If it’s Monday morning then it must be time another “real estate is booming, get in before it’s too late” story from News Ltd and The Age.
But wait, what’s this we read, “Where to now for first-time buyers?” and “Auction clearance rate slips to 80%.”
That’s not the usual shrill headlines about the housing boom we were expecting. Maybe the local press has put all their best journalists on the ‘balloon boy’ story. If you’re just dying to know the latest news on the epic boy and balloon story, click here and here and I’ll hang around for you until you’ve finished…
Finished? Good, because there’s some cracking advice in the News Ltd story:
“With low-end prices at $300,000-plus, the cut-back of a few thousand dollars in a bonus grant should not stop anyone from making their purchase. Another growing option is for first-home buyers to share their purchase with family and friends. It takes away that ‘total commitment’ leap for many first-time buyers by sharing the load.”
I don’t know about you, but I find it hard enough to get friends to buy a round of drinks let alone chip in a few thousand to help buy a house.
I can imagine it now. Mates the length and breadth of the country all getting together to buy houses for each other…
“Hey, Terry, fancy lending us $20,000 so I can buy a house for meself?”
“Yeah, sure mate, who do I make the cheque out to?”
“Er, me… Thanks. See ya later!”
Armed with that fabulous advice we can head on over to The Age. The reporters they had left over who weren’t covering balloon boy were watching the weekend auctions instead.
Have they just witnessed the beginning of the housing crash? Or is it just that all the property buyers were at the races instead?
“One auction, of a renovated three-bedroom house at 3 Carylon Street, Ormond, was passed in on a vendor bid of $950,000, below a reserve of $990,000. Another, of a two-bedroom weatherboard at 11 Kipling Street, St Kilda, was passed in at $760,000 and received a later offer of $780,000 that still fell far short of the $810,000 reserve.”
Maybe the interest rate rises are already starting to bite.
Don’t forget, we’ve already had two interest rate rises. The RBA induced one a couple of weeks ago, and the one when the banks “went it alone” a couple of months back.
And if we look at the SFE Target Rate Tracker, the market has built in a 100% chance of a 0.25% interest rate rise for November, and a greater than 50% chance of a 0.50% interest rate rise. As you can see from the chart below:
But don’t worry, it’s not all bad news:
“[A] rundown single-fronted home at 930 Drummond Street, Carlton North that attracted four bidders before it sold for $1,070,000.”
That would be a “renovator’s delight” we assume.
But anyway, we’re wondering where all the Chinese buyers were this weekend. After all, if we’re to believe what the spruikers are telling us, this is the new reason property prices can’t fall.
You know, it wasn’t so long ago that immigrants were railed against for stealing our jobs and our women. Now they’re stealing our houses too!
That’s the story according to expert demographer Scott Patterson. Oops! My mistake, he’s not an expert demographer at all, he’s a director of real estate firm Jellis Craig.
He recently told News Ltd:
“This calendar year 34 per cent of our sales went to mainly Chinese buyers compared to 15 per cent last year. We’re up 125 per cent overall.”
We’re not sure what he means by “went to mainly Chinese buyers.” Were the 34% of people most Chinese, but not 100% Chinese? It’s a bit confusing, but we’ll assume he means 1 in 3 homes went to Chinese buyers.
Got that? 1 in 3 homes sold by Jellis Craig is going to buyers from mainland China.
1 in 3. 34%. 34 out of every 100 houses sold is being bought by a native of China.
Is it true? Well, without going through the books of Jellis Craig to find out for certain we can’t be sure.
But they better make the most of it. Because in the last nine months the Chinese Yuan has hit the skids versus the Aussie dollar:
The Yuan, which is pegged to the US Dollar has obviously fallen off the same cliff as the US Dollar. All those Chinese buyers that were paying 4.5 million yuan for a million dollar house at the beginning of this year will now have to fork out 6.2 million Yuan.
So on that score the property bulls are right. Priced in Yuan, Australian property values have risen by 38% this year.
But when we hear comments by the real estate industry about foreigners buying all the houses, it sets off our BS indicator. To us it just sounds like another lame act of desperation by the housing industry to try and prop up prices.
I mean, they’re running out of ammunition. The first home buyers surge has come and gone. The housing shortage has been proven as a lie. The population growth theory has produced not a single jot of evidence to back it up…
In fact, we did read a comment in the Financial Times recently that stated Morgan Stanley had shown there was actually an inverse relationship between population growth and house prices during the last twenty years.
