Housing prognosticators offer their visions

By Leith van Onselen

Yesterday afternoon, I attended the Forecasting the Future  session at the Property Council’s annual Property Congress, held in Sydney.

The session was moderated by Peter Verwer (Chief Executive of the Property Council) and included a number of high profile property industry analysts, namely:

  • Nerida Conisbee: National Director of Research for Colliers International;
  • Anthony De Francesco: Managing Director, Investment Property Databank;
  • Frank Gelber: Chief Economist, BIS Shrapnel;
  • Tim Lawless: Research Director, RP Data;
  • David Rees: Regional Director, Head of Research, Jones Lang LaSalle

The session covered the state-of-play and forecasts for all of the classes of property, such as: office, retail, residential, and hotels.

The discussion on the residential segment was unfortunately fairly limited, but fruitful nonetheless. Peter Verwer  (moderator) brought up an interesting slide showing that from a survey of 1,200 industry professionals, two-thirds thought that Australian residential housing was overvalued, exactly the same result as last year’s survey.

Tim Lawless argued that Australian housing was not overvalued, but affordability is a problem. He noted that Australia’s unique geography, with a large proportion of our population located in just three major cities, means that Australian housing values, although high internationally, are justified [UE: I obviously disagree with this point. Prices are also high in regional areas. And it’s not like Australia’s cities are large by international standards, yet they are more expensive than most larger cities in other Western countries].

That said, Lawless does not believe that housing will come roaring back. Transaction volumes will likely remain low, whereas overall returns will probably track income growth or CPI, with Perth, Brisbane and Sydney likely to outperform, whereas Melbourne (especially apartments) will likely underperform. Lawless also believes that cash will be the best performing asset class over the coming year.

Frank Gelber largely agreed with Lawless, noting that Perth, Brisbane and Sydney would experience solid growth. However, he believes that Melbourne, Canberra and Adelaide are experiencing oversupply. Gelber cautioned that Melbourne is headed into a recession that would bring “two years of hell”. Melbourne apartment prices would likely fall significantly and could take years to absorb the excess stock.

Gelber also does not believe that there is a lack of first home buyer demand; rather it’s investors that are yet to return to the market [UE: yet first home buyer demand would probably be in the gutter without incentives from both government and developers, and investor credit is currently growing faster than owner-occupied housing credit].

Anthony De Francesco noted that buyers have no urgency to purchase because prices aren’t expected to go anywhere. But changing demographics mean that demand will remain strong [UE: I argued the exact opposite on Wednesday, citing that the retirement of the baby boomer generation will weigh on housing demand and prices].

Regarding retail property, Anthony De Francesco argued that broad macroeconomic factors are weak, namely:

  • slow retail sales growth;
  • negative wealth effect from falling asset prices/wealth destruction;
  • household deleveraging;
  • syncronised downturn in all major markets, namely: shares, housing and labour;
  • people don’t spend when they fears job losses.

Tim Lawless noted that housing transactions are at 1996 levels (15% below average), which adversely affects purchases of household items, such as bulk goods.

All participants expect interest rates to fall in order to allow housing construction to offset the void left by the unwinding of the mining boom. However, Anthony De Francesco noted that the RBA would be watching inflation closely, and David Rees cautioned that tradeable goods inflation could rise if interest rates cause the currency to fall significantly.

Frank Gelber believed that there would be a smooth transition from a mining-led economy towards a non-mining (read housing) led economy [UE: obviously we at MacroBusiness have very strong doubts].

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

 

 

 

Leith van Onselen
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Comments

  1. Now let me get this straight. This is starting to confuse me.
    Repeatedly the argument seems to be that housing is going to replace the mining boom.

    This is puzzling. Where is that money that pays for the new houses going to come from. Additional borrowing? That is going to leave a hole in a budget somewhere.

    So digging holes in the ground is going to be replaced by creating holes in budgets?

  2. I’m only interested in what Dr Andrew Wilson of APM has to say. Everyone else is un-Australian.

    • Tim Lawless argued that Australian housing was not overvalued

      No! Colour me totally unsurprised. 😡

      • Gelber largely agreed with Lawless

        Reminds me of the old Punch cartoon where a Victorian gentleman is shown in his nightcap in bed, looking horrified, as the morning newspaper blares “No News Again – Shock”.

      • Agreed AB. He seems to really believe in the dream. Quite aggressive in twitter compared to his quotes in the Fairfax press.

        • It’s not just the dream he believes in, what really amuses me is the way that he attacks those who aren’t as relentlessly positive as he is (phrased as politely as I can).

          I’m pretty sure UE is his main (if not only) target. Of course he’s not actually brave enough to name names.

      • Yes, like this laughathon he has recently tweeted:

        “Melbourne records another solid mid 60% auction clearance rate despite 1200 listings-the highest offered in 2 years. Market clearly rising.”

        Note that in Doc Ando’s world, the Melbourne market is CLEARLY RISING. Quick, sign me up for the apartment apocalypse before I am locked out of negative equity FOREVER!

