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Australian Housing Crash


Jimmy123

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QUOTE (Jimmy123 @ Monday 16/06/08 07:11pm)

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

 

Those who do not grasp this fundamental will end up as market fodder - it is that simple. However, one needs to examine the situation carefully, where it will be seen that properties distant from transport and infrastructure may be devalued somewhat. In truth, reflecting the real costs of living in outposts because the price of travel has gone up, also, we must examine this peculiarly Australian habit we have, of first buying an affordable house, then looking for a job - preferably nearby, because it doesn't always work- Often there are no jobs. This is simply too costly a lifestyle choice for the changing times. Whereas, Americans have a long tradition of doing it the other way round, ie: get a job, then find a place to live nearby. A bit like what one does when living in rental accomodation.

 

Certainly we are changing our habits in line with Americans, and I would predict with the kind of governments we readily tolerate, we will have to speed up this process. The plain fact is, governments, both state and federal, have encouraged untrammeled population growth without first providing infrastructure support by way of high speed affordable public transport to get to and from job centres, which seem to be city centric. Nor have they embraced satellite centres of industry and commerce to get people out of our big cities.

 

Blame short sighted governments for this state of affairs, they are the culprits, they have allowed a "rats in a barrel" situation to come to life. Yet we continue to trust them on all things to do with growth.

 

At our rate of population growth I would suggest that suburban and inner city property valuations will have nothing more than a short pause, then inexorably rise. Whereas, properties related to an illusion of cheaper lifestyle choices, such as distant suburban outposts, beach houses, and other affordable accomodations, will first take the hit of deflation, and it will primarily happen because of commuting costs.

 

One needs to recognise that moving people around by way of motor vehicle transport is becoming less of an option by the day, yet all we hear of is more freeways - Toll roads for cars are the solution. When what we need is a Euro system for moving people.

 

Most of all though, we need to look at this head long rush our politicians have forced upon us towards increasing our population, it is the real culprit, perhaps leading to a situation where more and more Australians live in well appointed garbage dumps.

 

An across the board real estate tanking - forget it. It will be selective.

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"It will be dominos I believe. I know of a fellow with over 130 homes, not bad for a fellow who had very little before finding out how to pull the equity and buy another house, then do the same......It only takes a couple bad months after raising rates and the bank will be knocking on the door.....nasty."

 

 

Mags it is exactly this paragraph that doesn't get any attention at all.

 

We always here about housing shortages, but never what you mention here.

 

Any balanced report on housing shortage should include this. Why don't they.....Because as mags said reports by ANZ etc all have a strong bias that they need housing properties to stay high.

 

Watchmaker I agree with what you say about the areas which will get hit the worst. Also agree that the inner city wont suffer as much. However there is still a general belief that inner city will only ever go up- think this will shock a few people.

 

I am only talking short term here (1-3 years). If we do get a strong hit it could be one of the better long term buying opportunities of our lives.

 

Will certainly be interesting and I think we will know one way or the other which way it's going by the end of the year.

 

The timing of the BIS Shrapnel report is suspect to me. I know for a fact (real estate agent mates) that the Agent and real estate community have been panicking over the last month. As they know this is there last chances to squeeze some more over-priced sales in.

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In reply to: Jimmy123 on Monday 16/06/08 10:10pm

It will be dominos I believe. I know of a fellow with over 130 homes, not bad for a fellow who had very little before finding out how to pull the equity and buy another house, then do the same......It only takes a couple bad months after raising rates and the bank will be knocking on the door.....nasty.

