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

Wouldn’t dream of it, Woody. God forbid.

LSWCHP said :

devils_advocate said :

I didn’t make myself clear, but there’s a bunch of things going on in Australia and internationally that make me think we’re not heading into a time of unlimited prosperity.

For example…

The Eurozone appears to be heading towards implosion, starting with Greece and the other countries around the Med. Peak oil resulting in a hit to energy supplies. Climate change (eg Superstorm Sandy) affecting economic outcomes worldwide. Slowdown in the Chinese economy affecting the mining boom in Australia with follow on effects for the rest of the country. Mitt Romney and the Republican loony warmongers going gangbusters in the US, potentially leading to military strikes against Iran and large scale warfare in the Muddle East, resulting in a further hit to oil supplies. Potential biffo between China and other countries around the resource rich areas in the South China sea. Tony Abbot and his crew getting elected and smashing the APS in Canberra etc etc.

On the other hand, the positive news is…ermm…ahh….can someone help me out here?

I understand that economic conditions globally aren’t fantastic, but I was more referring to housing prices and what impact they have on people’s decisions or lives such that they should be “battening down hatches” which I take to mean a reference to a storm-like disturbance or upheaval.

Think about existing homeowners. If the paper value of their house decreases, what actual impact on their day-to-day lives does this have? Sure they have the annoying realisation that they could have been paying less on their mortgage than they otherwise would be, but life goes on as usual – in fact, the drop in house prices and deterioration in economic conditions more generally probably means the RBA will cut interest rates (more on that in a second).

Sure, homeowners could lose their job and therefore their house, but losing one’s job is a problem in itself, not symptomatic of house price reductions per se. Although I suppose that if you are “underwater” on your mortgage it could make a shitty situation incrementally worse. Again, in canberra, the risk of outstanding loan value > house value is small, the risk of losing one’s job (and not being able to find another) is, at present, small, and the risk of both these things together is smaller still.

Again, incomes are high and stable (for now). Canberra is somewhat better insulated than most places from housing price drops.

Finally, in the past few years, despite the RBA Governor’s public concerns regarding the rise of house prices and private debt in Australia, I have been absolutely astonished at what lengths the RBA will go to in propping up housing prices. They seem to not be content with engineering a soft landing; but rather obsessed with ensuring house prices don’t soften at all. It’s really quite amazing to me and I think probably a bit short sighted. But it is an important factor driving the speed and magnitude of house price declines.

And, of course, if house prices do continue to drop slowly over time, this will at the margins change the decision-making and risk profile of people who, at present, can’t *quite* get into home ownership. Which from their perspective is probably a good thing.

The only potential losers i see out of this are investors who purchased houses relatively recently (last 5 years or so) based not on the NPV of future income streams, but anticipated capital gains, which to me is the definition of speculative. These people took their risk, well-advised or not, and I have little sympathy for them. Also, the social fallout for an individual of taking a loss (paper or otherwise) on their 4th or 5th IP is probably less than that for the individual who resents being frozen out of the market altogether. In net terms there is likely to be minimal social cost or even a small social gain arising out of deflation in house prices.

So in summary, I think life (at least in Canberra) will pretty much go on as normal, maybe some change in tone of boring dinner party conversation, but certainly not any major social upheaval that might warrant any hatches being battened.

the housing dream is so strong sometimes I actually wish for Mr Abbott to become PM so there is a big slash and burn and house prices drop

Just so long as you don’t move into my street. We’re not big on undesirable houso types trying to better their situations, and won’t hesitate to write to the Minister.

*sigh* – the housing dream is so strong sometimes I actually wish for Mr Abbott to become PM so there is a big slash and burn and house prices drop. But then I realise I might not have a job then.
Someone lance that damn housing boil, Please!

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”.

What about household incomes? These days most households have two incomes and house prices reflect the increased ability of the market to pay.

I blame the women’s liberation movement for housing unaffordability.

devils_advocate said :

LSWCHP said :

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

*sigh*

I don’t get the reference to battening down hatches.

I didn’t make myself clear, but there’s a bunch of things going on in Australia and internationally that make me think we’re not heading into a time of unlimited prosperity.

