House prices fell again in 2012

RPData just released their end-of-year housing data for 2012 and it confirms what many MB readers already knew. 125bps over the last 12 months still hasn’t been enough to get traction under the market and as we roll into the “fiscally responsible” new year 2013 isn’t looking all that great either. The latest uptick in commodity prices should provide some support for national incomes, so that is a positive as long as it can last, but given what we’ve seen in the trend in credit since the GFC that may just result in further down payment of debt rather than increasing asset prices.

With governments across the country all hoping that housing construction will provide some economic support it’s going to be an interesting year for the housing market, but with immigration again on the rise and the RBA predicted to cut deeper they may still be some upside in 2013. For the bulls Sydney and Darwin are still looking good, for the bears there is everywhere else.

This overview from RPData

“Capital city home values remain -5.7 per cent lower than their historic highs of November 2010, however, dwelling values are up 1.8 per cent from their low of late May 2012.

“It is important to note that despite the fact that standard variable mortgage rates have fallen by an average of 85 basis points over the past year and by 135 basis points since October of last year, the housing market has still been unable to record growth in values over the year.

“Home values remain below their historic highs across each capital city and have increased at an averageannual rate of just 1.9 per cent over the past five years; it is clear that the previous strong value growthconditions to which many home owners became accustomed of recent years are well and truly behind us.

“Home values in Brisbane, Perth and Hobart remain below where they were five years ago, whereas the other mainland cities have all recorded significantly lower rates of growth in home values over the past five years thanthey did over the preceding five year period.” Mr Kusher said

Macroeconomic factors, both domestically and internationally, are likely to weigh heavily on the performance of the housing market throughout 2013. It has become clear that adjustments to official interest rates by the Reserve Bank are not having the same impact on consumers as they have in the past.

This is no real surprise given that households are saving around 10 per cent of their disposable income and are showing a preference for saving and paying down debt rather than spending. Consumer sentiment remains quite weak, although therehave been some recent improvements, and demand for credit is growing at extremely low levels with housing credit demand growing at an historic low level. Until these factors change, we can more than likely expectrelatively subdued housing market conditions, with growth rates likely to be somewhere between inflation andwages growth.Finally, rental growth has continued to outpace value growth over the past year.

Capital city dwelling rents have increased by 3.0 per cent over the past year and yields have improved from 4.2 per cent last year to 4.3 per cent currently. Investors are likely to focus more on yield maximisation over the coming year, and positioning for long term capital gains.

Full report below

2013 01 02 Rpdata Rismark Indices

140 Responses to “ “House prices fell again in 2012”

  1. Peter Fraser says:

    2013 will present opportunities for the astute.

    • PETER_W says:

      Agree 100% with you

      World wide there are multi tens of trillions of dollars of assets to chose from…

      Just not this specific asset that you’re spruiking

      • Peter Fraser says:

        I didn’t name an asset, nor did I name a geographical area if property is your interest.

        I’m not the spruiker here, you are closer to that description than I.

    • For the astute investor NOT to purchase a deflating asset vis-a-vis Australian housing!

      As David would say and does so well “Don’t Buy Now!!!!

      ;)

      TM.

      • Bobby Fischer says:

        2013 will present opportunities for the astute…

        …such as those who have developer connections with the Newman-Campbell government, given the following pieces of Education Dept prime land are expected to become available for sale within about 2 minutes of the fudged, whitewashed final Costello report into the Queensland states finances due in February:

        * Brisbane Central
        * Fortitude Valley
        * Hamilton
        * East Brisbane
        * Broadbeach

        Do you wanna bet the future successful purchaser of these future blue chip plots of land will have less than six degrees of seperation from either a current sitting LNP politician or family member or will be somehow linked to one of Campbie’s preferred lobbyists or LNP apparatchiks via blood or marriage?

        Is there any Qld family silver these slugs won’t flog off to their inbred cousins?

        http://www.couriermail.com.au/news/queensland/education-minister-john-paul-langbroek-refuses-to-rull-out-state-schools-selloff/story-e6freoof-1226546606798

      • Mining Bogan says:

        There’s only ever been one decent Costello. He did all of his own work too.

        http://www.youtube.com/watch?v=jfFunjzyIsE

      • flawse says:

        Sometimes BF I think you might know something. Then you post this sort of stupid moronic Labor hand-puppet Crap and your opinions become not worth a pinch of GS.

      • Wing Nut says:

        The Newwman Govt has developed an odour thats less than fresh. Jobs for the family, shonky jobs for lobbyists and a $650m deal done in 6 months with little public scrutiny. You right wingers need to take take the rose coloured glasses occasionally. All QLD has done is swap one bunch of vested interest hacks for another.

      • drsmithy says:

        How do you go from apoplectic rage about Australia selling its assets to the Chinese, to scorn for someone arguing selling public assets is a bad idea and keep a straight face ?

      • Bobby Fischer says:

        ‘AutoCAD’, I raised this issue because this government has a history of favours for mates.

        Hence, given their history of nepotism in only a short 9 months, it is nigh on inevitable that their developer mates who helped finance campaigns will get their interest on their investments.

        This is how life works in the real world when you have a rank inexperienced government without a policy platform which runs the executive branch like a family business that had the training wheels fly off months ago.

        If you actually gave your rusted-on-LNP, Sunshine Coast grey nomad, grumpy-old-man, hard right, conservative paradigm a little reality check, you would realize from my posts that I despise the major parties equally insofar as they have long ago sold out the national interest.

        Anyway AutoCAD, please defend the following which reinforces the corrupt nature of the Qld government. Any short rationale is fine (good luck):

        - In April, the LNP lost its first minister, Gympie MP David Gibson, over unlicensed driving

        - Dr Bruce Flegg resigned as housing and public works minister over dealings with his lobbyist son

        - Arts Minister Ros Bates is also in strife over initially undisclosed meetings with controversial Liberal figure Santo Santoro

        - Her son’s appointment in a department that the director-general is LNP stalwart Michael Caltabiano, is under investigation by Queensland’s Crime and Misconduct Commission (CMC)

        - Mr Newman said families worked together in a lot of businesses and that was no conflict of interest.

        “Let’s be grown up about it,” he told reporters at Nambour on Wednesday.

        “That’s not nepotism, that’s just the way the world works.

        - The daughter of Child Safety Minister Tracy Davis was given a ministry job before allegedly being caught at State Government headquarters with illegal drugs

        - Two of Ms Bates’ children also landed top government jobs.

        Her daughter, Jill Gommers, had worked for Ms Davis before being placed with Burleigh MP Michael Hart.

        Ms Bates’ son, Ben Gommers, was picked for a job with the Transport Department in April, just weeks after the LNP’s landslide election victory.

        You need more proof?

      • Bobby Fischer says:

        If you don’t believe me flawse, how about Tony Fitzgerald. You remember him right? This is what he has to say about the toxic Campbell government & the two party dictatorship we live under (feel free to critique):

        http://www.brisbanetimes.com.au/queensland/newman-brushes-off-fitzgerald-criticisms-20120330-1w39y.html

        “Queensland Premier Campbell Newman has brushed off former corruption inquiry chief Tony Fitzgerald’s claim that his government has already begun “a jobs for the boys gravy train”.

        Mr Fitzgerald used a lecture in Brisbane to warn the scale of the Liberal National Party’s win increases the risk of maladministration.

        And earlier this week, Mr Newman faced criticism for handing other key roles to party heavyweights and former colleagues.
        Advertisement

        Appointments include former state MP and Brisbane councillor Michael Caltabiano as director-general of the Transport and Main Roads Department.

        Mr Fitzgerald said the Westminster system was a flawed and outdated model of representative democracy and political parties had learnt to exploit its weaknesses.

        “A choice between abuse of power from party A or party B is not a mandate to abuse power,” he said.

        “Statements of the premier [Campbell Newman] are encouraging but much has been left unsaid and the jobs for the boys gravy train has already started – that’s a shame.”

        Mr Fitzgerald said the “current toxic political culture” could be altered by an infusion of public-spirited talent.