 

Ths is only true if he leveraged himself beyond his means via low doc loans - of which Australia only has a very small percentage. The big banks have much stricter lending criteria. The only other way your friend has done this in a short space of time is if he has purchased positively geared property. In which case, as interest rates rise, he would just need to sell off a small percentage of his portfolio and he would be in exactly the same position cash-flow wise. Or he could increase his rent and keep the houses. There would be no need for a mass sell-off - most definately a DOMINO effect would not be created. What has happened in the US is a result of a large percentage of 'bad loans' being issued and subsequently defaulting. UK prices have only dropped 7% to date and economists are saying that its due to the gloomy economic conditions currently in the UK as well as the credit crunch - some are calling it the perfect storm. Hardly a situation we have here, or will have here in the next 3 years:

 

Figures out today in teh UK reveal a sharp rise in unemployment. Banks are laying off staff, assets and slimming down on office space. Last week, two major high street banks were forced to relocate their head office into much smaller premises in a cheaper part of town. Auction houses are seeing a large increase in sale items including bankrupt stock, company cars and office equipment ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ a sure sign of a troubled economy.

 

Fuel prices will rise yet further, some are predicting that we will be paying ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚£2.00 a litre by the end of this year and this will add yet more heart-ache to an already stretched nation of hard-up families, struggling with rising inflation and higher food bills.

 

Last weekendÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s fuel strike by Shell tanker drivers has cost the British economy more than ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚£8billion in lost revenue. Shell lost ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚£millions in lost sales and the strike is set to be repeated at the end of this week. This will begin to affect power stations and some cities will start to see power cuts at peak times because of a shortage in available energy.

 

These are very troubling times and the government are being urged to step in and take action, not just for out of pocket public but in higher echelons of the money markets and fuel industries to try to ease the unrest.

 

Malcome Ruggeridge of the Met Police said, ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“I remember the days of the Brixton riots ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ caused when a labour government messed up the economy and more than 3 million were unemployed, fuel pumps ran dry and the pound dropped around the globe ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ IÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢d say weÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢re pretty close to similar conditions and if the government donÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t do something soon, weÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ll all be faced with a bigger problem of possible rioting which is often the case in deprived situations.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ

 

 

Meanwhile, the supply side of the equation gets worse and worse:

 

Housing construction has slumped on the back of high interest rates, in a sign that housing affordability is set to reach new lows.

 

Official figures show that in the March quarter, work commenced on about 38,800 new homes in seasonally adjusted terms, which is 3.3 per cent fewer than in the previous quarter.

 

AMP Capital Investors chief economist Shane Oliver says demand for houses is far outstripping supply.

 

"The main factor dampening demand for new home construction is interest rates and very poor affordability," he said.

 

"If you look at most measures of home affordability in Australia they are at record lows.

 

"We have a situation where we're not building enough houses, we're probably building around 30 to 40,000 less houses per annum than we actually need."

 

He says housing starts are sagging under the weight of higher interest rates.

 

"Housing starts remain very weak and that's consistent with other indicators of the housing sector, such as home building approvals," he said.

 

"What we're seeing here is the housing sector remains down in the doldrums. We're not building enough homes, affordability remains poor and basically we're looking at very soft housing construction going forward."

 

Whilst the demand side gets ... well, more demanding. Net migration to Australia is the highest it has ever been. More people are being born than ever before.

 

Those people that think a big property price correction is on the cards sometime in the next 3 years I think is a case of wishful thinking. If you want to invest in the property market the best time is now - it always is.

 

It is good to hear other peoples opinion though because it makes you think more about what you are doing and why - so thankyou everyone for your thoughts and opinions.

 

 

 

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In reply to: Optionsman on Tuesday 17/06/08 08:51pm

Try again, sorry about the confusing quotes:

 

It will be dominos I believe. I know of a fellow with over 130 homes, not bad for a fellow who had very little before finding out how to pull the equity and buy another house, then do the same......It only takes a couple bad months after raising rates and the bank will be knocking on the door.....nasty.