For example…

The Eurozone appears to be heading towards implosion, starting with Greece and the other countries around the Med. Peak oil resulting in a hit to energy supplies. Climate change (eg Superstorm Sandy) affecting economic outcomes worldwide. Slowdown in the Chinese economy affecting the mining boom in Australia with follow on effects for the rest of the country. Mitt Romney and the Republican loony warmongers going gangbusters in the US, potentially leading to military strikes against Iran and large scale warfare in the Muddle East, resulting in a further hit to oil supplies. Potential biffo between China and other countries around the resource rich areas in the South China sea. Tony Abbot and his crew getting elected and smashing the APS in Canberra etc etc.

On the other hand, the positive news is…ermm…ahh….can someone help me out here?

Tetranitrate said :

breda said :

I had a look at your unsourced graph. I don’t regard the source citations as useful – which figures came from where?

What unsourced graph? I haven’t posted any graph.
The only link I’ve posted in this thread was to the prosper article on speculative vacancies.

You want graph i’ll give you bloody graph lol

http://en.wikipedia.org/wiki/File:Real_Melbourne_House_Prices_1965_-_2010b.JPG

Tetranitrate said :

breda said :

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.
[/Quote]
1 is total rubbish because the numbers were based on price to income in the first place. Yes incomes have increased – and prices have increased even further.

2 is also rubbish – female entrance to the workforce had by and large already happened by 2000. If there’d been a big price spike between 1970 and 1990 you might have a point.

3 actually a decent point – for instance handing out thousands of dollars to first home buyers, which is then leveraged up at the very least 5 times, in practice more depending on the LTV. Given it was possible to get 21000 during the GFC stimulus, even with a very conservative 80% LTV that’s putting at minimum an extra $105,000 of purchasing power to every tom dick and harry if they’re deposit constrained. So yes, it’s quite reasonable to blame the government. Keep in mind people can get up to 97% LTV if they really go for it. You do the math. Can’t wait to see how the loans made in 2008/9 in particular fare once we have a real recession, one like the early 90s.

4 is rubbish, it’s the land stupid

5 rubbish. prices on the urban fringes are just as absurd – desirable inner city areas are always going to be more expensive, no s*** Sherlock. Australia did however have massive population growth with resultant urban expansion post WW2 without having the absurd run-up in prices that we have now. It’s not an explanation.

It’s a bubble and it’s deliberate.

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.

Yes, all these younguns should be working 60 hour weeks and never having kids, just like their parents did.
If only I’d been as prudent as those of my parents generation, then I too could have bought an ex guvie in the 90s for 5 figures only to see it soar in value while I sat on my ass. Try as I might I just couldn’t persuade the bank to give a mortgage to a 10 year old, I guess it was just a failure of my work ethic.

One out of five that’s a pretty good effort there Breda 🙂

breda said :

I had a look at your unsourced graph. I don’t regard the source citations as useful – which figures came from where?

What unsourced graph? I haven’t posted any graph.
The only link I’ve posted in this thread was to the prosper article on speculative vacancies.

I was referring to bundah’s post and figures.

I had a look at your unsourced graph. I don’t regard the source citations as useful – which figures came from where? The calculation of ‘real’ house prices is utterly meaningless unless it is disaggregated and adjusted by location and housing type. The same goes for the income figures – incomes are significantly different across locations, and it presumably describes individual, not household incomes. Both of these variables also change over time, so that Darwin in 1970 is nothing like Darwin in 2010, either for income or housing. It does not take into account taxes and transfers either. It also does not tell us what we are getting for our money in terms of quality, which again has changed a lot over time.

It’s the kind of pop ‘economics’ that looks convincing to the untrained observer, but doesn’t stand up to scrutiny.

breda said :

Tetranitrate,there is no point in trying to discuss this with someone who doesn’t understand what ‘real income’ actually means. Not dollar income, ‘real income’. It’s one of those economic thingamahoosiebubs.

Hilarious. Utterly hilarious.
The ratio of real house prices to real incomes is exactly the same as the ratio of nominal house prices to nominal incomes. It’s rather simply maths really, if X/Y = Z, then (X/C)/(Y/C) = Z

But please go on, tell me more about your advanced understanding of economics.

