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Can Australian home prices keep rising?

February 1st, 2010 · Greg Atkinson · 908 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…..

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908 responses so far ↓

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  • 701 BP // May 9, 2010 at 10:48 pm

    The election could be anybody’s guess. Bet you Swan pulls a rabbit out of the hat tomorrow, despite telling us there’s nothing up his sleeves.

    Whether it will be enough to save Labor is anyone’s guess… !

    Problem is that the Libs are yet to show us their hands, let alone a squizz up their sleeves. Does Abbott think it’s safer to tell us nothing… and rely on Labor’s stuff-ups alone?~

  • 702 Anon // May 9, 2010 at 11:11 pm

    “Does Abbott think it’s safer to tell us nothing… and rely on Labor’s stuff-ups alone?~”

    Yep I think thats what Abbott thinks. The less he talks, the better! Just let Rudd fall on his sword.
    Lets hope the recent poll wasn’t a rogue one and that I was wrong in assuming Rudd would easily win! I am abit excited, I thought the Liberals had no hope. Really if China slows we need the Liberals in to cushion us, not car salesman.

  • 703 Ned S // May 9, 2010 at 11:45 pm

    I’ve got a comment awaiting moderation (the one before my last) -- Anyway, Yep, the less Abbott says the better his chances sound. People are onto Rudd now. And while Abbott really worries me, it’s just possible he might stop being stupid if he doesn’t have the pressure on him to “win” -- Nah, they’ve got to find someone credible. That’s their (and our) major problem.

  • 704 Anon // May 10, 2010 at 9:45 am

    “I really AM trying to make a half respectable attempt to stay out of all this chit chat Biker. Based on pure self interest – I’ve got to get some crap sorted out re me SMSF!”

    lol Ned…this site does increase ones procrastination ! I try to take several day breaks from posting or else it gets abit addictive and mentally tiring :P

    Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.

  • 705 Anon // May 10, 2010 at 1:29 pm

    “My Joyce says the mining tax plan will scare off other investors.

    “Do you think any person in their right mind is going to come to Australia to set up a financial hub in Sydney when they’ve just seen what we did to our mining industry?” he said.

    “They will do the same thing and say ‘look you people, the biggest risk we’ve got in your country is sovereign risk. We don’t have to worry about fire, pestilence, famine we’ve got to worry about your government, your government is as nutty as a fruit cake’.”"

    haha!

    http://www.abc.net.au/news/stories/2010/05/10/2894777.htm

  • 706 BP // May 10, 2010 at 8:57 pm

    Until you posted that stuff about gov’t taxing personal input in SMSFs, we were seriously considering that path, Ned. During the weekend, I figure we did about $3K worth of development on our latest project, untaxed, so I’ve retreated, all tortoise-like, into my shell…!

    My current focus is consolidation, rather than expansion. The big picture is so confused, we think we’ll just enjoy the view! No plans to buy anything more. The German chickie who was about to buy one of my vintage Paris Dakar MCs seems to have suffered a heart-attack at the price…!!~ :)

    Can anyone here remember a time like this in the previous six decades?!~ OK, I accept that not all of us were around back in the forties… and that period _is_ somewhat obscured… but what a political-and-economic panorama is unfolding before us.
    We’re surely amid (a merde?) the old Confucian curse!!~ ;)

  • 707 Ned S // May 11, 2010 at 1:43 pm

    I haven’t got my head around it Biker, but it may largely be a case of it being an accounting exercise IF it has to recorded as a contribution AND providing it can be recorded as a non-concessional contribution. It’s uncharted waters for me. But in my experience, there usually ends up being some way to fall in a hole once one gets anywhere near the ATO. Another one for my poor long suffering accountant I think.

    On recent world developments, if I wasn’t twitchy about inflation before, I surely am now! I did pick up one comment that suggested the Europeans were possibly going to sell their high quality debt to fund their purchasing of their low quality debt. (Which would mean it wasn’t QE as such -- I think?) Maybe, but if that’s how it works we may well see unhappy Germans in action instead of unhappy Greeks.

    On the home front, I’m waiting to see what little delicacy Kev tries to tempt our palates with this evening. It wouldn’t surprise me if it is lower tax rates on bank deposits. But it also wouldn’t surprise me if he shoots himself in the foot (again) by saying you have to lock the loot up for years (mention of that was made recently) to give them all ample opportunity to totally destroy its value with inflation:

    http://www.perthnow.com.au/money/money-matters/rudd-to-offer-generous-concessions-to-bank-accounts-for-savers/story-fn3iztr4-1225854304093

  • 708 Ralph // May 11, 2010 at 3:43 pm

    Yes, Ned, I too think that any discount in the tax rate for savings accounts will probably be accompanied by needing to keep your cash locked up for some unreasonble amount of time. All window dressing, really. Probably something like those first home savers accounts that had a take-up rate of close to zero.

  • 709 Ned S // May 11, 2010 at 5:53 pm

    What’s going to get up my nose will be the way he misrepresents his motives I suspect Ralph. (Lots of pollies misrepresent their motives regularly I guess, but the Milky Bar Kid just seems to have a bit too much of a sickly sweet way of doing it maybe?)

    Following is well worth a read on work done on SMSF properties Biker (including building whole houses -- which would seem to be on their poo list. ): See Point 59 Part B ) :

    http://law.ato.gov.au/atolaw/view.htm?docid=SFR/SMSFR20101/NAT/ATO/00001

    More research required though.

  • 710 Ned S // May 11, 2010 at 7:07 pm

    “From July 1, 2011, you will only pay tax on half of the total interest earned” -- No lock it up for decades clause. But 2011??? What’s wrong with 2010? Promises, promises, promises; Wait, wait, wait; Disappointment, disappointment, disappointment -- Ta Kev, for more of the same.

  • 711 Ned S // May 11, 2010 at 7:30 pm

    If I was looking at creating a super power I’d consider a Germany Russia China league -- Lots of brains, lots of land, lots of water, lots of mineral and energy resources, lots of labour, lots of ability to live within their means.

    One could stack them up against a Mexico US Canada combination -- Who’d do quite well also; Until they hit the last point … :)

    Just idle chit chat as Anon always says.

  • 712 Ned S // May 11, 2010 at 8:01 pm

    Correct me if I’m wrong, but Rudd’s budget was a total fizzer -- Apart from not reneging on some minor personal income tax rate changes promised back in 2008, it’s pretty much a case of a few marginal fiddles and some futuristic promises. Wonder what Kev and Wayne do to keep themselves amused when they aren’t laying round the pool sipping rum ‘n cokes in la la land?

  • 713 BP // May 11, 2010 at 9:19 pm

    We call it a fizzog in the West, Ned. (I will direct you to my site, operational ten years, one of these daze!!~)

    “Probably something like those first home savers accounts that had a take-up rate of close to zero.”

    Well, my eldest jumped at it. He pays immense tax(!) and is _just_ starting to acknowledge his parents’ expertise in this area.

    Love the Milky Bar Kid reference, Ned. Very apt!!!~

    Will check out the Building Houses link. Thanks.

  • 714 BP // May 11, 2010 at 11:04 pm

    OK. Scanned the SMSF details, Ned. What a toss-pot of legalise administrivia. Your patience and perseverence amaze me! No wonder one needs an FA to negotiate this pile of excrement… .

    Don’t think we’ll bother. No need really.

    Two weeks from finishing up here. I’ll be glad to return to home base, to beat off the parrots. Still working on the QLD plan for June/July, but was kind of hoping the German biker would help fund my new Ducati. Think she wanted me to give it to her. :)

  • 715 Ned S // May 12, 2010 at 8:50 am

    Plus there’s a bit more devil in the detail it seems? -- “From 1 July 2011 the Government will introduce a 50 per cent discount on up to $1,000 of interest income” :

    http://www.budget.gov.au/2010-11/content/overview/html/overview_34.htm

    Must admit the initial report seemed considerably out of character for any Labor guv.

