Australian Property Market

Discussion in 'Off Topic' started by Fabian, Feb 17, 2010.

  1. Fabian

    Fabian Well-Known Member

    Is there anyone out there with good knowledge as to where Australian property prices will go in the next 2 years.
    By all accounts it's likely to defy gravity which seems utterly impossible considering the viciously overvalued asking prices, yet data does support the notion of prices continuing to rise and rise and just keep rising, not disimilar to Zimbabwe style economics.

    It's staggering that as of now the average Australian property price has hit $540,000 and shows no signs of slowing down and the medium density suburb of Burwood (25 kilometers from the city) has hit $800,000.

    Staggering, just staggering dollars attached to Australian property and we have now exceeded 100% of GDP in personal debt levels, with it set to rise even further.

    I really fear for the next generation trying to buy a house - the Aussie dream of home ownership is an evaporating idea except for overseas investors (particularly the Chinese disengaging from the American market) investing their money in a seemingly safe and stable political and economic environment,

    Below is some basic data,

    February 2010
    By James Thomson from

    Overheated or undervalued? A powerful part of the Australian economy or a bubble that could burst and damage Australia's miracle economy?

    Australia's housing market has always been one of the most talked-about sectors of the economy, but the recent surge in property prices - against the backdrop of the subprime crisis and the implosion of housing markets overseas - has further emphasised the divisions between the property bears and the property bulls.

    The bears argue Australia's house prices are far too high when incomes and debt levels are taken into account and believe the bubble must burst - and spectacularly.

    The bulls argue a shortage of housing and Australia's growing population means property prices will continue to rise, albeit at a lower rate.

    It's a complex and sometimes controversial area, so let's explore the issues with a feature-length SmartCompany Q&A.

    I'm feeling pretty darn good about house prices right now. We've just come out of a great 2009, haven't we?

    Unquestionably. After a year in which it looked like the entire financial system was teetering on the brink, Australian house prices surged, helped in no small part by the fact interest rates remained at historical lows for a big chunk of the year and the Government's decision to boost the first home owners grant to $14,000 for established homes and $21,000 for new homes in late 2008 (this was extended in the May Federal Budget).

    There are three main measures that we follow for the latest on house prices: the official Australian Bureau of Statistics figures, data from Australian Property Monitors and the RP Data-Rismark Index.

    While there are differences between the three measures, they all tell a similar story about national house price growth over 2009. The ABS said it was 13.6%, APM showed growth of 12.1% and RP Data-Rismark was lowest at 11.5%.

    In other words, a very good year. Here are the AMP results for each capital city, for houses and units:

    Looks great for me. But tell me, why on earth do we need three different measures of house prices? All sounds a bit confusing.

    The use of three different measures can be a little confusing and there has even been a bit of sniping between the representatives of the various companies.

    Essentially, the ABS and APM track median prices, while RP-Data-Rismark use something called a "hedonic" index, which it says more accurately tracks actual capital growth in housing.

    This is because, as Rismark chief Christopher Joye pointed out in a media release he shot out after APM's latest results were released, the median measures can be affected by changes in market conditions. For example, Joye argues a big jump in the figures for the December quarter (up 4.8% according to APM) was skewed by the fact first home buyers were leaving the market as the grant was wound back and upgraders were entering the market, buying more expensive homes.

    And what does APM say?

    That its "stratified media price" methodology has been developed in conjunction with the RBA.

    So should I believe one over the other?

    No, take both into account when trying to assess the market.

    However, the argy bargy in the last week or so did highlight some sharp differences in the way these two groups see the market heading into the new selling year.

    The sharp 4.8% rise in median prices in the December quarter - particularly the 6.4% jump in Melbourne, the 5.3% rise in Sydney and the 6.4% increase in Hobart - have some commentators wondering if sections of the market are starting to look a little overheated.

    However, the RP Data-Rismark index showed house price growth slowing in the month of December, with prices down 0.3%. Over the quarter, RP Data-Rismark saw prices up 2.1%.