  3. One can only shake ones head in disbelief that these people feel that we can replace an export industry with a debt driven play on housing.
    Does anyone think for one moment that saddling the younger generations with mountains of debt is good for the economy long term?

    • Mitch, can you tell me which export industry we have replaced with housing, and can you explain why money spent on housing doesn’t find its way into other areas of income or dividend.

      The real problem is that we don’t have an export industry of any significance. It’s not housing that has caused that, it’s largely the high aussie dollar.

      If we had export opportunities then finance would be generated to invest in those industries despite any finance being directed towards housing.

      It’s not a case of “one or the other”

      • Education and tourism are large “export” industries being hurt by the high AUD. The coal industry on the other hand employed less people than McDonalds (as at about 3 years ago).

        • Ironic these were industries designated in the 80s as a way of amerliorating our persistent current account deficit through increased services exports and less dependence upon primary industry. Past year think international education has lost directly/indirectly in Oz 27,000 jobs, $3billion export income, more than 50,000+ international students (who also rent apartments e.g. all those new ones being built in Melbourne) and through draconian visa/immigration changes the govt. has also managed to tarnish Australia’s welcoming image in the region (all for panicked political purposes).

      • But Peter, where does that money that “finds its way into other areas of income or dividend” ultimately come from? At least when we sell dirt we are actually extracting and delivering value to a customer. It’s a fairly low aspiration for us to have as a nation but at least it’s not a credit fuelled mirage of the same assets changing hands at ever increasing prices that delivers to nobody except the RE industry (broadly defined) in a zero sum closed loop (ie. taking away from everybody else in society).

  4. Who can spot New Zealand’s problem with today’s news that “Figures show Auckland house prices have soared 124 percent since 2000, with GDP growing 47 percent over the same period.” The irony is that the author of the article thinks it’s good news!
    http://nz.finance.yahoo.com/news

    • It’s great news for those who owned in 2000 and were highly geared.

      Their return on equity over the 12 years is incredible eg
      100 cost, 90 debt, 10 equity, value today 247, debt still 90, equity 247 – 90 = 157

      Return on equity over 12 years = 157/10 =1570%

      Simple per annum return on equity 130%pa

      Compound per annum return on equity 26%pa (Excel rate function).

      I wish my investments had done as well!

    • Yes likely 124% as well in line with the price of the houses, or a lot more because LTV was relaxed at the same time. Certainly highly unlikely to be less than 100%. These figures must be around.

      Offsetting that are the lower interest rates. Theoretically if interest rates have dropped sufficiently then affordability (= can we scrape by to make the monthly payment) stays the same. But it is a one-way street. Interest rates cannot go up after that, or the system goes bust.

      It is not about value of houses but about milking the house owners for what they are worth. That is not to blame the mortgage providers. It’s business, not charity. This is just regulatory failure.

  5. “the retirement of the baby boomer generation will weigh on housing demand”

    That’s the current thinking for most commentators. Previous generations retired asset rich but cash poor because they simply had no superannuation, and they had no capacity to live off the value of their assets. Banks could not lend to the aged who had no income above their aged pension.

    The boomers will have at least 20 years of superannuation contributions plus they have the ability to borrow against their home without any change to their aged pension entitlements. Unlike previous generations the economic pressure to sell the house in Toorak and move to Noosa to “cash up” for their retirement won’t be as pressing.

    I’m not sure how much that will change the behaviour of retirees, but I would expect it to change. Why would someone move away from areas they know, lifelong friends, and of course family if the economic imperitive no longer exists.

    • Did they, Peter? The War Generation retired asset poor and cash poor…. they were the ones that spawned the BBers, who had no War to deplete their individual or national savings. And re why would people move away from where they are?….Many, (most?) people don’t live in Toorak and have possibly already spent the equity in their homes before they retire. It’s been a life of ‘property always goes up, why not spend it as I go along. There’s always more equity coming, after all”. Well there isn’t! And it’s been spent. Baby Boomer are as likely to retire as broke as their parents did, but for different reason.

      • Janet you can’t argue about history, what has happened has happened. We wouldn’t wish another world war or a depression on any generation current or in the future, and we all hope that future generations are smarter, more successful and wealthy than we are.

        GenX and genY have also been blessed by not having global warfare and we all hope that continues, why would we wish it otherwise?

        • I was just responding to your comment about previous generations retiring ‘asset rich, cash poor’ – they didn’t. And arguably, this one, the first one with the chance to do so, hasn’t yet ( the 2011+ Demographic Cliff, if you will). Imagine how asset rich the coming retirees will be if the ASX drops from 4500 to 450, for instance. Will? Who knows. But we can’t say there isn’t uncertainty about us at the moment can we! That’s why I am re-leveraging; Borrowing and not buying, Peter. It’s about as contrary a play as I can think of.

          • Ah yes your contrary leveraged cash play. Best of luck with that one, at least you can’t ever get a margin call.
            I know that you’re in NZ but you will be able to negatively gear that Janet. The cost of your losses is tax deductible. That should tickle your funny bone.

            It’s true that not all retirees in the past were asset rich and cash poor, but the homeowners who had no cash and who in the past had to sell and downsize to fund their retirement were, and that is exactly the portion of the demographic we should be considering.

