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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?
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miz 8:59 am 03 Nov 12

*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!

Jethro 10:19 pm 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”.

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.

LSWCHP 9:21 pm 02 Nov 12

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?

bundah 2:35 pm 02 Nov 12

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

bundah 2:33 pm 02 Nov 12

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 🙂

Tetranitrate 2:05 pm 02 Nov 12

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.

breda 1:57 pm 02 Nov 12

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.

Tetranitrate 1:42 pm 02 Nov 12

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.

breda 1:24 pm 02 Nov 12

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.

NoImRight 1:18 pm 02 Nov 12

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.

Tetranitrate 12:58 pm 02 Nov 12

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.

arescarti42 12:53 pm 02 Nov 12

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.

Tetranitrate 12:35 pm 02 Nov 12

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.

Watson 12:21 pm 02 Nov 12

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!

devils_advocate 12:13 pm 02 Nov 12

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.

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

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.

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.

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.

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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