    There's a big difference between those figures, isn't there?

    Sure is. On the RP Data-Rismark measure, the market's bubbling along nicely. On the APM data, there is reason for some concern.

    That concern is underlined by another set of house prices figures...

    What, another set of figures?

    ...Yes, another set, this time from the Real Estate Institute of Victoria, which look at Melbourne. It's a good snapshot of a market that does appear to be white hot. The median price of a Melbourne house reached $540,500 as of December 31, representing an increase of 15% during the quarter.

    Some suburbs recorded unusually high rises. In the eastern suburbs, the median price of a home in Burwood, increased by 23% to $810,000 in just three months, while prices in the suburb of Ringwood grew 16%.

    That's huge growth in just three months.

    But are these markets overheated?

    You'd have to say that the suburbs above are overheated. But the real question is, will these over-sized price rises spread throughout the market? And that's where opinions differ.

    Matthew Bell, economist for Australian Property Monitors, told SmartCompany some areas of the country are undoubtedly recording overheated rises.

    "The reasons behind these rises I view from a very macro level. It's a supply and demand issue, and there are definitely areas where prices will have been overbid and they are much more susceptible to things like the first home owners incentive."

    "Of course, easier credit and lower interest rates are factors, but I think you can't discount the undersupply and strong population growth and I think we've just had good growth for a long period of time."

    Louis Christopher, founder of property research firm SQM Research, told us that there are suburbs which are anomalies.

    "We've got to be careful, because we have no doubt seen some rises and some areas have been stronger than others. This is an anomaly. These areas have risen faster than the overall market for a number of reasons, the suburbs could be more popular, more people want to live there for whatever reasons, etc. A combination of factors."

    In other words, there are suburbs we need to watch out for?

    Absolutely. Buyers really need to do their research, particularly in Melbourne where prices jumped 18.5% last year, according to APM. That market looks very warm right now.

    What about the outlook for house prices going forward? You've got me a little worried with all this overheated talk.

    You're not the only one worried - this is an issue that has even vexed the Governor of the RBA, Glenn Stevens. Here's what he said back in July, since when housing prices have only climbed:

    "A very real challenge in the near-term is the following: how to ensure that the ready availability and low cost of housing finance is translated into more dwellings, not just higher prices. Given the circumstances - the economy moving to a position of less than full employment, with labour shortages lessening and reduced pressure on prices for raw material inputs - this ought to be the time when we can add to the dwelling stock without a major run-up in prices."

    "If we fail to do that - if all we end up with is higher prices and not many more dwellings - then it will be very disappointing, indeed quite disturbing. Not only would it confirm that there are serious supply-side impediments to producing one of the things that previous generations of Australians have taken for granted, namely affordable shelter, it would also pose elevated risks of problems of over-leverage and asset price deflation down the track."

    Stevens can't be put in the category of a property bear, but his concerns do highlight a few of the issues confronting the sector.

    What else are the doomsayers worried about?

    There are two main things: the debt levels of Australian household and the difference between house prices and incomes.

    Dr Steve Keen, Associate Professor of Economics & Finance at the University of Western Sydney, is one of Australia's biggest housing bears - he famously predicted house prices could fall by as much as 40% last year, a claim that has been proven to be very wrong.

    But Keen is a close watcher of the level of debt carried by Australian households. Here is a graph from his Debt Watch blog that shows how Australia's debt level as relative to GDP has doubled in the last decade, mainly due to borrowing for homes.

    What Keen fears is a huge period of deleveraging when Australian households start to feel that they are simply carrying too much debt.

    "When debt is as high as it is now - literally 100% of GDP for households and another 60% for businesses - then deleveraging can cause a dramatic fall in demand," he writes.

    He argues that drop in demand will also bring house prices down with it, and says this process was delayed last year by the Government's first home owners grant, which has since been wound back.

    Does Keen have a point?

    The state of Australia's household balance sheets is bubbling along in the background as a real problem, particularly if unemployment was to jump, if rates were to rise very quickly or, as Keen argues, if households were to begin deleveraging. The issue is, it's tough to see what causes those things to start happening at the moment.

