” … AND SO MUCH gum flapping info/crap from the various interest groups that one can’t even dignify by calling data that journos regurgitate irrespective because it sounds scarey and sells newspapers! :)

    “See support has dropped for both major parties” -- Yep, my inclination is towards being a conscientious objector as you know. Or as another blogger recently recommended people do on their ballot papers -- A little line drawing with the comment “Foo was here!”

    On another issue -- Can I run a thought past you re super? :

    Say a bloke is 60 and about to retire and on maybe $60,000 pa income. To dump $25,000 into super will cut his tax rate on it from 30% to 15% -- A tax saving of $3,750. But he doesn’t have a spare $25,000 of his own loot he especially feels to drop into super.

    Can you see any issues with borrowing it (at 10% pa for argument’s sake) and dropping that borrowed $25,000 into super on say 30 June of the year and then announcing he is retired on 1 July of the year. So he can say to his super fund I’ll have $25,000 cash please -- To pay the lender back the principal in as little time as possible obviously. So minimal interest is charged. Effectively picking himself up near enough to $3,750 for squat. Am I missing something -- I can’t see what?

  • 849 Ned S // Jun 1, 2010 at 8:26 pm

    I see you haven’t had any breakthroughs with our mate elsewhere -- He obviously struggles with the concept that it’s not necessarily reasonable to expect all things to be identical in all respects to what they were in 1990; And 1970; And 1950; And 1930 etc … Good luck with it! (I’m keeping my head down!!! :) )

  • 850 Biker // Jun 2, 2010 at 2:03 pm

    On Super: Getting the timing right is critical, Ned. Yes, our understanding is that it is worthwhile borrowing to get that result. I’m seeing a FA 16th June, to ascertain if we’re _exactly_ right. In my case it means dropping the tax payable from around 12% down to 10%. Still very much worthwhile.

    We’ll simply pull a handful from our largest offset… then repay it two months later. It will cost 16% of 6.7%, nothing at all really, considering we’ll get a tax claim on the extra amount paid in mortgage interest for two months. :)

    But everyone’s situation is different. We have three super accounts each, two which get hit for 10 -- 14%; two which have paid tax already (TTRs); and two which are to be hit for 15%, but which we think we can reduce to 12%. What truly _sucks_ is that our Super Fund wants $$$$$ to advise us on this kind of stuff. ($4 -- 5K at last count! I’d rather pay an FA by the hour… and save $4K!!~)

  • 851 Ned S // Jun 2, 2010 at 7:28 pm

    “What truly _sucks_ is that our Super Fund wants $$$$$ to advise us on this kind of stuff. ($4 -- 5K at last count! I’d rather pay an FA by the hour… and save $4K!!~)” -- The bloody leeches -- That’s scancalous!!! Any decent business would be sending it’s clients that sort of info for free -- And proactively if they have reason to suspect it is something the clients might be able to benefit from. Not hard to see whose benefit super funds are run for is it?

    I’m actually feeling a bit miffed that my accountancy firm charged me about $1K to do up (unasked!) some statements from my SMSF Trustee (that’s me -- with my brother as a “sleeper”) to the fund’s sole member (who is also me of course) advising “the member” of the fund’s financial position -- Which I know pretty well and could have whacked up in a few hours if I had the templates to fill in.

    While I have the templates now of course, it still isn’t that much help as the auditor has advised that if I do the fund’s paperwork, he whacks HIS fee up! AND they add insult to injury by requiring the “trustees” to sign a statement that it is their opinion that the financial statements are all just wonderful -- Which one can only do if he thoroughly reviews them; In which case he might as well have done the damn things himself!

    The financial service industries are not my favourite fellows right now! :) Although my accountant himself is just fine -- Problem goes back to the fact the business was sold to one of those corporate monstrosities I guess.

    I see the predictions are for housing to maybe quieten down a bit. I do hope Rudd doesn’t go and stimulate it again unless it is really necessary.

  • 852 Biker // Jun 3, 2010 at 1:25 am

    Ned: “Any decent business would be sending its clients that sort of info for free – ”

    Exactly what I told them. I share your feelings about these hangers-on who try to bleed us dry… .

    I think the cooling property market is a very temporary pause; but who really knows? Having paid $1500 for the new house plans… and signed a contract to have them drawn up… we’re pausing ourselves. Not normal for us.

