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So house prices can never, ever, go down eh?

By johnboy - 1 November 2012 73

The ABC has bad news for the real estate bulls who spent years telling us that up was the only way real estate prices could go:

New figures show house prices in Canberra dropped 1.3 per cent in October.

The latest RP Data-Rismark report has found the median house price in Canberra is now $490,000, the second highest in the country behind Sydney.

What’s Your opinion?


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73 Responses to
So house prices can never, ever, go down eh?
31
Sandman 5:31 pm
01 Nov 12
#

dtc said :

Another possible reason is that a lot of the houses that have been bought over the past year have been in the newer suburbs and priced below the previous median. Which doesnt mean – necessarily – that house prices have falled, it just means that more cheaper houses have been sold.

Spot on. Flooding the market with $300,000 1 bedroom apartments won’t exactly help the figures.

Where do they get the figures from? Sales only, or are they reevaluating every house in Canberra every month? If its only sales then we all know that high dollar houses aren’t exactly selling like hotcakes. The houses are still there though, and still worth the money. They’re just not changing hands. October would have to be one of the worst months for buying too. By the time contracts exchange and settlement is up its a bit too close to Christmas to be uprooting the family and setting up elsewhere.

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32
drfelonious 6:09 pm
01 Nov 12
#

The Canberra housing market is totally and utterly screwed. If you can’t see that you aren’t looking cause you don’t wanna look..

More and more rentals and houses for sale every week on Allhomes and most of em aint getting sold or rented. It’s been a good jig, but by God the jig is up. The only way is down now and the only question is how fast.

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33
Tetranitrate 6:24 pm
01 Nov 12
#

KB1971 said :

It would be interesting to see the stats on who actually owns the houses to see what the ratio of rentals is in relation to the cost rise over the last 12 years because the “rental housing shortage” that has been around for the last few years seems to disprove the negative gearing theory.

There’s actually a school of thought that claims negative gearing reduces rental availability, particularly in low rental yield markets since if you chose NOT to rent out your property, you get that much bigger tax loss. If you’re in a market with low gross rents, expect decent capital gains and can provide the cashflow, it’s possible for renting the property out to just be not worth the trouble.
Prosper started doing surveys based on water use a few years ago and reckoned they found quite large numbers of so called ‘speculative vacancies’.
http://www.prosper.org.au/2012/06/20/speculative-vacancies-in-melbourne-report-2012/
There may be some issues with the methodology, but it’s certainly something to consider.

Either way, it’s a verifiable fact that 90% of negatively geared properties are existing properties, so it’s hard to see how it does anything significant to improve rental availability, since if an investor outbids a potential owner occupier for an existing house, then rents it out, the net change to the rental market is going to be basically nothing as the potential owner occupier is still going to be renting.

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34
milkman 8:52 pm
01 Nov 12
#

Meh.

We always knew a period of stagnation would occur. Only a fool thinks prices increase constantly. We’ll have a few years of prices going nowhere just like during the 90’s, then it will take off again. There’s too much money in this govt town of ours for it to do much else.

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35
Watson 9:03 pm
01 Nov 12
#

Tetranitrate said :

Clown Killer said :

Real estate prices go up, they stagnate and they go down. if you look at the long term trend, its onwards and upwards.

Absent of bubbles you’re probably better off in bonds and equities in real terms. We’ve only had massive *real* gains in the past 15 years.

Clown Killer said :

As with any major investment – it’s time in the market … not timing the market … that will lead to the best result.

This is terrible advice – to buy from 1997 to 2001 or so would be have been one of the best decisions anybody could have made thanks to the government assisted bubble that later pushed prices to the moon. Buying and holding now just makes you the greater fool onto whom boomers can unload their dangerously overpriced IPs.

Don’t buy now!

Because I’ve only been waiting 10 years so can easily wait another 10? Great advice to those paying rents that are only slightly less than the mortgage repayments on a small house.