            As bubbleliscious above suggested, they own a house worth $1M which can be reversed mortgaged for $200k at aged 65.

            If they invested that @ 4.5% then they get an extra $9000 pa on top of their pension without even touching their principle.

            If they waited until they are 70 or 75 then they could get more. Now do you think that the changing opportunities for retirees just might affect their plans? Would it change your plans?

          • Actually our NG rule is coming under attack, Peter. The new Bach Tax is juts the start fo what I see as NG coming off. But again, we shall see. In case you missed it the other day when I responded to you, 25% of my requirement gathered at 6.95% for 7 years fixed. The strategy marches on…Oh, and that $1m house the retirees want to sell, may not be that $1m at all, if what I saw at auction yesterday is any guide!

          • NG won’t matter to you Janet unless you have made a hash of your chosen investing entities.

            All losses are tax deductible just as gains are taxable – end of story. Although I do assume that you will want to make a profit.

            If you convert the security for a loan from cash to property, the LVR will change markedly, in fact you would be better off changing your loan product completely.

            Cheers.

          • You still don’t see what I am trying to achieve, Peter? I’m not after leverage or a committed facility or any asset other than cash to ‘buy’. ( Yes I get a tax offset as I am ‘an investor’ for taxation purposes and cash is part of my trading stock) My expectation is that credit will virtually disappear. Only actual credit deposits will therefore have value, and those have to be ‘real’ – not pending or available or anything else – ‘at hand’. Now, yes, there is no leverage; it’s 1-1, and for a variety of reasons, that suits me down to the ground!

    • A few things wrong with this logic Peter;

      – 20 years of superannuation contributions perhaps, but the majority have simply put in the minimum amount
      – the minimum contribution rate began at 3% and was only increased to 9% in 2002
      – improvements in life expectancy mean that those contributions over 20 years need to somehow fund a retirement that will be 20 years or longer)
      – average balances at retirement in 2009-10 were (according to ASFA) $200k for men and $112,600 for women

      Given this, and combined with the relative equity stored up in retirees homes, not to mention the inadequacy of the age pension, I can’t see how most retirees will be satisfied sitting in a $1m home and living off minute noodles.

      • Bubblelicious – look up the aged pension entitlements – google it – look at what they can hold in cash, factor in that retirees spend less, and then add in a limited super entitlement that they may have been topping up in recent years, and then add the ability to lever $100,000 to $300,000 at aged 65 with no repayments. That doesn’t affect their aged pension one iota.

        So ask yourself if you had no debts and a modest spending pattern, could you survive on the aged pension plus an ability to draw $1000 to $2000 extra every month.

        I don’t suggest that every retiree will have this option, but in previous generations almost none had this option, and now a significant number do, so wouldn’t you expect a significant number to exercise their life options?

        • Thanks Peter, I’m aware of the age pension entitlements and how they work thanks.

          Sure, people will exercise a financial option if it benefits them. I simply think that your link to past generations is flawed given;

          – the presence of defined benefit pensions
          – shorter funding periods due to lower life expectancies
          – lower expectations regarding general retirement lifestyle / spend

          If you’re suggesting retirees embark on equity release as opposed to downsizing / moving then fine. We will simply see the property price risk transferred the banks even more than it already is – what could possibly go wrong?

          At most, borrowing against the home simply kicks the can a little further.

          The bigger issue IMHO is the deflationary force introduced as retirees shift into a more frugal mode given the inadequacy of their liquid assets.

          • Good reply – thank you.
            I have watched with interest many people retire. Past generations had modest expectations when they retired. If the economy was expecting stimulation from high spending, then it won’t come from retirees past, present or future.

            People who retired in the 60’s 70’s and 80’s had their lifes savings absolutely devestated by inflation, they were left with a pittance. So without worthwhile savings but a house that had escalated in value it made sense to sell and downsize to an area where values where better. The Gold Coast and the Sunshine Coast became a mecca for them, as small communities of the elderley transplanted itself from Melbourne suburbs.
            Despite the low interest rates, the value of cash isn’t being ravaged by inflation anymore, so it does last longer now.

            I guess we will have to wait and see what the behaviour is, but don’t expect it to mimic earlier generations.

        • I would make the arguement that you could split the boomers into two groups.
          The 1946 – 1956 boomers who are generally benefited from free tertiary education and generally had access to good defined benefit schemes and in some cases more relaxed centrelink requirements re partners allowances and wifes pensions etc and more importantly enjoyed at least one property boom. so I would agree with Peter to some degree but not fully
          The tailenders (58 – 65) are definitly not so well off, and will have less super more job insecurity and higher debts etc

      • mav I give you facts and in return you give me your personal philosophy – that’s not a fair trade.

        • You gave a series of assertions that have no basis in facts and I asked you a question.

          But never mind. I didn’t expect anything better from you.

          • Exactly what facts were you expecting anyone to produce for the future behaviour of a generation. Every opinion is exactly that, an opinion.