        He said that could “counteract the mediocrity and venality of those power brokers and professional politicians, whose life experience is limited to learning and practising the dark arts of misinformation, secrecy and character assassination”.

        Flawse – note the last part about the VENALITY and MEDIOCRITY of the power brokers and career politicians.

        Something to learn here don’t you think?

      • Bobby Fischer says:

        Flawse – here is some of Campbie’s smelly history of doing dodgy deals with developers.

        Feel free to tell us that this is all ‘one big mistake which just looks bad’ at your leisure:

        http://www.brisbanetimes.com.au/queensland/state-election-2012/cmc-clears-campbell-newman-20120316-1vagj.html

        “In a statement issued this afternoon, the CMC said it not believe Mr Newman was guilty of official misconduct, although it will investigate the developer donations made to the LNP’s Forward Brisbane Leadership fund the week before a controversial development was approved by the Brisbane City Council.

        In a statement, a CMC spokeswoman said the watchdog had decided the issue of whether there was evidence of administrative deficiency on the part of the council over a $15 million land deal in Tennyson should be referred to the Queensland Ombudsman.

        It is alleged the BCC bought land off the company Mirvac in Tennyson for $15 million without an independent evaluation.

        Mr Newman has always maintained he had nothing to do with the deal.”

        My, my… funny how that controversial development got approved after very generous political donations.

        But wait AutoCAD… here’s what these political donations looked like under Campbie’s watch (no wonder he is about to tamper with electoral donation laws, funny that):

        “…the CMC decided to assess seven different donations of $10,000 under seven different names made to Mr Newman’s mayoral re-election fund by developer Philip Usher.

        A week after the donations were made, Mr Usher had a development approved in Woolloongabba which had previously been knocked back.”

    • truth seeker says:

      No different than any other year. What is your point?

    • JC says:

      As far as i’m aware we don’t have many astute property buyers here in Aus. They just think they are financial geniuses with an intrinsic understanding of the property market. I mean, sure they have made money in property, and lots of it, but they don’t even understand why that happened.

      Would you call an investor buying an asset with a net yield of less than 2% that has increased in price five fold in less than 10 years expecting even more price gains to cover costs an astute investor?

      Property investing is about yield once more. This will weed out the 99.99% of investors who only think they are astute.

      • They are speculators.

        Not investors period.

        http://en.wikipedia.org/wiki/Speculation

        TM.

      • dam says:

        as per your definition, most property investors do not car much about short term trends as they expect a very long term return, fine on my book.

      • Hi Dam,

        I cited Wikipedia not my work just the work of millions of others.

        Sorry can’t take the credit there.

        ;)

      • Oops sorry forgot to include this – I must say I am pleased you agree! :)

        “Speculation is the practice of engaging in risky financial transactions in an attempt to profit from short or medium term fluctuations in the market value of a tradable good such as a financial instrument, rather than attempting to profit from the underlying financial attributes embodied in the instrument such as capital gains, interest, or dividends. Many speculators pay little attention to the fundamental value of a security and instead focus purely on price movements.”

      • dumpling says:

        It appears that there are investors, there are speculators and then there are OZ speculators.

        Investors look at yields and maintain positive cash flows.

        Speculators understand market dynamics and are good at technical analyses.

        OZ speculators know how to steer local MPs and are good at socialization of losses.

    • Explorer says:

      Love it, you should write fortune cookies!

      What are the likely profitable buys in your view, or are you suggesting short sells in Melbourne?

      The lucky will always have good fortune.

  2. TheRedEconomist says:

    I agree Peter….

    When prices have dropped in the high single digits… opportunities “might” arise

    I reckon the Up 1.5% 2012 in Sydney town will get a flogging over the coming days.

    But there will be no mention of the removal of stamp duty exemptions, first home buyers grants that brought forward some purchases, spiking prices in Q3

    The Q4 drop of 1.9% will not be mentioned.

    This drop further confirms that many newbies just did not want to miss out on the free chocolates and just had to buy before the Chockies were put away.

    • JC says:

      Buy now or miss out forever?

    • Peter Fraser says:

      Hi TRE – good points on the FHOG and stamp duty changes. That point applies to several states.
      What are your thoughts and future changes in those states?

      • TheRedEconomist says:

        I am not familiar with all FHOG and Stamp duty policies in other states.

        But if NSW is an example, the other State governments will follow NSW lead.

        They will make new construction more attractive by only offer incentive to new builds and save dollar on not offering grants that finally end up in the wallets of vendors.

        With changes telegraphed to finish in 3 months or so, punter may bring forward there decision to buy as they did in NSW in the lead up to ceasing stamp dury exemption and FHBG on existing

  3. seanrace says:

    I wonder if this will spur on the RBA to keep cutting :-) its a fools game at the moment.

  4. prophet says:

    “dont buy now”???

    Yet i bought land 2 months ago and the land in the surrounding streets/area has already gone up maybe 30-40k from what i paid and its selling (P.S worth noting also that the land is much smaller than mine)!

    Is this madness….it feels like sheep, one person buys then everyone crams in after them…

    • Hewell says:

      This is like someone was saying “ASX had a good year in 2012.”

      And you went “a good year”??? “I bought MBN and lost 40%!”

    • Nathan Webb says:

      Lol – This just means that you managed to get a bargain (and good for you), probably due to good timing and good luck. It doesn’t mean that prices have risen that much that quickly.

      Let me give you an analogy – say you bought a pair of jeans on special for $100. If you saw them the next week for $110, you wouldn’t say that inflation is 10% per week, would you?

    • Noodle says:

      Would be interested to know where you bought the land???

  5. Tarric says:

    Melbourne seems like its in dire straits, while the early rate cuts put a temporary floor under prices and even regained some lost ground towards earlier highs, that momentum has faded going into the end of 2012.

    It seems to me that the rate cuts are no longer enough of an incentive for buyers to get into the Melbourne market in suffecient enough numbers to stabilise prices.

    To that end I predict Melbourne house prices to be down at least 5% nominal by 2014, especially considering that despite huge rate cuts the market was down 2.9% (nominal) for 2012.

    Peter considering your usual contrarian view point I would be interested to hear your thoughts on where the Melbourne market will be on January 1st, 2014.

    • Peter Fraser says:

      Hi Tarric,

      I’m in Brisbane. I don’t own property in Melbourne and I have no desire whatsoever to buy in Melbourne. When I look at the rental returns and the recent state government changes to the stamp duty and FHOG Melbourne screams “overpriced” to me when I look at the fundamentals, except that in residential property fundamentals include totally inexperienced buyers running around with pre-approvals for $500,000+ and constant state government interference that can change direction in an instant, as well as RBA stimulus via rate cuts, plus Federal Government interference.

      The residential housing market is as close to true free market conditions as a bicycle is to a Ferrari. After you state the obvious that they both have wheels, it’s a genuine struggle to find any real common ground.

      Imagine what would happen to the stock market, or the gold market, or the soya bean market if we had thousands of inexperienced buyers running around with $500,000 in their pockets and all keen to buy, encouraged with government grants?

      My gut feeling is that the Melbourne housing market will have a tough 2013 where gains are minimal or non-existent. I don’t expect significant falls, but for the reasons that I mentioned above I can’t rule out the possibility of rises against my expectations.

      • Tarric says:

        “Totally inexperienced buyers running around with pre-approvals for $500,000+ and constant state government interference that can change direction in an instant, as well as RBA stimulus via rate cuts, plus Federal Government interference.”

        I think these words sum it up best.
        People forget myself included that the housing market will not be allowed to fail as long until the powers that be (RBA, State and Federal governments) are completely out of ammo (housing grants, interest rates, subsidies etc).

        The Australian housing market is the ultimate too big to fail. The thing that worries me is that when the powers that be are out of ammo it will hurt the economy far more if they let the free market play itself out.

        Also I had a good laugh at this “The residential housing market is as close to true free market conditions as a bicycle is to a Ferrari. “

      • Jackson says:

        Imagine what would happen to the stock market, or the gold market, or the soya bean market if we had thousands of inexperienced buyers running around with $500,000 in their pockets and all keen to buy, encouraged with government grants?