Tetranitrate,there is no point in trying to discuss this with someone who doesn’t understand what ‘real income’ actually means. Not dollar income, ‘real income’. It’s one of those economic thingamahoosiebubs.

Your understanding of changing demographics and property values in cities is on a par with your comprehension of basic economics. Inner city properties which now sell for millions could barely be given away in the late 60s – early 70s. The middle ring suburbs which current buyers who grew up there whinge about not being able to afford were comparatively a long way out of town in 1970, and hence cheaper.

Most families had one car or none, and not everyone even had a landline telephone. Holidays were modest and only the rich could go overseas. The inability to distinguish between wants and needs is perhaps something you might address as part of your savings plan. That’s what previous generations had to do.

I don’t think the local market is going to spiral over the next couple of years, but if you are waiting for a bust – dream on. Reflect also that if the residential market anywhere falls apart, it means the entire local economy will suffer with it. It is not something to wish for, assuming that you want to earn a living and do not find the prospect of thousands losing their homes appealing.

It seems each time this topic starts its the same arguments used. Those that havent bought provide much data on why it was “the right” decision and how house prices are over inflated. Being canny shoppers they are sitting back and waiting for the bubble to burst and will then buy at a magical figure that will somehow justify the interminable years of renting beforehand. Those that want to buy but cant afford it will wail at the many advantages others get either now or in the golden age of house buying in times gone by.There will be many valid arguments about how tax advantages or grants should be taken off those that get them and given to a group that by mere conciidence they happen to fall into.

Im yet to see anyone who has bought saying they wished they still rented .House prices may fall further but Im not expecting a bubble burst. Just an adjustment that will probably even out over the next few years. Even so unless you are very short sighted and bought expecting to turn a house over in a short time it really doesnt matter. If you intend to live in your house for a reasonable period the rises and falls will flow by without you noticing.If youve just bought and need to sell you probably will lose a little but then that could just as easily happen if you bought the wrong shares too.

breda said :

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.
[/Quote]
1 is total rubbish because the numbers were based on price to income in the first place. Yes incomes have increased – and prices have increased even further.

2 is also rubbish – female entrance to the workforce had by and large already happened by 2000. If there’d been a big price spike between 1970 and 1990 you might have a point.

3 actually a decent point – for instance handing out thousands of dollars to first home buyers, which is then leveraged up at the very least 5 times, in practice more depending on the LTV. Given it was possible to get 21000 during the GFC stimulus, even with a very conservative 80% LTV that’s putting at minimum an extra $105,000 of purchasing power to every tom dick and harry if they’re deposit constrained. So yes, it’s quite reasonable to blame the government. Keep in mind people can get up to 97% LTV if they really go for it. You do the math. Can’t wait to see how the loans made in 2008/9 in particular fare once we have a real recession, one like the early 90s.

4 is rubbish, it’s the land stupid

5 rubbish. prices on the urban fringes are just as absurd – desirable inner city areas are always going to be more expensive, no s*** Sherlock. Australia did however have massive population growth with resultant urban expansion post WW2 without having the absurd run-up in prices that we have now. It’s not an explanation.

It’s a bubble and it’s deliberate.

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.

Yes, all these younguns should be working 60 hour weeks and never having kids, just like their parents did.
If only I’d been as prudent as those of my parents generation, then I too could have bought an ex guvie in the 90s for 5 figures only to see it soar in value while I sat on my ass. Try as I might I just couldn’t persuade the bank to give a mortgage to a 10 year old, I guess it was just a failure of my work ethic.

I think i bust this chart out every time there’s a house price argument on Riotact.

For most of the post war period real house prices rose roughly in line with real incomes. The last 10-15 years was a total anomaly driven by a completely unsustainable debt binge, which is finally catching up with us. Unless real incomes start rising miraculously or the foreign credit starts rolling back in, housing is going no where for a very long time AT BEST.

vg said :

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

http://www.youtube.com/watch?v=XB383WkXcqE
suck it.

enrique said :

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.

Then you have to also factor in the cost of moving, possibly more than once. There can be other hidden costs when renting, like the ones caused by bad insulation and inefficient heating ($975 gas bill this last quarter).