Again, we don’t know whether that’s right either. And we haven’t seen the Morgan Stanley research – although we have put a few feelers out to try and grab hold of it.
So now the spruikers are running out of ideas, they’re trying to pin the blame on the Chinese.
Well, good luck to them. We’ll see how it plays out. Maybe the Chinese have read the spin and have been to a few property spruiking seminars.
Perhaps they too now believe Australian property prices will rise forever.
Other Stuff on the Markets
The S&P/ASX200 closed at 4,836.40, down by 23 points, while overnight on Wall Street the Dow Jones Industrial Average dropped by 67 points to 9,995.91. In Europe the FTSE100 finished at 5,190.24, down by 0.63% and the CAC40 was down 1.45%.
The price of gold in Australian dollars is trading at $1,149.88, while in US Dollars it is trading at $1,053.20. And the price of silver in Aussie dollars is $19.05 and in US Dollars it is $17.45.
The Aussie dollar gained a little versus the US dollar, trading at USD$0.9144, and improved against the Japanese Yen JPY83.24.
Crude oil closed overnight at USD$78.53
For the biggest movers on the market yesterday click here…
{ 47 comments… read them below or add one }
The spruikers finally concede there will be dip in demand. My favourite part was this on news.com.au…
A long-term housing shortage in Australia is the main reason for strong buyer demand…”
Um – I think they need to make their mind up. Is it supply or demand causing house prices? They don’t separate the two and try to lump them together, whereas clearly supply and demand factors are best identified in isolation and then you plot them at the end to see what is outstripping what (and to determine price).
In my opinion, demand will just evaporate in 2010. They let the cat out of the bag with this statement…
Real Estate Institute of Australia, first-home buyers are expected to take a breather, although only for a limited time. Record-high purchase levels by first-home buyers have already started to taper down and this trend is forecast to continue, REIA president David Airey says
“We had about 170,000 firsthome buyers in the past year – that’s about 50 per cent above the usual number in the market, so I expect them to drop back to normal levels,”
He is wrong!!! Not only will they reduce back to normal (i.e. 85,000 less first home buyers in 2010, then there were in 2009 – that’s going to kill demand)…they have also created a vacuum by bringing forward demand. So it wont revert back to 85,000, because a lot of those have brought their purchases forward, so it could revert back to something like 20,000!! That would mean 150,000 less buyers!!!
This has all the hallmarks of a Ponzi, all the way down to running out of fools to come at the bottom of the pyramid.
I expect the real estate spruikers to try their wares – that’s their job. Any salesman will try every conceivable angle and ‘gild the lilly’ to use Ruddspeak if it means a sale.
I think it just comes down to whether the public is ready to believe that it’s urgent to buy a house right now or risk being priced out forever. For the most part, I think they probably do. And until there is reasonable evidence of a stagnation or fall in house prices, they’ll probably continue to believe that house prices can only ever go up. So I reckon the real estate industry is doing a pretty good job on that front.
I think the only reason that house prices are staying where they are, if not increasing slightly, is the ingrained expectation that house prices only ever go up. When that expectation starts to waver, that’s when I think we’ll see the situation start to change. In the meantime, what we don’t know is what sort of market intervention the government will try to attempt to maintain the expectation that house prices can only go up. We are now in a situation where the winners will be those that correctly anticipate changes in government policy.
In 1970 I bought a house in Drummond Street, Carton for $67,000. In ‘72 I sold it for $65,000. Now these are ‘worth’ over a $1,000,000 on top of that. Should have hung on.
PuntPal, my take on it is that much of the discussion about supply and demand is little more than doubtful and rubbery speculation. Supply and demand, defined in terms of willing and able buyers and sellers at various price levels, is very hard to guage, and can be subject to sudden change from hard to pin down variables, such as confidence, and the willingness of banks to lend going forward. Therefore, much of this talk is of little predictive value, in IMHO.
However, here are a set of other considerations that we cannot ignore:
1. Continued reluctance of bankers to lend to the productive economy. Small businesses that need capital are being choked off by the banks, having less and less opportunities to access capital.
2. That means that businesses are not going to invest, will not hire, or worse, they will start laying off more and more people as business starts slowing again, with less income coming through the door.