    I think this lethargy is borne of data-saturation! Information is too immediate; too conflicting; too ‘gains’-driven. The viruses of ‘what-ifs’ seem to create an inertia neither of us have experienced before. Conversations seem to confirm neither of us really cares if the next project proceeds or not… Crazy!-
    Are we catching pessimism from the news media, the blogs, the goldbuggers?!~ :)

  • 853 Ned S // Jun 3, 2010 at 11:58 am

    There is certainly information overload Biker. And the fact that some pretty smart cookies like Marc Faber are still making some pretty dire predictions are damn difficult to totally ignore given some obvious truths about both minor and major bits of the global economy. And even in Oz, in the midst of putting a happy face on the intergenerational report, Mr Rudd’s basic answer was a pretty nebulous We’ll just all have to be more productive -- Which didn’t especially inspire confidence.

    It is certainly conceivable that the world could be in for a rough decade or more. And in that case, to me, the basic question becomes will Oz cop inflation or deflation? To which I don’t have an answer. But in the absence of an answer, being hedged across cash and property (which both of us are), seems like a reasonable approach to me.

    Like you, my personal guess is that we’ll cop more inflation. But, given that there is even a bit of risk of deflation, a bloke would be pretty brave to not have a reasonable amount of cash. Wonder what rocket science the G20 will come up with later this month? :)

  • 854 Biker // Jun 3, 2010 at 5:15 pm

    Ned: “…given that there is even a bit of risk of deflation, a bloke would be pretty brave to not have a reasonable amount of cash…”

    More reason for us to opt for offsets, rather than SMSFs, we think, Ned. Certainly leaning that way.

    We may see price deflation continue in electrical and electronic goods*… and inflation in everything else. We were both extremely interested and annoyed to see Chinese goods on sale in Canada for less than half the price in Oz. Competition with US manufacturers, I guess. But it didn’t make a lot of sense to then find many consumer goods so highly priced in Mexico! Must admit I have difficulty understanding how trade agreements north and south of the US can affect prices so differently.

    * But our falling dollar may stall this trend… .

  • 855 Biker // Jun 5, 2010 at 1:38 pm

    Offests: “It’s the obvious (read cheap) way to get access to funds for everything…”

    Agreed.

    I’m home again. Long weekend here. Missus and I went over the plan again this morning. Her take on offsets is that ‘you can have your cake and eat it, too’.

    In many respects that’s also been true of TTRs. We pull only $50K tax free per year (all we need); but our capital there is working in a tax-free environment. We don’t _dent_ the principal… and the other four accounts keep rising steadily.

    I expect that once we a.) pull Super out; b.) transfer nearly all* to offsets; c.) lose both TTRs; we’ll actually dent principal a little… but if rents rise at all, there will even better income… and principal will remain totally intact… despite our increased mobility.

    Have to giggle a little when it’s suggested on DRA (helpfully of course) that changes to company tax might wipe us off the map. We’ve always found that if we’re not too greedy and if we play with a straight bat, property is a great game.

    Lots of action and interest in our No 1 zone, as it’s nearly built-out. Holding a couple of good blocks, we’re enjoying a lot of inquiries lately, but we don’t need a bidding war. If anyone wants a block, the price is fixed… .

    * We’ve decided to leave some funds in Super, to take advantage of any Black Swan events; our old cash-to-ASX-then-back-to-cash-trick. It has worked twice now… maybe we can do it again… Maybe not… ! :)

  • 856 Ned S // Jun 5, 2010 at 9:23 pm

    “We’ve decided to leave some funds in Super, to take advantage of any Black Swan events” -- Must admit, “Black Swans” to date, re stocks, have been reasonably transparent to those who follow the international news reports. Although I’ve been “bumfuzzled” by Oz housing at least once! :)

    “if we’re not too greedy and if we play with a straight bat” -- Was talking to my accountant over a year ago about same (and how come a dill like me had gotten away “relatively” unscathed -- As did he apparently?) -- To which he just replied WE weren’t greedy! :) ???

  • 857 Biker // Jun 6, 2010 at 11:44 am

    Talking to interested buyers… couple actually very much like ourselves, continually buying and selling… who related a couple of horror stories related to rip-off-realtors gazumping them. I had a couple of my own. My view is that once you’ve told a genuine buyer what you want… and you’ve shaken on the deal, you honour that deal, regardless of who turns up with a fistful more dollars… .