        Good point, hadn’t thought of that.

      • snagard says:

        Interesting point Peter. Reminds me of the old adage that the market can stay irrational longer than you can stay solvent.

        I think you’re right in that things are likely to muddle along for another year. I was thinking about this, and I think that part of what may prevent a huge drop is that there is still, for better or worse, a strong belief in the long-term value of housing. For a deflationary spiral (in any good) to take hold, consumers have to believe that prices in the future will be lower than they are now. However, if you believe that prices will, in the long run, be higher, then there is less of a disincentive to hold off buying. Moreover if you plan to buy and hold for 10 years or so, you’ll probably jump in if you see a bit of a dip, and be willing to bear losses in the first few years (after all, it’s only a loss if you sell and crystalise it). As such, small drops may entice some into the market – not enough to start a rally, but enough to prevent a big drop. I hesitate to say there’s a floor under demand, but I do think that $400k-$500k region is where a lot of buyers would consider jumping in.

        Then of course there’s the fact that housing is more than a financial choice – it’s a lifestyle issue as well, which no doubt alters the calculations for many.

      • Peter Fraser says:

        Good points snagard. The other aspect that gets very little discussion is the interplay between time and money.
        If someone was think of buying at the start of the GFC 5 years ago, and they were just 25 then they are still only 30 and they have time to wait a little longer, but if that person was 45 then they are fast running out of their most precious and finite asset – time and in particular remaining career lifetime.

        Everyone is in a different financial position and at a different age and stage in their life. So the priorities and life imperitives are different for everyone, and they each have to make different decisions to suit their individual predicament.

        Those decisions are never simple or easy.

      • dam says:

        that s exactly what happened to me, I was waiting for a crash but now I passed 40 and each year is 7% less of purchasing power/working life/earnings.Needed to get my things together and act, I dont want to reach 50 and still waiting, hopelessly, with a very limited “borrowing possibilities”, I needed to put my hand on land/properties asap while I still can.

        I ve hated my 40th birthday.

      • Hewell says:

        Those decisions are never simple or easy.

        So true. We are in our early 30s, both working fulltime. In the past few years, we have built up a sizeable deposit (~40%). And we are setting aside 70% of our income each year. At this rate, assuming the slow melt continues, we will be able to pay for a decent house close to schools in cash in a few years.

        Hopefully starting from age 40, we can put “buying a family house” behind us, and focus on earning ourselves a comfortable retirement.

        One step at a time. That’s our plan.

      • Dystopian says:

        Scare tactic. 40-50 are generally peak earning years where you have acquired considerable skills and established career. By waiting we now have enough saved to buy a comfortable place with no need to involve the banks at all. Are we going to? Probably not, think about it – if you had half a mill sitting in the bank would you plunge it on a shoddily built cookie cutter apartment you can rent for $400 p.w? Housing is usually a poor investment, except during a credit bubble and by my estimations this credit bubble is closer to the end than the beginning.

      • worktime says:

        I’m waiting for the government to hand me First Stock Owners Grant of $7500 to purchase my first $500k worth of stocks.

      • Rusty Penny says:

        Even better if the government restricts the release of new shares, or if the alternative to non-purchase was as plausible as homelessness.

  6. pingupenguin says:

    Why the hell is Sydney so god-damned resilient? So bloody annoying. When will it stop?

    • TheRedEconomist says:

      This year…

      NSW State government have pulled fiscal stimulus on existing property (Oct 1) and only offered grants on new properties.

      This should assist the perceived Supply issue in NSW

      It will be interesting to see the next ABS stats which should also show a drop in Sydney.

    • Rusty Penny says:

      Sydney actually has a structural under supply of property, as well as, IMO, the rural areas of NSW underwriting its prosperity.

      If NSW ever gets its own version of Brendan Grylls, short NSW.

    • flawse says:

      Because Sydney is Auatralia’s largest parasite sucking the blood out of the rest of the nation. It produces next to nothing yet has the biggest concentration of the protected monopolistic professions such as lawyers and the headquarters of most of the largest parasites the Banks. The same applies for headquarters of many of our largest companies with all their over-paid executives.
      Money flows into Sydney from all over Australia. It has the largest voting population so it is able to wield the club as far as the direction of funds go.

    • raveswei says:

      1.9% fall in three months = resilient?

      it’s just timing …
      be patient

      • TheRedEconomist says:

        More sickening, misleading dart throwing.

        http://www.smh.com.au/business/property/sydney-property-rise-tops-bar-one-20130102-2c5nj.html

        John McGrath, chief executive of McGrath Estate Agents, is bullish about Sydney’s prospects this year, particularly for property priced under $1.5 million.

        ”Sydney remains the BHP of Australian real estate – the big blue-chip market that generally outperforms the rest, particularly in the recovery period of a national market cycle,” he said.

        Let hope Sydney is Like BHP. Was up near $45 a year or so ago and went down to low 30′s.

        Times are desperate. More meaningless spruik.

  7. Maz says:

    5% nominal? Who cares? I mean, I wouldn’t do it as an investment but as someone who first called bubble ten years ago (next month) I have had long enough waiting for a crash that never materialises even in the face of the GFC. For owner-occupier purposes I wouldn’t be the least bit concerned if my residence fell by 5% in nominal terms in the year after I bought it (or even for a few years after that, really).

    I’ll be sure to let everyone know when I’ve signed the contract though, as the market is certain to drop 50% the following week…. lol (I’ll put my leftover cash into bank puts to hedge my bets when I purchase)

    • raveswei says:

      you are right that 5% drop means little to home owners but how many of them are out there? it does matter to home buyers (people who have big mortgage in danger of owing more than what property is worth), it matters to millions of speculators who are betting on capital gain to cover ongoing losses they are making, it matters to everyone in this country addicted to housing because quarter of the economy is housing dependent.

  8. manfin says:

    “…135 basis points since October of last year, the housing market has still been unable to record growth in values over the year.”

    Just wanted to see it again.

  9. Ortega says:

    House prices are still falling, but its short sighted, and a tad naive, to predict that next year will present opportunities.

    Yes, a 10 pr 15% reduction is great, but I’ll look at the figures, see what the old ‘confidence’ chestnut is doing, before I buy anything, because 2014 and beyond may offer much greater discounts.

    They went up for 20+ years.

    They go down for 2 and we think they’re cheap.

    They’re not in my opinion.

    Not by a long shot.

    • dam says:

      doesnt really matter if the market is cheap or not, what s matter is “is there willing buyers at this price or above”

      IMO, there is, no you perhaps, but plenty are around.If you look at oversea markets, like Singapore, Auckland, KL, you will see that value for money is not a consideration, market can be very irrational for very long and looks very cheap to many.

      I too do not like current pricing, quite nuts, but I m confident, there is lot of room for much more irrationality pushed by governments /Chinese money / SMFS / reassessment of the riskiness of sharesmarkets /loose immigration rules etc..

      • Ortega says:

        I agree, hence the slow melt ahead – not the dramatic falls we’ve seen in the US and elsewhere.

      • dam says:

        i am more betting for a reasonable growth from now on of “investment grade properties” (cheap, close to amenities /infrastructure investments ..), for the market as whole, I have no idea but what have seen at Singapore/Shanghai/KL/Auckland is scary for the average bloke.

      • AB says:

        Must admit that I’d never invest in something I thought was priced “quite nuts” just because I thought there were greater nuts out there.

        http://www.investopedia.com/university/behavioral_finance/behavioral8.asp

        “Just because everyone is jumping on a certain investment “bandwagon” doesn’t necessarily mean the strategy is correct. Therefore, the soundest advice is to always do your homework before following any trend.

        Just remember that particular investments favored by the herd can easily become overvalued because the investment’s high values are usually based on optimism and not on the underlying fundamentals.”

      • dam says:

        it does really matter if you or I, believe the price is correct or not, only thing that matter is if someone will buy for more later on.Currently I buy properties ;-)

        Trends following have proved to be pretty much the only strategies that work beside pure luck, fair market value is only what a willing buyer will buy for, not funny “fundamental” value.Of course those who make their living in financial advising would think otherwise ;-)

      • AB says:

        “it does really matter if you or I, believe the price is correct or not, only thing that matter is if someone will buy for more later on.”