3. At the same time, businesses are being sucked dry of liquidity faster and faster than before with every rate rise. Here we must also consider that business loans never got the break that home loans did. The banks simply did not pass on a good proportion of the cuts to business borrowers, which means that businesses never got very far away from the edge, and it will not take much to push them over as the pressures from the GFC and rising rates start increasing again.
4. Add to the above the extra impost from the GST from hell, the ETS that now seems a near certainty.
5. Plus the fact that export income will continue to suffer from a soaring AUD, exacerbated by rising rates, and the conclusion seems inescapable:
The ducks have been lined up, and our goose is being cooked. TAKE COVER!
Ralph, I wish mature people stopped ascribing childish beliefs to other mature people, such as “the ingrained expectation that house prices only ever go up.” Nobody in fact has such a belief, I submit, unless they are mentally deficient, and therefore ascribing this to Australians en masse, is simply not plausible.
If you and others cannot help but ascribe some sort of widely shared irrational belief to Australians, then may I suggest something more sophisticated and less obviously false:
“Even though roperty prices can, and do, fall from time to time, they will not go into meltdown in the near term.”
Ascribing some such belief to Australians that are looking to buy at current levels would be less obviously wrong, and it might in fact be defensible in a way that the presently fashionable ascription is clearly not.
CB, of course it is correct that not everyone in the community believes in things like the price of houses always going up. But logic tells me that enough people believe it for it to be a key factor in the real estate market.
There is persistent murmurings in the media of housing becoming unaffordable, which probably suggests that a fair proportion of the community believes that house prices are too high. If the general sentiment was that house prices fluctuate freely, more people would be prepared to sit and wait for prices to come down so they could buy. But that doesn’t seem to happen very often. What we see is people elbowing each other out of the way to buy a house before prices rise again. Friends, family and real estate agents reinforce it on a daily basis. So I would suggest that the general consensus in the community is that houses are a special asset class that (generally) increase in value over time.
Whether that is actually the case or not is another question entirely.
Wow -I can see what is causing the massive concern here. the Auction Clearance rate in Melbourne has crashed from 81% to 80.9%
Now I’m worried.
Link – http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/e7fc5ea7233a0dd6ca257649000137e9/bodyhtml/208.33B8!OpenElement&FieldElemFormat=gif
Link – http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/67ecb258e3e89293ca2576500076de6b/bodyhtml/33.31CC!OpenElement&FieldElemFormat=gif
Quick sell out now while you still can. The end is nigh.
In areas where people don’t need to live but like to live there are bigger falls. I know beach areas in north qld for eg that have had a 30-40% pullback in land prices after the housing boom. BUT these are in places where people might like to work/live.
The difference is that in larger areas such as capitals where people NEED to live, then such big house falls will generally not occur. It is not possible for the average house in Brisbane for eg. to go from 450 grand back to 300 grand, it is simply not possible without a full blown DEPRESSION, which is not going to happen in Australia. I really want house prices to fall, but we are more likely to experience a sideways movement for a number of years rather than a proper plunge. We will go sideways until wages catch up again. much like we did int he 90’s
Yes, sure, indeed it is another question, which it would appear that you would be inclined to answer in the negative. And if that is right, then I would like to know why that would be. Don’t you share the general belief that house prices, at least in nominal terms, which is the way most people think of them, generally increase in value over time? Again, if not, why not?
I ask these questions on the strength of the following observations:
1. Historical data seems to support the consensus view, and one would have to have some pretty good reasons, therefore, to call into question the validity of that view, that generally, house prices do go up in nominal terms over time.
2. The chief reason behind historical experience is no mystery. It is inflation, the excess supply of money, especially cash and credit, relative to the goods and services produced in the economy.
3. Politicians and banking interests live off inflation so defined, as it is their principal tool for sucking the juice (purchasing power) out of the people’s earnings and savings.
4. Ergo, they have no incentive to return the system to sound money, and hence a return to sound money is unlikely.
5. As long as we stay with fiat money, inflation will continue, as that is the principal reason why sound money is rejected in favour of fiat money.
6. Therefore, other things being equal, if, and as long as, inflation remains, so will a generally upward trend over time in nominal house prices.
Which of these premises do you reject, and if none of them, what important factor does the argument miss to render its conclusion, which is the general view you seem to call into question, false?
cb – the content in this post is so weak it is almost a pro-property post. The auction clearance drop is negligible, the Yuan really has only gone back to its pre GFC position in relation to the Aussie, and the article about 1st home buyers is a non-event. The balloon boy article had more meat.