    It appears someone might be taking your name in vain over at DRA… but I’m used to fielding that stuff… and had a couple of rounds ready!~

    Re-reading this I just realised it’s very Clint Eastwood, so my DVD collection must be clickin’ in… ! :)

  • 858 Ned S // Jun 6, 2010 at 3:08 pm

    “someone might be taking your name in vain over at DRA” -- Nah, that’s just me being a smart arse Biker. And using a :) when I should have used a ;) maybe?

    Interesting article where the Indian Finance minister seems to be advocating acting to withdraw stimulus before being forced to do so by the markets:

    http://www.thehindubusinessline.com/2010/06/06/stories/2010060650830100.htm

  • 859 Senator13 // Jun 8, 2010 at 9:34 pm

    It will be interesting to see what the new incentives to build new houses in NSW will do to the house prices.

    Will other States follow their lead?

  • 860 Biker // Jun 8, 2010 at 10:24 pm

    “It will be interesting to see what the new incentives to build new houses in NSW will do to the house prices.”

    One of the reasons we build, rather than buying existing houses, is to avoid stamp duty. Whenever we locate a really superb home we _know_ we cannot build for the asking price, my missus reminds me to add in the stamp duty. Most of the time we don’t proceed. WA _already_ has NO stamp duty paid when you build. This really was no _first_ for NSW, as claimed.

    And in a state where there’s much more coastline and cheaper land close to beaches, construction is rife.

    I suspect that NSW’s move may mean the following:

    * Sale of existing homes eases or even plateaus a little;

    * Price of premium blocks rises significantly;

    * Construction increases;

    * Housing shortage (?) eases a little;

    * Rents ease a little.

    Four of these five effects align with Labor policy. No doubt Labor will point out that the policy eased the median price; without pointing out that sought-after blocks rose in price.
    Employment in the building trades is also likely to increase.

    Finally I suspect you’ll see more people camping out a couple of days prior to land release, as we do _every_ time a new subdivision occurs. There are usually scores to hundreds of people who miss out… .

  • 861 Ned S // Jun 9, 2010 at 2:30 pm

    Anna Bligh wants to build three new “cities” in QLD’s SE corner -- Largely along the historical detached housing lines I fully expect? And relocate some guv departments to places like Townsville maybe? At least partially to avoid going into bat against NIMBY voters and their local guv councillors I imagine.

    I seems to me, that in many ways, many East Coast Aussies haven’t got our heads around the fact that the 4 bedroom 2 Bathroom 2 Car accom homes in the ‘burbs with lots of lawn to mow, aren’t the only way to do things. Or even what lots of us will really be screaming out for in a few years time.

    There are some pretty obvious solutions; But our guv regs at NONE of the three levels seem very supportive -- Yet? With any that are implemented needing to be thought through VERY thoroughly to avoid crashing housing prices, the building industry, the banks, and thus the economy.

    Car (and boat and winnebago and motorised scooter and wheelchair) accomodation has still got me a bit tricked though -- Not sure how much of that we’ll want -- Not that there’s any shortage of space to put it all even in existing subdivisions -- Given that we’ve had pretty big vacant front yards for many years now. Except the regs aren’t supportive of one building covered and fully enclosed secure accomodation of any sort in that vacant space -- Which I must admit seems a bit strange to me -- Outside the fact that our regs still reflect our current aspirations rather than our future needs maybe?

    Current plans I’m working on are very much orientated towards redevelopment of existing property to provide accomodation for singles and childless couples. But as stated, the regs aren’t supportive -- To the point of being actively anti even? With the danger being that I’ll end up with something that is a dog’s breakfast. Bouncing the ideas around is a bit of fun though.

  • 862 Senator13 // Jun 10, 2010 at 5:37 pm

    “… Outside the fact that our regs still reflect our current aspirations rather than our future needs maybe?” -- I think you hit the nail right on the head, Ned. I think there is definitely an instant gratification mentality that sees people get into a lot of debt that they can not manage.

    Also a lot of little yuppie type suburbs are popping up that have a lot of expensive building requirements. A simple house on some land does not cut it any more – but instead need to be of a particular standard. Drip feed of land release and high spec building requirements does not help the situation.

