Housing: bubble, bubble, toil and trouble — or is it?
|
Even the experts can’t agree on whether there is a housing bubble — so what hope do the masses have? Over the past week, one of Australia’s leading housing experts pointed out that there was potentially 400,000 homes that may hit the market later this year. Another claimed that there wasn’t a bubble at all, the Reserve Bank constantly disputes the notion of a bubble while The Economist dubbed the Australian property market “the most overvalued” of the 20 it studied. SQM Research chief Louis Christopher noted last week that “by the time we get to spring, there will be 350,000 to 370,000 properties on the market nationally [and] when you see a fall in volume and a rise in listings, it means one thing — vendors are struggling to sell their property”. Christopher’s views appear to be borne out in rapidly dropping clearance rates — especially in Melbourne, Australia’s auction capital, which has seen clearance rates fall from more than 80%t throughout 2009 to only 55% now. (The Real Estate Institute of Victoria is still claiming the clearance rate is more than 70%, largely because it doesn’t bother to include non-reported auctions. Of course, taking advice from the Real Estate Institute is a bit like asking a car salesman when it’s time to buy a new car). Banking analyst Brian Johnson, of CSLA, took a similar bearish view, noting to clients that “on any measure, the dramatic rise [in house prices] has been fuelled by a dramatic increase in household gearing tolerance on a variable interest rate product in a low interest rate environment — and Australia’s housing prices look irrational on most metrics”. Not everyone agrees though — perhaps worryingly, the RBA’s Luci Ellis, who is responsible for financial stability of all things, claimed that “recent data suggests we do not have a credit fuelled speculative boom on our hands”. Ellis may not be looking at the same data as Steve Keen (who shrewdly notes the increase in mortgage debt to GDP, among other measures) or the Economist, which claimed Australian property is the most expensive in the world, based on a comparison of average-prices and rents. Or even NAB’s Joseph Healy, who pointed out that the flow of money into housing might be causing “asset bubbles”. This is not altogether different to what Crikey pointed out last week — that the cost difference between renting the median home and buying a median priced home is extraordinary. In fact, when maintenance, depreciation and other costs of ownership are factored in, it costs more than double to own the average home than to rent one. The Economist noted that Australia’s house price growth in 2009-10 of 20% was the third highest of the countries it considered. Since 1997, Australian median prices have risen by 211% — second only to South Africa (which was in the process of an economic expansion after the end of its apartheid system). In fact, since 1997, Australia’s house price growth is double that of the US, more than six times the rate of Switzerland and triple the increase experienced in Canada (which, like Australia, has benefited from the commodities boom). No need to be concerned though — even though most credible (and non-interested) housing commentators (and the majority of investors) now believe that a housing bubble exists, the organisation responsible for setting monetary policy in Australia remains in a state of bliss. |
|
|
|
8 Comments
Dear Adam
As you know Adam, Julie and I have been researching this quite extensively and we disagree with the RBA too.
Dunno what their game is up there but we think it’s some other new game if they can’t see and understand the data, especially when the most credible economists can see it but they can’t…go figure that one!!!
(((((when you see a fall in volume and a rise in listings, it means one thing — vendors are struggling to sell their property”.)))))
Yes, Julie and I are seeing this everywhere at the moment…and let me tell you Adam, that we have the utmost compassion for people trying to sell at the moment….but there’s just no buyers in their asking price range…hmmm..it’s a Mexican Standoff Adam.
But I must say though, Chris Stabarakis from real estate agents Coniatis, Lialls & Deceto…says that we are on the threshold of the biggest real estate boom in history…yeah.
He reckons that if Julie and I don’t buy within the next 6 weeks we could miss out altogether…and he maintains that the market is actually just starting to bottom-out now and the next inclination is HEADING NORTH ..and with a bullet I might add…or actually he might add.
Agghh..that Chris Stabarakis is just so cool Adam.