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36
KB1971 10:15 pm
01 Nov 12
#

watto23 said :

I’m thinking that the local government released land at a slow enough rate to keep the demand high and the prices high. The government won out by collecting more in stamp duty and the developers are rolling in money too.
Its a reason why stamp duty isn’t necessarily a fair tax and why its being phased out, despite the triple rates scare campaign.
If the government wants to get more money into the coffers without stamp duty, they need to release more land (to increase the number of rate payers) or increase rates. One is clearly more popular than the other among voters.

But that doesn’t make sense either as the more land/houses get sold the more stamp duty the Government gets, I would have thought that it would have been in the local Governments best interests to release more land if they wanted more revenue. Or do i have the bull by the tail?

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37
LSWCHP 10:45 pm
01 Nov 12
#

arescarti42 said :

The real story here is not that prices are down 1.3%, it is that they are down 1.3% despite 5 interest rate cuts over the last year, taking rates to GFC lows.

If the mining boom starts winding up next year like the RBA reckons it will and we still haven’t managed to get the housing ponzi rolling again, it is game over for Australia.

Very astute observation. And I don’t see housing going up again significantly either. It might be time to batten down the hatches.

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38
Tetranitrate 11:55 pm
01 Nov 12
#

Watson said :

Because I’ve only been waiting 10 years so can easily wait another 10? Great advice to those paying rents that are only slightly less than the mortgage repayments on a small house.

Gross rental yields in Canberra are ~4.8% last I checked, though the rental market is definitely softening now. CBA standard variable rate is 6.60% presently, though it’ll probably be lower by the end of next year, add in land tax and in a flat or declining market, with ongoing federal government cutbacks and more incoming if Tony gets in, I don’t see why anyone would be in a rush to buy.

(Obviously repayments are more than just the interest, but amortization is actually paying off the loan so it’s analogous to the saving most renters are presumably doing.)

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39
enrique 7:10 am
02 Nov 12
#

Watson said :

Because I’ve only been waiting 10 years so can easily wait another 10? Great advice to those paying rents that are only slightly less than the mortgage repayments on a small house.

It’s a financial calculation decision… run the numbers against buying vs selling on an excel spreadsheet (there’s plenty on the net if you want help setting one up). Try out a few different scenarios of where you think the cost of renting is likely to go and where you think the capital value is likely to go over the next few years and based on the results decide what you want to do.

At present rents have been softening and median house prices are declining.

In the foreseeable future 2-3 years there are still a fair number of new apartments coming onto the market and there is unlikely to be any jobs increases in the Federal public service. Therefore, the demand for rental housing is likely to stay flat or go down hence rents are unlikely to go up too much. This may also have an impact on the continuing trend of house prices (but that also depends on what stimulus measures the RBA and the incumbent govt. carries out to get the sector going)… lets say housing prices are likely to go sideways or mildly down.

In the medium term 3-5 years, perhaps we’ll see a slow recovery as the debt troubles in Europe begin to gradually improve and the US claws its way out of its hole? But, there is of course the softening resources sector here at home which is likely to hit us in the coffers.

Over the longer term 5-10 years… anyone’s guess really. Baby boomers are then well and truly starting to retire so they’re no longer fuelling the housing price boom. We start moving into that ageing population scenario. Perhaps retirees start offloading their investments to downsize/fund their lifestyles? What is the government thinking of doing with immigration numbers – do they still want a ‘big’ Australia?

In part, it comes down to which scenario you calculate will put you in a better position financially and that depends on your own situation. There is also the factor of non-financial aspects in your decision making…very much a subjective thing.

Let us know what your calculations show, judging by the number of people posting to this story, there are plenty of people who would be legitimately interested in it.

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40
bundah 8:28 am
02 Nov 12
#

One could only dream,if only greed wasn’t king!

“Looking back to 1970, the median house price in Sydney was $17,750 and in Melbourne, it was $12,670. When compared with the average income of $4556 in Sydney and $4498 in Melbourne, it took only 3.9 years and 2.8 years to purchase the average house in these respective cities on that average income. Imagine if the income-to-house-price metric remained stable from 1970 to this year. That would result in the average house price in Sydney being $258,180 today and $176,680 in Melbourne”.