    “Think she wanted me to give it to her” -- Lots of people looking for handouts these days mate. June/July -- Yep, with luck I can avoid being incarcerated for any flagrant and knowing breaches of SMSF regulations until then? :)

  • 716 BP // May 12, 2010 at 9:48 am

    As Hockey noted: “That’s worth $3 per week to the average Australian… ”

    Have to agree. The Canucks allow $5K tax-free per year.
    Never seen Joe looking so dignified, coiffed and well-dressed.
    Wonder when he’ll make his run?!~ ;)

  • 717 Ned S // May 12, 2010 at 10:01 am

    Yep, no game changers from this guv. Shame; They’ve missed a big opportunity.

    Hockey seems popular enough amongst Lib supporters I guess. Maybe the Libs could adopt a campaign slogan of “It’s time -- To DO bloody something!” ‘Cept it would be wasted on all the under 50 yos.

  • 718 Greg Atkinson // May 12, 2010 at 11:45 am

    I think house prices, the budget and it seems just about everything else in Australia now depends on the Chinese economy. Personally I think Swan’s view of the economy is a little too optimistic and I will be buying the beers if he can get the budget back into surplus as planned.

    If commodities prices rise that will fuel inflation, which means rates will need to rise in order to try and cool things down. Higher rates will take money about of people’s pockets and hurt companies that need to borrow funds, so this will tend to damper the domestic economy.

    Remember we export iron ore but buy back the valued added products made from this resource. Higher iron ore costs come back to us via imports. Miners will also look at ways to absorb the “super profits tax” so that will come back to bite us as well.

    Don’t forget, we import more from China than we export in dollar terms. So the trade relationships is in their favour.

    So how does Swan come up with growth scenario where nobody seems to be a loser?

    By the way, I just saw Jim Rogers on Bloomberg saying he thought coastal Chinese property was in a bubble, so that might make things interesting if it bursts! (and could have a knock on effect on Oz property)

  • 719 Ned S // May 12, 2010 at 5:26 pm

    One day China will have a recession and Oz will be borrowing as required (and stealing from widows, orphans and cripples) to prop up housing -- Or more specifically, the banks! And Yes, there are a lot of voices saying it could happen sooner rather than later.

    But even that’s a stagflationary senerio I’d suspect Greg, with our lords and masters having learned the joys of 0% interest rates and/or QE?

    So one’s loot will probably still be better in a house than in cash; I’d imagine.

  • 720 Ned S // May 12, 2010 at 5:36 pm

    I very much doubt I’ll buy another property in the name of my SMSF with that last ATO link saying what it does Biker. A discretionary (family) trust could well be the next best option for my circumstances. I’ll need to check the KHR to see if he went hunting them. But would be pretty surprised if he did.

  • 721 Ned S // May 12, 2010 at 8:44 pm

    If you want to see some REAL gobbledeegook Biker, this is the specific bit of legislation that last ATO interpretation applies to:

    http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/s66.html

    It’s about acquiring assets from a member of the fund. And there are other regs about other things elsewhere in the legislation of course.

    I’m pigheaded. I’m thinking in terms of Why can’t a trustee buy some goods for the fund and a member (or related party) provide the service of installing them? -- With provision of service seeming to be acceptable. (Unless it gets nailed under another reg.) And me being tricked if I can see any problems with a trustee buying assets for a fund -- Trustees are EXPECTED to buy and sell fund assets.

    Give it a few more days and if no joy, run it by a tax lawyer is maybe best. (My accountant is good, but some of this stuff appears to be murky maybe?) I’d say I’ve just missed something obvious except I ran it past a bloke who specialising in auditing SMSFs and he indicated it was all a bit up in the air too.

    There’s a lot of unknowns in the world at both high and low levels at the moment methinks! :)

  • 722 Biker Pete // May 13, 2010 at 6:11 pm

    Still figure if you can buy well-located land at the right price and build a quality ‘upspecced’ home cheaply, you’re on a winner.
    We figure the only competitors we have, in our niche, are the small group of savvy tradies who band together to build similar homes.
    We’ve gone off SMSFs, Ned. Our original, simple ‘offset’ plan still seems best to us.

    We were pleasantly surprised to see our primary beach suburb had officially risen 26.4% in value, during the last year. Apart from Super, that’s our best return for the last year. Our other beach suburb (three homes) rose minimally (10%) in comparison…

  • 723 Ned S // May 14, 2010 at 12:14 am

    “build a quality ‘upspecced’ home cheaply, you’re on a winner” -- I’m hearing you Biker -- Was chatting with a couple of younger lasses this evening and it was pretty obvious that neither of them want to live in weatherboard boxes. And by and large the young are and will become the market movers I guess.

    (Didn’t repeat the bit about location as that is, was, and always will be a given.)

  • 724 Biker Pete // May 14, 2010 at 7:44 am

    “And by and large the young are and will become the market movers I guess.”

    Yes, my only slight reservation is their purchasing capacity as a demographic. Wages really aren’t keeping pace with rising values, even here. If this 26.5% rise in value is ‘real’ what correlation can there be to a.) wages; b.) ability to save, to compensate(?) And given that savings are the highest taxed form of ‘investment’, it’s a double-blow to catching-up(!)

    Long talk with the tenants of our beach house two days ago. Very clever people, with several million in property. They’ve just returned from QLD, after attending property seminars there. Doubtless a tax write-off(!) Their confidence is reassuring, _but_ I’m cautious about the level to which one _might_ leverage if one believed it _can_ only go up… rather than hitting a five-year plateau… .

    I (now) know of two cases where this all went belly-up during the recent correction. Both families came out of it well, but in each case the _family home_ had to be sold, to carry the other investments. They had no buffer, no back-up plan, no cash reserves of any kind. Mind you, both couples also had two incredibly expensive cars… a sad folly, in my view… .

    I see WA’s unemployment rate just fell below 5%, to 4.7%.
    I think QLD is next, at 5.3%. Abbott seems to have lost the moment, if he ever had it. In fact there’s little to inspire the hordes there, from either crew!!~

  • 725 Senator13 // May 14, 2010 at 1:40 pm

    What amazes me is how so few of the people who I have spoke to have made additional repayments on their mortgage while rates have been so low. I doubt that many are unable to do it (some might be unable) but it seems more like they are unwilling…

  • 726 Biker Pete // May 14, 2010 at 2:46 pm

    We’ve been fortunate to be able to do so, Sen13. It’s a little difficult, as my missus insists we’re actually much better off topping up our ten offset accounts.

    Spent the morning evaluating our situation and was a little surprised to realise our asset-to-debt ratio is 7:2 … and that’s without including the claimed 26.5% increase in values.

    Even more surprising is my partner’s claim that she can now lock-in a one-year fixed loan at a lower rate than the 6.71% about to commence shortly. The ANZ must be anticipating a _fall_ in interest rates during the next twelve months!!~

  • 727 Biker Pete // May 14, 2010 at 7:27 pm

    Postscript to that last post. Son 1 has a different view, proposing that it may be ANZ’s way of ‘luring in’ some too highly-leveraged punters. At the end of the twelve month period, ANZ simply refuses to give ‘em finance… . Hey presto… high-risk loans off the books… !

  • 728 Biker Pete // May 15, 2010 at 5:09 pm

    Here it is:

    ANZ 6.71% variable
    ANZ 6.65% fixed one year

    C’est encroyable, ce n’est pas?!

  • 729 Senator13 // May 15, 2010 at 6:27 pm

    Those sorts of returns might start to look like super profits in Rudd’s eyes! Wonder what he will try and get his mits on next..

    I’ve been pouring everything I’ve got into the loan at the moment. Almost knocked off 10 years..

    For me smashing down the loan is the best investment for the moment at the moment.

  • 730 Biker Pete // May 15, 2010 at 6:51 pm

    “For me smashing down the loan is the best investment for the moment at the moment.”

    Then imagine having ten loans, totalling well over two mil.

    I hope that later we don’t regret not having taken more!

    Over ninety five percent of the ‘mistakes’ I’ve made in the last 3+ decades involve _not_ buying properties my wife identified as a great deal. These ‘losses’ would total many millions of dollars. Every excuse I offered for NOT proceeding with a deal was my explanation that the property was overpriced(!)

    She’s kind enough to _rarely_ mention my lack of foresight.
    Fortunately I took up enough of her recommendations to be able to retire, soon, in comfort…. . :)

  • 731 Senator13 // May 15, 2010 at 7:06 pm

    Haha I hope one day I am in a position to have 10, Biker!!