        Well yes, but investing based on the greater fool theory can be very dangerous once people wake up and you’re stuck with an illiquid and overpriced asset.

        https://en.wikipedia.org/wiki/Greater_fool_theory

      • Maz says:

        If that was true, then any number of mug punters with charts and a ruler should have higher net worth than Warren Buffett, Jeremy Grantham, Kerr Neilsen, etc. I could go on to name around 8 other billionaire value investors but can’t think of any chart-extrapolators who’ve made anything like that amount of money.

      • dam says:

        @maz

        i am not talking about BS like charts, just long term trends

      • Bobby Fischer says:

        You are admitting that your investments have no substance and are effectively a ‘magic pudding’ based on other willing participants playing the game with ever-increasing amounts of ponzi debt (given yields on ‘investment properties’ are nowhere near paying off interest and principal).

        As noted by AB, this is classic ponzi behaviour which can result in very dramatic losses when the queue of willing debt merchants dries up.

        By definition: “A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going.”

        All the bubble defenders inevitably nitpick this definition, but the basic ponzi concepts ARE present in the Oz housing market e.g.:

        1. Ongoing high capital returns for Oz ponzi merchants requires an ever-increasing flow of debt from willing participants. Thus, no increased flow of debt (& humans attached) = game over. Like now in Oz.

        2. Many bloggers have noted that FHBers are needed to prop up the Ponzi because upgraders, downgraders and investors generally need the first-rung fodder to enable their movement in the Mad Max property thunderdome. Thus, no FHB = game over

        3. Punters have been hooked into the Oz Ponz by at least 15 – 20 years by promises of very steep capital gains in the short term. Thus, there IS an expectation in the property investing herd that these inconsistently high and reliable returns will continue. Unfortunately, this myth has been shattered in the last two years – meaning people are now largely shunning property. Thus, no demand = game over.

        In conclusion, the price of tulips and Bernie Madoff’s house of cards investments come to mind when many think about Ozzie property currently.

        If you want to gamble on the timing the irrational madness and fear of the herd, go ahead, but I think that Greek bonds may be a safer bet. When these markets turn, they can turn HARD.

      • dam says:

        @bobby

        you can see it that way ;-), this ponzi is government backed, feeded by immigration and foreign money, SMFS money.

        This can last a long long while, at least my properties are not going to disappear like stocks do more often than not (look at the asx composition 20 years ago ).I keep the leverage low, currently at 62%.I look for properties with potential future scarcity, I am pretty sure I am fine, and I am much more comfortable than when my cash was in ponzi gold/shares.

        each of his own as they say.I am sure your fine with your own.

      • [email protected] says:

        What time frame for a long term trend dam?

      • “Trends following have proved to be pretty much the only strategies that work beside pure luck, fair market value is only what a willing buyer will buy for, not funny “fundamental” value.Of course those who make their living in financial advising would think otherwise ”

        Hi Dam, I think you’ll find the empirical evidence suggests otherwise, particularly if you’re talking performance in absolute terms (as it seems you are).

        Also momentum/trend trading lumpy assets with high transaction costs (property just happens to be the perfect example) the going gets a lot tougher.

        Just saying, might be worthwhile doing some research into this, particularly if you’ve been told otherwise. Lot of dodgy claims / “research” out there – have to be very careful to get the facts straight or (without extreme luck) you won’t last long

      • dumb_non_economist says:

        Dam, I’m somewhat surprised that you see plenty of room for RE price increases. When I compare what it cost me to rent and buy 20 yrs ago against income compared to today I don’t see there being plenty of willing buyers. The economy and assets are at the end of at least 2 decade rise and I just cannot see it continuing, where’s the money going to come from.

        Unless residential property is opened up to wholesale buying to o/s buyers the best RE can look forward to is a slow melt imo. I don’t see it falling over in 12 mths which is why I’m giving myself 3 yrs to see how it goes, THEN I’ll reconsider and may, just may, consider giving in.

        Regardless of whether you buy “investment grade” or not availability to secure credit for demanded prices will decide prices, it may limit your downside but I can’t see it giving you a capital gain. I see little upside and plenty of downside??

        By the way, 40 isn’t the end of it financially, I thought the same when I hit 40 and 12 yrs later if not for a divorce I’d be in a hell of a lot better position than I thought possible!

        Don’t bank on SMSFs going big into property, my ITP accountant nearly died when I mentioned SMSF and thought I was going down the RE path.

  10. Maz says:

    I’m not prepared to go through 20 years of renting waiting for fair value to arrive. If there’s not going to be a crash, I’ll buy now and cop the slow melt (as per above – I would absolutely not do this for an investment. But I would do it to avoid having to move the family every two years)

    • Ortega says:

      Debt. Its a killer. Especially when the value of the asset you purchased with borrowed money is worth a lot less than that borrowed money. And there’s the very real danger of a recession just around the corner.

      All up, the risks you rake are much worse than moving the family every two years.

      It could mean the family doesn’t end up on the streets.

      Think it doesn’t happen?

      Call the Salvos and ask them what’s going on.

      • dam says:

        as long as you have 20% deposit, who care, having a nice PPOR is great ( i am still renting ;-) )

      • Maz says:

        Fair points of course. I guess the thing that helps me worry less about that risk is my deposit is significant (easily past the 20% level even at these mad prices) and I’ll be leaving about the same again in shares/gold etc, with a likely move of some funds to things that will go up in value in the event of a housing crash (eg bank puts). Don’t get me wrong, I won’t be popping the champagne corks watching the price go down each year, but on the other hand I plan to live in it for at least 20 years and am not going in expecting to make a profit.

        To make a blunt analogy, I make a 100% loss every time I buy a pint – but the lifestyle benefit is worth it and my eyes are open at the time of purchase. Sure I’d love to buy cheaper pints but I’m not going without beer for 20 years waiting for them.

      • Dazedmw says:

        “To make a blunt analogy, I make a 100% loss every time I buy a pint – but the lifestyle benefit is worth it and my eyes are open at the time of purchase. Sure I’d love to buy cheaper pints but I’m not going without beer for 20 years waiting for them.”

        Good point I think. “eyes are open” is the key phrase for me, clearly there are risks with the purchaser of residential (and commercial) property at the moment, if people are fully aware and weight these risks and decide to purchase anyway, all power to them.

      • AB says:

        “To make a blunt analogy, I make a 100% loss every time I buy a pint – but the lifestyle benefit is worth it and my eyes are open at the time of purchase.”

        Are your eyes still open at the time of the tenth consecutive purchase? ;-)

      • Maz says:

        I may get to that number of pints on occasion, but I won’t get to that number of properties unless there is a 70% drop in price :)

        In fact I’d go further and say I’m unlikely to buy any property beyond a primary place of residence unless the investment case is a slam-dunk. I’m far more comfortable with shares and income securities and having a second property would be dangerously undiversified (unless my shareholdings got really massive lol)

      • BotRot says:

        I was told what is going on from someone in Mission Australia. Holy Mother of God alright.

        Oh yeah! Ortega it does go on.

        Maz, I will continue renting for I don’t care how long. Sure you can get the boot when renting, or you leave for many other reasons. If you have money, you’ll always be accepted somewhere.

        Unless you have (substantial) savings, or a true asset, ie something that brings you money, or can sell for (a lot of) money, a weekly salary does’t mean that much in the face of big debt(s). That’s on the lines of what Ortega is saying too. Some to many people homeless had jobs, just big debts too.

        What do you do if the Bank all the sudden wants $150K off your mortgage cause they now view your house price as risky? Its’ a terrible thing to happen to anyone.