 

Ths is only true if he leveraged himself beyond his means via low doc loans - of which Australia only has a very small percentage. The big banks have much stricter lending criteria. The only other way your friend has done this in a short space of time is if he has purchased positively geared property. In which case, as interest rates rise, he would just need to sell off a small percentage of his portfolio and he would be in exactly the same position cash-flow wise. Or he could increase his rent and keep the houses. There would be no need for a mass sell-off - most definately a DOMINO effect would not be created. What has happened in the US is a result of a large percentage of 'bad loans' being issued and subsequently defaulting. UK prices have only dropped 7% to date and economists are saying that its due to the gloomy economic conditions currently in the UK as well as the credit crunch - some are calling it the perfect storm. Hardly a situation we have here, or will have here in the next 3 years. This is what they are saying about the UK:

 

Figures out today in the UK reveal a sharp rise in unemployment. Banks are laying off staff, assets and slimming down on office space. Last week, two major high street banks were forced to relocate their head office into much smaller premises in a cheaper part of town. Auction houses are seeing a large increase in sale items including bankrupt stock, company cars and office equipment ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ a sure sign of a troubled economy.

 

Fuel prices will rise yet further, some are predicting that we will be paying ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚£2.00 a litre by the end of this year and this will add yet more heart-ache to an already stretched nation of hard-up families, struggling with rising inflation and higher food bills.

 

Last weekendÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s fuel strike by Shell tanker drivers has cost the British economy more than ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚£8billion in lost revenue. Shell lost ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚£millions in lost sales and the strike is set to be repeated at the end of this week. This will begin to affect power stations and some cities will start to see power cuts at peak times because of a shortage in available energy.

 

These are very troubling times and the government are being urged to step in and take action, not just for out of pocket public but in higher echelons of the money markets and fuel industries to try to ease the unrest.

 

Malcome Ruggeridge of the Met Police said, ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“I remember the days of the Brixton riots ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ caused when a labour government messed up the economy and more than 3 million were unemployed, fuel pumps ran dry and the pound dropped around the globe ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ IÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢d say weÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢re pretty close to similar conditions and if the government donÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t do something soon, weÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ll all be faced with a bigger problem of possible rioting which is often the case in deprived situations.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ

 

 

Meanwhile, back in Oz, the supply side of the equation gets worse and worse:

 

Housing construction has slumped on the back of high interest rates, in a sign that housing affordability is set to reach new lows.

 

Official figures show that in the March quarter, work commenced on about 38,800 new homes in seasonally adjusted terms, which is 3.3 per cent fewer than in the previous quarter.

 

AMP Capital Investors chief economist Shane Oliver says demand for houses is far outstripping supply.

 

"The main factor dampening demand for new home construction is interest rates and very poor affordability," he said.

 

"If you look at most measures of home affordability in Australia they are at record lows.

 

"We have a situation where we're not building enough houses, we're probably building around 30 to 40,000 less houses per annum than we actually need."

 

He says housing starts are sagging under the weight of higher interest rates.

 

"Housing starts remain very weak and that's consistent with other indicators of the housing sector, such as home building approvals," he said.

 

"What we're seeing here is the housing sector remains down in the doldrums. We're not building enough homes, affordability remains poor and basically we're looking at very soft housing construction going forward."

 

Whilst the demand side gets ... well, more demanding. Net migration to Australia is the highest it has ever been. More people are being born than ever before.

 

Those people that think a big property price correction is on the cards sometime in the next 3 years I think is a case of wishful thinking. If you want to invest in the property market the best time is now - it always is.

 

It is good to hear other peoples opinion though because it makes you think more about what you are doing and why - so thankyou everyone for your thoughts and opinions.

 

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In reply to: Optionsman on Tuesday 17/06/08 08:56pm

QUOTE
I give up. The quotes have beaten me. 

 

Optionsman check the guided mode at the top and this will help you out.

Little window will pop up for you to add the quotes.

You may have to allow temporary scripted windows if a warning pops up depending on the settings on your computer.

Good Luck http://www.sharescene.com/html/emoticons/biggrin.gif

V1

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From ABC's PM program

http://www.abc.net.au/pm/content/2008/s2286039.htm

 

'Overvalued' house prices tipped to fall

PM - Wednesday, 25 June , 2008 18:22:00

Reporter: Stephen Long

MARK COLVIN: The credit crunch isn't over yet, abroad or in Australia, and there are new signs today that it could get worse.