This is scarcely worth a rebuttal.
I agree, PF. Plus, I suspect that the comment related to Australian Chinese buyers, not to non-resident Chinese buying up houses in Australia. That was my first thought about the comment anyhow. It would be very odd if they were talking about overseas people buying that sort of percentage of houses. Almost by definition, being an absentee landlord is a recipe for trouble for your investment, so I would be surprised to be wrong for that reason alone. Anyhow, Sayce should pick up the phone and find out, if he is to make any point about the comment.
I’m starting to amuse myself with the notion that the Australian property market us quite similar to the utopian town in the The Truman Show.
I rememeber when 1/3 properties sold in London was to a Russian.
You couldn’t walk 3 feet without a Russian offering to buy your house.
PF and cd – how can you deny the vacuum created by the FHBG boost policy. The REIA admit there is going to be a decline in first home buyers and the numbers are big. This is surely going to impact on demand for new houses. This is not a non-event!
The supply and demand line is hillarious.
“A long-term housing shortage in Australia is the main reason for strong buyer demand…”
That is word for word!
It reveals how messed up their logic is. What it reveals is that strong buyer demand is the issue.
p.s. What is a long-term housing shortage? Is it the same as a housing shortage? Is this an important distinction to the supply issue?
“A long-term housing shortage in Australia is the main reason for strong buyer demand…”
so in 5-10 years (long term) there wont be enough to go around @ current inflated prices ,,so the buyers ( lemmings) are strong for that
I would read that to mean that for a long time now, at least for several years, new home construction has not kept pace with population growth at historically normalised rate. That is, if the long term average has been building a new home for every three to four net additional people in the country, the rate of new home construction has been falling behind of late, with a new house having built for every 5 to 6 net additional people in the country.
After five to ten years of falling behind with new home constructions like this, the assumption is that there will be a pent up demand for housing, unless the population has switched a preference for living in more crowded accommodation. It is also assumed, I presume, that the preferences have not shiften in favour of crowded living conditions, so the conclusion that the pent up demand keeps increasing with every passing year, ultimately exerting an upward pressure on prices, assuming, that is, that some other factor, such as high levels of unemployment or a refusal of banks to lend, do not incapacitate the people from bidding up prices.
I do not have much of an opinion about whether such conditions actually have been developing in the country, but that is what many are arguing, it seems, including Joye and many others who have their pulse on the industry.
It’s a good bullshit marketing ploy. How else would you fool an arguably racist nation to rush out and debt yourself a house- tell them if they don’t the Chinese will take over. Ha ha ha.
I would dare say that their methods for testing for housing shortage are about as sound as the methods used by BS and QBE LMI in their forecasts. All kinds of assumption can be put in to get a result that would help to keep the industry growing and a housing shortage is just about the perfect line for a spruiker….come on you have to be suspsicious?
And my point is, a ‘housing shortage’ can only exist in the present – if it exists at all. If their claim is that – because housing construction has not kept pace with population increase in recent years = housing shortage, then that could be a erronous conclusion:
- maybe people are cohabitating more
- maybe people are building bigger homes to fit more people per house
- maybe we started with an oversupply, so recent yearshave seen housing construction not need to keep pace
PuntPal – If anything there is a small boom in Melbourne, and I really hope that is gets hosed down before it gets too serious. Demand is very strong.
As a post this said absolutely nothing, and so far the market has been very predictable. There is no vacuum, although FTB’s will predictably taper off. They will not go away just yet. Mid range and upper range buyer activity has increased.
The Chinese buyers that they mentioned are only buying in upper middle class areas close to quality learning institutions, and do not affect the entry level suburbs. So that real estate agent is probably correct in his information, but it doesn’t apply across the board.
PuntPal the information that I am receiving from real estate professionals is higher quality data and more unbiased than this dribble. Sorry mate so far this is a non-event. A few more RBA rises and it could change, but that wasn’t the theme of this post.
Still you are the last bear left in captivity so keep the faith. One day it will happen.