    • Bobby Fischer says:

      So use your internet skills to find a nice place in Bali or elsewhere & buy your architecturally designed home with 20 year, renewable lease for around $150-180K, and either run a small business with a local or use your (hopefully) mobile skills to remain gainfully employed in a country where the cost of living is about 1/10th of Australia…

      • Bobby Fischer says:

        Sorry – that was meant for Maz/Dam who are sitting on pretty deposits that could purchase them a home outright (now) if they so chose…

      • Maz says:

        Cost of living isn’t everything – I much prefer living here to just about anywhere (Bali is definitely not high on my list). Being near my extended family and friends is important to me. I’d rather rent here than own there.

        The UK beckons though, where I also have family and friends, and I do agree that a place to live is way better value for money over there (if you’re preferred to give London a miss anyway). And while I could work in Bali I’d get paid about 50 times as much in the UK.

    • Mining Bogan says:

      I’m quite interested in how you figure that it will take twenty years for housing to return to fair value. I figure five.

      Methinks you’re throwing way too much scare into this.

      • Maz says:

        There’s no science behind the 20 years, just putting it out there as a straw-man. Partly based on Japan and partly the painfully slow pace of house price depreciation.

      • Mining Bogan says:

        Okay.

        Why base on Japan? Why not the US or Ireland or the multitude of European countries where property is in the crappa?

        I’m basing my five years on what I’ve seen in my area. I know all markets are different but it’s down to 2006 prices where I am and low-balling offers at about 2003 prices are being accepted in some cases. Granted, I’m in a tourist town and they’ve been stung the hardest.

        I’m just thinking your twenty years is way to pessimistic. Once the rot starts where you are it’ll happen quicker than you think. I know it did for a lot around here.

      • Maz says:

        Like I said, no real science. But so far we have gone slower than the US or Ireland, for example. Well, at least in Perth, where prices have flatlined or slightly fallen for five years without crashing. If I remember rightly the US and Ireland crashes took place over a couple of years?

        It must be said, any of us bears (definitely including myself here) would have laughed if someone had told us in late 2009 that prices would be around about the same three years later. The height of the GFC and what appeared to be the world’s most over-valued asset class barely affected.

        You can accuse me of losing patience and capitulating, but to sound like a broken record, I thought Aussie property prices were crazy in 2003, and they’re much higher now (as you say, not in your area, but definitely in most others).

      • Mining Bogan says:

        Funnily enough, you’ve bought in Perth which is another one trick town like I live in.

        You’ve risked your family’s future on a feeling?

        Braver man than I am.

      • Maz says:

        “You’ve risked your family’s future on a feeling?”

        Not yet – we are starting to look this year. And the time to deflation is only one part of it.

        Are you able to say with any confidence the time at which the market will be down 25% in nominal terms from now? (If you don’t believe such a point will be reached, then let’s go with real terms). I don’t pretend the 20 is an accurate assessment but if you have a good method for forecasting the period then I’m very interested…

        On the issue of risk, what do people think about putting 20% cash down as a deposit and then 10% into bank puts, and 10% into foreign equities?

  11. Muzzer018 says:

    Until prices drop back to 3 to 4 times median wage for the median house (note that a few down lights and mushroom paint does not denote “blue chip” property) I’ll be happy to sit and accrue risk free.

    The truly astute will like me continue to look elsewhere to make their money work for them. Apart from the occasional vulture swooping in on distressed sales.

    To me there are two very different mindsets that should govern buying a house.

    1. If the property is the one you want and it is to be your home for the next 20 year’s. As long as you can afford it and don’t rely on selling to move up a none existant ladder. Then buying won’t hurt you. In this move you have bought your HOME. ( I’d even buy from PF if the price and home was right)

    2. If however you think that you can settle for an over priced pile of crap, in the highly doubtful hope that you can either cash in and bag a capital gain with a larger IP portfolio or trade up to your (dream home) then you’re just buying an asset. Big difference between this type and say gold or just about any other asset is if you decide to sell, there is a considerable time frame involved. You risk being left holding the baby. All you bought is a HOUSE.

    Buying an IP now is akin to playing pass the parcel in Belfast!

    I still sit with David Collyer and Professor Keen. The potential to be badly burnt this year is huge. If you do elect to buy do so with both eyes open.

    • dam says:

      so far Keen would have to pay at least 20% (from memory, I could be wrong) to repurchase his house sold at the exact bottom.Who s burnt ?

      • Muzzer018 says:

        “Who’s Burnt?”

        Not me, that’s who.

        Can we be clear, for the most part I’m reading that even the Bulls are going with the bubble not popping YET.

        That’s not the same as there isn’t a bubble or correction further down the line, timings clearly are everything.

        Yes there maybe a little further to go in RE where money could be made depending on the RBA and Gov interfering with the market. Again I point to not confusing investment property to buying your home. I think the two are very different financial moves.

        When I think for house sales I think of families putting down roots. When e.g. PF talks about moving on a property he has nothing other than $$ in mind I feel would be a fair statement.

        The Family buyers will have an emotional attachment to their home and have a logistical nightmare to sell and setup elsewhere often following a distressed sale.

        The rent-chaser owner can issue a notice to vacate and have it back on the market with little fuss and I’d wager he would have the capital to wear any costs in the transition, so could clear the asset if they felt things looked ugly up ahead.

      • [email protected] says:

        Time frame dam. 15 Yrs
        Excerpt;
        Last November, University of Western Sydney associate professor of economics and finance Steve Keen made a high-profile bet with Macquarie Group interest rate strategist Rory Robertson.

        The bet was that house prices would tank by 40 per cent.

        The loser of the bet would have to make the more than 200km trek from Canberra to the top of Mount Kosciuszko wearing a T-shirt that says “I was hopelessly wrong on house prices! Ask me how.”

        House prices are now at an all-time new high, Mr Robertson said in a statement.

        “For fun, if Australian house prices ever fall by 40 per cent from any peak in my lifetime, I will follow in Dr Keen’s footsteps,” Mr Robertson said.

        “Similarly, if Dr Keen proves the existence of the Loch Ness Monster, I will take the walk.”

        Dr Keen said he had based his forecast on what had happened in Japan during its prolonged slump and that the second part of the bet was still active.

        “I’m a critic of conventional economic theory, I focus on debt,” he said.

        “What we’ve had is a giant speculative (real estate) bubble that’s based on leverage.

        “I said that by the time the financial crisis has washed through the system we would have lost on house price the same amount as Japan between 1991 and 2006, about 40 per cent.”

      • [email protected] says:

        Oh PS dam I guess Keen booked a profit?

      • Mining Bogan says:

        Un-Australian to take a profit. You’re supposed to negative gear and never sell. Ever.

        Losing money for the rest of your life is the only way to get rich in this country.

      • Peter Fraser says:

        It’s simply incorrect to suggest that we will follow Japan. I don’t know why Keen does that to himself. He should know better.

  12. Bakunin says:

    Jeez, at $50K for a median dwelling price I’m moving to Darwin.

    • MsSolarFelineAU says:

      That may be so, but if you moved to Darwin, are you going to be able to experience the same “standard of living” in the location you are in right now?

      • Maz says:

        If not for build-up/wet season I’d definitely consider Darwin – the eating out is better than anywhere else in Australia (except possibly Tasmania)

      • [email protected] says:

        kenoath!

      • Muzzer018 says:

        Move to Darwin?

        Not for a golden pig. You know how hot it gets there plus cost of living?

        Town will be great with the Yanks building a base there too(sarc)

      • Bubbley says:

        *snork* Its not $50k for a median dwelling it’s $500K and that includes apartments and houses. The cheapest house in Darwin today (3rd Jan 2013) is $570K.

        Behold the magnificence of 1970′s architecture, complete with cheap lino. http://www.realestate.com.au/property-house-nt-tiwi-112399531

        As for comments about the heat… are you kidding? Perth, Adelaide and Melbourne sweating through 40C at the moment and Sydney just went through the most miserable cold winter.

        Darwin 24-34C with the chance of an afternoon thunderstorm. Same report for the next three months. I’ll happily stay here thanks.

      • drsmithy says:

        As for comments about the heat… are you kidding? Perth, Adelaide and Melbourne sweating through 40C at the moment and Sydney just went through the most miserable cold winter.