  • 863 Ned S // Jun 10, 2010 at 8:54 pm

    I’d have trouble finding a house that really suited me personally I think Senator. Historically I doubt we’ve ever really made a habit of building them. My “needs” would go along the following lines:

    Low set (no value walking up stairs if one doesn’t have to)
    Large kitchen (with eat in dining being convenient -- So no need for a seperate dining room as such)
    Lounge room very much optional -- Handy as a place to sit and chat with visitors one doesn’t feel comfortable having see the mess in one’s kitchen/dining room maybe? Or if one has a TV fancier in the house???
    A small study/office
    No need for a laundry -- A washing machine in either the kitchen or bathroom is fine
    A bathroom with a toot in it
    A separate toot (being told “Hang on!” is not a lot of fun for the “elderly” :) )
    3 car accom (Not that I have 3 cars but I sure do have a lot of “stuff” -- Workbench, tools etc -- So lots of singles/couples would probably be happy with 2 or even 1.5 car accom)
    2 decent sized bedrooms (one of which would be a bit of a “necessary” luxury given that it would pretty much just be for guests and/or to store indoor type stuff and/or to give a missus a place to go and sulk whenever I wasn’t doing what I was told quickly enough (the “boss’ study” perhaps?)
    About 1.5 meters all around the house as “yard”

    But the temptation to build such stuff is low. Partly because I question it’s resale value -- Given that it is atypical. And housing lots that support it just aren’t what we have in SE QLD anyway -- Maybe 220 square meters would be ideal? With the building being maybe 140 m2 tops -- Not many 220 m2 blocks available in our land of sweeping plains and far horizons though. (Or regs that support building 140 m2 houses on them.)

  • 864 Ned S // Jun 10, 2010 at 11:46 pm

    “high spec building requirements” -- In the bad old days when affordable accomodation was required, I gather a reasonable number of large homes were pretty much just split down the middle, developed under etc. I rented in one for a while -- I had half the lower floor (2 BR, combined bathroom + toot, combined lounge/kitchen/dining -- About 50 m2 all up I guess. With shared laundry out the back as well as some corrugated iron roofing to park cars under.

    If memory serves me correct there were 2 flats downstairs and 3 upstairs? Worked well for everyone I suspect -- At $75 per week (it was 1987) I was paying maybe 23% of my take home pay on rent (and living a bit higher than I really needed being there on my own). While the old boy who owned the property was probably going close to pulling a livable income off it after expenses and tax. But it wouldn’t happen nowadays is my understanding -- Even if the zoning was right, one would hit the hurdle that there were unacceptably combustible materials used in the original home -- So a conversion to flats wouldn’t be goer I guess.

    Is that a bad thing? Probably not! But everyone sure does pay for it. :)

    And yes, I fully expect it WAS reasonably common -- I had a good mate living close by. And my recollection is that his digs were a 1 BR upstairs flat in an old house that had been divided up.

  • 865 Ned S // Jun 24, 2010 at 11:44 pm

    Found the following interesting re a comment made by Watcher elsewhere Biker:

    http://en.wikipedia.org/wiki/Triffin_dilemma

    http://en.wikipedia.org/wiki/Bancor

    I posted same on Greg’s most recent article but suspect you aren’t hooked into comments on it yet.

    KHR Recommendation 13: Widow’s mite -- $2 or $25? (again elsewhere) -- No idea what might have been going through Henry’s mind -- Which is one of the hassles of the very, very, very great bulk of even the recommendations never having come to the public’s attention:

    http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_1/chapter_12.htm

  • 866 Ned S // Jun 25, 2010 at 1:53 pm

    My suspicion is that any of the real forced growth that governments push into North QLD will probably go to Townsville rather than Cairns direct Biker.

    Travel -- Yes, I’d go by plane! (If I had to go at all. :) )

  • 867 Ned S // Jul 12, 2010 at 4:16 pm

    Investors are still keen:

    http://www.smh.com.au/business/home-loans-on-the-rise-20100712-106hy.html

    Although, yeh, the Melbourne real estate industry might be cooking its figures a bit re auction clearance rates (which are low anyway):

    http://www.smh.com.au/business/property/clearance-rates-fall-under-50-in-sydney-as-market-cools-20100712-106h4.html

    Must admit, if we get any sort of significant price increase over the next 6 months it’ll catch me with my panties down -- Not that that’d be unusual of course! :)

    Some are thinking along the lines that we’ve skipped a business cycle. With the thought being that when the correction comes at the end of this cycle, it could be nastier than normal.