    I am already planning to have a second.. But it seems a little more tricky…

    I would like to get another property -- one to live in while renting out my current place. Then saving up and trying for a 3rd… I’m aiming for over 10 years time maybe… Don’t know if it will be possible but I think it is not a bad goal and reasonable time frame..?

  • 732 Ned S // May 15, 2010 at 7:54 pm

    Debt used wisely can certainly be a very powerful tool Senator. But (in my experience) it’s not a bad idea to allow a bit of margin for error -- Three unexpected ones I hit over the years were a divorce, a job loss and realising that neg gearing loses a bit of it’s gloss if one has minimal Oz income to negatively gear against -- Re the latter I went overseas to work. (I got the debt on that investment property paid down pronto … :) )

    Glad to hear it’s working out well for you!

  • 733 Biker Pete // May 15, 2010 at 9:08 pm

    Yes, a buffer is critical; in our case, it’s cash and Super.
    At least three of our rentals are questionable. They total 1.9 mil in ‘value’, but draw only $61,360 in rent. Sounds worse than it is. We paid well under a mil for them; and owe around $700K on them… but as rentals they’re our very _worst_ performers. (CGT will knock us about eventually!~ :) )

    All part of the learning curve. The ideal seems to still be that old property investment rule…. spend $360K, rent for $360 pw; spend $400K, rent for $400 pw. During the very low interest period, landlords who had followed that rule were laughing; as interest rises returns are less, of course.

    The whole-day analysis I’ve undertaken prior to seeing the bank next week has been highly worthwhile. Considerably cheered by it… . I think DRA’s continual pessimism was starting to jade me a little, Ned!!~ ;)

  • 734 Senator13 // May 15, 2010 at 9:19 pm

    Yes, good points Ned. I like lots of buffer. I’m looking at a 10yr time frame for my next place but always like to keep on eye on what is going on. I’m only in the very very early stages at the moment so am happy just paying down this loan at the moment and maybe renting it out in the 2nd half of this year.

    So much can happen in a year so I figure paying off as much as I can right now while I’m able is the safest option.

  • 735 Ned S // May 15, 2010 at 9:42 pm

    “spend $360K, rent for $360 pw” etc -- That’s baseline re rental income I think Biker. The one property I’ve really killed the pig on over the years was bought at maybe $82.5K and promptly rented out at $140 per week -- Now (15 years later) it’s worth $500K plus -- But only pulling $345 per week rent. It was a land value thing.

    DRA -- Yes, I scan the emails is about all these days. KS wanted to give me some “prizes” today I think? A bit commercialized for my liking I’m afraid.

    Could the EU parties part ways? Yes, that is actually possible given their rather different approaches to fiscal responsibility. But at least this recent turn out is putting the wood on them -- Think you know my feelings about the West starting to live within its means. (Even Bernanke is telling the Yanks that is required -- But they don’t seem to be great listeners? :) )

  • 736 Ned S // May 15, 2010 at 10:14 pm

    It’s really quite difficult to make a “fundamental” mistake paying down debt in this country where the option of walking away from it scot free doesn’t exist I think Senator. Although debt is what the world has (and will continue) to run on -- And as such, the way to make money. But just don’t load up on more than one might reasonably expect to be able to handle given at least one “shock” maybe?

  • 737 Senator13 // May 15, 2010 at 10:29 pm

    Yes, I have more then enough debt at this stage that’s for sure.

    I think one of the advantages that I had was having zero debt going in. Also, Lots of research and now that I am committed -- paying off as much as I can while rates remain relatively low is a very high priority.

    I think in another post we spoke about both inflation and rates being back on the march in the upwards direction -- so anything that I can do to get a buffer now is a good thing.

    I might have to revise my estimate upwards as to where interest rates will be at. I think my original prediction was that rates would level off around about now -- but I think there still might be another few quarter of a percent increases to go now…

    Australian property is still looking a pretty good pick especially over the turmoil of Europe. It looks right on the edge at the moment and could send the stock marked into a dive at the drop of a hat…

  • 738 Anon // May 16, 2010 at 8:57 am

    “Beijing Home Prices Plunge 31.4%”

    “May 11 — The average transaction price of commercial residential properties in Beijing for the week ended May 9 fell 1,790 yuan per square meter or 9.6 percent week-on-week to 16,898 yuan per square meter, reports The Beijing News, citing statistics released by Beijing Real Estate Information Network.

    Compared with the week ended April 11, the average transaction price of commercial residential properties in Beijing plunged 31.43 percent or 7,744 yuan per square meter.

    In the last weeks of April, the transation volume of commercial residential properties in Beijing decreased by 10.34 percent, 11.39 percent and 30.82 percent respectively. Average transaction price was flat at between 22,000 yuan to 23,000 yuan per square meter.

    The share price of Poly Real Estate (600048) was down 2.65 percent to close at 10.66 yuan today.

    The share price of Beijing Capital Development (600376) was down 4.16 percent to close at 13.26 yuan today.”

    http://www.capitalvue.com/home/CE-news/inset/%4010063/post/1185337

    None of my posts constitute financial advice, just chit chat. Always see a financial advisor for decision making / advice / info.

  • 739 Anon // May 16, 2010 at 9:27 am

    Wish I could join you guys in home ownership, but I will patiently wait on the sidelines.
    Still too expensive in my eyes (altho we all have differing views on this and I accept that). I wish the best for those already owning property and do hope my predictions are wrong!
    I will probably short Australian housing in the next 12-24 months (even sooner depending on if the housing data continues to worsen and other circumstances).
    Housing will have mean reversion…like it or not…it will occur and god help us when it does lol. The indirect consequences are just mind boggling.

    Interesting comments by a hedgefund manager that predicted the 2007 credit crisis:
    “Edward Chancellor, of US investment management firm GMO, says the Australian economy is yet to emerge from the global financial crisis, despite the widespread belief it has escaped the worst of it ahead of the rest of the world.

    “Australia is in the midst of an unsustainable housing bubble that could burst at any time” and that “house prices are more than 50 per cent above their fair value — a once in 40-year event.”

    None of my posts constitute financial advice, just chit chat. Always see a financial advisor for decision making / advice / info.

  • 740 Biker Pete // May 16, 2010 at 11:14 am

    “Think you know my feelings about the West starting to live within its means. (Even Bernanke is telling the Yanks that is required – But they don’t seem to be great listeners? :) )”

    Their overwhelming problem is that any politician who takes a hardline approach will very quickly cease to be a politician. The best any president could ever do is _regulate_ to minimise the risk of a re-occurrence. How long would Obama last if he: a.) raised interest rates; b.) and eight million were ejected from their homes, onto the streets; c.) and 25 more US banks failed as a result? They’re stuck with this; and can only print money (and eventually hyperinflate) until debt is reduced!!!~ And that is, of course, the goldbugs’ thesis… .

    China? I wouldn’t wipe them off the whiteboard too soon, Anon.
    Compare their _long-term_ position to that of the US.

    Chancellor? Along with _many_ others, he predicted the GFC. Our move to cash prior to the GFC saved us immense cash. Does that make me the fount of all wisdom? Nope. It just meant we read the trends and signals correctly… but as Greg has inferred, several times, anyone who _claims_ they were CERTAIN the GFC was coming should be a billionaire by now.

    Look at Keen. He acted on his beliefs, too. He generalised NH property outcomes to SH property. As an academic, he ignored the most _fundamental_ of the eight threats to validity.
    Don’t lose any sleep over an APC, Anon… lol… .

  • 741 Anon // May 16, 2010 at 11:35 am

    “Look at Keen. He acted on his beliefs, too. He generalised NH property outcomes to SH property.”

    Yeah Keen just got it so wrong. In hindsight he would have been better betting with shorts/puts against Australian REITS that had too much leverage (to hedge his own house). So even if housing didn’t fall off a cliff the REITS were going to tank anyways. Didn’t make sense to rent -- given the options. I think that was basically gambling. Altho that strategy may not work this time round.