 

An analysis published today argues that house prices in Australia are overvalued by at least 20 per cent. It says that at some stage they must fall.

 

Already the nation's most reliable index shows record falls in house prices over the year to April, with American real estate down by an average of more than 15 per cent.

 

Economics correspondent Stephen Long

 

STEPHEN LONG: Karl Case and Robert Shiller are the brains behind the most reliable house price index in the United States, and they know a fair bit about bubbles.

 

Professor Shiller of Yale, famously predicted the tech wreck in a book called "Irrational Exuberance".

 

And years before the current crash, he and Professor Case, of Wellesley College, were arguing that the US housing market was in the grip of an absurd mania.

 

Karl Case made this wry observation on the PM program five years ago.

 

KARL CASE: Here's the way housing bubbles start. Somebody blows a whistle that only dogs and buyers hear.

 

STEPHEN LONG: The whistle sounded about a year ago amid the sub-prime mortgage meltdown.

 

The Case-Shiller Index tracks family house prices in 20 cities across the continent. In the year to April, all 20 fell, 13 of them by record margins.

 

The survey is showing by far the worst declines in its 20 year history and you need to look a long way further back than that to find a parallel.

 

ROGER BOOTLE: Oh, I think this is looking like the most serious housing slump in the States since the Great Depression. This just looks frankly horrific.

 

STEPHEN LONG: Roger Bootle is one of the renowned economists in the city of London, and London is also in the grip of a housing slump.

 

He thinks the US market has a lot further to fall.

 

ROGER BOOTLE: I think prices in the States on average have got quite a lot further to fall. And no one knows that answer to this of course, but having looked at the various metrics of value and affordability in the States and having looked at how far house prices has risen a decade or so, I've come to the conclusion that I think probably American house prices at the peak were between 30 and 40 per cent overvalued. So for down roughly 15 per cent now maybe, maybe we're approaching half-way through.

 

STEPHEN LONG: But Karl Case sees some cause for optimism in the latest numbers.

 

KARL CASE: There's no secret that house prices are down. But this month, meaning April and over March, eight cities, eight of our metropolitan areas out of 20, actually went up.

 

STEPHEN LONG: And although annual prices fell everywhere there were big regional differences.

 

KARL CASE: The ones that are doing the worst are Las Vegas, Phoenix, Miami - that's just dramatically over-built. If you take Cleveland, Boston, Chicago, Denver, New York, Atlanta, Seattle, Portland, Dallas and Charlotte, all of those cities are down below 10 per cent or below.

 

STEPHEN LONG: Some cities maybe worse than others but with house prices down everywhere in America, Roger Bottle Roger Bootle says he can only draw one conclusion.

 

ROGER BOOTLE: These economic processes take quite some while to work their way through and what's happening in the housing market is so dire that I still think that the outlook the American economy is pretty poor.

 

STEPHEN LONG: Property prices have suffered big falls in Sydney's south-west but elsewhere in Australia, many think real estate prices only ever go up.

 

Steve Johnson at the Intelligent Investor says, tell 'em they're dreaming.

 

STEVE JOHNSON: There is a serious correction that has to take place. Whether that takes place over a short period of time or a long period of time is anyone's guess.

 

STEPHEN LONG: Twenty years ago, an average house in Australia cost four times an average wage. Now it costs more than seven times and prices can't keep on outpacing wages over the long haul.

 

STEVE JOHNSON: It can't go on forever but who knows when it's going to stop. At some point, house prices and incomes have to have some relationship between the two.

 

STEPHEN LONG: Steve Johnson says the rental returns don't justify Australia's house prices either.

 

STEVE JOHNSON: Prices have been running up much quicker than rent on those properties for a very long period of time, and we're now at a situation where rental yields are around three per cent a year and interest rates are around 9.5 per cent a year, and we just don't think that gap is justified.

 

STEPHEN LONG: Doesn't that just say that rents are going to sky-rocket?

