http://www.businessspectator.com.au/bs.nsf/Article/Lies-damned-lies-and-housing-statistics-pd20090408-QW3PH?opendocument&src=rss

A lot of the effective increase in the supply of new homes has been the increasing cost of the right to build. 30 years ago, a few pegs and string and a hand-drawn floor plan submitted to your friendly local council was all you needed.

Nowadays, you have infrastructure levies, transport levies, open space contributions, public art contributions - whatever far-fetched tax you can think of, some local government has dreamed it up. You also have GST since 2000 which is levied on new supply but not sales of existing homes.

All of which has artificially driven up the price of new supply, by perhaps as much as $70,000 per block of land. And that means that new supply relative to demand has been paltry.

Until now, that was no big deal as there were plenty of jobs up for grabs in the resources sector. But if unemployment rises, the pressure on governments at all levels to ease the tax grab and give a leg up to the construction industry will become irresistible. Its hard to imagine a construction boom coinciding with falling house prices but its the exact opposite of what we’ve been seeing the past few years - declining new supply combined with rising house prices.

There is also migration, of course. You only need new supply if your population is growing.

I don’t think there will be a precipitous drop in house prices. The more likely scenario is sustained falls over a 15-20 year period as was seen in Japan and Germany.

http://www.businessspectator.com.au/bs.nsf/Article/Knowing-your-stats-pd20090727-UC59B?OpenDocument&src=is&is=Property&blog=Concrete Detail

42% of financial assets are held by those aged between 45 and 59; with a further 33% owned by those older than 60 (BRW). In other words, the Baby Boomers own the majority of Australian assets. What are the Baby Boomers scheduled to do over the coming years? Retire… And how will they fund their retirement? By selling assets…

Exactly the same challenge confronts our share market — stockbrokers would have us believe that there are mountains of cash waiting on the sidelines, desperate to bid up shares. But instead of chasing ‘growth assets’, Baby Boomers’ portfolios should actually be moving towards the ‘pension phase’. According to investment ‘rule of thumb’, your portfolio weighting towards fixed-income should increase by 1% for each year that you age — whereas BB’s are heavily skewed towards property and equities, they would be better served to have 60%+ of their investments in bonds (just like their parents and grandparents would have)… What does all this mean? The mountains of cash waiting on the sidelines + much of the cash already invested in the sharemarket should actually be invested in bonds and other fixed-income assets…

Here is a friendly tip for anyone who expects significant growth in property prices (real or otherwise) over the coming decade… Ask yourself: What rate of capital growth would I be happy with from my property over the next ten years? Calculate what you expect “nominal” prices to be in 2019, then extrapolate “nominal” wages growth at 4%pa (which would be a good achievement, in light of short-term unemployment risks)…

Let’s say you were budgeting on 7% capital growth annually — the price of today’s median house would almost double by 2019 (up 97%), whereas the median wage would “only” have increased by 48%.
Given that the wages-to-price ratio is currently sitting a bit above 6, by 2019 these property bulls would have us believe that the ratio would have increased to 8 without any issues whatsoever…

Next, assume that interest rates average a miserly 7% (which would, again, be a very optimistic outcome, given that the Federal Government is borrowing 10-year money @ 5.5% and bank spreads are only expected to widen from their current low-2% levels)…

What does all this mean? If property “nominally” increases at “only” 7%pa for the next decade and median wages grow solidly, the median new homeowner in 2019 will need to devote at least 56% of their BEFORE-TAX income just to paying off the INTEREST on their “great Australian” dream…

Good luck!!

They can be bent, twisted and turned to suit any particular agenda. Now imagine these vital statistics in the hands of the real estate industry…well, you guessed it….misinformation!!!

One other point in comparison to the US mortgage maket and the Australian mortgage industry is that in the US, most lenders have a “key” clause written into their contracts.

This “key” clause enables the borrower to walk out of the contract and the house if the value of the property falls below the amount borrowed for the property.

This completely alleviates the borrower from any more pain but he/she forfeits any hold on the property which reverts back to lender.

We don’t have this in Australia and there are many who believe that this small feature is contributing in actually maintaining the Australian house values…in other words, the punters here can’t dump the keys and run, forcing them to stay on and endure the pain…a form of self value maintainence which also helps keep properties artificially high.

Come on No-Joy….give us all some more of your suave and swanky statistical genius. I can see it rolling off your lips but I can’t hear it…blah blah blah…blah blah blah blah

Just a note Chris, statistics are not facts and the sooner people stop presenting them as such the better we all will be. Please if you must supply statistics to support your arguement I hope you can also supply full details of the statistics, including who paid for the survey, who did they survey, how greater a percentage of the entire population was missed etc.I hope you see what I mean.