Its pretty simple really. We have seen the biggest % rise in population during the past year and interest rates are around 5%. Most of our cities have seen a rise of over 9% in property values this year. A period which the saw CPI index falling so in real terms prices are up even more! Consequently, renters now face catastrophic rent rises or the better choice of buying property before house prices sky rocket further (this is already unfolding). The bears will tell you that these cities are “going to crash, low in demand, overpriced” etc and this makes them feel better. They say things like “house prices will fall 40%, Australia will enter a severe recession blah blah”. They also say rubbish things like “banks will margin call property investors”. Well these dumb bears myths are being blown apart right now. Keen, Minack and most GHPC members already have plenty of rotten egg on their faces. I suspect that the smarter bears like Wang Poon and FHB already worked out what’s coming and decided to buy. DOS is just slowly starting to figure it out now, and Annus…….. well quite frankly this bloke is too stupid to know what is currently happening, let alone what is coming. Make no mistake, house prices in Australia will rise significantly. The trendier the town the larger the % rise will be. Some of these cities are facing a 20%+ rise over the next few years according to BIS. The other smaller holiday towns across Australia will rise 10-15%. Fortunately the Kevin Rudd inspired boosts have had massive effect on these cities. I cannot see anything that is going to prevent property from the massive boom that is unfolding. Like millions of Australians, I understands what the implications of the recent government stimulus and low interest rates and high population growth will be. The recent slowdown has clearly passed and Australia’s house prices will rise to a higher level than most other countries. After every slowdown there is the inevitable boom and the boom that Australia now faces is likely to be the biggest boom on record. Make no mistake, the slowdown is over. By the time this boom is finished, it will leave the early noughties boom looking like a mild uplift. Think 60% real trough to peak increase in Australian house prices by the time it’s over. We will not even talk about the possibility of a crash for at least another 8 to 10 years. Of course investors are also getting ready to jump in. Net rental yields are getting to positive cash flow now. Investors are ready to stampede on Westpac and CBA’s front door any day. I actually want to buy and am considering the local Collaroy market (Sydney $800k to $1.1m), I have little doubt that this area will outperform. This 2nd decile of the Sydney market will likely face a very steep rise. Kevin Rudds boosts will have less effect here (although still some effect nevertheless) on this decile of the market but the main driver for the rises will be low interest rates, massive overseas immigration, and a realisation that the Australian economy has pulled through the GFC in excellent shape. We all know that the Australian beaurocrats have barely touched the surface of what is possible to maintain house prices on their upward trajectory, and that means house prices will inevitably remain very high, building costs will also be high and the economy will rightfully correct itself on the back of a construction led housing boom. Their justification is that the Australian economy will be booming again in 18 months time and the housing market will be up and running again on its own two feet. Hooray! Dan.
Can someone please explain where all this money is coming from to keep pushing prices up? Excess liquidity (i.e. inflation)? Wage growth (not that I’ve heard)? Foreign investors (some suggest)?
Last time I checked wages growth was not 10% / year – so where is this money coming from, and / or which part of the economy is this being diverted from?
Peter Fraser, how do we know if there is a boom in Melbourne? Clearance rates? You can make a clearance rate anything you like if you simply ignore key pieces of data! http://www.sqmresearch.com.au/article.php?base=news&a=1
Also, I’m not sure any Chinese buying in the middle-upper end is not having a top down effect. It’s like saying the FHBG did not impact middle-upper markets when it clearly did. I’m saying those complaining about foreign competition in the likes of Camberwell, who now can’t compete, will be forced to look down the ladder and so on.
Interesting times.
Its coming from debt. The deposit for a house only has to be 10% for instance. So to sustain $500K houses, thats only $50K of liquidity needed.
The problems related to where will this money come from is an issue in the long-term – i.e. liquidity to pay back the debt could be an issue. So could ‘debt-deflation’…
As to where the money comes from (diverted from)…its other sectors of the economy. For example, Mr 26 and Mrs 24 decide to buy a house (boomers give them deposit, tell them to get foot in the door) then that means no QLD holiday for the young couple this Xmas and no upgrade to the blokes car. So the auto industry and tourism industry are examples of industries that miss out due to the ever balooning property industry. We will soon be a nation with houses and nothing much else..
jimbo james – I’m not sure exactly what your point was, but I’ll address some of the matters mentioned. I have clients buying in Melbournes outer suburbs, and I keep in contact with others who attend auctions there. They are telling me that houses are selling at up to $100,000 above guide price, so I find it hard to think of that as anything but boom conditions, although I have made it clear that I hope these conditions are short lived.