 

STEVE JOHNSON: We've done a lot of research on this fact and what that research has shown is that over a very, very long periods of time, the percentage of people's income that they spend on rent has been very consistent. It was 29.9 per cent of their income in 1901, and 30.1 per cent in 2001. So, we don't see that changing, we expect rents will grow in line with people's incomes over a long period of time and that will be a restricting factor on how quickly rents can grow.

 

STEPHEN LONG: So how much on the fundamentals are house prices overvalued in Australia?

 

STEVE JOHNSON: We've been very conservative in our assumptions and come up with a number that's 20 per cent. We think it's 20 per cent too expensive. But you can mount a fairly convincing argument that if prices feel by 50 per cent, you still wouldn't have a screamingly cheap property market in Australia.

 

STEPHEN LONG: Gerard Minack at Morgan Stanley comes up with similar figures.

 

And, for what it's worth, when he visited these shores, Professor Karl Case also though the Aussie housing market looked like a bubble set to burst.

 

KARL CASE: Well, anytime you see a market running way ahead of the rest of the economy, it can't go on forever.

 

MARK COLVIN: Professor Karl Case ending Stephen Long's report.

 

 

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In reply to: davesss on Wednesday 25/06/08 10:14pm

Thanks davesss, I normally listen to Mark at night, but missed that.

 

I totally agree that value (as opposed to price) can only be related to incomes and rental yields. Every serious market correction (wether stock, property, or other asset) occurs due to prices being to high for the return on the capital (tech wreck anyone???? Companies valued at millions/billions with out ever turning a profit????).

 

Sure people are wealthy out of real estate, but I know my father bailed out years ago as yeilds were dropping and got into stocks. Hes far richer for that move.

 

And its not the first time that topic has been on ABC: The ABC doesn't have real estate mentors advertising late at night either, where as the commercial stations have something to loose by showing this type of thing.

 

http://www.abc.net.au/pm/content/2008/s2208561.htm

 

Australian houses over-valued: IMF PRINT FRIENDLY EMAIL STORY

PM - Friday, 4 April , 2008 18:14:00

Reporter: David Mark

MARK COLVIN: Glenn Stevens also believes Australian homes are over-valued. That's in line with a new International Monetary Fund report which suggests Australian house prices are among the most over-valued in the developed world.

 

The fund says a quarter of the house price increase here over the last decade cannot be explained by fundamental economic indicators.

 

Most economists agree, but they disagree wildly on what happens next.

 

David Mark reports.

 

DAVID MARK: Anyone who's in the market for a home will tell you, the governor of the Reserve Bank, Glenn Stevens, isn't lying when he says Australia has a home affordability problem.

 

And the problem isn't because interest rates are high.

 

GLENN STEVENS: The big problem is that the prices are very, very high. We have very high prices in Australia relative to income.

 

DAVID MARK: A new report by The International Monetary Fund supports that conclusion.

 

The IMF's so-called 'house price gap' is based on the extent to which house prices can't be explained by economic fundamentals. The fund's latest World Economic outlook suggests house prices in Australia have been overvalued by 25 per cent over the past decade.

 

But real estate agents think the prices here are about right.

 

Chris Fitzpatrick is the deputy president of the Real Estate Institute of Australia.

 

CHRIS FITZPATRICK: I believe that Australian real estate is probably, what I see, as good value on an international basis.

 

DAVID MARK: But most analysts in Australia however do agree with the assessment that Australian house prices are over-valued.

 

Scott Haslam is the chief economist for UBS in Australia.

 

SCOTT HASLAM: We certainly think if you look across the board range of measures, whether you look at the house price PE or house prices to national output or income, it's certainly quite easy to come to the conclusion that house prices in Australia are over-valued at the moment.

 

DAVID MARK: James Kirby edits the online investment magazine, the Eureka Report.

 

JAMES KIRBY: Perhaps our house prices are over-valued. We have very distinct issues in relation to house prices in Australia. Particularly the fact that it's the best tax shelter for most people.

 

DAVID MARK: Scott Haslam cites other reasons for the over valuation.