Did you know that he does n’t even drive a Porshe!!!..no, not even a Mercedes!!!..nope!..he drives an Audi, Adam…how cool is that?
I can just see him driving down the Highway..top down!..radio up full-bore!…arm out the window!…open neck white shirt with his thick course chest-hair blowing in the wind as he waves to all the girls !…and in his wake, nothing but the lingering fragrance of that after-shave lotion that Julie loves so much, and on his way to yet another home opening or maybe a scintilating and super exciting auction …or maybe to his finance broker for even another amazing finance deal for one of his clients who probably does n’t even have a job…that guy is just way cool and his advice is taken very seriously Adam!!!coz he will do just about anything to make a sale, Adam…he is just so focused!!!
Anyway, not much been happening up our way Adam so I might take the opportunity to sign off now.
Oh..just one last thing…Julie tells me that your articles are like sex, Adam ..yeah…never bad, just some better than others.
Yours Sincerely
Kevin & Julie Harris
Oh dear, it’s Schwab and Keen still peddling the gloom and doom for the real estate market. How many times do I have to say it , guys - it’s demand, demand, demand.
@ Kevin and Julie Harris
I do enjoy hearing your updates and those snippets of information and market predictions which you glean from your impeccable sources. It’s curious that Chris hasn’t sold you something fantastic off-the-plan by now, are you sure he’s putting sufficient effort in?
Might I make one observation? People who were purchasing Audis prior to 1999 are not to be confused with those who discovered them after that date. They are in different camps.
##Might I make one observation? People who were purchasing Audis prior to 1999 are not to be confused with those who discovered them after that date. They are in different camps##
Too deep for me.
@ Teslaifo
That was roughly around the time some real estate agents discovered Audis and began to favour them over their SAABs and Mercedes.
In 1980 the average wage was $12.5K. & the Median House price was $40K since 1980 the Median house price has gone up 12.5 times to $500K in 2010? Well that makes a house in 1980 3.2 times the average income of $12.5K & @ 9.5% interest rate in 1980 the average house payment would take less than 30% of GROSS SINGLE INCOME to service. Fast forward to 2010 Median price is $500K + or 8 times the average single wage($62K) @ current interest rates of 7% it would take 58% of GROSS SINGLE INCOME to service. Today it a house MUST be bought using TWO incomes people could do it before on a single income. Now for house prices to keep having a capital growth wages have to keep up. Wages have failed to do this over the last 30 years & people just cant afford to pay anymore thus constraining price growth of property unless they take to robbing banks or selling drugs the average person has reached their capacity to pay any more. Now the RBA have stated they will not allow wages to rise more than the CPI so the best property can do in the future is keep up with the CPI & no more dream runs possible. Spruikers would have you believe that property has no limits but AFFORADABILITY put pay to that MYTH……..PROPERTY SPRUIKERS use HISTORY to support their position that PROPERTY ALWAYS DOUBLES every 7-10 years. As PROPERTY SPRUIKERS are so fond of their history here are HISTORICAL FACTS that you may wish to consider regarding Interest Rates. The average bank variable home loan interest rate over the past 59 years in Aus is 8.05%. Standard variable rates were above 9% from July 1974 to August 1993 when they dropped to 8.75% for 1 year then stayed above 9% till November 1996. JUST THINK for 22 YEARS of the last 36 years interest rates were WELL ABOVE 9% not that long ago. But lets not go back all the way to 1959 lets go back only 30 years which is what the average length of a home loan & you will find the following….. AVERAGE HOME LOAN INTEREST RATES FROM Feb 1980 to Feb 2010 WAS….10.11% … So if you cant afford a rate above 10.11% should you be in property at the peak of an inflated market? Property Spruikers use history as a guide, as you should & budget on an average interest rate of 10.11% … Go ahead disregard history after all property always doubles HISTORY SAYS SO. Want proof on interest here is the Link.. http://www.loansense.com.au/historical-rates.html