You mention Sqm research which is done by Louis Christopher who I have high regard for, but he didn’t say that the auction clearance rates should be disregarded, he just said they can be wrong, or give misleading indications at times. I also agree with that, my point in an earlier post was that with results of 81% one week and 80.9% the next tells me nothing, but the writer here thought that it was significant. Clearly it is not.
My point about the Chinese buyers was simply that they are prominent in some suburbs, but not in others, so the claim that they represent 34% or 33% of the market are quite ridiculous. Again my information comes from an acquaintance involved in that market.
I’ve not based anything on auction clearance rates, although they do look quite strong. My expectation going forward is for modest growth, although activity could be high in the Xmas run up period. I don’t see a continuing boom, but there is no downturn coming unless interest rates are jacked up well beyond expectations, and that would kill the recovery.
Does that clarify my position?
Here is the summary of an article on property prices and the often contradictory take of experts on the subject, by Neil Jenman.
“Three things we know for sure about property prices.
First, despite what the spruikers tell us, property prices do not “double every seven years”. Over the long term, the true property prices will about match the inflation rate.
Second, due to the nature of property (as well as the scoundrels in the industry) there are no Australia-wide accurate price records. Probably never will be.
And, third, it doesn’t matter what property prices are doing, as long as you, if you are buying a home for yourself, make sure that you buy within your means. And, if you’re an investor, you make sure the rental return covers most, preferably all, of your outgoings.
It’s not easy, but then the property market is rarely easy – or simple.”
full article at:
http://www.jenman.com.au/news_article.php?id=253
PuntPal and all:
Have you seen the nightly finance report on the ABC by Alan Kohler?
It shows a chart of the massive divergence between population growth and new houses being built in the country since 1950.
If you believe that divergencies mean anything, this is an eye opener. As they say, a good picture says more than than a thousand words.
The link is here, and once you are on the page, you will find the finance report on the right hand side of the page under Featured Media. Unless you have seen it already, it is well worth a look.
http://www.abc.net.au/news/business/
http://www.abc.net.au/news/business/
Hey Stingray – you lost all credibility when you wrote this:
“Make no mistake, house prices in Australia will rise significantly. The trendier the town the larger the % rise will be. Some of these cities are facing a 20%+ rise over the next few years according to BIS.”
Was that the report released by QBE LMI? ‘LMI’ standing for Lenders Mortgage Insurance.
If you are going to come on this forum, please use sound economic reading – not unreliable forecasts provided by vested interest.
That kind of lousy info is best used at http://www.news.com.au
You also fail to explain how house prices can keep out-stripping people’s income. House price rises like what you think will occur are simply not sustainable when compared to incomes and the property bulls know it. They need people to believe prices can only rise, you seem to be a sitting duck for them
Ralph, sorry, some other posts got in the way, but this was addressed to you, in response to your last post, continuing our conversation:
Yes, sure, indeed it is another question, which it would appear that you would be inclined to answer in the negative. And if that is right, then I would like to know why that would be. Don’t you share the general belief that house prices, at least in nominal terms, which is the way most people think of them, generally increase in value over time? Again, if not, why not?
I ask these questions on the strength of the following observations:
1. Historical data seems to support the consensus view, and one would have to have some pretty good reasons, therefore, to call into question the validity of that view, that generally, house prices do go up in nominal terms over time.
2. The chief reason behind historical experience is no mystery. It is inflation, the excess supply of money, especially cash and credit, relative to the goods and services produced in the economy.
3. Politicians and banking interests live off inflation so defined, as it is their principal tool for sucking the juice (purchasing power) out of the people’s earnings and savings.
4. Ergo, they have no incentive to return the system to sound money, and hence a return to sound money is unlikely.
5. As long as we stay with fiat money, inflation will continue, as that is the principal reason why sound money is rejected in favour of fiat money.
6. Therefore, other things being equal, if, and as long as, inflation remains, so will a generally upward trend over time in nominal house prices.
Which of these premises do you reject, and if none of them, what important factor does the argument miss to render its conclusion, which is the general view you seem to call into question, false?