 

SCOTT HASLAM: Ultimately, it's a very strong paced population growth. Issues in terms of the limited supply and I think also the very strong growth in the economy in the last few years, increasing wealth in the economy, has also added to that demand for housing.

 

STEVE KEEN: It's been the biggest speculative bubble in world history.

 

DAVID MARK: Steve Keen, an Associate Professor of Economics and Finance at the University of Western Sydney. He believes the IMF has understated the problem.

 

STEVE KEEN: The basis that the IMF is looking at is comparatively short-term.

 

DAVID MARK: So, what the relevant figure for Australia, do you believe?

 

STEVE KEEN: Relevant figure will be about 2.3, 2.4 times the long-term trend.

 

DAVID MARK: What you're saying then is Australian house prices are over-valued by as much as say, around 62 per cent?

 

STEVE KEEN: When compared to consumer prices, that's the level of over valuation of house prices is of the order of 60 per cent.

 

DAVID MARK: If Australian houses are over priced, as the analysts suggest, will prices fall? Here, they disagree.

 

James Kirby thinks prices are on the way up.

 

JAMES KIRBY: Specialist forecasters, BIS Shrapnel, have said that they could see 40 per cent increase in house prices in the next five years, 50 per cent increase in rentals and I don't really have a problem with that forecast, whatever IMF might suggest.

 

DAVID MARK: The real estate agent, Chris Fitzpatrick:

 

CHRIS FITZPATRICK: There may well be a slight correction in the market and obviously those people that are in the market just need to ride those out. It's a little bit like any other asset class of investment you're in, you just need to ride through it.

 

DAVID MARK: Scott Haslam from UBS has a similar view.

 

SCOTT HASLAM: We're going to see house price growth disappear and there would be some possibility of some modest falls in house prices over the course of the coming year.

 

DAVID MARK: By how much?

 

SCOTT HASLAM: Well, we're looking at a range of around zero to sort of minus five per cent for year in new house price growth over the coming year.

 

DAVID MARK: The University of Western Sydney's Steve Keen has an altogether different reading.

 

STEVE KEEN: I think they have to fall as much as the IMF says and a lot more. Again, taking a look at the American data, which I do on my debt watch blog, the scale of dropping in prices now is astronomical. Prices fell 2.3 per cent across America last month and yet it has to keep on going dramatically, simply to get back to anything like a long-term trends.

 

DAVID MARK: What would it mean if house prices fell by as much as you suggest?

 

STEVE KEEN: It means it'll, an extremely long drawn out slump, similar to what Japan has been through when it had its similar bubble 15 years before ours, and in Japan their bubble burst really right at the very end of 1989 and since then, Japanese house prices have fallen 70 per cent.

 

DAVID MARK: Many people who have their money tied up in real estate would say that's a bad thing. Is it?

 

STEVE KEEN: I think it's a bad thing that money tied up in real estate in the first place. This is the end of a period of sheer speculation which we shouldn't have encouraged to being with.

 

I don't think it's people's fault for falling for this argument that speculation was in fact investment, but that's what's occurred. And unfortunately unwinding of any bubble of that scale is always painful.

 

MARK COLVIN: Associate Professor, Steve Keen, from the University of Western Sydney, ending David Mark's report.

 

 

 

 

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In reply to: Mags on Thursday 26/06/08 07:25pm

Mags, IF blame can be attached to somebody, apart from the greedy punters who have totally forgotten CAVEAT EMPTOR:

 

It must be the money lenders, more particularly the peripheral lenders. When the low doc loans came in, the big five banks initially wanted nothing to do with them as "low doc" really meant "NO DOC", and thats where many got the readies. Of course it goes without saying the lucky punters didnt bother to read the attached fine print.

 

The real estate industry should hang its head in shame, we all know they act for the vendor unless employed as a buying agent, but for anybody to tell the uninitiated "Real Estate ALWAYS goes UP, NEVER down" is beyond belief.

 

I hope those who suffer negative equity have a few choice words with the brick shufflers, mind you one would have to be over 40 probably, to remember the last property crash. Welcome to The Real World!

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