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41
Felix the Cat 9:19 am
02 Nov 12
#

KB1971 said :

watto23 said :

But that doesn’t make sense either as the more land/houses get sold the more stamp duty the Government gets, I would have thought that it would have been in the local Governments best interests to release more land if they wanted more revenue. Or do i have the bull by the tail?

Yes, but if they release too much land there will be a glut and therefore an oversupply and prices will come down, so less revenue for govt. I guess though if house/land becomes cheaper then that encourages people to buy but there are only so many people in the market for a house, regardless of the price.

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42
Watson 10:27 am
02 Nov 12
#

Too late for me as I’ve already signed my contracts. And will be paying about $50 a week more for my mortgage than I’m currently paying in rent (and I was paying under market rent for my area).

Economic predictions are probably useful for investors or those that actually have money enough to have choices.

For those near the bottom of the pile who manage to scrape some savings together and are thoroughly fed up with being turfed out of their house by investors who decide that the market is right to ‘Sell! Sell! Sell! Now!”, you just buy when you are able to and don’t allow yourself to spend another thought on where the market is at or where it’s going.

Honestly, to the average owner occupier it doesn’t matter at all what the house prices do. I will only ever sell my house to buy another to live in, so it’s all same same to me. And at least rates won’t increase by as much if the land goes down in value, or so I understand.

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43
breda 10:42 am
02 Nov 12
#

bundah said:

One could only dream,if only greed wasn’t king!

“Looking back to 1970, the median house price in Sydney was $17,750 and in Melbourne, it was $12,670. When compared with the average income of $4556 in Sydney and $4498 in Melbourne, it took only 3.9 years and 2.8 years to purchase the average house in these respective cities on that average income. Imagine if the income-to-house-price metric remained stable from 1970 to this year. That would result in the average house price in Sydney being $258,180 today and $176,680 in Melbourne”.
——————————————————————————–
Oh please, not this apples and oranges comparison again. The comparison is not valid because:

1. Real wages (ie the buying power of wages) has increased by more than 50% since then;
2. Female workforce participation has increased, further raising real household incomes;
3. There are a raft of handouts and tax breaks for families now which did not exist then – meaning that many families with children effectively pay little or no income tax;
4. Houses are more than 50% larger now than they were then, with more features;
5. Cities have grown substantially. This means that there are more expensive properties in what were once ‘undesirable’ suburbs, attracting very high prices. Paddington in Sydney and Carlton in Melbourne were regarded as dumps in 1970. The effect on median prices is to push them up, but there are still suburbs that are regarded as dumps with cheap houses elsewhere. Those houses, however, are generally much better quality than the derelict inner city terraces of 1970.

Here’s the news – it has never been easy for average people to buy a house. The Golden Age didn’t happen. Stop whining and save like your parents and grandparents did – and as I did. It means going without, not just seeing if there’s anything left after you’ve spent in the usual way. Always has.

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44
enrique 11:20 am
02 Nov 12
#

Watson said :

Economic predictions are probably useful for investors or those that actually have money enough to have choices.

Honestly, to the average owner occupier it doesn’t matter at all what the house prices do. I will only ever sell my house to buy another to live in, so it’s all same same to me. And at least rates won’t increase by as much if the land goes down in value, or so I understand.

After you do your rent v buy calculations, if it turns out that someone is financially better off waiting a few years in a declining market then why wouldn’t they? It could mean a saving of thousands for them. Just ‘jumping in’ without running the numbers doesn’t make sense if money is tight.

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45
vg 12:05 pm
02 Nov 12
#

Please. Based on recent sales data I can conservatively say my house is worth 50-60% more than what it was when I purchased it 8 years ago….and I have significantly more equity. The house sold to buy this one sold for 260% of its purchase value after 7 years, yes folks, over double.

The Canberra housing market is fine. Most of the ‘informed’ comments are made by people who aren’t in it

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