Well, here is something Glenn Stevens and Co can start chalking up for their record of little victories, and there will surely be lots more to come:
http://www.abc.net.au/news/stories/2009/10/20/2718646.htm
Not having a crack at you Peter, just a tongue in cheek comment about the nature of selective reporting that’s happening. I’m not sure you’ve copied my point about the clearance rates. Are we blindly believing the figure or do we dig deeper, discover that the sample size is materially reduced by unsold properties and a clearance rate of more like 50% is reported as 80%? If the figures can be misleading at times why is it the key pillar in the industry’s advertisement of the market’s strength? Wasn’t Henry Kaye jailed for misleading clients (the market) and leading them towards transactions he had a vested interest in?
It’s best for all of us (industry practitioners, investors, FHBs etc etc) that the market continues in a sustainable manner. The group that should be showing leadership in Victoria, the REIV, if it is behaving in this manner, needs to be looked at by not only its members but the authorities. I don’t doubt the market is booming, a 6% quarterly growth figure is HUGE (I saw one place advertised at $390K sell for $599K!). With the levels of emotion involved at present, a return to measured/incremental/modest or even flatline growth is out of the question. I suspect we’ll either keep booming or fall off a cliff.
Jimbo fair enough. I don’t live in Victoria so I’m going on stats and anecdotal evidence from people who I trust. I’m in Qld and you will notice we don’t like auctions nearly as much as the Vics, so I really only glance at the auction results. They are a guide for trends. In fact even the median prices can be misleading, but journo’s love them because they bounce around and allow them to make ridiculous statements supposedly supported by hard evidence.
I think that you will find after a few rate hikes the market will cool a little in the new year. I agree it will be interesting.
Daniel (Stingray) Birke… another false pretender. Chris Joye in disguise? Very transparent.
That is rather harsh, PuntPal. One could equally object to wild predictions of doom and gloom, of which you are our venerable, resident prophet. There are so many claims and counterclaims about data being thrown about that they alone can make one’s head swim.
One minor detail, not discussed or considered nearly enough, is the tidal wave of liquidity hitting our shores from cheap money from anywhere and everywhere overseas, where speculators can borrows at virtually no cost and as our rates go higher, we become the primary object of their carry trade. How will this affect asset prices in the near term, and housing in particular? Does anybody know? I am asking that as a genuine question, because the carry trade now is as real, as it is relevant.
PuntPal, I am not sure if this post has come through for you before, so I will paste it in here again:
Have you seen the nightly finance report on the ABC by Alan Kohler?
It shows a chart of the massive divergence between population growth and new houses being built in the country since 1950.
If you believe that divergencies mean anything, this is an eye opener. As they say, a good picture says more than than a thousand words.
The link is here, and once you are on the page, you will find the finance report on the right hand side of the page under Featured Media. Unless you have seen it already, it is well worth a look, and I will be most interested in your comments.
http://www.abc.net.au/news/business/
CB, thanks for continuing. I agree that all those factors you mentioned are part of the mix. There is no question that house prices (along with pretty much everything else) do increase in nominal terms over time. That’s the nature of the monetary system we’re living with. However, having said that, there is nothing to say that asset classes can’t have troughs as well as booms, all in the context of an increasing money supply.
I think what we on this blog are discussing/arguing is the nature of that increase. That is, there has been a sustained boom in house prices that is showing signs of a correction being not too far off. What we’re debating is whether that correction will take place and the economic and political factors at play.
I stand by my stance that a correction is inevitable if the government keeps its hands off. But it’s clear the government isn’t going to do that. There is also the issue of the ability and willingness to continue to borrow ever larger amounts based on wages that aren’t keeping pace.
Very good, Ralph. It is a nice and very clear way to pin the nature of this debate. And I suspect that the reason why even creditable experts tend to disagree is that there are opposing forces at play, and several of them, so that the churning currents are nigh impossible to predict. For the sake of summarising them, and perhaps clarifying their influences somewhat more, these appear to be:
On the upside we have:
1. The influence of meddlers, as you say, trying to sustain prices in the near term.
2. The overall, long term effects of inflation, in the face of which a shorter term correction would have to take place.
3. The relative shortage of new houses being built in the face of an intentionally adopted strategy of rapid population growth.
Ralph, would you please view and comment for me on that graph in last night’s Finance Report? this is the link:
http://www.abc.net.au/news/business/
4. Australia is rapidly becoming the target of the carry trades from overseas where there is HEAPS of cheap liquidity available for speculators close to the fire, such as those on Wall Street, where the unit of account is rapidly switching from billions to trillions.