Property Spruikers most popular rationale for Australia’s booming property market is that Australia is in the midst of a dire housing shortage, caused by organic population growth and massive immigration. However, statistics tell a different story. According to the ABS, 12,814 residential dwellings were approved in October 2009— that equates to about 150,000 constructed annually. Given that the average Australian household has 2.6 people, dwellings for about 400,000 Australian are being built each year. Last year, net migration to Australia was 213,461 (of which skilled migrants made up just over half). In short, there is substantially more housing than there are migrants. It appears that the housing shortage is two parts myth, zero parts reality. It is highly doubtful that migrants are even in a position to “bid up” the price of properties. The VAST MAJORITY migrants would not be in a position to pay $500,000 to purchase a property so they will have no impact on demand. According BIS Shrapnel, rents increased last year by only 3.5%, barely more than inflation. Not only are immigrants unlikely to cause property to rise they are having little effect on rental rates either. If I am going to be critical of PROPERTY SPRUIKERS It would not be fair or balanced for me not to take into consideration the fact that Australian Population increases also occur organically, especially given Australia is in the midst of a baby boom. In 2008, 296,600 babies were born, the highest figure ever. However, last year 143,900 people died, meaning that actual population organic growth was only 152,700. So, even adding the net births to the net immigration levels (213K + 153K= 366K), it still appears that surplus housing is being built.(150K Houses built 2.6 people per house = Housing for 395K demand for addition shelter 366K SURPLUS= 29K) (FYI most babies born today aren’t in a position to enter the housing market for about 25 years so the recent baby boom is unlikely to be a cause of the recent price rises or demand). But PROPERTY SPRUIKERS put their stuff out you read it & don’t question its contents then PANIC like LEMMINGS & drive prices up , pay too much & wind up slaves to the Mortgage. But please don’t take my word for it look into it yourselves….Property is a commodity it is called SHELTER every commodity has a price SPRUIKERS talk it up to make their profits off you…In 2006 California Building Industry Association (CBIA) expressed alarm over what it called an ongoing housing crisis in Southern California. Alan Nevin, the associations chief economist, projected in a 2006 CBIA Housing Forecast that only 185,000 to 205,000 building permits will be granted in 2006r, far short of the 240,000 new homes needed each year. Southern California has been experiencing a massive population boom in recent years and its believed that 6 million new residents will be living in the region by 2020. The population increase, coupled with the housing shortage, has the CBIA worried that it will be increasingly difficult for first-time homebuyers to find a moderately priced unit. Los Angeles and Ventura counties are suffering from a housing crisis, said Holly Schroeder, chief executive officer of the Building Industry Association Greater Los Angeles Ventura Chapter. In 2006 the Median House Price in California was $275K today it is $175K this despite forecast of 6 million new residents all needing housing by 2020? Housing Demand did not save them. This example remind anyone of Australia? (Oh yes they had SUB PRIME & we have 45% of First home buyers under Mortgage Stress in 2010). Housing report in the UK in 2002 said Britain is heading for a property shortage of more than a MILLION homes by 2022 unless the current rate of house building is dramatically increased, according to reports from the Joseph Rowntree Foundation (JRF). The evidence, being presented at the Foundations Centenary Housing Conference in London, reveals that the supply of housing is already falling behind demand faster than previously recognised. House prices in the UK have fallen 15-45% depending on which area or sector you look at. Again we are told Australia is different we wont crash we are UNIQUE in the world? Are we? Housing Demand forecasts in UK in 2002 were just like in Australia in 2010 yet their prices crashed ….Think for yourself dont be led not even by me question everything here is the link to this story …. http://www.jrf.org.uk/media-centre/shortage-homes-over-next-20-years-threatens-deepening-housing-crisis ….who can afford to lose $$$$.
DPM, it’s the big button near the right-hand side of your keyboard… usually says “enter” or similar…