    Mind you (as Greg has been pointing out), we’ve got to make it into the next business cycle proper yet:

    http://www.couriermail.com.au/business/mills-steel-themselves-for-a-fall-in-third-quarter-as-demand-plunges/story-e6freqmx-1225890472397

    Not easy investing these days. At least as much about which governments one figures will do what, as anything else. And on that score, my feel is to agree with Biker that unless the world loses it in a deflationary death spiral, Oz housing will continue to benefit from government protection as and if required.

  • 868 Ned S // Jul 18, 2010 at 2:28 pm

    Melbourne and Brissy down. Perth flat and Sydney up a bit are the latest predictions I’ve read based on amounts of stock on the market.

  • 869 Biker // Jul 18, 2010 at 5:10 pm

    The Barefoot Investor had a nice piece about the ‘kidults’today, Ned. It’s rare that I find any of his stuff on track, but his supposition that the ‘generation-that-stays-put-at-home’ save very little of their ‘savings’ made us wonder if this is, in fact, helping to soften the market. This ‘kidult generation’ not only _can’t_ buy, they don’t rent. ;)

    You may recall that was this one of the property bears’ original propositions for market failure. Some, like Keen, even argued that it was a laudable arrangement. Have to wonder how long Aussie parents will accept this state of affairs, particularly where’s there’s minimal contribution and _very little actual accumulation_ by offspring… . :)

  • 870 Biker // Jul 18, 2010 at 5:47 pm

    Alternative (additional?) viewpoint to the ‘kidult’ theory:

    http://www.perthnow.com.au/business/young-plump-for-inner-city-pads/story-e6frg2ru-1225891485450

  • 871 Ned S // Jul 18, 2010 at 6:25 pm

    I’ve seen three generations of ladies and the paterfamilias of that middle class family living together in a two bedroom apartment overseas -- Granny’s health was OK and she was out in the village -- But came home later for an extended stay when it wasn’t. While it’s handy to be able to do such stuff when one has to, it is not ideal in my opinion? :)

    And cultures differ perhaps -- I read a while back about an Italian lass who was 34 or somesuch with a degree and figured she could sue mater and pater for chucking her out. While the Germans seem stronger on mutter und vater being able to sue the kinder who don’t provide for their dotage.

    Aussies -- We’re a more mixed bag perhaps? But so long as a kid can still head over your way and make $100K pa plus driving a truck, I really don’t think the average ma ‘n pa should feel especially obligated to help them out.

  • 872 Biker // Jul 19, 2010 at 9:49 am

    These days it’s hard to know what’s ideal… and what’s not.
    We certainly don’t expect to be supporting our offspring in our later years, but, as loving parents we’d find it difficult to say no. I expect most families would feel the same.

    The family ‘next door’ (800m further up the hill) have an older daughter staying on. I once offered the suggestion that she was paying board… and was stunned at the logic of their response.
    “No way! If she paid board, she’d assume she had a say in the ‘House Rules’. This way, we can determine what’s acceptable and what’s not!~”

    I’ve thought about that proposition a lot. It seems illogical to provide for kids long after they reach 21, but, on the other hand, these parents retain almost as much control as if the child was a pre-teen. There are pluses and minuses in that situation, I guess… .

  • 873 Vince L // Jan 18, 2011 at 3:53 pm

    I see the house prices debate is still alive and well in the newspapers. I wonder what Steve Keen is doing these days?

  • 874 Biker // Jan 18, 2011 at 5:47 pm

    Vince, for several years now we’ve read in Daily Reckoning Australia that property investment is a major mistake…
    a losing proposition.

    Finally we’re seeing a change at DRA headquarters. Clearly, from the dates, it’s concerted:

    Bill Bonner, 5th Oct 2010: “What to do now? Find solid businesses at bargain prices. Invest in real estate with good cash. Buy collectibles… jewelry…art -- things you want to own no matter what the price.”

    Ronan McMahon and Margaret Summerfield, 14th Jan 2011, actually recommended buying-off-the-plan(!)

    Chris Mayer tells us, 11th Jan 2011: “Real estate, after a long absence from the menu, is back on.”