            However if you have the patience, the facts will slowly reveal themselves to you, and you should no longer be surprised now that you have at last been armed with a modicum of information.

    • “Toorak”, “Noosa”? Methinks Pete is referring to a well-healed class of investor here.

      I’m thinking more along the lines of the council workers and tradies with 4 IPs each (I’ve met them!).

      • A fun fact for you.

        Most Toorak retirees who moved to the Noosa/the Sunshine coast last two years before they move back to Melbourne.

        They buy a 4 bedroom 3 bathroom McMansion on the coast and rattle around in it two years. Then they realise the kids aren’t going to come visit as often as they said, that they don’t know anyone, they have a huge house to clean and they don’t actually like the beach that much.

        A real estate friend of mine has made a motza out of this demograph. First time when they buy and again when they sell and move back to Melbourne.

        So much for living the dream.

    • Pete. The downward pressure will come mostly from 2 areas: 1) the selling of investment properties (boomers hold nearly 60% of these by value, according to the ABS; and 2) a reduction in the ratio of workers to dependents, which will reduce aggregate income growth, raise taxes, and reduce demand for assets.

      • Yes I agree with that, but the pressure to sell their own PPOR has been reduced, and some allowance has to be made for that. We don’t really know how they will behave until we see their behaviour, the options were not previously available.

        The expectation of large numbers of inner city homes suddenly becoming available does seem a bit hopeful to me. Amongst people I know and customers I’m not hearing talk of moving to traditional retirement areas.

        The generation on the cusp of retirement has always been the largest holders of investment properties. The generations following the boomers will also become the largest holders of IP’s when they reach that point in their life.

        Your point on the workers to retiree ratio is pertinant, but never discount the probability of future governments running deficits or printing.

    • Many boomers who have less than say $1M and can will retire early, live like royalty for up to 10 years.

      They’ll buy new cars and furniture, do a few trips, have a few toys like caravans and boats for a few years do up the house like new at around 60 and do a makeover at 64 running their super cash down to a level where they qualify for a part pension or will in a few years but most importantly, qualify for medical care from 65 on so they get rid of that expensive health care insurance.

      They will do the sums and work backward from say 70 on full pension with medical card from 65 to when they can retire and live the life of Riley!

      Better great years while you have your health than a miserly existence for the rest of your life as a self funded retiree worrying about your investment returns and fearing the next crash!

      • Explorer – ah so their behaviour is entirely predetermined by a script written by you.

        My questions are:-

        1. Would you do that?

        2. Are you and the Boomers generally of average intelligence?

        3. If you wouldn’t do that, why will they, being of the same intellectual level.

        Can you give me a compelling reason why a whole generation would behave in an unintelligent fashion. Did preceeding generations act unintelligently? And do you expect GenX and Geny to be equally stupid – if not why not?

        • My opinion on the future is likely as bad as anyone elses. There’s plenty of evidence that over a reasonable term most forecasters ought flip coins.

          To answer your questions.
          I retired early and am funding with partial drawdowns of principal. I own a small caravan and two small boats. My wife wants the house done up and I give in a little bit each quarter. Happy wife, happy life. We just did 5 months around WA and are going overseas next year. We’ll leave the kids more than we were left in terms of houses and expect them to at least preserve that and pass it on too.

          Boomers are like everyone else. IQ is a bell curve. Some are street smart, some intelligent, some good investors, some nice people, some are receiving inheritances now, some are not one or more of these things.

          Given I’m doing quite a bit of what I said as are most of the self funded boomers I know. Those in the old defined benefit schemes are in a different situation.

          In terms of acting unintelligently, the biggest mistake my father made and the biggest one I made were allowing our gearing to reduce below say 50% and not investing enough in real estate. Those times might be gone for a while – I’m in the slow real melt/variable prices (to avoid spooking the horses or reigniting speculation) camp.

          Some boomers will be dead at 70 or have debilitating health problems. There is a window of opportunity for a great life between 55 or 60 and say 70. After that health/fitness/dementia becomes much more likely to be a limiting factor. There are charts which show the probability of being dead in 5 years at any given age. The last few years are often not very good.

          I expect GenX Y or whatever will follow pretty much the same cycles, there is a time for every season under heaven and human natures will prevail. (the s on natures was intentional).

          How would you have answered the questions?

      • No Paul, I didn’t know that, and thanks for telling me. It seems about right.

        However we are talking about households who own homes that are well located and people expect them to sell to downsize to fund their retirement.

        Do you have any info on what the super entitlement is for such a household, generally represented as a retired couple? That’s the group that we should be focussing on.

        Work to do now, I actually do earn a living and I’m busy.

        • ‘actually’ earn a living? As opposed to what? Those of us that create export products and real GDP?

      • You know the average super for the boomers is shocking. $65K

        Yes, one of those pesky flies in the ointment. Thanks for bringing facts into this debate.

        • Talking about super for boomers, which was introduced 20 years too late, is the same as talking about the 2.6 people per house, when 2.4 million homes are lone occupants. 240,000 with more than 4 spare bedrooms. 10% of our homes have 5 or more people. Mad as….

