Coincidentally and very relevant to this blog topic I have been very busy over the last few months with the purchase of my first home. Specifically, an apartment, that I have now moved into and living in for the last month or so.

For me personally I believed that it was the right time for me. Obviously I’m going to have a biased in wanting prices not to plunge – and want them to rise – but I do believe that I have done a lot of research, done a lot of looking and am very happy with my purchase.

I still reckon that rates will continue to go up in the new year but think I have bought into a stable area that will be able to hold its price and been conservative with my estimates not to over extend myself… But like with all things time will tell.

Also, I did find this article the other day that I did find interesting in relation to the increasing size of Australian houses.

http://www.news.com.au/business/money/story/0,28323,26418362-5013951,00.html

I do wish they would ease up talking about house prices, it simply makes me nervous. However as of a few days ago I ceased to be a home owner in Australia as I parted with my apartment in Sydney.
I did not sell because of any unique insight into the property market, I simply sold because I am here in Japan and the apartment is back in Sydney

And we’ve also got Ken Henry sounding convinced Oz is about to enter its 40 year Golden Age – Could very well be true. But I’d like to see a bit of caution attached to a projection like that – As in “IF the world doesn’t collapse in a screaming heap because of all the bad debt that is out there which our central banker type mates are currently having a bit of an experimental fiddle with trying to inflate away!”

I also notice he made the statement “That, incidentally, does not necessarily mean abolishing the states. COAG can show real leadership.” – I’m sure Anna Bligh will be pleased to know Ken isn’t “necessarily” going to abolish her – Although I can see considerable potential merit in doing so!

Source: http://www.theaustralian.com.au/business/news/golden-age-will-stretch-to-2050-ken-henry/story-e6frg90f-1225790218893

Maybe there are a lot of people out there with 2 or more homes, but does the RBA or anyone else really have enough reliable data to say this is a major reason behind any apparent oversupply? In any case I fail to see why holiday homes in Tasmania for example would have any bearing on home prices in other regions anyway.

I think we just have to wait until next year when the impact of higher interest rates and removal of some first home buyers money starts to bite before we will have a clear indication of where home prices may be heading.

In one way, it pretty much accords with my current view that “they” have figured out just what is the absolute maximum that we can pay for housing and are going to do everything that is necessary to preserve that in real terms. But at the end it says “”Census data show that the number of dwellings built has exceeded the increase in the number of households by a large margin.” The ratio of the number of dwellings to the number of households has been rising over time with 8 per cent more dwellings in Australia than households in 2006. “Presumably, most of this surplus reflects holiday houses and second houses,” Mr Battellino said.”

That just seems weird??? Are they really asking us to believe that there are heaps of Aussies who are so flash for cash that they build houses at todays prices and don’t bother renting them out? If so, it would seem that whatever “shortage” there may be could be addressed at a pretty fast clip – If it wasn’t for that factor? Strange – It isn’t gelling with me at all – Your thoughts please?

Oz house prices – I’ve given up making calls as I said. But the long term prospects would have to seem just fine regardless. That immigration is the biggy. I had no idea the projections were that high until quite recently. It’s a pretty sobering thought actually. Cheers eh!

Let’s just hope nobody labels our economy the “Pacific Tiger”

I see the real estate super bulls are now excited about talk of the Australian population reaching 60 million by 2050 (or thereabouts) and yet I wonder where the power or the water will come from to supply the extra millions? Sydney for example has chronic public transport problems already and is unable to maintain existing infrastructure in good order, goodness knows how the city will ever be able to take in a few more million people.

I wonder if the rising costs of energy, land, materials etc. will start to act as an automatic brake on future house prices rises? (i.e. start to eat into disposable incomes) In addition maybe the only way we will fit more people in is to increase the amount of medium and high density housing in our cities and if this happens, what impact will this have on residential real estate prices?

So many questions to try and find answers for

Now it seems even the RBA and Treasury are starting to worry about the same things. See: http://www.smh.com.au/opinion/time-has-come-for-rudd-to-face-the-big-test-20091106-i22k.html

http://www.time.com/time/magazine/article/0,9171,968024,00.html

One of the things that has come through clearly to me from the GFC is the lack of diversification in the Australian economy and its potential to hurt if (or commonsense really says when) a recession does eventually hit.

Forewarned is good I guess and people can at least be bearing it in mind as they consider things like their overall investment strategy, plans for retirement and such like. Balanced against the overall growth potential of being part of the Asian region.

Chinese buyers fuel top-end property boom

I think it says something about the property bubble when they need to go overseas to find buyers (although the article does specify it was top-end property)

…complaining they are being priced out by foreigners who have no intention of living in their new properties.

A few critics go further, arguing Chinese money is now putting upwards pressure on interest rates.

Overseas buyers ‘may’ add to the rental market. Increasing interest rates isn’t good though.

Perhaps the latest Australian craze isn’t to sell our products, but rather to sell our assets.

I pretty much agree with all you have to say there, except that I believe China/Asia is not particularly robust and that demand could fall easily. What China spends its reserves on could be resources from Australia…or could be anything. China buying up Australian companies doesn’t exactly give us the economic boom that we need (although it does provide a few jobs).

I agree about fixed rate loans – there is no incentive. And banks won’t give them to FHB’s anyway.

I guess my point is that Australia will be extremely sensitive to external shocks that affect interest rates, which are:
- drop in the exchange value of AUD
- increase in rates charged by overseas lenders
- changes in Australia’s ‘ratings’ by ratings agencies, eg from AAA to B, etc (will push rates up)
- increased borrowing by Government will make Australia seem more risky
- if Australia prints money, external rates will rise (and internal rates if the Gov tries to sell bonds)

My belief is that a lot of these factors tie in to each other. This means that we could have a compounding effect on interest rates (eg, increased external rates plus falling AUD).

And I think our current market will be very sensitive to changes in interest rates, as I have mentioned before. This is one reason that the lack of fixed interest rates is of (slight) significance.

And at lower interest rates at least some people (like the 26 yos in the link you give) are saying “Yippee – Buying houses is easy – It’s Party Time!” As opposed to at pre-GFC interest rate levels when things were more difficult – Perversely. So the RBA goes back to jawboning about “Please be careful or we might get a housing bubble.” Which they’ve been doing since 2002 that I know of.

As to the Oz government caring or not caring about whether Australians can afford houses – Well at the moment they reckon housing is quite affordable. And if interest rates only go back up to 5% without huge increases in house prices they’ll still reckon they are affordable.

Certainly the housing market hadn’t collapsed due to affordability issues even pre-GFC – Although it did seem (to me) to be cooling.

We are in a pretty strange situation now. But if I take the broadest possible view of it that I can, I tend to say No recession = No major housing price declines?

What would drive Oz into a recession? A recession in Asia. (And most particularly in China we are told.) Which doesn’t seem that likely anytime soon given the size of their reserves and committment to growth. Throw in our own government’s unwillingness to see any marked correction in the price of housing and there are some huge buffers against significant falls in Oz housing prices. As I see it anyway.