    Hell :D even Skayce, 15th Jan 2011, commented: “You should start doing the groundwork and research on buying property. Whether it’s for a place to live, or whether it’s just an investment.”

    We’ve that rare occurrence, a bidding war, currently fought over one of our beach blocks. It’s AWFUL!~ ;)

  • 875 Greg Atkinson // Jan 24, 2011 at 6:24 pm

    I see the main stream media is stirring the real estate/home price pot again. Today in the SMH: House prices to flatline this year: ANZ

    I have been neutral in regards to Australian residential real estate prices for a while and nothing I see makes me change that view either to the upside or downside.

    I did expect home prices to slip back last year around 10% or so if they rise again this year then I will be trying to hide somewhere.

    Still I am way ahead of Steve Keen..and he is suppose to be an expert on the subject! ;)

  • 876 Biker Pete // Jan 29, 2011 at 6:15 pm

    All the action here seems to be from 457 Visa holders and FHBs.
    Just sold this latest block to the first of three interested parties who submitted a formal offer. All three were prepared to pay full price.

    I believe the ANZ and any other financial institutions talking (WA) property down are wrong. We’re seeing unprecedented action at the low end of the market.

    Once good blocks in the $170K -- $300K range all disappear, we think this will escalate to homes in the $390K -- $460K range.

    Maybe we’ve got the timing right… . ;)

  • 877 Greg Atkinson // Jan 29, 2011 at 6:41 pm

    I am getting a bit worried about the Baltic Dry Index and if this keeps heading down then it could have a serious impact on commodities prices. It would not take much of a fall in iron ore prices for example to spook the market and this would then flow across into the overall business and consumer confidence in Australia.

    How that would play out in the housing market is anyone’s guess.

  • 878 Biker Pete // Jan 30, 2011 at 9:16 pm

    The rise and rise of India seems to provide a ‘second wind’ should China’s growth decline. We also expect a resigned cessation of new immigration policies, unless more t’othersiders are prepared to move west!

    Already it appears changes to mandatory detention policies may impact on accommodation shortages in some areas. No shortage of accommodation? Surplus housing? Perhaps in cities experiencing high unemployment and low wages… .

  • 879 Brian L // Jan 31, 2011 at 3:06 pm

    G’day Greg

    I also follow the BDI and finding it hard to correlate the index to commodity prices and the general market indicators. Do you have an opinion on what may be unfolding?

  • 880 Greg Atkinson // Jan 31, 2011 at 4:45 pm

    Hi Brian,

    The correlation between commodities prices and the BDI is pretty loose that’s for sure, but I do think the two are worth watching together.

    The BDI is tricky because shipping supply can be taken out of the system through scrapping or laying vessels up so there is more at play than just the demand for moving dry goods around.

    But it puzzles me why it has kept falling.

    My ‘gut’ feeling is that the Chinese economy is coming off the boil.

    I will have to write something more detailed about this soon.

    Cheers!

  • 881 Chris Y // Apr 25, 2011 at 1:51 pm

    You are right to distinguish short-term from long-term trends. In looking to the long term, I do not plead a case for higher capital city RE prices, but note the single most important factor -- land supply. Competition for urban land is the sole underlying reason I can identify for inveterate faith in real estate investment. (Do not forget that land is needed for purposes other than housing.) It is also painfully obvious that the closer you get to the inner suburbs of the big cities, the more acute competition for land becomes. So look for at least 2 real estate paradigms at work in each big city. (I concentrate on Sydney and Melbourne)
    In past decades, inner urban land price growth has generally exceeded inflation, while building costs have risen pretty much in line with inflation.
    In fact, between 1975 and 2005, nominal land prices in Sydney apparently grew by a factor of 50!
    So can we expect similar future price growth? Return to my point (above) of 2 paradigms -- inner and outer city. It becomes hard to see enormous differences in land values between inner suburbs and the outermost suburbs being sustained. If employment centres mushroom at the outer edges of these big cities, it will reduce the incentives to live near the CBDs, and justify buying value properties out at the city peripheries. Not to be ignored are other lifestyle attractions to buying houses in quiet outer fringe towns instead of within the suburban mass, for those with good jobs and a taste for bigger dwellings. Providing governments encourage such industrial parks in outer suburbs, do not be so sure of a continuation of the steep growth slopes seen in past decades -- at least in the leading big cities.

