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Australian Housing Crash


Jimmy123

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There has not been one bubble in history that has not burst and come crashing down.

 

I think everyone agrees aus residential housing has been in a massive bubble, which now looks like it peaked late last year. Therefore it is a given that Aus housing will eventually crash, just a matter of determining if the crash is now beginning.

 

A massive trend usually has an exaggerated last move up - eg 2007 prices rising over 20%, meets that criteria.

 

The triggers now seem to be lining up in dangerous confluence.

- high interest rates

- China/India etc struggling with high inflation which may pause their demand for Aus commods

- Housing most over valued in history.

- US/UK housing markets falling over. Have often followed UK/US.

- Very low consumer/business confidence

- Very low housing finance and credit growth.

- Poor investment yields when comparing to the cost of borrowing meaning investment money likely to dry up.

- Record high Debt levels.

- A nation of people that think housing doesn't go down, therefore pushing prices at least 30% above their intrinsic value.

- commercial property forecast suggesting 09 will be a tough year and commercial properties will drop in price and turnover.

 

The obvious positive is the housing shortage however I think this will result in long term strength in housing prices, but wont be enough to stop the bursting of this massive bubble in the short term. I also realise some areas will be hit worse than others.

 

I know the majority of the Austrlalian population has the opinion that housing prices never fall, and there is such a housing shortage etc etc However I believe Aus housing prices will drop 30-60% over the next 1-4 years.

 

Considering it effects so many people I am surprised there is not more discussion on the subject.

 

Interested to hear other opinions as long as backed up with reasoning.

 

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In reply to: Jimmy123 on Sunday 15/06/08 12:18pm

Hi Jimmy,

 

If I were younger and not entrenched in my laid back life style, I would have sold my house about 6 months ago and would now be renting waiting to buy back in when a bottom is evident in housing. I would go as far as to say that it is not too late to do that now.

 

Cheers.

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QUOTE (Jimmy123 @ Sunday 15/06/08 12:18pm)

Jimmy, a fascinating subject, the outcome of which will see some winners but a whole heap of losers IMHO.

 

I live in deepest WA, in THE go go area, akin to Byron Bay. The last ten years have been hysterical, ie starter houses have risen 400%.

 

Trouble is wages have risen little. Tourists down 23% in the last 2 months. Council rates due to rise another 8%, on top of the 8% last year and the year before that, compound that up!

 

How has the bottom end risen thus? Negative gearing and SPECULATION.

 

Every man and his dog has an investment house or two or three, or is speculating on vacant land off plan.

 

Trouble is: They havent a clue about the potential downside--the clever boys are long gone.

 

Now we get to the nitty gritty, even the local rags are saying: Domestic Property is worth 3.5 times a full time salary. So 2 people on $40K have a capacity of $280K. Starter homes start at $450K. TROUBLE.

 

Thats where this area is at. Still the off plan land speculation continues. Right in my own little countryside haven we have a brand new land subdivision, only yesterday was talking to a local land spruiker who admitted that the first time buyer for whom this subdivision was originally intended is a non starter.

 

Won't appeal to Perth retirees, so where's his buyers?

 

He tells me INVESTORS. But, and here's the rub those investors will build the cheapest 4X2 house possible and then cram in 4 renters paying $150 a week each.

 

At the other end of the scale rumour has it that over 1000 holiday houses are on the market around $1m each, I thought those buyers were cashed up, not so--all geared to hell!

 

Nobody under 40 has seen a property CRASH, the youngsters better prepare themselves for neagative equity, even here in the BOOM state.

 

The spruiker is of the opinion that our interest rates will drop .5% by Xmas--NO HOPE

 

DON TIN HATS!!

 

PS: the old timers amongst us point out to the younger generation that historically property rises 7% a year, they look at you in amazement, what planet are you on--get with it-- my comment back is: Hope you implicitly trust the salesman who conned you INTO the package, and the mortgage agent who eventually found you a mortgage that NAB wouldnt touch with a barge pole, and that youve got the guts to sue them for whatever you care to name.