          • They are able to contribute at minimum $25k a year to their super as concessional contributions.

            The last four years could have seen that $65k go to $165k.

            Instead, they’ve likely burned through $25k a year in interest payments on their loss making IP.

        • Pete knew that he’s argued before that BBs weren’t as well off as many argue and that most of the IP stock was held by later Gen Xs. Seems like he’s had a wind change?

          • Be fair Jimbo, knowing that a lot of boomers are not well off isn’t the same as knowing the average super entitlement of the group. In fact I accepted Pauls assertion because it seem reasonably close to my POV.

            However we are loking at a specific group of boomers – IE those who own well located inner city homes that other generations desire. Homeless boomers or those who live in the sticks don’t count in this equation. Essentially we are referring more to middle class boomers, and they probably have a little more than the average. Many are self employed with SMSF’s – I don’t know what they hold in super, but it could be more than $67K – and don’t forget there are two of them usually so we could be talking a few hundred thousand or more. I see people with $M super funds.

            Of course ultimately they have to sell – death is a not negotiable outcome, but a mass exodus may take more time than it has in the past.

            I’m only giving you some food for thought, treat that as you will.

  6. “Tim Lawless argued that Australian housing was not overvalued, but affordability is a problem”

    I would appreciate if someone can explain me this sentence….

    As a non-economist (I am in IT) I don’t understand this, If FHB cannot afford to buy houses any more, (at least without making serious changes in lifestyle) how does that not mean they are overvalued ?

    As someone hoping to some day buy a house (hopefully not at this prices) I don’t see how much more can be done for “affordability”, interest rates are at record lows and LVRs are extremely generous as well, I could jump in with just 5% deposit, plus government grants, etc.

    Thanks in advance

      • Thanks UE! thought so…

        By the way I find it funny that this being a mostly bearish site on housing at the moment is showing an ad at the top shouting
        “FREE the positive property formula
        10 simple steps to reduce your mortgage and build a quality property portfolio. DONWLOAD NOW”

        Maybe you should try to filter those out 🙂

        • Nothing wrong with a bit of extra cashola! If they want to advertise here who are we to judge? 😉

          • I was just suggesting filtering out the ads about property since they seem to go against their “core beliefs”, they can definitely keep others ads

            I am all for advertising if it keeps this wonderful site free.

    • He’s merely arguing for lower interest rates, longer loan terms, shared eqity mortgages, intergenerational loans etc. Anything that can reduce the weekly payment to a point that people can cope with, without affecting inflated prices.

      Just the standard conflation of affordability with the ability to service a loan.

    • Remember when FHB’s worked 2 jobs for 5 years after they bought their house to get the loan down to manageable levels?

      Now the top 30% (mainly graduates) take the FHB grants, buy a place and live in it for 6 months and return home to the parents and rent the house/apartment for a few years before marriage/partnering.

      Some probably do both.

      The top 10% just partner up with another top 10% and go for it, knowing that they are assured of good increases in salary which will make debt service easy in a few years.

      The top 1% get a waterfront house as a present for their 21st birthday (Gina) or a magnificent motor yacht for their 16th(?) (Clive Palmer’s daughter).

        • Good faith estimates based on 60 years of experience. The examples re Gina and Palmer are from press and a Perth boat tour. When I have an independent source I usually quote it or provide a link. Do you have any estimates that are significantly different? do mine smell test wrong to you?

      • As my username indicates I am not aussie born, I am an immigrant, so maybe I am guilty in being part of the problem causing high house prices.

        Unfortunately I am not a rich Chinese immigrant either so I didn’t come with much life savings. But I am University educated and in a very good paying job

        So according to you my only option would be having 2 Jobs for 5 years …how does that work by the way, do 9 to 5 in a normal job plus some odd job at night for 5 years really ? is that what you call life ? is that what you need to do to put a roof over your head in a supposedly 1st world country ?

        I know I can’t buy at the moment because my wife is not working, because we just had a kid, but still why would we need two full salaries in order to afford a decent house in Sydney ? is it because houses are “worth” that much or just because the housing complex decided that they can get away with it ? Last time I checked a house around 800K in my area buys you an ugly piece of an old house with lots of renovations to do … do you think it is clever to have such level of prices compared to the world ? we are pricing ourselves out of the market and the cost of doing business in Australia will soon be so high that I doubt many companies will be able to have a business case to stay here much longer…

        • Do whatever you think is best for you. Invest where you like. I hope you do well.

          Remember to be useful/actionable you have to know when and how much a rise or fall will be. If you ride a boom up and back you are probably OK. If you get in at the peak you will get burnt. If you don’t buy because of fear and prices go up, you have lost an opportunity.

          People who got spooked 4 years ago are 10% behind on weighted average. If they borrowed 90% they are probably on par with having rented. If they paid cash, then ignoring opportunities other than cash they might also be about on par with having rented.

          For 2 years ago, the story is more complex and people who bought in Brisbane and Melbourne are probably worse off, those who bought in Darwin are probably better off.

          I recommend a download of 6416.0 House Price Indexes: Eight Capital Cities from ABS and working out what has happened since people started talking about an Australian house price bubble. My answers are below. The future may well be very different.