  • 882 Biker // Apr 26, 2011 at 7:52 pm

    Chris: “…building costs have risen pretty much in line with inflation…”

    I’m interested in your comment, Chris. Do you have any available data on that, please? Our own building experience in the last decade indicates building costs have risen over twice the rate of inflation, annually, in WA.

    In the case of two of our projects, this may have really amped our gains. In the first case, our original total project cost was $375K (replacement cost now $880K). In the second, our total cost was $258K (replacement cost now $550K).

    These are, admittedly, unusual examples I’ve cherry-picked, but in _all_ cases, annual building costs seem to have risen well over 6%.

  • 883 Greg Atkinson // Apr 27, 2011 at 3:08 pm

    Thanks for your comments Chris. I often think that high land prices are actually a reflection of how poorly we have planned our cities in Australia and not something we should necessarily be pleased with. For some reason we don’t seem to be able to develop a major city, apart from Canberra, away from the coast.

    My current thinking is that our property market is basically linked to the fortunes of the Chinese economy. If China keeps importing our coal and iron ore for example in large volumes (and at current prices) then perhaps home prices will continue to head upwards.

    But if the Chinese economy was to slow or enter a recession could this trigger a fall in Australian residential homes prices?

    Maybe a lot of the supply/demand fundamentals when it comes to housing and home prices are being distorted by the China boom?

  • 884 Biker // Aug 31, 2011 at 12:36 am

    The Economist’s recent report that four Australian cities rank in the world’s top ten for livability must cheer all those who claim that Oz really is ‘different’. The table at http://en.wikipedia.org/wiki/World's_most_livable_cities
    provides a quick view. Interesting to see Auckland make the Top Ten… and Vancouver pushed down the list by Melbourne!~ :D

    Biker, Vancouver

  • 885 Stillgotshoeson // Aug 31, 2011 at 12:57 pm

    House prices extend falls in July

    http://www.theage.com.au/business/house-prices-extend-falls-in-july-20110831-1jkvh.html

  • 886 Biker // Sep 1, 2011 at 12:32 am

    And, contrary to contrarian predictions, owners’ costs continue to fall:

    http://www.perthnow.com.au/money/interest-rates/home-loan-providers-fix-rate-at-a-discount/story-fn3izto3-1226120957147

  • 887 Veggiegardener // Sep 23, 2011 at 12:52 pm

    Ive read a number of threads on this site to do with a) increased demand for housing
    b) increased migration
    c) houses building rates not keep up with growth
    d) and even some studies quoting homelessness

    Demand for housing does not automatically mean rising prices if there aren’t the people willing to buy them.
    IN 1911 there was an average of 4.6 people per house in Australia -houses that were smaller than todays. This has steadily fallen to 2.3 people/house and could be headed even lower while economics hold up. But take a walk in Woodridge Brisbane and see what is happening to the so called “refugee increased demand” and you will see dozens of small double storied houses with over 12 people living in each. Some of you might have seen on the news the tragic fire recently where 11 people died in a relatively small double story house. Whats this got to do with demand? A lot -stick with me here. If unemloyment rises because of world economic directions and (dare I say it?) a drop in Chinese demand for our resources (check our burgeoning debt of local govt in China)then we could be facing an increase in housing defaults and mortgage stress. I see a few families already escaping rent and mortgage stress by 2 families living in one house. Doubling up and going home to mum and dad and friends is a real and probable option for people whose part time work hours have dropped. I for one am considering renting out a room at home just to cover the rediculous hikes in regos water and electricity in wonderful Queensland. If our occupancy rates of houses crept from 2.3 back to 4.0 how many thousands of houses would there now be empty that are currently lived in and how many landlords would be stuck with their investment property scrambling to sell it in a fire sale market?

    Lets look at 100 homes with 2.3 in each -thats 230 people in 100 houses. Now if they move to 4 people a house then only 58 houses are needed and 42 percent of the houses are now vacant! Where did all that demand go to? Even if the move to friends and relatives makes the 2.3 per house go up to 3.0 people (less than one person a house extra!) a house -24 houses out of the 100 would be empty. Make a minor move from 2.3 people in each house to 2.6 people and still 12 percent of houses are left vacant. Yes there are more small apartments and dwellings in Australia but the average size is much bigger than even 20 years ago.