Anywho, I will be paying less in interest than what I’m currently paying in rent, so no loss there. And if rents go down significantly in the next few years, I’ll eat my hat.

Waiting to buy based on – often contradictory – predictions is a gamble however you look at it. People have been saying the bubble will burst for years and even during the GFC the prices went up.

I spent years seriously (but seriously!) regretting not buying before that massive boom. Now I’ve finally taken the plunge, I’m not going to spend my life ‘what-iff-ing’ if the prices do plummet. Onwards and upwards and no more landlords!

LSWCHP said :

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

*sigh*

I don’t get the reference to battening down hatches.

You have a town with very low levels of unemployment, very high incomes, and a large population of people whose only opportunity to reduce/defer their PAYG tax liability is investment (speculation) in property. Over the next 6 months prices will drop to the point where it’s worth buying in again. But these effects are all at the margins. That is, it will tip what is currently a finely balanced cost/benefit analysis just over the edge so that it’s worth buying again. Certainly I’ve got my radar back on looking for bargains/short term tax losses.

But I don’t forsee the kind of price movements that are going to suddenly facilitate entry by a whole bunch of people who currently have no concrete plans or deposits saved to buy a house.

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

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.

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.

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.

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.

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”.

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.

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.)

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.

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?

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.

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.

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.

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.

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.

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.

KB1971 said :

Tetranitrate said :

[
Howard’s changes to capital gains tax (50% taxable on nominal gains, whereas before it was 100% taxable on CPI deflated gains – in a low inflation environment this is effectively a massive tax cut) combined with existing negative gearing tax arrangements made chasing capital gains as opposed to rental yields extraordinarily tempting for investors and has created a situation that’s almost bound to cause positive feedback as prices fall since once nobody reasonably expects capital gains, the only real support level is the price level at which a new IP is cashflow positive – and that is still a long long way away, though interest rates may help there.
(Negative gearing is bad enough on its own too)

“first home buyers” grants – these pretty much set off the most explosive phase of the bubble starting 2001, and propped it up in 2008/9.

Ahh yes, I get that but that still doesn’t explain how Thumper thinks the local government was responsible except for maybe questionable land release procedures and arrangements with developers, but the increase want just a local thing.

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.

Tetranitrate said :

[
Howard’s changes to capital gains tax (50% taxable on nominal gains, whereas before it was 100% taxable on CPI deflated gains – in a low inflation environment this is effectively a massive tax cut) combined with existing negative gearing tax arrangements made chasing capital gains as opposed to rental yields extraordinarily tempting for investors and has created a situation that’s almost bound to cause positive feedback as prices fall since once nobody reasonably expects capital gains, the only real support level is the price level at which a new IP is cashflow positive – and that is still a long long way away, though interest rates may help there.
(Negative gearing is bad enough on its own too)

“first home buyers” grants – these pretty much set off the most explosive phase of the bubble starting 2001, and propped it up in 2008/9.

Ahh yes, I get that but that still doesn’t explain how Thumper thinks the local government was responsible except for maybe questionable land release procedures and arrangements with developers, but the increase want just a local thing.

On your post though, I bought my first house in 2001 but the first home owners grant wasn’t the reason we did, we were just ready to buy a house.

While what you say is potentially correct, the average Aussie doesn’t own two houses and has been advantaged/disadvantaged by the massive rise since 2000. We gained on our first house but we were smart about it, we did not over capitalize.

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.

I tend to think the rise has more to do with greed of house owners and real estate agents but that is just the cynical side of me coming out.

KB1971 said :

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.

One could point to a certain party, about to be reinstated, who has been in power over the last ten years and presided over this sad state of affairs.

Not saying that the other mob would have been any better though.

How is it the guvmints fault that the market has been pushing itself along exponentially for the last ten years?

& don’t give me that old chestnut of the stamp duty raising house prices that the real estate people have peen pushing on us through the media.