    “Chancellor? Along with _many_ others, he predicted the GFC. Our move to cash prior to the GFC saved us immense cash. Does that make me the fount of all wisdom? Nope. It just meant we read the trends and signals correctly”

    I thought you said you exited shares because DR gave the info you needed. Also I think from memory you said you exited your re-entry into the XAO way too early Biker -- so obviously you arn’t reading the trends correctly all the time -- perhaps it was a fluke? who knows? And one has to question your reading of the trends with an obvious bubble in Australian housing (albeit there may be pockets of value here and there -- altho i find that unlikely in this environment).
    I data mine my info Biker so I dont listen to everything thrown at me…you should know that by now ;) Sometimes I will do the opposite of what is being said. I think what the Chancellor discussed has merit, irrespective of his track record from prior calls.

    None of my posts constitute financial advice, just chit chat. Always see a financial advisor for decision making / advice / info.

  • 742 Biker Pete // May 16, 2010 at 11:37 am

    Ned: “The one property I’ve really killed the pig on over the years was bought at maybe $82.5K and promptly rented out at $140 per week – Now (15 years later) it’s worth $500K plus – But only pulling $345 per week rent.”

    Good one! That rent seems a little low, but some of ours are a little too reasonable, too. :)

    We haven’t had any such major wins in the thirty months, Ned!*

    That house seems similar to our situation with the beach house… the D/S one I posted a link to. We paid $375K in 2005 and it’s worth $750 -- $800K now. It fetches just $450pw. While that’s a reasonable return on our _outlay,_ it’s a criminally poor situation until we sell. Far better to sell now and build two rentals at around $740K total; and pull in $740pw total in rent. We’d be almost $300pw better off… .

    My chief advisor watches property in this close-to-the-beach zone rising steadily, however… and she won’t allow me to sell! She believes it’s a million-dollar-property (850m2) and wants to hold it… . Sacre bleu!~

    *Despite everything I read, I think the market here is still pretty flat; although we haven’t really tested it for some time. Got a strong bite on the project we’re completing, but the interested party wants to see it totally completed. She may not believe we’re really serious about all the goodies: top-quality artificial turf, reflective window treatments, dishwasher, etc, etc… .

  • 743 Biker Pete // May 16, 2010 at 12:03 pm

    “I thought you said you exited shares because DR gave you the info you needed.”

    If you go back and look, you’ll find that I credited DR(US) as one of a number of sources, including family brokers in North America. The UN’s broadcast prediction was, however, the final decider for us. We were on a yacht off Victoria at the time.

    “Also I think from memory you said you exited your re-entry into the XAO way too early Biker – so obviously you arn’t reading the trends correctly all the time – perhaps it was a fluke?”

    Yep… and perhaps Chancellor fluked his GFC call, too! ;)

    I mistimed my first sell by 600 pts (6840 -- 6250). I timed my buy-back-in almost perfectly (3200). Yes, I mistimed my sell, getting out at 3800. Result? My Super funds are fairly impre$$ive! Only one of our friends or colleagues managed to time the first sell better than we did… but he didn’t buy back in at all… just pulled all his Super… ! :)

    “…there may be pockets of value here and there – altho i find that unlikely in this environment…”

    So do we. We found two bargains. Blew another buy… paid too much! We’re probably $25K or so ahead, on balance, in those three transactions. The big water-view block will have the quickest capital gain growth of the three blocks, anyway.

    Like Keen, Chancellor is _wrong_… and for almost the same reasons. I recall Chancellor calling an Australian crash around the same time Keen did, in fact! :)

  • 744 Ned S // May 16, 2010 at 12:07 pm

    50% makes for a good press headline Anon -- But Chancelor is basing his storey on the tired old average income yarn. And even he really only says “prices would have to fall by more than a third to reach fair value -- although some of this fall would be cushioned by income growth”.

    Looking at his fundamental premise doesn’t inspire confidence. And neither does the fact that he wrote a book which gets a plug in the article. Nor does the fact that Biker and Senator and me (and possibly you?), will all be getting hot to trot to up our property holdings if even a 15 or 20% “crash” should come our way. Which it probably won’t as by then Rudd and the RBA will be pulling out all stops to save the banks. Despite the fact that in a somewhat saner world, 10, 15 and even 20% property price corrections just shouldn’t be that big a deal to people who buy property with a 10 year minimum time frame and a bit of a buffer built into their calcs -- Which is just commonsense for mine.

    $345 per week rent is about all that property of mine is worth Biker -- It’s a classic case of the value being in the land rather than the house. Which is why it’s performed as well as it has regarding capital growth. Similar to your beach front property as you say.

  • 745 Ned S // May 16, 2010 at 12:19 pm

    A thought just occured to me -- Is it possible that property markets that are based primarily on apartments have more potential instability than those based on stand alone housing? (My personal bias may well be showing through -- I’m not a big fan of apartments generally as investments -- Leastways not the ones where their location puts them in my price range! :) )

  • 746 Anon // May 16, 2010 at 12:28 pm

    “Nor does the fact that Biker and Senator and me (and possibly you?), will all be getting hot to trot to up our property holdings if even a 15 or 20% “crash” should come our way.”

    You betcha lol :P

  • 747 Biker Pete // May 16, 2010 at 12:40 pm

    “I’m not a big of apartments generally as investments…”

    Funnily enough, I posted a DRA comment about apartments just minutes ago, Ned.

    Our beach house* situation is a little different. It would cost over $500K to replace the house. The land might be worth $300K. Our problem is that few tenants want to pay what the house is _worth._ We declined a $500pw offer, from a noisy doctor, who demanded that the main upstairs bedroom be repainted in a colour more to his liking… and insisted he would mount a wall-size TV in one of the three lounge rooms. It wasn’t, in fact, the _changes_ to the house which annoyed us, but his manner.

    He hounded us for weeks, while it stayed vacant… and I finally reminded him he would be _renting_ not BUYING the house… and told him to buzz off to wherever he came from!~ No more calls after that! :)

    We like our current tenants. Nice people. I think they’re surprised we don’t put up the rent each year… .

    * Nine of our properties are ‘beach’ locations. We call this one ‘the beach house’ because it’s so very close to the water… .

  • 748 Ned S // May 16, 2010 at 12:49 pm

    “a wall-size TV” -- And he chooses to pay rent -- Wonder why? :) (Takes all types eh!)

  • 749 Anon // May 16, 2010 at 12:55 pm

    “Nor does the fact that Biker and Senator and me (and possibly you?), will all be getting hot to trot to up our property holdings if even a 15 or 20% “crash” should come our way.”

    I will buy Ned, if we crash. But prices will take along time to comeback once they tank (and possibly never see these highs for along time). Just like stocks, confidence will be shattered as the “safe as houses” philosophy goes out the window. And one would suspect if people fear house prices to continue to drop -- pent up demand will continue to rise, causing houses to fall further.
    I would buy after the dust settles, a couple of years after the bulk of the damage is done. I’ll avoid catching falling knives at all costs.
    Plus need to learn abit about housing over the next 48 mths so I can avoid getting burnt…would hate to buy incorrectly and then be stuck in something ridiculously illiquid that requires additional capital overtime.

    “But Chancelor is basing his storey on the tired old average income yarn. And even he really only says “prices would have to fall by more than a third to reach fair value – although some of this fall would be cushioned by income growth”

    Have you read his book? I might buy it and take a look at it to understand his arguments further.
    In any event theres copious amounts of data out there (and on here posted by Greg et al) thats supports a housing overvaluation in Australia. Likewise you and Biker have presented pro-housing arguments which we agree to disagree on.
    At the very least one must have measures in place to avoid severe capital loss. What happens if this once in a 40 year event occurs? Do you just let your capital evaporate and wait possibly decades for it to recover? These types of events have humbled many longterm investors over the years…hence why it is much more difficult to maintain wealth rather than accumulate it.

    None of my posts constitute financial advice, just chit chat. Always see a financial advisor for decision making / advice / info.

  • 750 Biker Pete // May 16, 2010 at 1:03 pm

    Ned: “And he chooses to pay rent…”

    My _guess_ is it was/is a Visa situation, Ned.
    Either that or he was a very, very, very tanned reincarnation of Edward Chancellor…

    Mate, you’d have _loved_ this bloke!
    Effusively and very loudly introduced us to his young blond GF, half his age and well over a _metre_ taller: “This is my beautiful girlfriend!!! Isn’t she _beautiful_ ???!!!!!~”
    (It would be racist to inflect/inflict his accent here.
    I’ll leave it to your imagination… .)

