Australia: Housing market sentiment

28 Replies to “Australia: Housing market sentiment”

1. colin
   Of course you are not suprised at housing picking up because you are a housing bear. Slowly but surely the early adopters will send positive message back to the herd–which remains sceptical. It will take more time to convince them & you.
   I think the negativity is losing its grip—-thanks goodness say all of those who hope for a great future fro our kids and country

2. “thanks goodness say all of those who hope for a great future fro our kids and country”

   Pardon me?? How does that make any sort of sense whatsoever??? Michael ,are you suggesting that house prices should climb even higher?? You seem to be implying this be suggesting that a bit of negativity on housing is a bad thing….

   Let me ask you then, how will “our kids” ever buy a house? If prices go to 10 times earnings? How will we ever be competitive as a nation when business are paying rents twice as high as a lot of the rest of the world?? How can we ever be truly successful as a nation if everyone is working flat out (now more than ever) just to buy a very very average house in middle suburbia??

   Hoping for less negativity around housing, and a return to house price growth in real terms is misguided.

   For us to really have a great county, house prices, and all real estate prices for that matter, need to slowly drift down in real terms, perhaps taking a decade to do it, (so as to avoid any nasty systemic shocks in say our hopelessly loaded up with resi mortgages banking system), so that eventually u can buy the average house in this country for 3.5 to 4 times the average wage.

   Then as a country we will collectively have time for things other than work, and more importantly, will actually have capital to deploy into actually productive assets……

   1. Thanks Mark. Where Michael got it wrong is that I am not a “housing bear” but a “debt bear”. If we don’t restore the level of household borrowing to sanity, we are living in a house of cards.

      1. Yes Yes Yes Debt is a killer when used for consumables like excessive housing cars etc. But when used to build infrastructure- ports, rail, roads, water supplies, airports, power supplies etc then it is a financial life giver.
         Excessive Housing does not produce real wealth in a country.
         We must educate people to recognise the difference between bad debt and good debt.

      2. …when it used to build productive infrastructure. Not bridges to nowhere or schools and hospitals in marginal seats.

3. Colin you say – the end of the mining boom approaching- as I understand it the dollar figure of mining development that was slated to take place “in the future” was massive and obviously not realistic. Many of those projects have been put on the back burner still leaving a “steady flow of wrok for those so inclined” where i live in the south west of Western australia we have unemployment at about 5% similar to much of australia even though we are a tiny town in a very remote area- one of the more vulnerable to a slow down. Most of the kids I know have all got jobs- apprentice mechanic, builders, sparkys etc. Many folks seem to drive around in late model v8s these days and european cars are not a rarity as they once were. In other words there is work in abundance. The reality is that to compare australia to usa regarding the building game is not realistic. In the US houses were built for non existent people financed by liar loans. Yes there have been many mortgagee sales in Australia but nothing o compare with USA. At the end of the day rentals return about 5% at the moment with zero risk of a flash crash or a massive MFG Global etcetera etcetera. Housing will slowly recover because the fundamentals are clear- lower risk steady income for investors low unemployment, steady immigration.
   Re Mark Prices going up making it unaffordable for young- you forget that australia housing has some of the largest houses in the world!! the young these days expect to get a 4 bed 2 bath house all finished etc instead of the boomer gen who started in a chook shed (my father in law) and graduated to a 5 bed 2 bath over a period of 30 years. Young people on 2 incomes can easily afford a small house in a new development- as long as they forgo the fancy cars, and expensive life styles.
   Housing is clearly on the way up and banks will lend because that’s how they make money -its in the margins.

   1. The USA housing bottomed in Feb 2012—-Australia will eventaully regain its housing confidence as the Us data becomes more well known.
      A client’s son just bought a 2 bed Unit on sunshine Coast for $ 200,000—-best buying for 20 years

      1. Eventually. According to macrobusiness the housing recovery is lagging previous interest rate easing cycles.

   2. Mike, Young people can generally only afford to buy with a 90% mortgage. Which is why they end up in trouble when interest rates start to rise. The RBA is well aware that households are over-borrowed. The last thing they would want is another property boom. So rate rises may not be too far off.

      1. What is the rent return Michael, and vacancy rate. This is the reality once the numbers add up for investing in property again the investors will move – as they are beginning to at the moment. people are a little concerned about China – the reality is that China has been undergoing a major leadership change and once that is put to bed more clarity will be forthcoming and certainty will breed confidence. The demographics for asia and Africa clearly indicate further demand for commodities going out 20 years at least, ensuring continued demand for australian product- thus employment will be strong overall.

      2. Yes I agree Colin-Even though I have property and a boom would be great for me it is not likely given the current demographics and the low sentiment. however a further fall is not likely since1 fundamentals are good – it is now cheaper to buy then to rent in many cases. 2 immigration continues. 3 rental vacancies are low 4 credit is slowly becoming easier to obtain- while rates are low banks have been tight regarding risky mortgages. The us market is unlikely to recover much within the next 10 years- because of demographics (there will be good areas though).We are at the lowest interest rates in 50 years (roughly) so yes it is more likely that interest rates will rise than fall, and an interest rate hike is likely to stop any boom since there is no overseas precident for housing going up much at the moment.