Howard’s changes to capital gains tax (50% taxable on nominal gains, whereas before it was 100% taxable on CPI deflated gains – in a low inflation environment this is effectively a massive tax cut) combined with existing negative gearing tax arrangements made chasing capital gains as opposed to rental yields extraordinarily tempting for investors and has created a situation that’s almost bound to cause positive feedback as prices fall since once nobody reasonably expects capital gains, the only real support level is the price level at which a new IP is cashflow positive – and that is still a long long way away, though interest rates may help there.
(Negative gearing is bad enough on its own too)

“first home buyers” grants – these pretty much set off the most explosive phase of the bubble starting 2001, and propped it up in 2008/9.

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.

One could point to a certain party, about to be reinstated, who has been in power over the last ten years and presided over this sad state of affairs.

Not saying that the other mob would have been any better though.

How is it the guvmints fault that the market has been pushing itself along exponentially for the last ten years?

& don’t give me that old chestnut of the stamp duty raising house prices that the real estate people have peen pushing on us through the media.

enrique said :

davo101 said :

enrique said :

The Median House Price in Canberra has been going down for a while now…

In real terms it has been falling for quite a while. If you take the ABS house index for Canberra and the CPI real house prices peaked in the March quarter of 2010 and we’re about 7% down from there. Since the end of 2007 house prices in Canberra have managed to keep up with inflation (just).

Good call.

Rents have also started to soften a bit, well at least the asking prices.

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.

correct.

“More affordable” 300m lego blocks @ $400k = Gunners Sytle

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!

There’s a big catch here. It’s possible for Canberra house prices to go down significantly, however this won’t happen unless there’s some kind of radical change elsewhere in the system. One example is that Public Service cuts are carried out in a massive way, another is massive world economy crash. The trouble is that if these kinds of things occur, the people that aren’t currently buying are often the ones most likely to bear the brunt of the economic storm.
So long as there’s a massive amount of Canberra households on really big double incomes, house prices won’t drop significantly.

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.

Given there are cutbacks all over the federal bureaucracy and house prices have been in a slow melt nation wide for ~2 years now this reeks of wishful thinking.
Besides that there’s usually an attempt to account for this in indexes.

davo101 said :

enrique said :

The Median House Price in Canberra has been going down for a while now…

In real terms it has been falling for quite a while. If you take the ABS house index for Canberra and the CPI real house prices peaked in the March quarter of 2010 and we’re about 7% down from there. Since the end of 2007 house prices in Canberra have managed to keep up with inflation (just).

Good call.

enrique said :

The Median House Price in Canberra has been going down for a while now…

In real terms it has been falling for quite a while. If you take the ABS house index for Canberra and the CPI real house prices peaked in the March quarter of 2010 and we’re about 7% down from there. Since the end of 2007 house prices in Canberra have managed to keep up with inflation (just).

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.

The Median House Price in Canberra has been going down for a while now…

According to AllHomes it has gone down every month since February aside from a couple of blips in May and July (most likely due to RBA interest rate cuts)

http://www.allhomes.com.au/ah/act/research/property-report/view?st=y

Here’s another take on it from about a month back…

http://www.propertyobserver.com.au/residential/canberra-house-prices-fall-5-in-june-quarter-bucking-14-national-rise-reia/2012091256521

The trend has been down for about a year now.

A couple of suspected reasons are the effects of efficiency dividends and the spectre of change of government. The current and foreseeable federal jobs market in Canberra isn’t doing much for housing demand.

Another possible reason is the sheer ridiculousness of housing affordability at present. Most 20 somethings/young families are probably quite concerned about just how much it would cost them to buy a place.

From a buyer’s point of view, if you can hang out for a while longer it’s in your interest to do so, wait until the trend starts going up again before committing your money. Right now, with the prices going down, every day you don’t buy is saving you money.

From a short-term/current seller’s point of view, get out now capitalise on whatever gains you’ve made, if you wait any longer you risk losing more and more each week.

From a long-term holder/investor’s point of view, swings and round-abouts really – but where do you think it’s going over the next 5-10 years? That is the question!

From an agent’s point of view – if you were already struggling to get listings and closures during the good times, possibly time to look for a new career?