    What else are the bears worried about?

    How expensive Australian house prices are. This question, measured typically by the ratio of house prices to household income is one of the most fiercely debated questions in the property sector.

    There appears to be reasonable agreement that the long-term average for Australian house prices is about 3x household income.

    But the current ratio is more contentious. Many commentators say the ratio is 7-8x. Using the APM city house price median of $525,000, the ratio is around 5.8x.

    But Christopher Joye of Rismark says the ratio is a much lower 4.1x - largely unchanged over the last six years. He gets this figure by using a median of around $370,000, which is based on all dwelling types (houses, units, terraces) across all of Australia (including regional areas, as this is where 40% of Australia's housing stock is).

    So there is an argument to say Australian housing remains affordable?

    Sure, although income is only one reason of the measures of affordability - interest rates and bank loan-to-value ratios are also important. And there are plenty - including the Housing Industry Association - who have some big concerns about affordability levels, particularly if rates continue to rise as expected this year.

    Are there any other good signs for house prices?

    Perhaps the best sign is what economists like to call the "fundamentals" of the market - that is, that demand for housing is far higher than supply.

    Put simply, Australia is not building enough houses to meet the demand from a growing population and migration.

    Paul Brad****, head of property and financial system research at ANZ, summed this argument up in the bank's recent property outlook.

    "Each day underlying housing demand remains above new supply, the market tightens further.

    We estimate that underlying housing demand is running at an annual rate of 200,000 while dwelling completions are expected to fall to under 130,000 in 2009-10.

    "With the market already extremely tight (reflected in near record low rental vacancy rates in most state capitals), an additional shortfall of 70,000 dwellings will have a marked impact.

    The nascent recovery in dwelling approvals will partially close the gap in 2010-11, however, it remains highly unlikely that annual completions will get anywhere near the 200,000 required to meet demand in the foreseeable future."

    Sounds like a very positive long-term trend, but I heard the other day that there's a housing shortage issue.

    Yes. Brendan Darcy, chief executive of property information provider Hometrack, told us too many analysts look at the housing supply issue and do not consider other factors putting upward pressure on prices, such as the availability of credit.

    Darcy points to the Government's National Housing Supply Council State of Supply Report 2008, which notes 85,000 extra dwellings are required to ease the housing problem. However, 9,000 of these are stated as being set aside for people who are sleeping rough, with a further 35,000 dwellings needed for people staying with friends or relatives.

    These people clearly need homes but they are not necessarily in the market to buy a home. So the question is whether they should be taken into account when we are talking about how the housing shortage relates to house prices - probably not.

    Data from Louis Christopher's SQM also showed rental vacancy rates actually rose last year, also suggesting the shortage might not be as bad as some think.

    The point is that while there is a housing shortage, nailing down its exact size isn't easy.

    Okay, so what were likely to see house prices do in 2010?

    For all the differences of opinion in the housing sector, this is one area there seems to be general agreement on. Most commentators are expecting that prices will ease as the first home buyers leave the market and interest rates rise, making households more cautious. Craig James at CommSec is predicting a rise of 8-10% across the year, while ANZ economist Alex Joiner is tipping 5-8%.

    What about over the longer term?

    That's a very tough question. House prices generally tumble when high unemployment and high interest rates force people to sell their homes, but it is difficult to see either of these things happening.

    The Australian economy is relatively strong, unemployment is coming down and rates, while rising, remain at historically low levels.

    The housing shortage (while questions remain about its size) should also help support the market.

    But question marks do remain about housing affordability, particularly in places like Melbourne, where the market has run very hard in the last two years.

    The huge level of debt held by Australian households also is something of a dark cloud on the horizon.

    As rates rise, how will households react? Particularly the 135,000 first home buyers who have bought into the last 12 months?

    And if house prices do keep rising, will our banks start to become increasingly concerned about the mortgage market (some have recently tightened lending criteria)?

