SMH are stirring the house price debate

[Donovan83]

It's okay, the ABC has clearly forgotten that this isn't a bubble. Australia is different, it could never happen here. Prices only ever race upwards (excuse the sarcasm).

The issue is that this may trigger a bit of a spiral - all these 'astute' property investors will realise that, without future capital gains to compensate for the negative returns on the asset, try sell, lowering prices, making even more people want to sell, triggering drops in prices... and so on.

For owner occupiers it's kindof irrelevant though. Doesn't matter what the value does, in the long term it'll recover.

[AFreshStart]

It's okay, the ABC has clearly forgotten that this isn't a bubble. Australia is different, it could never happen here. Prices only ever race upwards (excuse the sarcasm).

The issue is that this may trigger a bit of a spiral - all these 'astute' property investors will realise that, without future capital gains to compensate for the negative returns on the asset, try sell, lowering prices, making even more people want to sell, triggering drops in prices... and so on.

For owner occupiers it's kindof irrelevant though. Doesn't matter what the value does, in the long term it'll recover.

As you shared, the people that are going to be hardest hit are those that are investing, many heavily so, but to owner occupiers like ourselves it's largely irrelevant.

The thing is, as I've mentioned before, is there ever REALLY a good time to get into property? So many are waiting on this "bubble" to burst in the hope they'll be able to net a "deal", but even if we see a drop of 10-20%, between now and next year properties off plan here in NSW are still selling like hot cakes

We were thinking about it last night. We bought 6-months ago, already properties in our block have sold for $40K more than we paid, our twin unit sold for $12k more than ours 2-weeks after we bought. Off plan units in neighbouring developments are going for a minimum 15% more than we paid. The same developers of our block have sold ALL the units on offer in their new development not even 200m from ours, to be completed late 2016 for 20% more than we paid.

Had we waited, or bought off plan, we'd still be stuck renting, tying up part of our capital in the deposit and only settling a year and half after buying. We have NO intention of selling, but looking at it pragmatically, even if the prices fall 20%, we'd be back to where we started, and even a 20% drop would be drastic.

Cheers

Matt

[Tiermelk]

even if the prices fall 20%, we'd be back to where we started, and even a 20% drop would be drastic.

:offtopic:But prices rising by 20% and then dropping by 20% does not leave you in the same situation. ($100 + 20% = $120 then $120 - 20% = $96) Just saying

[AFreshStart]

Tiermelk,

Semantics. Married an SM auditor with one of the Big 4, thank goodness finance is her job, now excuse me while I go back to cleaning the house

What I meant by being in the same situation is more along the lines of being in Aus another year, without a home, paying money into someone elses bond. As shared it wasn't an investment property but as an owner occupier. The longer we waited the harder is would be to get into the market, if banks are already tightening lending and there is an interest rate hike, even with a drop in property prices it would be harder to gain access to the finance we needed.

Cheers

Matt

Edited October 14, 2015 by AFreshStart

[Donovan83]

What I meant by being in the same situation is more along the lines of being in Aus another year, without a home, paying money into someone elses bond.

This isn't true in all situations. Instead of paying rent to a landlord, you're paying interest to the bank. Even if you paid a 50%+ cash deposit for your property, you're still foregoing the risk free return interest rate of around 2.6% after tax on that deposit.

There is a break even point where buying at bubble-inflated prices is better (if you ignore the risk). It only works if you add the cost of interest on any mortgage, and also the foregone interest income you would have received on your deposit, and then compare this amount to the rent you'd be saving by owning.

The longer we waited the harder is would be to get into the market, if banks are already tightening lending and there is an interest rate hike, even with a drop in property prices it would be harder to gain access to the finance we needed.

But, unless you adoped a hedonistic lifestyle and spent the extra cash you'd have available, you'd have saved a larger deposit. It is MUCH cheaper to rent, because rent hasn't outstripped inflation by much, despite the supposed supply issues with housing.

Also, most of the increase in the value of property in Australia isn't due to some magical foreign investment cash cow. There definitely is an element of that - but house prices have grown by largely the same percentage that residential bank mortgage books have grown. If they start closing the tap that inflated this bubble, prices will either stagnate or drop. There is no other large source of funding to prop things up any more.

A higher deposit plus lower property prices would probably not have much of an affect on your ability to get finance. This is another thing the real estate industry likes to use to scare people into buying now as if there is no tomorrow.

Edited October 14, 2015 by Donovan83

[RYLC]

Renters have to factor in constant moving. I a a member of another forum and most people on there are renters. On average they have to move every 2-3 years. Moving costs are usually a couple of thousand depending how much they can do themselves and sometimes also involves a change of schools (plus uniforms etc) for their kids. These people are middle to low income earners and are all looking for the lowest possible rent so are limited by that as well. There is also the cash flow issue of having enough money to put down a bond on a new place while still not having the old bond returned yet.

So it is not as simple as doing the calculation on buy vs rent vs invest in share market in a paper exercise.