In coming years the Boomers are going to be urgent mass sellers of property to fund retirement (hastened by the impact of the GFC on investment portfolios) but the next generation of property buyers as individuals have only very shallow pockets. Sure they are eager to become home-owners, but raw demand alone does not mean valuations can keep rising past levels that are already beyond the incomes and financial capacity of the entire younger half of the population.

The value of family homes in the main capital cities has completely disconnected from the ability of the generations coming through to afford them. Real price falls in the medium to longer term are inevitable.

“Normally when talking about house prices, people mean nominal prices.” Yes, and in terms of actual wealth that would be … confusing nominal and real house prices.

1) Real Estate Institute of Australia house prices: +9%
2) Residex house prices: +10%
3) ABS house prices: +6%
4) CBA/HIA house prices: +5.6%

I will stick to the facts and you can creative whatever alternative realities you like!

” Private-sector providers like RP Data-Rismark…and others now publish world-class price indexes, after mining great detail from a large subset of recent home sales.

Indeed, now that the private sector has made providing reliable monthly home-price indexes a major focus, there seems little point in the ABS continuing to produce its quarterly House Price Indexes (HPI). The next time the ABS finds itself looking for budget savings, it should discontinue its now-supplanted HPI before it considers again downsizing its labour-market and retail-sales surveys.”

Australian house prices did not fall in the last recession (ie, over the period 1990 to 1992). According to every single public house price index, including the ABS, they rose over this period.

… has lots of interesting things including real and nominal price index graphs from 1959 to 2003 on page 16. The real-prices graph shows the index almost doubled from ‘59 to ‘74, sank from ‘74 to ‘79, and fluctuated with no trend from ‘79 to ‘87. Between ‘87 and ‘89 prices then rose about 35 per cent in the biggest two-year increase we’ve ever seen. Followed by about a 10 per cent decline and then flatline to 1996.

Altogether, the real price index rose by 120 per cent in 35 years to 1996. The graph then shows it rose 80 per cent in just seven years from 1996 to 2003, and we know that if we include post-2003, prices doubled in the speculators’ boom.

But as they say, past performance is not an indication of future returns. Share analysts would say the post-1996 increase has the classic appearance of a bubble, but there is a crucial difference between shares and houses: folks don’t really need shares but they have got to live somewhere. There is often (but not always) money to be made by standing between the next generation and what they need or want most. Whether this serves any socially useful purpose does not seem to be a burning question in public policy.

When the Govt or the media want any relevant information, who do they go to?…the real estate industry. It’s a bit like giving a loaded gun to a baby, hopefully they will only shoot themselves in the foot.

The truth is that real estate prices have been artificially contrived for reasons that Adam Schwab has been shouting about from the roof-tops for years …..man, you should have seen them kicking Edgar Allen-Poe.

I don’t know about you No-Joy, but I have a conscience and I see thousands of fresh-faced young people signing themselves into financial oblivion on the basis of the Great Australian Dream…this will be their night-terror and you know it and so does your partner in crime…the Govt.

GEOFFREY ROSS FAWTHROP: Australian house prices did not fall in the last recession (ie, over the period 1990 to 1992). According to every single public house price index, including the ABS, they rose over this period.

JETHRO: Steve Keen did not predict a 40% “real” fall in house prices as you argue. In fact, I predicted exactly your argument in my article above, noting “Don’t expect any mea culpas though. The protagonists will whine about the first time buyers’ grant (blind freddy could have anticipated this counter-cyclical measure), or try to rehash their original predictions by switching from “nominal” (the house prices we see) to “real” (house prices less inflation) terms.”

Steve Keen predicted a 40% fall in nominal house prices, just like he predicted the unemployment would go well north of 15% (best case) and hit 30% (base case).

House prices will not fall this far simply because this would require a total, complete armageddon in financial markets and employment figures which would mean you may be more worried about the fact your home is secure shelter to keep amaruding hordes out rather than the value of it.

American house prices have crashed significantly but they have only fallen to prices around 2005-2006. That shows the ridiculous increase they had over there, which is not matched by the Australian experience.

House prices falling by these levels will not make it easier to buy a home either - the banks simply will not lend to purchase, therefore we will see a further collapse in financial markets and again, more bloodshed.

Buying a home has never been easy - fact. Deal with it.