Australian Real Estate Bubble?

Property normally only just beats inflation. Anything higher is usually rare, but recently we've been seeing double-digit growth, which makes me suspect the existence of a real estate bubble. Are these suspicions justified? I've heard a lot of bad news from America.

 

NB

The situation in the US is very different to ours.
US property prices have come down due to the fact that many people bought property with the plan to onsell within the honeymoon period and make a profit.
The market stalled so they couldn't sell and loan defaults went through the roof.

For markets to correct here to the same degree we will need a big stock market correction, a credit squeeze and a recession. The stock market correction and the credit squeeze have started and can get worse because of problems in the US but I don't see a big recession coming.

Cheers
Bill

 

What about 3 interest rate rises which are on the cards? People are already geared to the hilt!

Our situation is very simular to the US. People bought accepting low interest rate offers.. only for 3 years later to pay significantly more.. Exactly the same as here.. People bought during low rate periods.. only to have had numerous raises over the last 3 years.. Only difference was that in the US the rate jumped at the end of the 3 years.. here the market is going up gradually, every few months.. nevertheless the same result.. expect more raises in the coming year or two..

In the US rates are going down.. here they are going up.. so I would say it will be worse here as affordability here is the lowest in the world..

The other differance in the US is the fact their loans are fixed for 30 years.. our rates can move at whim effecting everyone..

Don't get to comfortable with our housing here.. remember.. where there is a boom, there always follows a bust..

 

IMHO...

I think on the East Coast of Australia there has been a real estate bubble, but the bubble reached its peak in 2003 and has slowly been deflating, with capital grow equal to or less than inflation. Yields have stabilised and are now on the rise due to increases in rents brought on by low vacancies. Brisbane seems to have developed a second wind this year with strong capital growth.

The West Coast of Australia was slower to start and only over the last few months seems to have been starting to deflate.

I think a bursting of any bubble is out of the question so long as employment stays high. Expect an interest rate rise not only on the day after Melbourne Cup, but also in February. But so long as people have jobs there won't be anything like mass foreclosures.

I wouldn't be suprised to see people tighten their household budgets a bit though, so expect takeaway eateries etc to struggle a bit.

 

IMHO we won't have more than 1 raise and it won't be during this election time. The current government is very annoyed with the RBA and
I wouldn't be surprised if they tell their people on the board to stick to government policy or else...

I am not worried if prices come down in fact it will be to my advantage as I will be buying ...
Cheers
Bill

 

DEMOGRAPHIA: Demographics Development Impacts Market Research & Urban Policy

The report has been posted before
But its a great read to compare ourselves to other countries

 

dkmc,

Thanks for the link, I actually had a look at a comparison between Dalas Fort Worth and Sydney.
The problem I have is that I don't know Dalas at all so I don't know if the comparison is fair.
I also don't know if they took into consideration that Land in Sydney will always be limited because of geographical restrictions.

Cheers
Bill

 

Comparing Dallas and Sydney? That's a joke. Dallas is in the deep south of America, Texas, with the good ol' boys. Ranches and tumbleweed. Sydney is the defacto capital of Australia with some of the worlds best beaches and arguably the best harbour. It also has limited land supply and is bounded to the west by the blue mountains. Its better compared with New York City than Dallas.

IMHO you will see the Sydney median break $1M within 10 years. There's a lot of wealth in Sydney as the financial hub of Australia. Lots of easy money being made on the stock market right now that is sitting tight. When that bubble starts to get a bit exuberant I expect a fair bit of that equity will be extracted and go looking for a home in Sydney IPs. And the top end of Sydney is already doing crazy multiples as the affluent trade up their PPORs. Properties that were traded in the $2M zone just a few years back now moving for more than double that. Only the battlers in the West are really fealling the pressure of interest rate rises and stagnant house prices. Sydney as always is a tale of the haves and the have nots.

At the risk of sounding like an arrogant prat, and only to make the point about Sydney more resoundingly: I recently got a new job in Sydney paying over $200K. I'm a 37 year old middle manager in a manufacturing company. I look up the ladder and see guys earning double what I am. I'm also not in one of those gucci CBD companies and am banished to the lower north shore. There's guys in the CBD earning multiple millions pa. MBL employees, all the other big banks, most of the professional service firms like management consultancies, lawyers etc all based in Sydney. $500K+ sounds reasonable for a CBD upper echelon exec. My wife used to be the associate to one of the District Court judges. He took a pay cut from over $1M pa when he was a Barrister to become a judge just because he wanted the esteem that comes with the title. Lots of $1M+ pa Barristers walking Pitt St mall at lunch time. Plebs like me in the manufacturing sector just don't rate, but we can still splurge $1M+ on our PPOR with a bit left over for the yacht and maybe an IP or three...

Just MHO.

Cheers,
Michael.

 

So will we be in a correction if we pass 6800 tomorrow? A US rate cut will pour more mony into our markets driving the value of our dollar even higher and then higher still if we lift rates as well. Would be hard for exporters in a static market and great for consumers of imports.

Sorry Bill for letting a little sunshine in on your doom and gloom

 

Bundy
No problem mate, we need the sunshine..
Cheers
Bill

 

We do? I thought we need rain?