        The difference between Darwin and other capitals, is that much above 30 is considered a pretty hot day for most of the year, whereas in Darwin it’s what you get damn near every day.

        Darwin 24-34C with the chance of an afternoon thunderstorm.
        You forgot the oppressively high humodity, which adds 5+ degrees to the perceived temperature and means you spend most of your life perpetually damp.

        I’ve lived in coastal Central QLD, Switzerland, Phoenix, Brisbane and Sydney. I cannot think of anything that would make me live in a tropical hellhole like Darwin.

  13. Calia says:

    I agree with the conflict and hesitation expressed on the time being right to buy or wait. It is still coming and its a quiet train that will take out many as is passes the pedestrian crossing. I see it more and more everyday and only get confused at the more and more highly processed family food hauls that get bought on free offer credit cards and introductory cards. I love watching it. People ask me why I have such great tenants and why they stay so long. I look after them extremely well, just as well as I look after my debt levels. I am hanging out for an up to 20% property fall within 2 years. The big challenge will be to beat the zillions of dollars boomers will have at the ready and wanting to diversify between equities and property. We are not always going to be the luck country but some of us will always be lucky.

  14. Seanm says:

    Life is like a shit sandwich. The more bread you’ve got, the less shit you eat.

    In a shit sandwich the quality of the bread is more integral than the variations and quantity of execrement in all its forms.

    The era of the dung beetle is at a close.

    Thank you BobbyF for the ponzi. Show me a bullmarket that took/takes every participant to the moon?

    Thank you Peter for the novices with $500k.

    Thank no one for the galutes with $500M + in derivative plays per galute. These “Hedge/Traders/Speculators” are back up to 2007 levels, pre GFC.

    With all the good work and commentary on this site: 30% odd market interest only. Highest proportion of people in their late fifies/early sixties in mortgage debt both in quantity and quality of assets.

    Debt is real. Equity is opinion. Income is all.

    Income + savings = Bread.

    So you believe that every castle and hovel in this glorious land is a corner shop selling shit sandwiches that will return ever increasing or eventual benefit to all and sundry.

    Thank the stars that both myself and MsSFAU are both delusional.

    I’m multicultural this year, can I have “Flied Lolla” with my “Shit Sandwich”?

  15. Well, well, well. I look away from this eminent forum for a moment and find it plagued by spruikers making the death gesture at the frustrated and excluded.

    The land market is like Ol’ Man River. It moves so slowly people feel their lives are rotting away as they sit on the riverbank. Don’t. They aren’t.

    Everyone wants to own a home for the privacy, freedom and security it offers – a laudable ambition.

    But between here and there are many crocodiles, patiently floating like innocent logs, just waiting to be part of the feeding frenzy when an innocent first home buyer borrows forward a lifetime’s free cash flow and overpays for a poorly located dump. A ‘starter’ home.

    This model, this system, is broken. Sure there are some FHB’s. But many citizens are out.

    Some can see market prices are so inflated renters are being subsidised by ‘Gearers. It makes economic sense to forgo ownership and build financial independence elsewhere.

    Some simply cannot afford to buy. Their free cash is consumed by superannuation, student loans and wage taxation.

    And the proposition that it now takes two incomes to buy a house should howled down with derisive laughter. A household willing to sacrifice two incomes to home ownership ought be able to buy a superior dwelling, not a shack.

    The RBA is nearly out of interest rate cut ammunition. There is a pile of unsold stock, both on the market and in the shadows waiting for prices to pick up. Credit growth is imperceptible (And I bet much is refinancing anyway). Debt repayment (savings) is high and set to go higher. Construction is very low. Retail is lousy. Manufacturing is limited to custom-build.

    Here in Melbourne, people are so frightened a twig snap causes nightmares for weeks. Vic and Tas are already in a technical recession (two quarters of negative growth). All state governments have shrinking conveyancing Stamp Duty receipts, but refuse to do anything about it. They want a crisis to justify cutting the previous government’s programs.

    Making a commitment as big as a house at this time of sky-high prices and grave uncertainty is for mugs.

    Don’t Buy Now!

    • Maz says:

      So, buy when? Believe me I’d love to see a crash, and I reckon even if we start looking soon it’ll take about six months to find something (we’re not in an urgent hurry) so maybe I’m still a chance of a crash happening first. But if it’s going to be 20 years before we see fair value, well, for me it’s worth copping a loss to have my own place and get away from renting and the associated moves seemingly every two years. I’m not going to put off buying for a year just because I think I can get a place that’s 5% cheaper. It’d be different if I thought I could get a place 20% cheaper.

      Are people here seriously planning to rent for 20 years while fair value arrives? If not, what’s the overvaluation point at which you’d consider buying a primary place of residence?

      (Important side note: I can afford the loss of a slow melt and can put in place some hedges to cover against a crash. I also have no interest in owning more than one property at current prices. Perhaps that makes me different to the typical first-home buyer)

      • dumb_non_economist says:

        Maz, act in haste, repent at leisure!

      • Ortega says:

        I’m happy to rent. My money in the bank, and the interest pays my rent. And buys my beer. And my landlord just fixed my busted aircon and replaced all the batteries in the smoke alarms. I didn’t have to get up off the couch.

        Prices in Aus (Meb in particular) are in-sane.

      • Maz says:

        Yeah, all fair enough… but I’ve been doing this for ten years waiting for a crash and… well, what’s it gonna take? The second-biggest financial meltdown in a century happened and our house prices drop less than 10% (please don’t tell me about the bigger price falls in the gold coast or noosa, I mean in real places lol).

        Maybe I’m just getting old but at some point money starts meaning less. I’ve saved enough to cop it a bit and if I have a 20% deposit and some good hedges in place, maybe it’s not such a bad thing?

        I’m as frustrated as anyone but like I say… I’m not gonna rent forever (at least not under the terms that are standard in Australia) and when the hell is this crash gonna happen? If we’re in for a Japan scenario I’ll just buy with a 20% deposit and put the rest of my net worth in foreign equities and gold.

      • Maz says:

        BTW – my target market is my home town of Perth. I’m not a miner or a FIFO, but like everyone here from hookers to kebab shop owners, the mining cycle influences my income…

      • Ortega says:

        I think that there’s a cultural aversion to renting in this country, even when its financially advantageous to do so.

        But there’s a lot of evidence around that this attitude is changing.

      • Maz says:

        BTW our landlord finally fixed our cracked bedroom window, now all we need is keys to unlock the lounge room windows, and a repair done on the gas heater which doesn’t work. We’ve requested these last two a few times and they just keep saying no. My suspicion is that they don’t have the cash. I seriously don’t know how you all find such great landlords…

      • [email protected] says:

        Dunno, Maz, but your kids come first, not your finances.
        Do you reckon you can swallow a major depreciation, while the ankle biters are getting the access to stable schooling and wot not?
        Good luck man

      • Maz says:

        I reckon I can, though I’ll still be pretty dark if there’s a crash shortly after I buy. Basically if the depreciation is that bad it’s hard to imagine rates going up any time in the ensuing five years so that’s something of a cushion. As I say, sale price isn’t an issue, it’s a lifestyle item not an investment. Also my wife is likely to head back to work in the next 2-3 years so barring a disastrous employment scenario (in which my gold should shoot the lights out in AUD terms) we’ll be easily able to handle the school fees. If she can’t get a job then we’ll both supplement school education by home tuition, we’re both very enthusiastic about education.

      • bad says:

        “we’re both very enthusiastic about education” says he who would happily subject his family to 20 years of grinding depreciation on the family home because he’s sick of waiting, even though he would be far better off financially… hmmm

      • Maz says:

        “…says he who would happily subject his family to 20 years of grinding depreciation on the family home..”

        I shouldn’t be dignifying this with a response, but, perhaps I won’t be geared to the hilt into the house, my assets will be diversified, and the final price of the house is not of major significance.

        It’s also possible that education is not just about investment decisions.

        Dork.