          Sydney Melbourne Brisbane Adelaide Perth Hobart Darwin Canberra Weighted Average

          2 years S -1.53% M -7.45% B -6.87% A -4.79% P -5.57% H -3.91% D 7.07% C -1.84% WA -4.67%

          4 years S 14% M 15% B -2% A 5% P 3% H 5% D 35% C 14% WA 10%

  7. Just thought I’d add some sage financial advice from someone I respect to this article, apropos of the nutty housing prognostications above from Lawless and Gelber:

    Jim Rickards: I recommend for the conservative investor 10 per cent and for the aggressive investor 20 per cent. A lot of people are surprised at that. They say, ‘You know Jim, if you’re so bullish on gold, why not more, why not 50 per cent or more?’. The answer is, you don’t want to be too much in any one thing. No matter what your view is, there are certain risks associated with over concentration. And, there are other asset classes you can be in to protect your wealth. One of them is raw land, fine art, other precious metals, and you should have some cash.

    Source

    • Is it just me that only sees this article as two letters wide?

      I’d like to read the article but its not showing up clearly in my browser (Chrome)

      • I have also had issues with reading quoted articles because they are ridiculously thin. I’m using IExploder 8.

          • rob barrattMEMBER

            Absolutely
            Far more functional add-ons
            Not written by Microsoft, ie the menus don’t get harder to navigate with each release (Vista syndrome).
            Recommend it to everybody.

          • As soon as they get some decent multithreading.

            (Blockquote boxes are also broken in Chrome.)

  8. my concern with the “housing will overtake mining” line is what it implies ie there will be people willing and able to buy all the new housing that will be constructured. This is only possible via:
    – higher and higher immigration
    – further grants

    I think what the govt needs to do is be up front and state that we will go from a mining led to an immigration led economy (well lets face it thats ALL Melbourne has been for the past 10 years). No wonder they consider a population of 10 mill in Melbourne by 2050 to be a fait accompli.

  9. Peter –

    I’ve counted nine individual posts in this one thread alone.

    Anything with a housing finance theme (in particular) seems to attract carpet-bombing from you in particular.

    I know that you have had some disclosure around being involved in the industry but the above two facts seem to also indicate you actually get paid to spruik. Even on my days off I can’t be bothered posting more than twice on any given thread; your extreme interest on that one topic seems to indicate there’s more than a personal interest.

    Just asking, that’s all.

    • While it is important to know someone’s possible self interest and whether or not they are an ideologue, it is good to have both sides of the story.

      I’d prefer anyone’s posts backed up by real experience and referenced to data than ideology and baseless opinion.

      With the Brisbane market down and transaction volumes low, maybe people have time on their hands, or are retired, working part time, a bit obsessive about certain subjects (I know have my favourites).

    • Yes Sean I get paid 0.15c for every spruik – unfortunately none of these posts have been spruiks unless you can find something in them.

      Well done you have discovered the key to my economic success.

      Now count mavs posts for the day and ask him how much he gets. I’ll be really pissed if he is paid more than me.

          • I am not ‘in’ real estate? I hold some commercial as I have for over 20 years now.
            Yes, a small business with over 50% of revenues as export dollars. Real GDP.

      • Now count mavs posts for the day and ask him how much he gets.

        Trying to drag my name into unrelated stuff, are we?

        I get paid nothing except by way of good Karma 🙂 : Because keeping even one Gen X/Y family from a life time of debt servitude and from paying trailing commissions to mortgage brokers, is reward enough for me.

        Now that other commentators are on to you, I think I can post a lil less from now on. Thanks for the reminder 🙂

        • Mav, your greatest value to me is trying to stir up Doc Andy. Assuming your Twitter handle is similar to your MB one.

  10. suitablyironicmoniker

    The Australian housing boom has ended. It ended in mid 2010, and we are following a similar path to the US, Ireland, Spain…

    Housing is a depreciating asset, just like cars or TVs. We can’t all get richer by paying more them. There are periods where land values increase more quickly than inflation, but these have been associated with a bubble, or Ponzi, in Australia and most of the rest of the world.

    During periods of increasing land values, a lot of people get suckered in to buying an investment property. The ATOs latest release had 1.75 million owning an IP. That’s around one in five households in Australia.

    The problem comes from the fact that 2/3 of “investors” are losing money on their property, according to the ATO. This only works if income can be generated in the future, through increased income or capital gain. If neither of these are possible, the only solution is to sell the investment property.

    The other issue in Australia is eerily reminiscent of Spain. Most investors are moderate income, single property only “mum and dad” types. Over 72% of investors only hold a single property, over 90% hold one or two. Three quarters of investment property holders have taxable incomes of less than $80,000/year.

    Spain came unstuck when the housing boom ended. Unemployment started to rise as construction waned. This led to a positive feedback cycle that was a disaster for the economy. When the housing bust began, the unemployment rate in Spain was less than 8%, it is currently over 25%.

    Commodity prices have fallen 19.1% over the last twelve months. Expecting the housing market to replace this is a truly forlorn hope.