    Watch peoples ability to BUY. if you think you might lose your job your not gonna outlay 300 000 plus borrowings for a small house. If you have lost your job your going to look for the cheapest place to rent or ways of doing it. If you have an investment property your going to watch what happens if just a few people move in with mum because your house could be one of the ones that becomes suddenly vacant.

    I hope this never happens but do the maths. We depend far too much on China and the rest of the world. In the end we have to do more than just sell dirt if we want to be strong. Its time to capitalize on world food shortages and look at becoming farmers once again and help feed the world. We have built this housing bubble on massive debt and its beginning to look very weak. Pity we neglected farming and manufacturing as we pumped billions into First home buyers and tax incentives for those buying houses. Markets will have their way in the end despite all the best stimulus that Govt think will rescue us. In the end it just increases our increasing debt and borrows from our children. Only Aussie pride says what happened in the USA and UK etc cant touch us or our weakening banks.

  • 888 Ned S // Sep 23, 2011 at 5:38 pm

    Check with your tax accountant if renting out a room will subject your home to capital gains tax before you do it perhaps Veggiegardener? If it does, and it very well could(?), you may not find it’s an extremely attractive proposition depending on your particular personal circumstances.

  • 889 Greg Atkinson // Sep 23, 2011 at 7:12 pm

    Thanks Veggiegardener for you comment. I tend to agree with a lot of what you say. I think we have become hooked on a lifestyle which simply may not be sustainable. For example our homes are getting bigger but productivity gains have stalled and our national debt is rising.

    As you say, we have a lot riding on the fortunes of China which also means we have a lot to lose if the China boom comes to an end.

  • 890 Ned S // Sep 23, 2011 at 10:23 pm

    “I think we have become hooked on a lifestyle which simply may not be sustainable” -- Got to live within your means -- Unless you are a bank or a political party in a democracy that is chasing votes. Or the holders of the world’s reserve currency MAYBE???

  • 891 Biker // Sep 24, 2011 at 1:09 am

    Lots of ‘if’s there, VG.

    Here are a few more:

    * What if interest rates continue to fall?

    * What if population continues to rise?

    * What if the new economic migration is (again) from Europe,
    rather than Asia?

    * What if rents continue to rise?

    I accept that these all are quite fanciful notions. You’re probably right. We should have bought shares!~ ;)

    Interesting to see how the GFC has affected LV. Properties are (still) down 61%. Looking at the location, what’s on offer, the unemployment rate (15%), the median wage ($35K) and the incredibly cheap rents, it is hard to make comparisons, say to Sydney, Melbourne, or Perth.

    Meanwhile it’s hard to go wrong growing your own fruit, veges, eggs, nuts, etc. :D

    Biker, Vancouver

  • 892 Ned S // Sep 24, 2011 at 1:44 am

    The Green’s senator from over your way actually wants the handout for being a welfare type tenant upped very significantly Biker. (Fine by me as a landlord???) But I’d be a bit POed if I was a worker and a taxpaying type tenant trying to compete with the welfare subsidised type tenants?

    It’s all very strange??? (Well, to me it is anyway?)

  • 893 Biker // Sep 24, 2011 at 2:40 am

    “Green’s senator from over your way actually wants the handout for being a welfare type tenant upped very significantly Biker.”

    Funny you should mention that, Ned. I just responded to a ‘Your Opinion’ survey, which included that exact issue as one of fifty or so questions.

    The bear mentality is often amusing. Enjoy comment # 100, here:

    http://www.perthnow.com.au/business/wa-facing-severe-housing-shortgall-by-2020-housing-industry-association/comments-e6frg2ru-1226127950925

    Our expiring leases involving _vacating_ tenants have all been raised 10% this year, Ned. One hopeful tried the NF trick (“Offer half or a third the increase requested…”)

    We rejected his offer outright. He raised his offer to our price, dropped all his demands. We declined his application. More respectful applicant applied. Game over… . ;)

  • 894 Ned S // Sep 24, 2011 at 9:23 pm

    Comment # 100: “I remember the last recession we had to have, and this will be the same as the next one thats coming. House prices plunged by 30% back then. I sold out, then like millions of others, lost my job, so I rented. Best thing ever. With the economy going down, rents got cheaper and as an added bonus, I got a centrelink payment to assist with the rent! You cant get that when you have a mortgage!” is a pretty sad (but true) indictment on our society I’d say Biker.

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