      • rich42 says:

        Maz….The distance the housing boom has gotten away from reality I see as like an elastic band. Just because it’s been ten years doesn’t make it time to buy. In fact the contrary. It’s gotten further from where it should be and therefore more likely to correct. Add the government’s broke, everyone’s in more debt, Europe, mining boom over, manufacturing dead. Look for alternatives for example is it possibly to negotiate a five year lease? I don’t know but it just doesn’t make sense to jump in just because it hasn’t yet reached sanity. I get your points, I really do. I’m tempted myself for all the same as yours.

      • Maz says:

        What’s it gonna take to break it? Not even the GFC ended the mining boom…

      • rich42 says:

        The GFC was attacked with everything they had. The economy was boosted. Now all that debt needs to be repayed, earnings will fall…It’s a mess that’s reached the end. (or at least it’s closer to the end than it was ten years ago, which is how I’m convincing myself it’s crazy to jump in now). Conditions are deteriorating no doubt for all the reasons outlined above.

      • Bubbley says:

        Maz, I understand your frustration.

        I’m in the same boat, a huge deposit and the desire to use it but I just cant bring myself to pay the obscene prices when I’m surrounded by millions of acres of empty land.

        When things went really nuts in 2003/4 we expected the bubble break around 2007. The GFC was surely going to be the catalyst and logic would have been right. However logic does not come into the Aussie property market.

        We didn’t take into account the average Australians commitment to poor investments and stubbornness in the face of failure. Rather than take a small loss, investors will incur a long term larger one. Quite bizarre but that’s how this country rolls.

        Now I have finally realised what I think is the fundamental truth “Its the economy stupid”

        The property market in Australia is only going to start seriously unwinding when unemployment goes up past 7% but more like 7.5%.

        Only when one of the two incomes is removed and investors and owners have absolutely no choice but to sell, will the bubble burst.

        You have already seen retail derailing and our iron ore price decouple from the the Chinese buyers due to the high Aussie dollar. Hang on in there and watch those unemployment numbers, that’s the number that is going to cause the crash. I think we are about 2 years from the full train wreck.

        Be patient, not long now.

    • China-Bob says:

      Hi David,
      I dont disagree with your assessment of housing long term value. However given Oz housing’s critical role as a wealth accumulation tool for the masses I cant see any way that a 20% fall in value can be allowed to occur. The RBA is still a political puppet and will be forced into supporting housing the only alternative is an unacceptably deep recession.

      In my opinion there is nothing fundamentally wrong with Australia continuing to pump up their real estate bubble, RE prices are clearly at absurd levels however these prices have little or no impact on the ability of the Australian economy to perform its wealth redistribution task. It is only the export focused (and to lesser extent import replacement) industries that bear the full brunt of absurd RE prices.

      As anyone can tell the RBA could care less about Oz export manufacture (because its irrelevant in the larger economy). Apart from some half baked jaw-boning I have yet to see a single concrete step to support this sector. I believe the RBA’s model of the Oz economy is really just house’n’holes, so with the holes side contracting they will pump up the houses side. For the long term, IMHO the RBA will be making a mistake by not using this time to broaden Australia’s manufacturing base, but as the great economist Keynes was want to say about the long term “in the long term we are all dead”!

    • csfn says:

      Yes, it’s as though the ‘turfer community – frustrated as always by a well moderated forum such as this one – saw the opportunity with the admins enjoying a well-earned summer break to jump in and litter the place with their poor contributions.

      Can I please ask the ‘turfer reps here – no name calling – to perhaps at least get some new material to entertain us with? The disconsolate bear persona (“oh, I so want a crash, believe me I do, but I’ve given up the hope…”) is getting a bit tired.

      • Maz says:

        Does is surprise you that there are disconsolate bears? And do you think it’s unreasonable to be disconsolate as a bear having waited this long?

      • Mining Bogan says:

        Nah, let ‘em stay. When you question them their story ends up contradicting itself.

        They do their case more harm than good. ;)

      • The Patrician says:

        Like coming home from holidays and finding your garden full of weeds.

        Nothing a bit of gardening wont fix.

      • csfn says:

        Oh I don’t mind them being here, I just think it’s time for a new record on the jukebox.

        You can see how the ‘disconsolate bear’ persona would have been a hands-down winner at the ‘blue-sky’ session held by the REI’s PR company, but c’mon, that was years ago now. Where’s the new material?

  16. Forrest Gump says:

    Its the uninformed that keep the sales ticking over. From where I sit in WA on the mine sites, I see many cashed up construction workers peering around like Meerkats for a place to stash their bags of cash.

    Of those that have recently purchased, I can confirm all have failed to undertake a mandatory basic financial due dillegence test.

    Example: I ask did you seek independant financial advice? The answers include, “yes the RE agent was really good”…to…”Oh, why bother? Housing always doubles every 10 years…”

    I usually close the conversation with the general statement of “what are you going to do when the constuction industry (in mining) dries up over the next 2 years removing around 80,000-100,000 people out of the WA workforce?

    The general response I get is…”There’s always the next mining job. They..will always keep building new mines like they always have…(haven’t they?)”

    It’s true. There’s one born every minute! (and many of them are continuing to buy houses)

    • Calia says:

      What is it with those WA fifo’s. I just spent 3 weeks travelling up West Coast. Loved it but had to laugh at the number of homes/dwellings vacant in many fine retired fishing towns. Large, big and well appointed homes all bought by fools blinded by busy airport exchanges and wh think WA is the only option for investment. Its coming and its gonna hurt. I cannot wait as I have been waiting for 2 years but think another 6 months will answer many questions no one above can answer.

    • [email protected] says:

      What I admire is how the banks swallow the elevated salaries into elevated mortgages.

      Megabank is freaking good.

      • Mining Bogan says:

        At one stage during the height of the boom I noted a mobile lender in the Qantas lounge at Perth airport. Do you think he was there for the guy who enjoyed his flight so much he decided to buy the plane?

        I think not.

  17. sydbod says:

    You guys really have me confused with some of the comments about true values of property.
    *****WARNING***** Baby boomer observations about to be disclosed.

    Firstly ….. a family home is purchased from the family income, and not from a single persons income as many try to suggest.

    In my early employment years around 1965/1970, a bloke got a girl pregnant, had to marry her and in general the girl stayed at home (was encouraged by society as well as her employer to quit work) and raise the family. The family income that was used to purchase the house consisted of mainly one persons income.

    In my later years of employment around 2010/2012 most families are now 2 income families. (I remember somewhere on this site some person mentioning that we now have a very slight larger number of women in the work force than men). The family income that is used nowadays to purchase the house consists of mainly 2 incomes.

    Going from observations in my area only (no hard numbers to back it it) it appears to me that land prices have increased around twice as expensive now per average salary as what it was many years back, but compared to family income, land prices are around the same multiple then as what they are now. This I would expect, as people compete financially with each other until the lower family bidders can no longer push prices any higher because they hit the limit of their income. (note: it is all based on family income and not average persons income)

    Again, from observation, house prices have increased around twice as expensive now per average salary as what it was many years back, but compared to family income, house prices are around the same multiple then as what they are now. Houses are not a scarce commodity so what with this higher house prices?????
    In my early days people used to get built what was called a “half house”, or if they were rich, would get a huge house of around 120 sq meters in size.
    Nowadays the average house is at least twice as big as it used to be in the early days so that explains the doubling of house prices compared to salary. Family unit has now twice as much income (2 salaries) and appear to be putting that extra income into much much larger houses also.

    Am I really that dumb and am missing some obvious facts that make my reasoning faulty, or are others not looking into house/land pricing deeply enough, possibly because they just look at numbers out of context with what they represent at the time they were collected. Maybe one has had to live through the various time periods to fully appreciate what was an apple then and what is the counterpart apple now.

    NB: I am only talking about this topic in very general terms …… +- 10% variations are of no consequences in the point I am trying to make.

    • drsmithy says:

      In my early days people used to get built what was called a “half house”, or if they were rich, would get a huge house of around 120 sq meters in size.
      Nowadays the average house is at least twice as big as it used to be in the early days so that explains the doubling of house prices compared to salary.