    • The question is more about employment than GDP or the commodities boom. Employed people keep paying their mortgages, unemployed people don’t unless they can move in with someone else and rent their property or rent a room or two.

      Building approvals have ben way below average as the RBA kept rates high and made way for the mining investment boom.

      Now building can be stimulated for FHB’s through grants which will increase construction employment as our TWI falls, rates fall and over time manufacturing, tourism and education stabilise and even improve over time.

      Things roll through the economy, different sectors grow/shrink at different rates at different times as settings and externalities like China’s commodity hunger change.

      Mining is not a huge employer. McDonalds employs/ed more than the whole coal industry (as at a few years ago at least). House construction is relatively labour intensive.

      By not extending the grants to existing housing stock the FHBs demand moves to new construction and their grants offset any fall in value as they now live in a place not eligible, but there is no increase in existing home prices, maybe a fall, particulalry in real terms.

      • suitablyironicmoniker

        New building work could be stimulated – but it isn’t.

        The latest ABS report on Value of Building http://www.abs.gov.au/ausstats/[email protected]/mf/8752.0

        The last 12 months had a 7% fall in residential construction. The data showed that construction peaked in mid 2010 and has been falling every quarter since.

        The issue here is that so much of Australian employment is related to construction – particularly among men.

        The figures for alterations and additions were even worse – there was a fall of over 10% in value over the year.

        The reason that construction is so important to employment is the number of independent contractors it uses. Of the one million independent contractors in Australia, the largest number (around 1/3) is employed in construction. Due to the nature of our unemployment statistics, these people don’t register as unemployed in the official statistics for some time. However, this group – predominantly male and in their prime earning years, are in trouble at the moment as construction falters.

        This group is also well represented as the holders of investment properties.

        • “Of the one million independent contractors in Australia, the largest number (around 1/3) is employed in construction. Due to the nature of our unemployment statistics, these people don’t register as unemployed in the official statistics for some time. However, this group – predominantly male and in their prime earning years, are in trouble at the moment as construction falters.”

          And I think these points are largely behind the manic jawboning and panic setting in at the RBA and Govt. That ( un/under employed independent self employed contractors) is a very big cohort already. Throw in the construction jobs winding down in resources and rising general UE , the makings for major Bank stress are hitting home. Hence the funnelling of policies towards building construction, ANY construction. My take is it won’t be enough to prevent rising unemployment and continueing slow melt of house prices. However, I judge the risk to that in being too conservative- things could get a lot worse that I presently expect.

      • Oblivious GenXer

        Not directly at Explorer’s comment, but is a comparison between McDonalds and the mining sector really apples for apples?
        I’d like to know if anyone’s got any data on: employee average age, employee average income, part-time/full-time ratios, net worth to Australia vs. net worth to foreign interests.
        I mean, would there be headline news stories and government policy review if people started eating 30% less macca’s?
        …my 2 (very limited) cents

  11. I’ve just looked at ABS 6416.0 House Price Indexes: Eight Capital Cities to June 2012

    This Australia housing overvalued talk has been rampant for 2 years now, including internationally, so lets look at the outcomes for those who acted out of fear 2 years ago.

    Let’s look at 2 Years, June 2010 to June 2012 from the source above, the Australian Bureau of Statistics.

    Sydney -1.53%
    Melbourne -7.45%
    Brisbane -6.87%
    Adelaide -4.79%
    Perth -5.57%
    Hobart -3.91%
    Darwin 7.07%
    Canberra -1.84%
    Weighted Average -4.67%

    Existing owners who sold back in June 2010 and bought again in June 2012 would be down after transaction costs, but depending on level of gearing maybe slightly up after financing costs in all state capitals other than Melbourne and Brisbane and on a weighted average basis.

    In Darwin, you would now be about 10% behind people who just continued holding.

    For people who genuinely made a decision to not buy in spite of wanting and being able to, congratulations unless you were in Darwin. You are likely ahead a few percent and your wasted rent money is likely more than offset by not having wasted interest.

    Summary. Selling from fear of a crash was probably not a good decision especially in Darwin, deferring was a good decision economically in Melbourne and Brisbane, line ball elsewhere and very bad in Darwin. Maybe next year will make a difference.

    Now overlay
    1. your financing situation and rental alternative and costs of movers, and capital gains tax if it were an investment (unless held for an extremely long time)
    2. the intangibles like family disruption and work involved in moving, making new networks, losing good neighbours for bad (or vice versa)
    and tell me whether it was/would have been a good decision to sell on the basis of the fear in articles from about 2 years ago article.

      • Disappointed. A crash would mean my kids who don’t have houses could safely gear up with my help and buy at a much reduced rate.

        Pleased. My decisions not to sell either of a house and an apartment in Sydney have turned out OK at lest so far.

        Curious. Why would broadly analysing data be considered desperate?

    • Now overlay
      1. your financing situation and rental alternative and costs of movers, and capital gains tax if it were an investment (unless held for an extremely long time)
      2. the intangibles like family disruption and work involved in moving, making new networks, losing good neighbours for bad (or vice versa)
      and tell me whether it was/would have been a good decision to sell on the basis of the fear in articles from about 2 years ago article.