[AFreshStart]

Donovan83,

As I've shared we've bought a place that costs us as much to rent as own, the bank would have loaned us more, but we choose to live well within our means and bought with that in mind.

We've bought as owner occupiers and our home is part of our long term investment plan, but isn't our only investment. Say what you will about property, but much of the wealth we have accrued over our short lives has been due to property. Both properties we owned in South Africa realized an almost 90% return on investment within 5-years which allowed us to put down a considerable deposit on our property here, so we're grateful we didn't sit around to get into the market.

There are of course other ways to invest, be liquid, playing it safer with lower interest rates in cash savings, or taking a long term approach with stock investments etc, but we wanted a place to call our own, to put down roots, invest in our community and it's part of our long term investment plan, but most of all is the value it provides in being a shelter to us and our children, providing consistency and security.

As RYLC pointed out, your figures above don't factor in moving costs, the change of schools, community etc.

You are approaching it as an upwardly mobile person, which is great, but each persons needs are going to be different and have a different set of circumstances.

Cheers

Matt

Edited October 14, 2015 by AFreshStart

[RedPanda]

We are also going to be owner-occupiers, and for us the considerations are much the same: We want to settle down in a place that is ours, where we can change it if we want, and don't have to hope the landlord likes us, or wants to keep his investment. I would like to find out what it's like to live more than 10 years in one home, and grow into the local scene.

So for us, planning on building as soon as we can get the finance (steady job etc), it would be marvelous if the prices slacked down a bit by 2017.

The considerations to take into account are a lot different when comparing investment property and a home to live in, on a long term basis.

But of course I'll be watching the market with beady eyes, it helps to know what's going on.

[monsta]

Westpac to raise home loan interest rates http://ab.co/1QpBkcJ#abcnews

I guess they are planning for a market where there will be fewer home loans given out. They can no longer justify their low rates on the basis that they bring in extra business.

Could this be the beginning of the end for the home loan price wars?

[RYLC]

Companies such as Aussie Home Loans were formed to take on the monopoly on interest rates with the big banks where there was no choice before. So no the home loan price wars will not end (organisations will still need to win your business). What may change is the ability to GET a loan of the SIZE you want.

[Donovan83]

Companies such as Aussie Home Loans were formed to take on the monopoly on interest rates with the big banks where there was no choice before. So no the home loan price wars will not end (organisations will still need to win your business). What may change is the ability to GET a loan of the SIZE you want.

Which would mean less money would be available to prop up the overinflated bubble, surely?

[RYLC]

Which would mean less money would be available to prop up the overinflated bubble, surely?

The article says Westpac. I dont see the others following like lemmings.

Also some would say that the housing bubble in Sydney is being driven by Chinese investors who are often cash buyers or source their funding in China so no impact from a lending point of view. Actually only makes it harder again for first timers and locals.

[Donovan83]

Except that the influence of foreign investment in property in Australia has been proved to be overstated - the majority of the reason for the increase is the availability of cheap and easily given credit.

http://www.domain.com.au/news/foreign-buyers-account-for-1-per-cent-of-australian-home-sales-new-research-20150902-gjdycq/... I'd have liked to quote a more credible source, but I guess it says a lot that even Domain (and Realestate.com) are noting something negative about the market. They usually constantly talk it up.

Westpac might be the first, but it indicates a trend. The reason for the increase is the higher capital holding requirements being imposed on banks by APRA - the reason they're increasing this requirement is to try put a band aid on years of risky lending to all and sundry.

It's really a bit of an ugly storm brewing - tightening credit rules, a slowing economy, increasing supply, all at once.

http://www.abc.net.au/news/2015-10-13/sydney-housing-prices-to-fall-because-of-greater-supply/6850566

Edited October 15, 2015 by Donovan83

[RYLC]

Probably have to wait and see then...

We've been here 15 years and every year hear the same thing about the property market (except for the boom of 2001+ when GST came in and prices took off).

I think that's why people don't believe it will drop. It's the same wolf cry every year.

Probably time something happened though just to get "the recession we had to have" out of the way.

Edited October 15, 2015 by RYLC

[Donovan83]

Dun dun duuuuuuuun

http://www.abc.net.au/7.30/content/2015/s4332691.htm

The presentation is a bit sensationalist... but the gist of it is there.

Edited October 16, 2015 by Donovan83

[RedPanda]

I would love to get into the market at a lower price in 2017.

[ottg]

Nothing new in the ABC report. Housing markets don't change overnight

Anyone who bought in a heated market and wants to sell, just to find out the mortgage is higher that the price, is an idiot.

However market corrections only affect those who wants to buy or sell but for the rest of us it doesn't matter.

Unless if you purchased on the borderline of affordability but then just fix your home loan rate even if you pay a few points more.

Obviously none of the above counts if you looses your job, but then either way you in trouble!

The lastest NAB Qurterly report here: http://business.nab.com.au/wp-content/uploads/2015/07/Residential-Property-Survey-Q2-2015-Overview1.pdf

So if we have the same discussion again in 3 months time just refer back to the report - its all there - no surprises except for ostriches!