    We both suppressed a giggle, but I heard my missus choke in astonishment, as she caught her breath…!~

    Wagged his finger up at me, as he loudly explained what he wanted. I’m not really all that deaf!
    I was pretty patient, all things considered… . :)

  • 751 Anon // May 16, 2010 at 1:13 pm

    Is this the article you are refering to in your arguments Ned?
    http://www.news.com.au/money/property/housing-market-will-implode-warns-edward-chancellor/story-e6frfmd0-1225861377051

    I’m sure he’s gone into more depth outside of these selected quotes. Be interesting to see the bulk of his analysis on the Australian Housing Market.
    As a general rule I try to avoid listening to newspapers as they tend to be at the end of the news cycle…i.e. we are dumping as they are reporting something positive lol. Albeit this article seems to be useful!

    None of my posts constitute financial advice, just chit chat. Always see a financial advisor for decision making / advice / info.

  • 752 Biker Pete // May 16, 2010 at 1:21 pm

    Yes, our positions _are_ totally opposed, anon.

    Granted, there will be falls and plateaus… and _quick recoveries,_ in my view. You’ll miss both getting cut AND carving up some great opportunities for yourself.

    You’ll perceive a totally different scenario, I know. These little ‘lols’ you add express your hopes that there’s no property crash convincingly. ;)

    Your timeframes are interesting: “Plus need to learn abit about housing over the next 48 mths…” Extraordinary!
    “I would buy after the dust settles, a couple of years after the bulk of the damage is done.” Fantastic!

    Where are your investments placed in the meantime?

  • 753 Anon // May 16, 2010 at 1:41 pm

    Biker not really looking to disclose my investment positions. I dont think thats a sound idea given everyone has different financial circumstances and goals.
    However, i’d rather miss the upside (and sit out and do nothing) if it means my perceived risk is far too high!

    “Your timeframes are interesting: “Plus need to learn abit about housing over the next 48 mths…” Extraordinary!
    “I would buy after the dust settles, a couple of years after the bulk of the damage is done.” Fantastic! ”

    Well they are just speculative guesstimates…but I will adapt to the situation and not stay in denial for long if my assumptions (based on historical housing crashes) are wrong. Most people get married to ideas and then go down with the ship, unwilling to change. Seen and experienced this for myself many times!

    “Granted, there will be falls and plateaus… and _quick recoveries,_ in my view. You’ll miss both getting cut AND carving up some great opportunities for yourself.”

    You accuse me of making questionable time frames…but you are making assumptions that recoveries will be quick? Why would housing recover quickly? Shares haven’t…they are still well below historical highs. US, UK, Japan, NZ, Ireland housing markets haven’t — yet we will supposedly have this miracle recovery in oz housing, post crash/correction.

    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.

  • 754 Ned S // May 16, 2010 at 1:59 pm

    I haven’t read his book Anon -- Just looked at the following:

    http://www.news.com.au/money/property/housing-market-will-implode-warns-edward-chancellor/story-e6frfmd0-1225861377051

    I was in the 15% fall camp around November 2008 -- 20% for some of the more expensive properties maybe. Never eventuated for the reasons we all now know about now of course. I’m still not bullish on Oz property short term. But having noted for myself what government responses to property price corrections are (overseas as well as here) there is no way I’d stick my neck out and call a correction of any more than 15% now. And they could putter along OK -- I simply accept that I don’t know.

    Wealth preservation -- I have a pretty basic home I live in -- Puchased in early 2008. If I renovate it (free labour by myself and materials purchased on the cheap) I could probably increase the value by a good bit of any correction amount that might come our way. And the investment property I bought 15 years ago doesn’t frighten me -- While it isn’t inner city it’s inner middle ring nowadays; And is actually a big old house on two blocks of land -- So it’d hold up better than most in any correction. The one in my super fund (also purchased pre-GFC in 2008) could be a bit more problematic -- But given that I’m not expecting 25 and 30% falls, I simply don’t see any value flicking it in the hope I might be able to buy in cheaper later -- Heck, they might NOT even fall. (As stated, I don’t know.)

    I see you just said you don’t see value in disclosing investment position -- No probs -- It doesn’t worry me though …

    The super fund one is also inner middle ring but nothing like the land value of the investment I bought 15 years ago -- But has been doing it’s job so far -- Bringing in some rent for the fund without causing me any stress and (to date) has appreciated maybe 11% total over 2 years -- Nothing to write home about, but my aim in purchasing it was really just to have an honest little earner that would pay me out rent on a house tax free through super when I hit 60 (plus have built up a bit of cash in the fund in the interim that I could also take as needed).

    And like Biker, I have cash as a buffer -- Which I’d use to buy more if we did get a correction.

    One thing I’d note -- Yes, property does correct and plateau for a number of years; But historically during those plateaus (in Oz with our love of stand alone housing and increasing population I fully suspect), over the years of the plateau, the closer in suburbs become inherently more valuable. So when it takes off again, 20% increases in a year frequently occur.

  • 755 Ned S // May 16, 2010 at 2:26 pm

    Just out of interest, what DID you say to the DRA blokes re apartments Biker?

  • 756 Biker Pete // May 16, 2010 at 4:24 pm

    Well, our ol’ mate Steve throws ‘abit’ (note that, BTW) of bread on the water from time-to-time… and generally tries to set the hook two posts later. ;)

    My comment in response was my ol’ friendly self, of course:

    “I can never understand why property auctions appear to _thrive_ in your big eastern cities. The only thing which might explain this phenomenon is high demand. I’m not saying this is about ‘a shortage of property’, but rather that the _shortage of ‘highly-desirable’ property_ may be an issue.

    We advised our son (your age) to _buy_ the beautiful 38th floor inner-city apartment he was renting in Melbourne just over two years ago. He had the cash, but believed as you do, it was too high-risk. That same unit is now worth well over $200K more. He’s not concerned… he _lost_ nothing.
    But it’s interesting, nonetheless… .”

    Now Steve’s putting the argument that I should donate our properties. :)

    Anon, I think we’re done, son. I’ve been happy to offer you some of our perceptions of property… and you’re withholding the secrets of your own success. What dills* like you fail to appreciate is that if the F Team (Keen, Karan, Chancellor, Bonner, Denning, etc) are finally ever correct about Oz housing, they’ll also be correct about _very_ low interest rates, too. Folk with property will simply hold… . Some, like us, will snap up any bargains ad infinitum… . :)

    * Far more polite than the m-word, i-word, or DH-word… ;)

  • 757 Ned S // May 16, 2010 at 4:44 pm

    “I should donate our properties” -- I fully concur Biker. ;) And he should donate his cash. All to the poor and underprivledged of the world. Plus share his job. And all of his future earning potential. So we’ll all be equal in our perfect siblinghood of worldwide socialist poverty.

    But he gets to go first of course! (Plus his mum and dad and all the rest of his family and friends.) As some of them socialists have bin known to have bit of a cheat if ya don’t watch them mate! :)

  • 758 Ned S // May 16, 2010 at 5:08 pm

    Remember picking up a link of your’s a while back that indicated apartments were NOT the answer to affordable housing Biker -- As an apartment in the city cost more to build than a house in the ‘burbs. Must admit I’m not convinced -- Wonder what the size of said apartment was -- Compared to a house. This is only a suspicion, but I do suspect there’s a “structural” issue re Oz housing prices -- Namely that we don’t have (or especially seem to want?) lots of little structures available on the market.

  • 759 Biker Pete // May 16, 2010 at 5:40 pm

    I’m learning all the time, Ned. For kids, apartment life in the inner city seems to have its attractions.

    _With_ kids, it would seem a poor substitute for a stand-alone home.

    APM has just today forecast a further 21.4% growth in our preferred beach area. I’m skeptical, but if they’re correct, that would give us 47.9% growth in two years. Makes Keen’s 40% fall prediction laughable, whether Australian property crashes, or just bubbles ;) happily along… .

  • 760 Ned S // May 16, 2010 at 5:58 pm

    “For kids, apartment life in the inner city seems to have its attractions.

    _With_ kids, it would seem a poor substitute for a stand-alone home.”