    The scenario that most commentators are predicting over the next 12 months - the market cooling slightly as rates rise and the stimulus of the first home owners grant fades - would be a welcome one and would do much to dispel any fears that we've got a housing bubble building.

    But if house prices continue to climb at the rates seen last year, concerns about debt, affordability and overheating will only grow.
    Last edited by a moderator: Dec 15, 2015

  2. arceeguy

    arceeguy Active Member

    :jester:What your government should do is push people to save for a house by having them put part of all their earnings into a savings account for a house.:jester:

    Here in the USA, the areas that saw tremendous growth in housing, saw the biggest declines. Where I live, we saw modest increases from 2000-2007 so when the bubble burst, our values did not drop as much as prices in Florida.
  3. Fabian

    Fabian Well-Known Member

    In Australia (particularly Melbourne and Sydney) people just can't save anymore, even if they wanted to.
    In Sydney as an example, housing is so outrageously expensive that rental prices are just stupidly high.
    A good part if not almost all of your wage goes towards paying rent, to the point where people are using credit cards to buy food and petrol and using more credit cards to pay off the previous credit card debt.
    It's unsustainable yet the system just keeps allowing it to continue.
    It's almost a daily occurrence where house prices keep going up, for no apparent reason, save for a real estate agent slapping on a higher sticker price, and two days later the house is sold.

    Take this example.
    Less than 100 meters from where i live, a property was subdivided.
    The land size was 400 square meters (that's virtually 400 square yards).
    You can't even swing a cat outside your back door on a 400 square yard property once a 3 bedroom house is erected.
    The location is 1.5 hours drive from the city and the sticker price was $380,000 - $450,000

    Just an insane asking price - no one in their right mind would even contemplate thinking a property of that size could actually have that level of value.

    How much did it sell for?
    I struggle to even write down the figure.

    My GoD, it sold in only 4 days and the figure was $430,000

    Maybe i'm a realist and refuse to see the hype, but even so, i don't understand why the system hasn't collapsed into a pile of malodorous economic guano, based on logical assessment of the numbers.

  4. arceeguy

    arceeguy Active Member

    It will. So save your money and buy after the crash.

    If you own a home now, seriously consider selling it and renting for a while. You may be able to buy it back for half the price in two years.
  5. Fabian

    Fabian Well-Known Member

    Check out this concept from the banks.

    They know it's become impossible for basic wage earners to even think about home acquisition.
    Now they're coming up with some newly concocted idea of split equity.
    It's real simple - the banks believe house prices will keep rising and home affordability will decline so they've come up with a proposed concept of splitting costs between the bank and the home owner to the figure of 70/30: bank owns 70% of the house and home occupier puts in the other 30%.

    This concept means that in reality, the home owner is effectively a very good tennent; raising the value of the property by means of his or her home improvements (although with the banks prior permission before even putting grass seed on the ground) and the home owner also looks after the place.

    What a perfect system for the banks!

    Last edited: Feb 17, 2010
  6. Fabian

    Fabian Well-Known Member

    Although this is a proposed idea for making home ownership more affordable, i can't see any bank taking on that level of risk, "UNLESS" they are certain property prices will keep rising and they can take the lions share of price increase.
    Last edited: Feb 17, 2010
  7. Fabian

    Fabian Well-Known Member

    I still think it's a ludicrous notion
  8. Fabian

    Fabian Well-Known Member

    But with a with 3 bedroom house on a 400 square meter block, 1.5 hours away from the city, selling for $430,000 and maybe $500,000 in 12 months time, even ludicrous concepts start to take on a rational element.

  9. Fabian

    Fabian Well-Known Member

    Now it's really becoming a money grab:

    Thursday 18, 2010

    The property industry is lobbying the Queensland government over changes to land tax which they say are an unprecedented cash grab.

    The Property Council and Shopping Centre Council took out a full-page advertisement in The Courier-Mail newspaper on Thursday outlining their argument.

    Last week, the government introduced to parliament a bill which Natural Resources Minister Stephen Robertson said would protect ordinary ratepayers from higher costs and provide financial certainty for local councils.