 

Double digit growth where?
There are so many variations of cap growth movements around the country nationally that's it's difficult, in my opinion, to generalize it at all.

Every state and territory appears to be in differing cycle stages, ranging from the strong bullish growth in Melb, Brisbane and to a lesser extent, Canberra, to the fragmented market of Sydney and the reversing of Perth.

One indicator, however, remains fairly consistent nationally, and that is rising rents- with returns rising overall it appears that many markets are now officially back in favour with property investors.

Affordability and the strength of the employment market, obviously, and as others have already pointed out, is paramount to capital growth, as Sydney has so aptly demonstrated. It's certainly a city of great divide when it comes to incomes and housing prices.

 

How about here:

That quote is actually from a report on Jenman's site that is a report by Terry Ryder of HotSpotting. That report is a bit down on Sydney, but this one on Terry's site is a bit more upbeat:

Hotspotting.com.au | Helping Real Estate Investors find the Next Big Thing - Valuers predict strong Sydney market next year

Bring it on baby! I'll take a measley 15% pa like Bris-Vegas down here in glorious Sydney for 2008/2009!! That would be a 1/3 increase in prices over two years and would really help my bottom line.



Cheers,
Michael.

PS. Here's another report for Jacque:

Hotspotting.com.au | Helping Real Estate Investors find the Next Big Thing - Baulkham, Blacktown areas offer affordability and growth prospects

 

Thanks for that particular HS report Michael- I've bookmarked it for later!
And though I'm always careful to remain objective about "where to invest" in Sydney, I agree largely with Terry about the potential of BH LGA, though not all parts. This area represents great value for money, compared to other parts of Sydney that are comparable in distance.

As far as double digit growth goes, I wasn't asking where 'literally' but was pointing out that, as a generalization, growth figures can distort and not always provide a true picture. It also depends on how and where those statistics are gathered from

Michael,
I'm with you on Sydney's future- it's a big city with enough wealth and potential to take us to the next upswing of 08-09 but I don't believe it's going to be a repetition of the 02-04 boom- that was really quite an anomaly in terms of rapid growth and manic behaviour when it came to real estate.
Affordability also plays a major key, particularly in cities like ours where it is really becoming more difficult for FHB's to enter (indeed, if they choose to at all) the market. With declining numbers of home owners, I also believe it's a sign of the times that mindsets are slowly shifting away from what the "Great Australian Dream" actually means.

 

Mike
How would that help you?
Are you thinking of selling or do you intend to tap into the equity and to reinvest?
Cheers

 

The latter of course. That's the fundamental tenet of a long term buy and hold strategy for appreciating assets. Post Mona Vale development a 15% & 15% couple of years would add over $1M to my bottom line. LOC that out and put it down as 20% means I could pick up another $5M in property if my servicability permits. So far that's not a problem, and post development Mona Vale will be neutral and improve my servicability picture.

Think big my son, there's a fortune to be made over the next few years for those with the mental fortitude to go after it. Read beyond the doom and gloom media spin...

Cheers,
Michael.

PS I'm tipping the ASX will close above 6800 today. Greed on the stock exchange is once more superceding fear as the dominant emotion.

 

Agree here. There is a fortune to be made, we are currently in a 'once in a century' boom.. so take advantage of it while it lasts, and then prepare for the bust which always follows! Where more money is made if your cashed up!

"Buy when there is blood on the streets"

PS we may not see over 6800 cause some major's are paying dividends.. ZFX down 5% due to 70 cent dividend.. this will hold the index back today..

 

As long as it's someone else's blood...

crc, How high do you think the market will go before it comes down?
Do you think it has room for another 10%?
I mean 10% on average taking into account the ups and downs.
Cheers

 

I attended Freeman Fox's recent 'investor update'. And they raised some interesting points.

They pointed to some study done which compares the end result of 3 stratergies. The first was to try to buy in bottoms of the market. The second was buying at the tops of the market. The end result was only a 2% gain!

The 3rd strategie was to regularly invest, each week, or month. This outcome was the best! it was something like a 15% improved result over the other two stratergies!

So what I'm saying is its better to invest on a regular basis rather than trying to pick the bottoms.. which really no one can do.

Their outlook was also positive for the next 3-4 years in the markets. China and India should keep on booming, as should global resources.

Apparently we are in a 'once in a century boom' at current, and if serious money is going to be made by average joes, then now is the time to do it..

PE's are also good. currently the ASX is sitting at 16, with the long term PE is 14, so we are at reasonable value - not bargain hunting, but good value. The PE was at 30 just before the 87 crash.. so we still have some room to move!

I just made a additional investment into ASIA today.. and hope to open a global resources fund once the PDS arrives.. so I'm confident the market will continue to run over the medium term.

I also bought up big on the monday when we had the 'crash' buying LGL and ZFX and writing calls against them.. quick easy money... there was no reason for the market to fall that day.. so it was a great time to buy..

 

Since Sydney is the location we should be investing now, where will be the hot spots for up to 500K?
Will a house almost always provide a better cap growth in the next 5 years.
This is compared to units etc?
Also what kind of yield do you expect to get now days?