    Nothing much has changed since I was a lad then Biker -- In that sole regard! It’ll be interesting to see how it pans out.

    But all in all I’m happy enough being invested in housing and cash than anything else right now. Lots of money to be made (or lost) in stocks and bonds and bullion though -- Was talking to my accountant last week; He has 10% of his super in stocks -- No blue chip stuff; All high risk -- Figures he can afford to lose 10%. And IF he gets lucky he just might kill the pig -- Good for him! :)

  • 761 Biker Pete // May 16, 2010 at 7:24 pm

    “Was talking to my accountant last week; He has 10% of his super in stocks – No blue chip stuff; All high risk – Figures he can afford to lose 10%.”

    Our accountant has totally pulled out of shares… and amped property.

    We’re thinking that we may leave 20% of our Super intact, simply in case the ASX drops out of the sky; to repeat a cash-to-ASX transaction, then another ASX-to-cash conversion.*

    We think it’s far more likely than a property crash… and we’d probably exercise the same, very conservative moves we did last time: back into the ASX at around 3200, out at 3800 again.
    No question that our eldest will _again_ advise us to ride it higher, but we’re (still) happy with that kind of gain.

    * Then totally bail…!!~

  • 762 Ned S // May 16, 2010 at 7:41 pm

    “Then totally bail” … I’m still happy enough in super Biker [NOT that I have a choice!] -- But either way that one little house to top up a pension (should worse come to worst) still sounds OK for now.

    “back into the ASX at around 3200, out at 3800 again” -- Yep, it’s still ugly out there. Freddie Mac is still needy; Mr O is still a socialist [Mr Rudd always was!]; And Merkel dieHun seems confused -- Although only temporarily maybe? :)

  • 763 Biker Pete // May 16, 2010 at 9:25 pm

    “And Merkel dieHun seems confused – Although only temporarily maybe? :) ”

    HaHa…!~ That reminds me: I just sold the vintage bike to the pretty German fraulein. I have to sell at least one more before I’m allowed to access a Multistrada… . :)

  • 764 Biker Pete // May 17, 2010 at 2:28 pm

    Wonder how outdated _this_ is:

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

  • 765 Greg Atkinson // May 17, 2010 at 2:31 pm

    I am probably becoming more bearish on housing now because the Government seems so bullish on the economy. This means they are not taking the measures needed to protect the Australian economy from any economic slowdown in China. Personally I think that is a pretty scary way to manage the economy.

  • 766 Ned S // May 17, 2010 at 2:58 pm

    It’s the private debt in Oz that is the real concern Biker. Which is why Rudd/Swan not encouraging bank deposits seemed stupid to me (a 50% rebate on the tax on the first $1,000 worth of bank interest to be introduced in 2011 IF they are still there maybe, is NOT “encouraging saving” … :) ) Suited me well enough though -- I wasn’t really looking forward to the decision of whether I sat in cash waiting for inflation -- With tax on only 60% (???) of that income maybe being the bait. Just dump into super to decrease the tax rate to 15% is fine.

  • 767 Anon // May 17, 2010 at 5:45 pm

    “Wonder how outdated _this_ is:

    http://en.wikipedia.org/wiki/List_of_countries_by_public_debt”

    Heres something alittle more up to date:

    “Fiscal Deficits and Public Debt and Expected Changes”

    http://www.pimco.com/NR/rdonlyres/DC2F0D9D-25CB-4950-BF22-5802C5FE541C/8432/Chart3IO.jpg

    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.

  • 768 Julian // May 17, 2010 at 8:47 pm

    Hi Guys

    Haven’t visited this forum in a couple of weeks. And it’s funny that my opinion matches Greg’s post today, but is probably stronger(!)

    I nearly bought a house, but now I’ve gone back to thinking it’s a speculative bubble. I think I am going to save myself a lot of money.

    Many reasons for this opinion. Some of the main ones:

    The psychology I observe of people in the market (the reasons they tell you for buying a house): it just screams speculative bubble, the way Robert Shiller defines it.

    The 120 year Australian real house price index graph: it screams bubble. The idea that our moderate population growth and (very recent) modest under supply of housing can explain continuous large magnitude price rises is (way) out of proportion. According to ABS stats: percentage growth in dwellings exceeded percentage growth in population right up to 2006, when the graphs then crossed over. So how can the supply/demand argument explain the first 7 years of this bubble (1999-2006), when dwelling growth exceeded population growth? It can’t. Maybe it’s speculative demand? Oops sorry I just blasphemed.
    This page on bubblepedia is very informative on the “shortage myth”: http://www.bubblepedia.net.au/tiki-index.php?page=HousingShortage

    The high growth in empty dwellings (ABS stats) is another sign of a housing bubble.

    Rents have not kept up with house prices. On a rental yield basis Australian housing is a very poor investment. Of course nobody cares because of the capital growth -- another sign of a bubble?

    The type and huge number of people buying investment properties. 18 year-olds working at Brumbies bakery “owning” 3 investment properties. A lot of these people know next to nothing about investing -- but together they fuel a speculative bubble.

    The fact that the whole world economy is still in quite big debt trouble. Australia will be affected by that. In fact we are more vulnerable than we think: we have a huge private citizen debt, due to huge mortgages.

    And now for some intuition: I just look at that 120 year graph and say “no way”. Unless the fundamental laws of economics have changed in Australia, this is possibly the biggest nation-wide housing bubble in modern world history! (someone fed that graph meth-amphetamine) (I don’t know what the Sumerians or Egyptians experienced -- those pyramids would have been damn expensive but they were “not for sale”!). I think one of the reasons we don’t get that impression is we are on the inside, living in Australia. We naively believe the “it’s different here” argument. Kangaroos can’t save us from speculative bubbles.

    (I borrowed the last line for bubblepedia -- a great website).

  • 769 Biker Pete // May 17, 2010 at 9:02 pm

    “It’s the private debt in Oz that is the real concern Biker.”

    And yet there’s virtually no private debt in Zimbabwe, Ned! :)

    Totally agree that the proposed no-interest-on-savings plan is a joke. One thing they _are_ remedying is the First Home Savers Account fiasco. Good for the kids, anyway… . And it may also be possible to not only score 17% interest, tax-free; but also minimise tax annually on the 6% additionally paid. I’ve tried to assist our old mate in that direction, but his surly responses persist (abit). ;) I’ve cheated him out of a cheap home in Sydney… .

    Today we researched Contributions Splitting… and tomorrow the missus will transfer her $50K 2010 Super contribution to me. She pays no tax on it, I pay 10% on it… and I pull it _this year._ Best of all, because it’s a private contribution, it lowers the tax on my whole Super bill. As they say, info = $$$$.

    Hitting the sack. Studied the little intricacies of Super Splitting from around 2:00 am. Just one of those light-bulb bright ideas you suddenly wake up with… . :)

  • 770 Ned S // May 18, 2010 at 5:13 am

    “cheated him out of a cheap home in Sydney” -- Now, now Biker, surely you can see that you are personally responsible for the actions of everyone from Emily Pankhurst to Alan Greenspan? -- Plus the failure of mankind to cure the common cold -- In the opinion of all those who have ever had or ever might get one! ;)

    I do take the point that houses seem a bit dear. But I must admit the logic of why things should be “the same” as they were 10 and 30 and 100 years ago still eludes me -- When it’s patently obvious that they aren’t -- And never will be.

    And that said, I’m pretty sure regardless, that my brother’s bother-in-law who is trying to migrate here, would love to get the opportunity to buy a house in Brisbane for 6 or 7 times the average Brisbanite’s wage. From his perspective, it’s just a matter of taking the good with the bad I guess. But if a few long term residents choose to take a different approach to things, then I reckon that’s their perfect right! :)

    Good score re super -- I’ll remember it -- Ta!

  • 771 Greg Atkinson // May 18, 2010 at 9:19 am

    Julian thanks for your comments. I think your point about inexperienced investors leaping into property is one of the “red flags” we should not be ignoring.

    These investors seem to be counting on no bumps in the road and one wonders how much financial pain they could manage before their little property empire unfolds.

    The stock market is still in recession territory, companies are finding business conditions tough and yet people are still taking on debt and buying property. It is a situation that makes me feel a little nervous.