    Mr Robertson said a recent Court of Appeal decision changed valuation rules for commercial property, with industrial landholders likely to gain a 20 per cent windfall, while the benefit would be 35 per cent for commercial landholders.

    Such a move would increase the rate burden on residential ratepayers while lowering council rates and land tax for business, he said.

    "If we don't correct the appeal court's interpretation of the law, then we would be accepting commercial property valuations on a fundamentally different basis to other property valuations, which recognise how land is actually used in the real world," Mr Robertson said.

    But the Property Council's Steve Greenwood said the unfair retrospective legislation had been introduced without the government talking to industry.

    "If this legislation is passed as is, every Queensland business will endure increased costs through higher land tax and council rates with next to no rights to appeal," Mr Greenwood said.

    "Therefore, this legislation impacts directly on every Queenslander - with investment and jobs the major casualties."

    He said the laws would raise extra revenue by "artificially inflating the value of land".
  10. Mountainman

    Mountainman Active Member

    sounds like it's about time over there

    sounds like it's about time over there
    to see the bottom drop out just as it did here in So Calif
    houses were going a few years back for way more than true worth
    then reality hit bringing them down prox 30 %
    had a little come back last half of last year
    just read today -- lost that plus a little

    good time to buy here
  11. fasteddy

    fasteddy Member

    Fabian, we have the same problem here driven by the Chinese and East Indian money.
    When Hong kong went back to the Chinese my brother drove tour buses in Vancouver. He often went out with the bus full of Chinese investors with a Chinese real estate agent and in the course of a day they would have spent 10 million dollars in property and this happend two or three times a month.

    Now the main land Chinese are comming over and the houses between one and five million are being bought up at a great rate.

    A lot in downtown Vancouver, 33x100 feet, with a 1920's house on it is worth at least a million and they will push the house over and build a million dollar+ house on it and think nothing of it.

    The Canadian government is changing the rules but that only affects the lower end of the buyers who will get in trouble buying property. The higher end buyers pay cash.

    Yes, we are all waiting for the crash to come but it has only slowed down here and not that much.
    You would think that a country that sells 85% on it's goods to the country next to it that is having difficulties would in itself have even bigger difficulties but because the banks were not allowed to join the bank spend up, we are doing fairly well.

    Where my nieces and nephew went to high school, there were Chinese kids who were sent here to go to school. The parents bought a million dollar plus house, and had it staffed by Chinese Canadians and then sent thier kids over as they became of age.
    As soon as the kids could get a drivers licence they are bought a BMW or some other car with the right status and they drive that until they are done with university.

    Then the doctor goes home, mabe!

    Last edited: Feb 18, 2010
  12. give me vtec

    give me vtec Active Member

    here is a quote from tom barrack on the subject of real estate, I think you may find it useful....

    He likens the real estate market to a game of polo.

    "I feel totally safe playing polo on a field full of pros, but when amateurs are all over the field, someone can get killed. They have more guts than brains. They charge after every ball and don't know when to hold back."
  13. Fabian

    Fabian Well-Known Member

    I agree fasteddy.

    It's getting very, very close to the point in Melbourne and Sydney that you need to be an overseas investor in order to buy property at outrageously expensive prices.

    The big issue is that the flow of money into Australia for bricks and mortar is gaining pace as America is being flushed down the toilet.
    Investors, particularly the Chinese are buying up every bit of land and property around universities and they don't care how much they have to pay.
    This in turn allows the Real Estate Institute to average out prices and send every other locality upwards in price, with no real base to the logic of locality.

    The Australian government wants Australia's population to be in excess of 35 million by 2050 (up from the current 21 million) and the powers that be are allowing wealthy individuals a free ride into the country by means of up front university fees and other methods, upon which they can stay till their studies are finished, or if they get married to an Australian citizen or find permanant work.

    There has been some talk of the average house price hitting 1 million dollars in Australia.
    This effectively means that this current generation of young Australians will become second class citizens or worse.