      When you factor in the enormous “costs” of renting besides the actual rent you understand why many people buy housing despite its high price:rent ratio.

      • And just as understandably, given all ‘the factors’, it’s understandable why many people choose to rent. If the ‘intagibles’ are so onerous and the expectations of property price fall so attractive, then renting is the obvious choice!

    • The mistake you make is assuming a like-for-like comparison. A smart property owner may have opted to sell a home in, say, Sydney for $X and rented a suitable alternative property valued at, say, 1/4$X. The capital release is invested and offset agains a lower trental-outgoing, and I’ll tell you…it really adds up to a lot…and fast!

      • There are always exceptions but in broad terms 30’s buy or rent small, 40’s upgrade or rent bigger with families, 50’s stay put unless they have done really well, 60’s stay put or downsize. We are considering selling our family home, buying something easily rentable but still our new family home and travelling each year on the income from renting, but it’s not a common strategy.

        It depends on what you invested in and when. Cash suffers from inflation and taxation depending on the taxable income (unless everything else crashes when it performs really well in comparative terms), shares have been down and back up a bit, 10 year bonds have done well over a few years.

    • Kind of hard to know where to start with this one. I guess Explorer considered selling a couple of years ago and decided not to? For most of us bears I’d say we we are either:
      (1) building real personal equity outside the property market and this has been by far the better choice financially for the past 2 years (at least)
      (2) property owners who realise that a home is a consumption item, enjoy it for what it is and don’t think too hard or stress about short term swings in the market, provided we’ve been realistic about the size of mortgage we can service and have a reasonable buffer in place.

      Doing the Hokey Pokey with the property market is highly likely to end in tears, I would have thought. The transaction costs combined with the political/vested interest involvement makes it too risky in almost any circumstance.

  12. “…they own a house worth $1M which can be reversed mortgaged for $200k at aged 65.

    If they invested that @ 4.5% then they get an extra $9000 pa on top of their pension without even touching their principle.”

    The financial contradictions and illusions in this statement could only come from a banker!

    The present financial value of ‘the house’ is not $1 million, it is only worth $200K… i.e. the reverse mortgage. The banker has just told you this in the above statement.

    If they sell the house for $1 million and invest the $1 million in a 4.5% deposit and then rent that same house with untill death 100% security of tenure, they may have an income surplus of $15 – 20K p.a.

    • Except that to do that, they need to find a buyer willing to give them 100% security of tenure until death. A pretty rare bird, I would have thought.

      • Well this is what bankers love doing.

        They will lend $200K and 100% security of tenure until death… its called a mortgage (its called that for a very good reason) and they will extract the remaining $800,000 of finacial value in interest.

        Choose your poison… sell & rent, or pledged until death!

        • I think the idea is to remain a debt slave and rely on taxpayer subsidy forever:

          The plan goes like this:
          1. Buy a few IPs, negative gear the losses and try to pay off the mortgage until retirement.

          2. Upon retirement, if there is no equity in said IPs, i.e you can’t pass on the debt to the next greater fool (aka next generation), then use super to pay off the debt as far as possible. Proceed to step 3 and/or 4.

          3. Line up to receive pension from taxpayers (again, the next generation, of course).

          4. Reverse mortgage to fund your retirement and let the bank steal your kid’s inheritance.

          If this government policy assisted scenario continues, I am going either reach for my pitchfork/torch or my passport. I am not going to wait around for my chance to finance this ponzi finance scheme.

          • Well done Mav, you have hit the nail on the head. The obvious contradiction in this asset bubble debate is that despite having $4 trillion of housing and some individuals with $1 million houses, its very obvious most of these people are actually quite poor. Their wealth is inflexible, has a very low yield, not portable and largely inaccessible unless facilitated by the parasite realestate agents and bank financiers.

            It’s not the situation I choose to be in, but it does seem to appeal to the majority of the 35 – 85 demographic!

          • Thanks, apart from asset price deflation, there are other grave risks involved in this leveraged ponzi finance investment/retirement plan:

            1. Can banks fund mortgages forever? What if overseas wholesale funding sources freeze up again?

            2. Will future taxpayers be generous w.r.t both negative gearing and pension?

  13. “Yesterday afternoon, I attended the Forecasting the Future session”

    LOL. At least the gurus have got past forecasting the past.

  14. Is there any way that this site can be upgraded to notify subscribers of new comments on articles they want to follow, like SeekingAlpha.com? Does it cost a lot? I would love to be able to be told by email when someone comments on story I have commented on or elect to follow, preferably with the comment in the email.

    • is there any way … to notify subscribers of new comments?

      Logged in readers could have new comments displayed in bold/red/..etc once they return back to or refresh the page with comments.

  15. thomickersMEMBER

    Just giving a heads up that architecture firms have axing jobs over the last 2 years (30-40% jobs gone).

    A firm i know which has about 100 workers remaining has now decided to exercise a bit of “kurzarbeit”. all full-time employees are now on 4-days a week.