  • 772 Biker Pete // May 18, 2010 at 9:41 am

    “…one wonders how much financial pain they could manage before their little property empire unfolds…”

    There will always be those hopeless naifs who don’t know what they’re doing, whether it’s buying property, shares, or gold. I’m yet to meet anyone who lost 54.5% in property, as did many who were caught out by the ASX crash… and most of them are still 2300 points down from the ASX high. Think how gleeful our mates at DRA would be if that kind if crash hit property!!~

    During my Super phonecalls yesterday, one hopeful offered her financial services for “…just five thousand dollars…” I reminded her that her company has previously advised us: 1.) Not to continue to buy property; and 2.) To keep our Super in ASX, rather than switch to cash(!!!!!!!!!!!!!!!!!) Had we acted on her advice we’d be many _hundreds_ of thousands of dollars behind today.

    Since our main home is a series of pyramids locked together, I appreciated your timeless analogy, Julian. You’re wise to continue renting. How could you relax in your new home home worrying about Assyrians coming down like a wolf on the fold?
    We keep a keen watch out for them!~ :)

  • 773 Greg Atkinson // May 18, 2010 at 10:09 am

    Actually Biker to lose that much in stocks you would have had to buy everything at the market peak in 2007 and then sell right at the bottom of the market in 2009. If you buy high and sell low, you can rack up massive losses in any investment class.

  • 774 Ned S // May 18, 2010 at 10:37 am

    “to lose that much in stocks you would have had to” -- Not if one was leveraged and copped a margin call (like with Storm Financials) or maybe had just a few too many stocks in the likes of GM Greg? (Remember those dot com things -- LOTS of them went broke I gather.)

    Of course, the great majority of housing investors are leveraged too. But barring job losses and/or higher interest rates than they’ve bargained on as a worst case scenario, the equivalent of margin calls just don’t come their way.

    I recall the last big bubblepedia fan who blogged on here musing that Oz housing was going to go down -- 40%, 50%, 70% even, or more? -- Who’s to know just how much really, seemed to be the attitude. Stuff like that is a real worry. Because of the disconnect from reality. It creates some pretty unrealistic expectations. IMO.

  • 775 Greg Atkinson // May 18, 2010 at 11:11 am

    Ned even with a margin loan you would have had to buy stocks near the peak to get a nasty margin call unless you were silly enough to really gear yourself up.(and even if you got a call, if you has some cash you would have avoided a nasty sell-off)

    But again, you can do that sort of damage with property, just have a look at some of the sad faces on some former Gold Coast based property developers :) If you borrow to invest and have no back-up plan then you are asking for trouble.

  • 776 BP // May 18, 2010 at 3:23 pm

    “…the disconnect from reality…” Nice.

    Yes, Greg, some of it’s just a paper loss, I agree. Those older folk who ‘thought’ they had a couple of million in Super, for example… watched it all falling out of the sky… were told to “hang in there” by their funds… and woke to find they had $912K one morning, might not see it just that way!~

    Some, encouraged by John & Peter, had recently committed over a million in cash to Super, too, remember?!

    Haven’t a great deal of time for developers. We use them, they use us. Same for realtors. Both parties are _sometimes_ a necessary evil.

    Greg: “If you buy high and sell low, you can rack up massive losses in any investment class.”
    BP: “There will always be those hopeless naifs who don’t know what they’re doing, whether it’s buying property, shares, or gold.”

    But the nice thing about property is the rents still flow in, fortnightly, even if the capital gain is on hold for a while.
    And when you drive around the corner, the houses are still there… . They haven’t disappeared into thin air… !!~ :)

  • 777 Greg Atkinson // May 18, 2010 at 3:45 pm

    Biker stocks also provide income and some do this via fully franked dividends. On the flip side stocks basically don’t cost anything to maintain.

    As I have said before, the stocks versus property debate is pretty boring. Investors who have owned both over many years will realise they both have their merits/demerits.

    Then there is good old cash and bonds..or fine wine!

  • 778 BP // May 18, 2010 at 4:50 pm

    “…the stocks versus property debate is pretty boring…”

    No less fascinating than the property vs gold debate; or the property vs cash debate!~

    Our eldest would agree on the bonds issue… and as he lives happily on his interest, he’d be sure to agree on that, too.
    I was going to infer that you’re both as dull as dishwater, but then noted your closing words… ! :)

    Wine auctions I’ve attended are a great deal of fun. Unlike a close friend, I’ve never sold any of mine.

    We’ll only move to cash if/when there’s a better after-tax return. ‘Retirement’ enhances that likelihood, as the tax concessions are suddenly appreciable. Meanwhile, interest is increasing in two properties we have ‘on the market’* at present. There’s possibly increased interest from punters who believe the recent APM figures for this area… . ;)

    * Not prepared to negotiate with callers; although I offered one hopeful a $1500.00 discount this afternoon… . I’ll be given a good *smack* for that…. :)

  • 779 BP // May 18, 2010 at 8:42 pm

    Nope… she says I handled it well.
    Too far away to be ‘smote’ anyway…. :)

  • 780 Ned S // May 19, 2010 at 7:21 pm

    Been reading about government’s vision for the future. High(er) density living is definitely the way they want to see things go:

    http://www.reia.com.au/userfiles/SSpeech.pdf

    Where Plibersek says ( top of page 8 ) “Most people in the room will agree that increasing density in some locations is important – it will be even more important in the future to help our children find a home that they can afford.”

    Don’t quote me on this, but I’m about as sure as I can be that I saw some figure that at some point in the future, about 40% of our accommodation will need to be for “singles”?

  • 781 Julian // May 19, 2010 at 7:23 pm

    “I’m yet to meet anyone who lost 54.5% in property”

    You might have a point Biker. Ask any grandparents and they could tell you about the 1951 property crash, where Oz property abruptly fell 50% after a huge precipitous boom, similar to the pace and magnitude of this boom. http://www.bubblepedia.net.au/tiki-browse_image.php?imageId=2

    In the late 1970′s Oz property fell 25%. And the 1890′s Oz property crash was devastating: a 60% initial crash and you didn’t get your money back permanently until 1963. That’s an awful long time to be earning effectively zero % return on investment, ouch.

    I know these crashes were a long time ago. But this boom is extraordinary, so you might have to go back that far to get another extraordinary boom, like 1950.

    When I look at this 120 year graph I just can’t believe that the recent stratospheric rise has all been due to fundamentals. I think there is a lot of speculation in the rise, especially given the popularity of property investing with the average Joe Blow. How long does Joe Blow resist when he sees all his friends clearing upwards of $30,000 per year from an initial deposit of $10,000? (depending on leverage and interest rates)

    Worst case scenario (sorry to be so negative!), we could have another 60-year property bear market, as we had from 1890 -- 1950. Japan is having something similar now?

  • 782 Anon // May 19, 2010 at 7:27 pm

    “Worst case scenario (sorry to be so negative!), we could have another 60-year property bear market, as we had from 1890 – 1950. Japan is having something similar now?”

    oh god! Julian I sure hope not! Japan housing is arguably comming out of a housing bear market, but Greg is the one who is very familiar with that market.

    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.

  • 783 Ned S // May 19, 2010 at 8:02 pm

    Glanced at something recently Anon that reckoned Japan was maybe 25% undervalued? (Just something I noticed at the time and have no recollection of details.)

    50% crashes in basic Oz houses are just a bit too incredible for words IMO Julian. We are at maybe 8 times annual income? Whilst on low interest rates. With two people working. And things like the gold standard are gone -- So the potential for inflation is a free for all. (Well, “free” for all debtors anyway! :) )

    One can still buy a house in SW Sydney for maybe $350K I gather? With ma ‘n pa both working and earning $100K plus total, it isn’t that big an ask -- Again, IMO. But if one wants to live close in, yep, it would seem that the competition could make things difficult. (I’m a Brisbane boy, so Sydney etc don’t especially interest me and my facts are a bit sparse.)

    But we aren’t doing 3 generation loans (as Japan is reputed to have been doing at the height of their boom.) Nor have we accepted the concept of families living in 60 and and 70 m2 residences like much of the world -- So we get to pay for that choice it seems?