    I'm almost kissing 40 now but when i was young (maybe 10 years) my Dad said that Australia would be annexed by the Chinese in a quiet handover and Europe would annex South Africa and everyone else would fight over the rest.
    Just to add, he mentioned the fall of the United States and that the southern parts would eventually break away into individual territories - this seems unthinkable, but is it?
    I thought he was crazy at the time, but now i far more respect for his ideas.

    Last edited: Feb 18, 2010
  14. arceeguy

    arceeguy Active Member

    Don't get your knickers in a knot. These foreign investors are the ones that are going to lose their shirts when the market collapses. Like I said, if you don't own, save up. If you own - sell and re-purchase after the bubble. You need to take advantage of the situation instead of complain about it.
  15. Fabian

    Fabian Well-Known Member

    arceeguy, i'm not making a personal complaint about the market situation.

    What i am terribly concerned about is this current generation of young Australians taking on huge and unrepayable levels of household debt, just to put a roof over their heads; many of them new families with young children exposed to the stress and difficulty of parents under enormous pressure to keep up with unrealistic mortgage repayments.

    At the end of the day, the kids tend to be on the receiving end of this stress.

  16. arceeguy

    arceeguy Active Member

    How foolish of me, it's always about the little children.

    The market will correct itself. Give it time and take advantage of it. (What can I say, it's the capitalist pig in me)
  17. seanhan

    seanhan Member

    It never ceases to amaze me , That now matter how expensive things get ...
    $ 10.00 bottle of water or 500.000 home.
    there is never a shortage of people ready to put there money down...
    So basicly you can charge what ever you want someone will buy , sooner or later...
    Were the heck do these people get there money ?????
    OH YEA I almost forgot Fanny and Freedy that we had to bailout !!!!
    so were paying for sombodys $ 500.000 house !!!!!
    That just makes me sick !!!!!!!!!
  18. Fabian

    Fabian Well-Known Member

    exactly seanhan

    Everyday, i say the same thing to myself as the newspapers, TV and radio are pushing the same message - property prices to go through another boom cycle.

    It never ceases to amaze me , That now matter how expensive things get ... there is never a shortage of people ready to put there money down...
    So basicly you can charge what ever you want someone will buy , sooner or later...
    Were the heck do these people get there money, as no bank could ever allow a line of credit based on their income or personal situation ?????

    An example though.
    A friend of mine and his wife who are on wages not far above basic income went to the banks a few years ago to get a loan.
    After the figures were process the bank said they were eligible for a $700,000 loan.
    They both nearly fell of their chair as they didn't think a $300,000 loan could be granted under their circumstances.
    Anyway, they bought a $300,000 house in an average outer suburb and the bank kept hassling them to upgrade their style of living or to buy new toys.

    It seems i've failed economics because i can't understand the methods.

  19. Hajuu

    Hajuu Member

    haha jesus that's a long post.

    To be honest it's LAND that's expensive not houses.

    You can still find the good ol 120K rats nest and develop it. One of the best things australia offers/offered is the equity buy in, which is nothing to do with banks at all. It's basically an interest free loan from the government which you pay back if/when you ever sell the property, in which case its usually worth more, not less, so everyone wins.

    Last I heard they were offering upto 50% of the combined house and land value depending on suburb, so with even a small loan it's entirely possible for *anyone* to get into their own place.

    Combine that with the fact that a lot of companies are "still offering the 21K first homebuyers bonus" (Eg: they're really just making the place 21K cheaper like a sale), and you're looking at a mighty small deposit.

    Even 10K can get you into a quite livable place.

    Everyone just wants a brand new, 280K house in a good suburb.

    Also, as a renter who has been moving a lot, I have noticed that since the 'fiscal crisis', there are a LOT of overdeveloped areas which are now being rented exceptionally cheaply. In perth its entirely possible to get a 1 bedroom appartment 15 minutes WALK from the city for < $150 a week. Not unreasonable by any means.
  20. give me vtec

    give me vtec Active Member

    inexperience... plain and simple.