5. Relevant others, such as the CHINDIA trade
On the downside we have:
1. The cold wind blowing in our face from the GFC.
2. Our lenders remaining rather tight with their lending criteria.
3. Stagnating wages, and the loss of working hours we have experienced and from which we are still to recover.
4. Any others that I have missed.
So, on the balance of probabilities, some deem a near term significant correction inevitable, while others view the same as very unlikely. Which of these factors is going to be powerful enough to overwhelm all of those on the other side? Or is it going to be something completely unexpected, out of left field, as it were, a black swan event that is not even on the horizon that is going to bring the whole house of cards tumbling down, while we concede that both theoretically and practically, the underlying potential for that to happen is there, given the ever mounting debt?
If I had to make a bet, after reading through that list again, I must say that considerations of those pros and cons does kind of leave me inclined to cast my vote for the upside. Apparently, there is a saying on Wall Street, that you should never ever bet against the Fed.
For that it’s worth, I would not want to make a bet against the RBA.
I just wish I knew where the RBA’s true commitment and allegience lie, as I am not at all confident that we, or the market, really have its measure.
cb,
I’m with you on the major challenges in trying to read the state of the market and industry at present. We keep hearing about a housing shortage but aspects of my research and market exposure suggest otherwise. One of the areas in which I’ve invested and undertaken developments is to the west of Melbourne (Point Cook, Tarneit etc). These suburbs have grown exponentially over the last 10 years and have been considered ‘good bets’ with new infrastructure on the way and their proximity to the city (compared to similar developments in the SE). But in researching new prospects over the last 12 months, my gut feeling was there was an oversupply. I recently updated my data and the results were disturbing. Tarneit is showing a rental vacancy rate of nearly 13% and Point Cook 7%. The discounting that is occuring to attract tenants is bordering suicidal (see Refind.com.au). Increasing the supply out there would be foolish.
What we naturally have is a high level of fragmentation. I’m sure there are many suburbs across the country with vacancy rates below the healthy 3%. Many of Melbourne’s are above. Whilst a good number of people want a family home within a 5km ring of their capital CBD, this is no longer possible and short of building more high density apartments, there is no other solution in these areas. The big question I have is whether the market will ever become elastic enough to encourage people away from the boom areas? With the employment, entertainment, transport, cafe etc etc hubs all centred in CBDs they’ll be doing it under great duress!
Thanks Jimbo James. That is very interesting. I does indeed that the overall landscape is fragmented, and that some places may well be ripe for correction. Mind you, if suburbs as favourably located as the ones you mention, it will not take too long for any overflow of unsatisfied demand to make its way across and fill the present hiatus quickly, as soon as there is a noticeable correction. That would require, however, that other areas of the city do indeed have the requisite surplus demand, and are not similarly flooded with fresh supply.
“”"”"”"Can someone please explain where all this money is coming from to keep pushing prices up? Excess liquidity (i.e. inflation)? Wage growth (not that I’ve heard)? Foreign investors (some suggest)?
Last time I checked wages growth was not 10% / year – so where is this money coming from, and / or which part of the economy is this being diverted from? “”"”"”"”"”"”"”
i reckon its “BLACK MONEY ” being laundered from the drug trade
anyway its gotten to the mega greed stage in australia with these house prices to the point it will get crashed & burned
Lol, etch, now I am tempted to ask you, also: Are you taking some chemical substances? hahahaaa
no i am not …i have nothing to hide ……..sorry to disappoint YOU
Couldnt find the housing graph cb – can you email the actual link to the graph because I spent a while looking. That kind of long range data would be out there. I just dont have time to find it
PuntPal – I checked but the site is not functioning properly at the moment. The graph was part of Alan Kohler’s nightly Finance Report on the ABC, but the front page always updates the link to the latest report out, so we would need to try to find out if there is a way to access historical reports. I will try again later. I would love to be able to actually locate the chart all by itself, because the one I have seen simply appeared as part of the video, which you have to pause for a better look. Anyhow, since it was the 19 October report, we would have to find a way of accessing it. I seem to remember that the chart itself was produced by the ABS and some other body, so it could well exist independently somewhere. Maybe one of our more erudite and net savvy members will come to the rescue.
Everybody: HELP!!!!
Found it cb – discussion in other thread
Daniel (Stingray) Birke -
you’re an imbecile!
Nice little resource thanks guys – seemed to work for me!
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