  • 784 Anon // May 19, 2010 at 8:15 pm

    “50% crashes in basic Oz houses are just a bit too incredible for words IMO Julian. We are at maybe 8 times annual income? Whilst on low interest rates.”

    If we had a 50% crash in housing we would be in a prolonged depression! And to be honest for us to crash 50% in a short period of time (like years not decades) we would need to have an absolutely incompetent government (but hey we might??). Government stimulus tends to be reactive, not pre-emptive -- so housing would arguably need to fall significantly, before the government would have public support to step in with stimulus (esp with the public upset about government deficits/spending/debt)…but if government let housing fall 50% then they must have closed their eyes and put their heads into the ground and gone ostrich.

    “Glanced at something recently Anon that reckoned Japan was maybe 25% undervalued? (Just something I noticed at the time and have no recollection of details.)”

    Have no idea how much its undervalued…have you got that link? You probably would know more than me given your experience in housing Ned.

    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.

  • 785 BP // May 19, 2010 at 8:48 pm

    “In the late 1970’s Oz property fell 25%.”

    Yes, we know a couple who bought every absolute beachfront lot they could find. Those they didn’t personally own were owned by friends and rellies. Then they recorded every single sale and resale until 1990, to gauge values. They made up to 800% per block!~ :) :) :) :) :)

    “Japan is having something similar now?”
    Landlords have probably been laughing their heads off, with almost zero interest rates for two decades… !

    Nigel Satterley, WA’s largest developer, today warned that the new mining tax would add 10% to the cost of a house. (P. 10, “The West Australian”, 19th May 2010.) I guess that means we made another quarter mil, today?!~ ;) Seriously, I wish I’d gone heavily into the ASX, instead… .

    Abbott, what have you done?! Hockey… ya dropped the ball!!!
    Looks like another decade of property-interventionist Labor, dammit! :(

  • 786 Ned S // May 19, 2010 at 9:11 pm

    The RBA obviously monitors housing extremely closely. It accounts for 70% of Aussie’s “wealth”, a large percentage of employment (9% ?), and the banks are up to their necks in it; Plus if that isn’t all enough, it is known (by the RBA), that significant decreases in housing prices are very bad for the economy -- Worse than stock price devaluations. (They sent a delegation to the US in 2003 or somesuch which came home with that thought -- Is my recollection of it.)

    I couldn’t find the link Anon -- But this one gives a similar guestimate (33.7% under) -- Whilst being general rather than focused on Japan -- And based on price to rent ratios -- As stated I simply don’t recall the specifics re the original article I mentioned:

    http://www.economist.com/business-finance/displaystory.cfm?story_id=15911113

    Also says Oz is 56.1% over -- But, I’ve already stated my thoughts on that.

  • 787 Greg Atkinson // May 19, 2010 at 9:12 pm

    If you want to speak to a person who has lost more than 50% on property then speak to one of the ex-high flying Gold Coast property developers. Also there are a few in Sydney I know of that suffered a similar fate.

    As for Japan, well land values were creeping up before the GFC but they have since come down again. So who knows what is next?

    Are landlords laughing in Japan? Well probably not. Interest rates are low but you still have outgoings which need to be covered by rent. (and rents are falling)

    Also many property developers in Japan have gone under despite low interest rates, even in Tokyo where the population is still growing.

  • 788 Ned S // May 19, 2010 at 9:31 pm

    Developers -- And builders; They both go broke regularly in recessions Greg -- As they are loaded up on debt. But it’s my impression we are talking ma ‘n pa type house prices here. So to be saying they can be expected to fall by 20% or more in nominal terms over the next 10, 5 or even 2 years, seems extremely unlikely to me?

  • 789 Ned S // May 19, 2010 at 9:40 pm

    Well, not “extremely” unlikely over the next 2 years -- 80/20 against maybe??? :)

  • 790 Greg Atkinson // May 19, 2010 at 10:17 pm

    Ned well it all depends on China to a large extent. If the Chinese economic bubble were to burst then the fallout for the Australian economy would be very nasty.

    I really don’t know where house prices will go, but if demand for commodities falls for a few years then property prices in Oz will follow, unless the Government jumps in again and props them up.

    The scary thing is, that just before any asset bubble bursts, it actually looks like it never will.

    As I have mentioned before, we in Oz are effectively borrowing to fund our lifestyles even now in the midst of a commodities boom. How do you think it will look if that sector rolls over and heads south? Is tourism going to save us?

  • 791 Ned S // May 19, 2010 at 10:34 pm

    “we in Oz are effectively borrowing to fund our lifestyles even now in the midst of a commodities boom” -- We are actually borrowing to fund the buying of votes by politicians I suspect Greg? (But, at the end of the day, yes, it boils down to the same thing.)

    Heard a really sad storey recently -- A bloke had a marriage breakup, and went a bit crazy; Then a car hit him and he had a plate embedded in his head, and got a bit sillier; Then the plate shifted in one of his drunken punchups, and he went insane -- But it all ended well … We voted him in as a pollie! :)

  • 792 BP // May 20, 2010 at 8:09 am

    “If the Chinese economic bubble were to burst then the fallout for the Australian economy would be very nasty.”

    I think everyone agrees this would be so. Where _would_ one’s assets be safe? Probably in two areas we know there would be intervention: banks and property. Super and shares would head south to Antarctica, fast. We still haven’t recovered from that last meteoric plunge, which, to this day, affects both adversely.

    And this is what we tend to overlook. The Property Crash buffoons rejoice in that prospect, believing they have immunity.
    The widespread economic chaos of China’s fall would be far more precipitous for the planet than these blinkered clowns imagine…

  • 793 Greg Atkinson // May 20, 2010 at 9:14 am

    As Jim Rogers stated the other day, Europe, the US & Japan combined are a vastly bigger economic bloc than China.

    A slowdown in China would be bad for Oz, but it won’t necessarily be bad for the planet.

    For one, commodities prices would fall and this would actually help nations like Japan, Korea & Germany.

    So if the US crawls out of a hole, this would more than compensate for a slowdown and maybe even a bust in China.

    The world got over the Japan bubble bursting, so I don’t see why a China bubble would lead to the end of the planet.

    But for Australia, the fallout would be much more severe because we have banked on this not happening.

    Where would you assets be safe? Outside Oz perhaps?

  • 794 Biker // May 20, 2010 at 11:38 am

    “Outside Oz perhaps?”

    But where?

    “Europe, the US & Japan”

    Yes, all thriving economies, I must admit… . :)

    The sealant fumes from sealing driveways, patios, alfrescos and pathways must be affecting my equilibriumumum… but I think I’ll keep our stuff well south of those strongholds of sovereign excellence, Greg.

    Good ol’ Oz. Sunny one day, fine the next. Lots of issues, but she’ll be right, ocker-cobber-digger-sport-mate!~ ;)

  • 795 Greg Atkinson // May 20, 2010 at 12:48 pm

    Biker we are now in the top 20 as far as foreign debt is concerned so I would not be so confident about our sovereign excellence.

    Seen our balance of trade figures lately?

  • 796 Ned S // May 20, 2010 at 12:53 pm

    I tend to agree that Oz will be OK Biker. But I’m not sure about Aussies who aren’t charity cases. I suspect socialists outnumber capitalists in this country.

  • 797 Firebug // May 20, 2010 at 1:42 pm

    My concern is that as a nation with low savings, we need to import capital from overseas. There may well be a day when the international money market demands higher interest for borrowing. The day could be interesting.

    Also, we are far too socialist. Whatever we’re going though now, it is not the end of capitalism, rather, it is the end of socialism. A danger child of the marriage between democracy and socialism is that the nation eventually goes broke as politicians keep bribing the masses into voting for them…

    But the end of the day we’ll be alright. A period of hardship isn’t bad for a nation. As always, some people will grow richer, some will be poorer, some sitting on the sideline…

  • 798 Biker // May 20, 2010 at 2:42 pm

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

    Totally agree, FB.

    Far better that we print our own, like everyone else!~

  • 799 Biker // May 20, 2010 at 8:49 pm

    Good grief… I think, I think…I’ve been CONROYED!!~ ;)

  • 800 Greg Atkinson // May 22, 2010 at 1:21 pm

    By the way, for those who want to get a different angle on the house prices debate it might be worth having a look at the “Australian Bubble Forum“

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