[RedPanda]

So what I gather from that, specifically for Melbourne, is that the house prices won't take a nose dive, but the run-away growth will slow down a lot. That's also ok. Although they did caution that if the interest rates go up then this effect will be more pronounced. So we'll have to see if other banks do in fact follow Westpack.

[ottg]

Spot on - just a market correction however I'm not seriously looking at any market indicators currently.

When appropriate; what you really need is a more detailed report looking at individual areas, as some areas perform better than others.

Once ready to analyse the different markets I rather purchase 3-4 most appropriate reports @ ~$300 a piece to make a decision - then I know it reliable and not manipulated. The free web reports I normally use to get a ''feeling'' (or to back an opinion) before deciding to spend money on other reports!

Hope it helps!

[rozellem]

Just a bit of useless info: In Sydney, with so many wealthy Asian buyers on the look out, estate agents will tell you what Asian families will NOT buy (types of roofs, proximity to overhead wires, etc). Out of superstition and cultural habits. We all know 8 is their lucky number (try booking a Cesarian Cection for the 8th of Aug!), but in newer high-rise blocks in Chatswood (very popular with Asians) you would not find a 4th floor, or an apartment 4. Its deemed very unlucky. This might have contributed to us securing our no.4, two and a half years ago. Who knows.

[Mara]

@ RedPanda, you say you would be happy for a drop in the prices as you wish to build? I think that may not be affected by any drop... land in Australia is your most expensive part of your build, if you are within the metropolitan area of Melbourne. You would only find land on the outskirts of Melbourne where the land price may be the same or lower than your build price. Even here in Sunbury in the outer north west, the new blocks going on sale are in the vicinity of $200,000 - $300,000 and you can have a fairly large home built for you by one of the known builders in the region of $250,000 to whatever fancy things you want in it.

Just my view... when we bought our land in Sunbury in 2002 we paid $110,000 for 1300sqm, the blocks that I have quoted prices for above are only around 500sqm.

[Donovan83]

When appropriate; what you really need is a more detailed report looking at individual areas, as some areas perform better than others.

Once ready to analyse the different markets I rather purchase 3-4 most appropriate reports @ ~$300 a piece to make a decision -

Are you talking about the RPData report stuff? You can get those for free from a mortgage agent if you ask nicely and bat your eyelids

I totally agree. Basically, anything that the Newscorp media (ie, other than the ABC and a few others) says is to be taken with a pinch of salt. Anything that estate agents or their related industries say is also to be ignored - I am surprised that the estate agent in the video didn't go on to spruik about how, now that prices are starting to drop, there's never been a better time to buy before you miss out!

Lastly... the banks have a HUGE vested interest in rising house prices. Their business is lending money, the more money they lend, the more interest they charge, and the better their profits look. The housing outlook reports by the banks are also probably subject to quite a bit of bias because they don't ever want the overvalued assets pledged as security against their loan book to drop in value.

If things play out as predicted - inner city apartments are in for a burst, outer lying suburbs are in for a burst. Houses in the inner rings in desirable suburbs will be mostly fine (might just stagnate), units and vilas in the inner ring will be in for a drop (but not as bad as inner city/outer suburbs). For me this is sortof good news - I'd like to get a little unit/villa somewhere not too far out.

What is nice is that the worries about being priced out of the market permanently are now gone, especially in Perth. The longer I wait, the bigger percentage deposit I'll have - because I'm saving more deposit and prices are dropping or staying the same. Meanwhile, rent is still SO cheap compared to buying, and is set to get even cheaper with all the new apartment towers going up here.

[ottg]

@Donovan - my preference for paid reports is residex here http://www.residex.com.au/

Very specific they provide raw data which I then stick into a spreadsheet for further analysis.

http://www.residex.com.au/documents/NSWsuppSep13_SAMPLE_SUPPLIMENT.pdf

Used to have a shared paid rpdata account - not exactly what I was looking but once you need to look at a specific address / plot then you can see the owner, boundaries, zoning and historic sales prices

Much of the info is available elsewhere eg http://profile.id.com.au/

Edited October 19, 2015 by ottg

[RYLC]

You can find a fair bit of info on a specific property at www.onthehouse.com.au

Edited October 20, 2015 by RYLC

[RedPanda]

@ RedPanda, you say you would be happy for a drop in the prices as you wish to build? I think that may not be affected by any drop... land in Australia is your most expensive part of your build, if you are within the metropolitan area of Melbourne. You would only find land on the outskirts of Melbourne where the land price may be the same or lower than your build price. Even here in Sunbury in the outer north west, the new blocks going on sale are in the vicinity of $200,000 - $300,000 and you can have a fairly large home built for you by one of the known builders in the region of $250,000 to whatever fancy things you want in it.

Just my view... when we bought our land in Sunbury in 2002 we paid $110,000 for 1300sqm, the blocks that I have quoted prices for above are only around 500sqm.

Hmm...that is not what I want to hear right now...

But regardless of what I want to hear, if it's true it's true. I guess we'll just have to wait and see in any case, nothing else we can do to rush things along.