Even so, bear in mind that the RBA started trying to reverse this trend earlier in the year and again recently with interest rate cuts… they’re committed to trying to stimulate the construction sector before the mining sector peaks and starts shrinking…

Considering that you would have only lost money if you bought in September and sold in October, I’m guessing that there aren’t too many people out there jumping off cliffs.

maxblues said :

Zultan said :

It cost me $26,000 to rent a house for my family to live last year in Canberra. So I figure now that I’ve bought a house I can lose $26,000 (give or take) each year before I’ve actually lost out on anything.

That’s not a bad way to look at it. I haven’t lost out yet…but there is still time…

It’s not a great way to look at it.

If the property cost $26,000 to rent for a year, it’s a reasonable assumption to say that the capital value was probably around $577,777 (this is using a 4.5% income yield after costs).

If the purchaser has saved a 20% deposit AND the stamp duty, they borrowed the remaining $462,222. At 6.0% pa interest that’s $27,733 per year. As the owner rather than tenant, you’ll then need to add on rates and potentially body corporate fees.

If the property price remains flat, it’s a small loss each year ($1,733). If it goes down it’s a bit more.

Housing can build some great saving behaviours, and many value the feeling of ownership rather than being a tenant in which case it’s a worthwhile purchase in spite of the maths.

Like most things though, there’s a bit more to it once you scratch the surface a little. Make your own decision that suits your circumstances, not what you heard around the water cooler.

Zultan said :

It cost me $26,000 to rent a house for my family to live last year in Canberra. So I figure now that I’ve bought a house I can lose $26,000 (give or take) each year before I’ve actually lost out on anything.

That’s not a bad way to look at it. I haven’t lost out yet…but there is still time…

johnboy said :

Holden Caulfield said :

JB’s apparent prejudice against owners of real estate, any real estate, is so cute.

Real estate owners are some of my best friends.

Idiots making housing unaffordable on the basis of foolish cargo cult thinking (and boring me senseless at dinner parties for a decade) on the other hand I’m less fond of.

In that case, my advice would be to not go to dinner parties.

angrymotorist1 said :

This is funny. I’ve made hundreds of thousands of dollars buying and selling houses whilst people have been “waiting for the market to crash” over the last 6 years…

Keep on truckin’!

It’s a coming. I can smell it in the wind.

angrymotorist1 said :

This is funny. I’ve made hundreds of thousands of dollars buying and selling houses whilst people have been “waiting for the market to crash” over the last 6 years…

Keep on truckin’!

I agree, I’ve made hundreds of millions over the last few years in property. I mean its so easy when real estate prices double every 5 years without fail. Only suckers rent.

Real estate prices go up, they stagnate and they go down. if you look at the long term trend, its onwards and upwards. As with any major investment – it’s time in the market … not timing the market … that will lead to the best result.

I like how a 1.3% drop in a month or 1.6% over a year is “bursting the bubble” according to your tags. Perhaps “mild correction” would be more apt?

So who are these real estate bulls you mention, then? Pretty sure that I’ve never, ever heard anyone say that house prices can never, ever go down. Only that the long-term trend for housing is upwards and that over the long-term market-wide it compares favourably to other traditional investments.

Would anyone consider the drop in prices in 1996 a burst bubble? That was a serious drop. I see current price fluctuations now as equally motivated by local and national economic situation rather than investor sentiment.

Now if we can keep that up each month for a couple of years, sanity will prevail!

This is funny. I’ve made hundreds of thousands of dollars buying and selling houses whilst people have been “waiting for the market to crash” over the last 6 years…

Keep on truckin’!

It cost me $26,000 to rent a house for my family to live last year in Canberra. So I figure now that I’ve bought a house I can lose $26,000 (give or take) each year before I’ve actually lost out on anything.

johnboy said :

Idiots making housing unaffordable on the basis of foolish cargo cult thinking (and boring me senseless at dinner parties for a decade) on the other hand I’m less fond of.

Fair enough.

So they made a mistake buying a house 10 years ago? Cherry picking is fun.

Holden Caulfield said :

JB’s apparent prejudice against owners of real estate, any real estate, is so cute.

Real estate owners are some of my best friends.

Idiots making housing unaffordable on the basis of foolish cargo cult thinking (and boring me senseless at dinner parties for a decade) on the other hand I’m less fond of.

JB’s apparent prejudice against owners of real estate, any real estate, is so cute.