      This line of argument is common, but a complete furphy. Nearly all the increase in real estate prices has come from the land component, not the house component – construction costs in real terms have hardly increased at all. So, sure you could build a small house to start with and then extend it later, but since you save proportionally so little of the total cost (10%, maybe 15%), there’s not much reason to.

      Further, the amount of land you build on today is tiny compared to the size of land you were building on way back when. 400-450m^2 (about 1/10th of an acre in the old money) blocks are typical, even out in the digglies, and you’ll probably pay more for that postage stamp of land with no yard, no breezes and neighbours so close you just need to lean out the window to borrow some sugar, than you will for the house you put on it.

      Tell us, when people were building houses back in the ’60s, what was the ratio of land price to building price ?

      • sydbod says:

        ” Nearly all the increase in real estate prices has come from the land component, not the house component – construction costs in real terms have hardly increased at all.”

        You may want to reread what I had posted.
        I did say that the land component had approximately doubled in real terms over that period.
        I had also said that building costs had not increased in real terms for comparable buildings, but nowadays people are building much much larger houses than before, and it is because of these much larger houses that people are paying more in real terms for the house component.

        “Tell us, when people were building houses back in the ’60s, what was the ratio of land price to building price ?”

        I am not certain of the 60′s but in the 70′s the house component was usually a little over half the cost for a project house/land deal.
        I suspect we have a similar ratio now-days with the larger houses and the smaller land.

      • drsmithy says:

        I did read what you wrote. You are arguing – essentially – the increase in house prices is primarily because those greedy young whippersnappers want to start off from the get-go with a 4 bedroom house and lockup garage rather than work their way up to it.

        This ignores that that the price increase has come mostly from land, while land allocations have shrunk.

        I am not certain of the 60′s but in the 70′s the house component was usually a little over half the cost for a project house/land deal.
        I suspect we have a similar ratio now-days with the larger houses and the smaller land.

        Exactly. So proportionally the cost of those huge houses you’re complaining about is substantially less than it used to be. Ie: the size of houses is not the main reason prices are high.

  18. Russell says:

    All depends on how you present the information doesn’t it. According to RP data a 0.8% rise in Perth property value….and it is presented as:
    http://www.watoday.com.au/business/property/perth-property-through-the-roof-20130102-2c563.html

  19. Muzzer018 says:

    Syd

    Have you noticed that the block size is half of what’s on offer now for over twice the price, i.e. that’s four times higher.

    Whichever way you want to fry it a family home is 6 time an annual wage on average.

    Btw a 120 m2 home with BB families with 5 kids. Battery hens spring to mind.

    • sydbod says:

      “Have you noticed that the block size is half of what’s on offer now for over twice the price, i.e. that’s four times higher.”

      Tragically my life experiences has always been on the fringes of the expanding Sydney.
      the bargains we used to have when we moved just past the outskirts of the built up area of Sydney are no longer available nowadays.
      BUT ….. The first professionally built house my parents purchased in the middle 1960′s was on a block of land 420 m2 (suburb called Birrong). Around that time there were also many block of land purchasable in the boom-docks of Sydney outskirts (places like Vinyard) that were only wide enough for town houses to fit on.
      Yes I am seeing the small block making a come back again.

      “Btw a 120 m2 home with BB families with 5 kids. Battery hens spring to mind.”

      Please not that a 120 m2 house was a big house at the time. In my childhood a family was lucky to have more than one power-point in the house. It was usually situated in the family room and the refrigerator usually had pride of place connected to that power point.
      Many people had 2 bedroom houses of around 80 m2 where the girls had one bedroom (bunk beds) and the boys had the other bedroom (bunk beds). The parents usually slept in the family room at night.

      “Whichever way you want to fry it a family home is 6 time an annual wage on average.”

      I do not dispute this.
      All I was trying to highlight is that it is the FAMILY INCOME that purchases a house and not a wage. Because of the way society has changed, a family home is still now around 3 times the family income, and it was around a similar ratio at the earlier times.

      I just don’t get the feeling (based on my life experiences) that life for the younger generation is all that harder than for the earlier generations. (I know … it is all very subjective)

      • drsmithy says:

        All I was trying to highlight is that it is the FAMILY INCOME that purchases a house and not a wage. Because of the way society has changed, a family home is still now around 3 times the family income, and it was around a similar ratio at the earlier times.

        Your premise is broken.

        Median household – ie: “family” – income in Australia is around $65k (individual is around $46k).

        Median house price in Australia is around $525k. That’s a multiplier of 8.

        Median unit price in Australia is around $400k. Multiplier of 6.

      • sydbod says:

        Ahhhhh crap, …. there I go getting terminology confused again.

        apologies for my confusion.

        I had meant to use the term mean rather than median. I guess mean was used as the default measure in the earlier days for these sort of comparisons.

        I suppose what I was trying to say is that a person (like me) who was in a technical job(like mine was) who had a wife in a job (like mine was) and purchased a typical house on the outskirts of Sydney(like mine was) had to pay half his take home salary for house repayments.
        Being in the same position nowdays from the numbers I am seeing, the same looks to apply.
        Note: I am talking of outskirts of Sydney then to the new outskirts of Sydney now.(basically the new family home buyer for a first home)

        YES, I know this sort of ratio may not by 100% accurate, But I feel it indicated that the housing situation has not become all that much worse. In honesty I personally think that the younger people now days have it much easier because virtually all the other expenses appear to be so much less.
        White goods have come down to a small fraction in price of what they were.
        Food takes up a smaller fraction of salary cost compared to what it was.
        Clothing is again a small fraction of salary compared to what it was.
        Free medical applied equally to both time periods.
        Even basic cars are a much smaller percentage of salary now compared to then.

      • The Patrician says:

        Let the post-holiday weeding continue.

        The bigger and more productive the garden, the more weeds proliferate.

  20. pru says:

    On housing affordability and the one/two incomes per household discussion above, I’ve just had a quick squiz at average household disposable income (HDI) figures. According to ABS 6523.0 – Household Income and Income Distribution latest issue 30/08/2011, the 2009-10 average HDI was $848. Lets say 2 years on at 3% growth, that’s now about $900. The 2011 census quick stats at http://www.censusdata.abs.gov.au/census_services/getproduct/census/2011/quickstat/0 tells us that:

    Median weekly household income: $1,234
    Median monthly mortgage repayments: $1,800

    So $900 disposable average (ie. after tax) on $1234 median (before tax) seems to be in the ball park of believability. I know one can’t really compare median/average, but lets just say for argument’s sake, ball park indications only, median HDI is $900, with a monthly mortgage of $1,800. That’s the mortgage eating about half of the available disposable income per household! For the vast majority that’s got to be a massive “ouch”.

    • sydbod says:

      “median HDI is $900, with a monthly mortgage of $1,800. That’s the mortgage eating about half of the available disposable income per household! For the vast majority that’s got to be a massive “ouch”.”

      In comparison, in the mid 1970′s I was just on the median income of the time (yes I thought it was a shit wage also).

      We lived on the wife’s wage and my wage just managed to make double repayments on the new house we had purchased (720 m2 land, 126 m2 house) in the then outer western suburbs of Sydney.

      I don’t see anything much having changed except that land size has decreased and house size has increased.

  21. avexdevil says:

    why compare it to back in the 70′s? we’re running out of metropolitan land, if anything, developers have wisen up to the growth in population (which is exponential btw) and have sized and priced land accordingly. 450m^2 is the new norm, are you expecting to get double that for the same price now before you’re willing to say it’s a prudent investment? It’s tunnel vision when you focus only on macro factors, and fail to see it’s simply the law of demand and supply at work, apart from the property boom which raised median house pricing and set the new bar, I think we’re looking at an average of 30-50% HDI mortgage repayments for the long haul. Sure there are plenty of cheap land + house packages in whoopwhoopland.

    • sydbod says:

      “why compare it to back in the 70′s? we’re running out of metropolitan land,”

      In a sense you are correct.
      We are running out of DEVELOPED metropolitan land”.

      In the 70′s the housing estates were starting to appear. Before then most new development did not have kerb or guttering, and many places were still on the trusty Pan Toilet system.
      It makes things very hard to compare apples to apples.