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What lies ahead for Australian Property Market?

Discussion in 'The Economy' started by mafarrelly, 8th Nov, 2011.

  1. mafarrelly

    mafarrelly New Member

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    Hi all

    I'm new to this. But looking around I see a lot of negativity about the future in this forum.

    Wonder what everyone thinks of this article?

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  2. cleo

    cleo New Member

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    It comes down to affordability:
    - a 640K mortgage translates to repayments of $2160 per fortnight
    - a couple on 60K has a net income of $3724 leaving $1564 per fortnight for everything else - no worries - as long as nothing changes for next 25 years.
    - then someone gets pregnant or goes part-time or loses their job and the income goes down to $1862/fortnight. They now cannot meet the mortgage payment by $298 per fortnight.

    Most couples will have children, whether or not that was the plan when they mortgaged themselves to the hilt. Australia has full employment at the moment and this seems unlikely to change, however mining salaries are not relected through the rest of the economy. I am a 30ish professional in a non-unionised workforce tied to consumer discretionary spending. There is no pay rise on the horizon for me. I will not buy a property at current prices because I cannot afford it. There are many people who took out mortgages they cannot afford. Beneath the property price standstill, look at the increasing number of mortgages in arreas by 3 months.

    Housing is currently not affordable for the average joe in Australia. This is a debt-fueled boom. You need to be able to service the debt.
     
  3. Chris C

    Chris C Well-Known Member

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    Just remember who Bill Zheng is...
    My sense is that for the most part he is just talking his own book.

    The idea that wealth is stored in property is not correct - the wealth of a nation is stored in its currency.

    The houses in the US haven't changed over the last 20 - 30 years, but the purchasing power of their currency and their money supply has. So for example, US house prices may have fallen by 40% in USD (as a result of money supply contraction), but they have fallen by 60% in AUD. So when an economy is strong its currency is strong.

    Of course once you consider currency this undermines Zheng's main point - the commodity boom in Australia, will make Australians rich, but it will only make us rich relative to those that live overseas, because our AUD will rise (as it has been), unfortunately for the vast majority of Australians they have borrowed to buy their homes in AUD as well so they won't see any of this benefit.

    The investment banker in his example was likely a foreign investors which is probably the more important point than residential property being a great investment when you are in a strong economy.

    That said, I can appreciate that Australian property may make sense if you are a foreign investor that wants to invest in an strong economy but also wants to buy an investment that generates an income and receive exposure to currency appreciation. In this situation property could offer a reasonable investment because it is generally pretty stable (of course times aren't what they once were adn there is now lots of instability in the Australian property market as a result of the huge credit expansion).

    What I found really ironic is that Zheng referred to money supply being the primary influence on housing prices (which it is) then failed to reflect on what the money supply has been doing over the last couple of years (ie it has been flat lining or growing at a very slow pace - nothing like it used to).

    OK so I have been all doom and gloom - now for the positives.

    The positives for residential real estate going forward are that our economy will likely remain strong relative to other western countries for the reasons Zheng pointed out and this should help maintain decent levels of employment. We also have a growing population, so in the event of any property price downturn this will help buffer the falls.

    With that said, it's impossible to look past the fact that Australians have tied up HUGE amounts of credit in the property sector based on price speculation that won't be realised, as a result these investments that have been underperforming, will continue to underperform over the coming years until the losses are realised (this will take years).

    That's my two cents...

    :D

    Feel free to read this thread:

    http://www.invested.com.au/85/leverage-strategy-37587/
     
  4. Chris C

    Chris C Well-Known Member

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    I thought it was worth reflecting on this point again.

    Looks like housing credit growth in Australia has hit an all time low since records have been kept (1976) and the safe bets would be on it going lower over the coming months. So this is going to be very negative for housing prices.

    Australian property prices fell in all capital cities last quarter, any hiccups in global market (which seem likely at this stage) will almost certainly accelerate price falls, and with global credit markets starting to get tight again it will be interesting to see if all the banks pass on the full rate cut (I suspect they will this time), but if global credit markets continue as they have been I don't know if they will for future rate cuts.

    Anyway - just thought I'd mention it.

    :D
     
  5. Insight

    Insight Brisbane Buyers Agent

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    Another point worth mentioning is that markets are discounting mechanisms. So just when you see no light at the end of the tunnel and there just seems to be a solid brick wall somewhere ahead, that will be factored into the price and will quite likely be one of the better times you could ever choose to buy the market. Times don't tend to get worse or better forever but instead fluctuate, so unless you have some edge over the market with timing then it's likely better off focusing your energies on your own game, work your own job/business and implement a sound investing strategy and let the prognosticators prognosticate.
     
  6. Chris C

    Chris C Well-Known Member

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    100% agree.

    What can be considered a "sound investing strategy" is completely dependant on one's interpretation of the "likely" future and that is highly debatable.
     
  7. wdongli

    wdongli Well-Known Member

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    and cry tearfully, something happens underneath... The fact is you don't really know. Predictors' job is to make prediction sounds reasonable and consequences have to be taken by yourself, right or wrong.

    You are your enemy always! All of us could miscalculate something. The sad point is few would think they could make human errors. Too many claim they represent the truth. I question it in my full heart.

    What's the future Australia property market? A billion dollar question! It would fluctuate until the people feels the could not get any discount any more. People said the houses are not affordable. However if we shop for groceries or food, we could see the price of necessities have been increased too much too.

    I don't know Sydney property market but in Perth you still could buy a flat at the price about $300,000 or below it. In 1994, a labor price was about $200,000 at lowest end. Now it is about $400,000 at least. In 1995, you could rent a 3-bedroom house in Perth at $120 per week but now the rental is more than $350 at low end of market. If we rent a house, we have to pay the rental at $18,200 for nothing. If we get a $300,000 mortgage at 7%, we have to pay the interest for $21,000 but we could put all of our saving into the house.

    Home house is about your living style, family settling down, and affordability. If we could not afford a $600,000 or $1,000,000 house could we afford a flat? Fortunately in Perth, you still could buy a house at $400,000 at the low end market.

    Something we could change but something we could not change. Could we change to get the house at the price we could afford? One of my friends has expected the house price crashes down since 2000. However it is hard to believe the house price could be at the price as that in 2000 again. If economies don't get into the stagnation, could we expect the house crashes onto the ground as US and Ireland?

    Under all of conditions we need the roofs. Could we get a free roof after working hard for a whole of life? Some rather drive a luxury car to consume the money than buy a house for their future! Home house is not the same as the investment one. It is necessary for your life and your family in my view.
     
    Last edited by a moderator: 28th Dec, 2011
  8. wdongli

    wdongli Well-Known Member

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    Please note the important word, "safe bet!" After you live in your own house for 10 years and pay off the loan, how could you feel safe the price would never drop down or up? House is not a bag of bananas. It is about necessities.

    Anyone bets for it would fail since he could not live in it for his life. Market always fluctuates. How many people safely bet price of house was high enough at 2001 and sold out happily? They safely made most serious mistakes in their life! They safely lost the opportunities to their generation!

    Home house is about affordability and how quick you could pay off for it! Most of safe hands for home houses usually have no houses for themselves when they retire.
     
    Last edited by a moderator: 31st Dec, 2011