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In reply to: flower on Sunday 15/06/08 01:58pm

Prices are determined by supply and demand. Over the next 2-3 years there just arent enough houses being built in Australia to meet demand. This means that in that time frame, property prices wont be dropping too much, even if interest rates rise again.

 

Each city has its own characterisitics and is at a different point in the cycle, so we should be careful not to generalise too much. I'll try and dig up a report a read a while back which shows the stats.

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In reply to: Optionsman on Sunday 15/06/08 02:23pm

O: I should have made that point, Perth was very late in having a pullback in prices. The WA boom has of course been resource boom based, and yet a new dimension now is entering even that.

 

Due to the high cost of jet fuel, Im hearing Companies are going to try and limit the fly in/fly out regime by trying to get longer work swings, and are very actively looking at the possibilities of throwing up factory built on site accomodation.

 

Apparantly the grey nomads are now screaming blue murder as they try and escape the Perth winter, they cant get into their favourite Broome camp sites, because of the mining boom!

 

Dont know if anybody read Deidre Macken in the AFR this week discussing the whole housing/fuel price saga, she reckons soon nobody will be ablr to travel anywhere and the old quarter acre block wil be back in demand, got to be a millionaire for that!

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In reply to: Optionsman on Sunday 15/06/08 02:23pm

Optionsman - it is this kind of thinking that has caused housing to get way over-valued. Speak to any person on the street who has no interest in economics, and they will tell you that housing investment is the safest easiest money you can make, with no downside risk. Because of this the average aussie punter is happy to turn up to auctions and pay 30%+ over the intrinsic value.

 

Yes I acknowledge the housing shortage is an issue, but it wont save the day IMO.

 

Look at the UK 12 months ago - correct me if I am wrong, but weren't they saying over there that housing prices will not go down because of their housing supply problems????

 

Now look what's happened, their bubble has burst, and most respected opinions predict large further losses over the next couple of years.

 

The other point which I think is important, is the amount of investors that used their equity, and low interest rates to buy more and more investment properties. I would love to know the stats on how many Australian people have more than 1 house?????

 

Because these investors are now faced with rental yields that are way below the cost of capital, and negative growth I think they will bail in numbers which will result in housing shortage been less of an issue.

 

I have spent many hours thinking about this subject, and I am now becoming more and more confident by the day that the bubble is bursting as we speak. The issue is the average aussie hasn't worked this out yet, and the majority will only work it out when it's too late.

 

 

 

 

 

 

 

 

 

 

 

 

 

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QUOTE (Optionsman @ Sunday 15/06/08 02:23pm)

"" Prices are determined by supply and demand. Over the next 2-3 years there just arent enough houses being built in Australia to meet demand.""

 

 

 

I think this is a correct assement for the large cities, ie: demand has not altered, indeed, if anything it is still as high as ever. However, a return to realistic financing should be the subject of focus, where in recent times a few brakes have been applied to speculators hinging on the rapidity of capital gains to make money. Also, marginal borrowers are under the microscope, and its about time too. One should not confuse a well overdue rationalisation by money lending institutions with a bursting bubble. Certainly prices may attenuate somewhat, but demand will not be going away, in that, people still have to live somewhere, and most will carry the dream of ownership for all of their lives. It's just a question of the affordabilty of ownership, and wistful dreams of making this easier should not be confused with a bubble

 

The relativity of seemingly high prices should be seen for what it is - genuine scarcity. And one need look no further than Japan or much of Europe, where home ownership is beyond the reach of most. We are simply heading in their direction, perhaps to a point, where one day it might be a lifetimes work to own a house, or, as in Japans case, several generations of contributions where parents pass the baton to their offspring.

 

The reality is, we have a paridigm change going on, and dwelling on past models for home ownership or valuations is wrong headed.

 

If however, governments come up with vast tracts of land and infrastructure to support a widening property ownership then the equation changes. For many reasons this is not going to happen, and one need look no further than the state of infrastructure in our big cities right now. One cannot simply build more houses.

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