4. I think Colin is right lower Interest rates creates misguided funds to real estate making it over priced with higher debt “taking more income to service” & its the debt that is the problem not how big a house is. I also think china will stop building empty cities turning to more consumption lead economy, our unemployment I think is misguided nearly every second day I’m hearing this company shutting down this many jobs being lost If you look at it with an unbiased view we have a: government taking a 30% pay rise highest terms of trade ever growing debts & deficits high wages (although I don’t want it to go down) high rents & Interest rates going down & high real estate prices with higher debt I think that cannot last.

5. ‘Our kids’ shouldn’t be buying the ‘average house’. They should be buying little starter homes. They should work their way up the ladder to the average, then beyond that of they so desire. As with the young bloke mentioned above: $200k unit, no worries. So what’s the problem?

   1. How much of the $200k should they borrow and how much do they earn?

      1. Then you agree with the basic premise?

      2. My point is that we are encouraging them to borrow. Repeating the sins of the fathers.

      3. Ok your point – how much debt should they take on – can be addressed separately. My point is that the 1st home buyer should not be targeting a $500,000 home or whatever the average is. They should be targeting entry-level property. Do you agree with that or not?

      4. They should be targeting entry-level property. Agreed.

         But not by borrowing 4 or 5 times their income to acquire property. Setting a maximum of 2 or 3 times income would curtail this — and take the steam out of any future bubbles.

      5. You would have to put in at least 5 % deposit. . Probably earing $ 40k . They generally rent a room to a friend for $ 150 a week. He also extensively renovated it for $ 20k —so cheap to do thesesays. We have to keep the economy moving and stop sitting around saving we are all screwed because it is infectious & self fulfilling.
         Look at Africa—and don’t pity them, they are mostly small time entrepreneurs on the move. In Australia we need to stop complaining and blaming and expecting others to do it, and take a punt on our future.
         And to ignore the crap peddled by supposed financial commentators recycling other crap ( I exclude you from this Colin)

6. Some good points made here. The one that isn’t, and keeps coming up, is the idea that “The USA housing market did … so … will happen here…”. The US housing crash was completely manufactured by Wall Street acting with shonky morgage brokers. What they had was little more than a pyramid scheme. Lending practices here are different. That is not to say that they wouldn’t have ended up like the US model but they didn’t.

   I don’t think it is so easy to make a distinction between debt and housing either because, even before house prices took that big jump, debt and buying a house have always been tied very closely together. It is one of the systems that keeps everyone working. Imagine how difficult it would be to get people to work hard if they did not have to divert so much of their pay to the bank every week. In the ideal ‘wealth creating’ capitalist economy people need to be managing to get by but not so comfortable that they can air their grievances by just staying at home. House prices are a big part of that.

   1. Australian household debt to disposable income is higher than the US at its peak.

7. Also take a good look at the graph in the macro business article. The brown line which shows the greatest increase in housing prices after interest rate reductions IS steep but covers year 2001 which may well have been influenced by other factors than the RBA interest rate drop – low doc loans and the influence of the US housing market pyramid scheme for example. The other two lines are steeper than the current price rise increase but both cover interest rate drops of close to 4% compared to the current easing cycle line which covers a drop of only 1.15%.

   1. The drop might be less but the current level is lower.

8. Our kids are in worse trouble than you think.We don’t have an economy..we have a hole in the ground and dig or pump stuff up and load it onto ships..we don’t even own or MAKE the ships.we don’t use Aussie tools or machinery …We need to make things of high enough quality at competitive international prices and then we can talk about what Australia really produces.
   To get there we need to industry agreements around productivity costs and a huge investment in EDUCATION which will lead to an increase in useful INNOVATION.
   Australian companies(particularly those making huge profits from mining,gas and oil)MUST invest in Australian innovation to prevent it going off-shore for funds.
   Let the Assie dollar sink,or make it sink by reducing interest rates and investing hugely in education and backing innovation and owning our own infrastructure .Alower dollar will make imports more expensive and Aussie goods(such as they are) cheaper…and start-ups more viable…LET’S MAKE STUFF!
   Bernard

   1. Agreed. What happens when the holes in the ground are empty?

   2. @ Bernard – The problem is that if the rba pushes interest rates down to push the dollar down then we will have a spike in housing – this is the problem, as well as inflation will go up because of increasing consumption spending instead of investing in companies and infrastructure. Financial literacy needs to be a priority so that aussies build wealth not excess housing.

   3. @Bernard yes I agree with much of what you say. the Us is in a similar place re employment. There is a shortage of APPROPRIATELY educated and trained people. Asia will kill us in manufacturing with low level skills. The niche in the market is high skilled multi skilled high level manufacturing- robotics being one of the next big things. could Aussie compete in that area- definitely with time and appropriate leadership. our labour rates are too high to compete with the likes of China. your are right INNOVATION high quality etc COME ON Aussies! YOU can do it.

9. Hi everyone,reading your comments i believe you are all right in some ways… as if you look at every state in Australia the houseprice story seems to be so different..QLD and WA slowed down in the last year or so , NSW didnt moved anywhere since2004 until recently,where Melbourne didnt stop going up,and if we look at SA the house value didnt changed much in the last 10 years (when all the other states had houseprice doubled in the last decade and only now having a correction).If we look at Europe,the part of the world i am coming from,if anyone wants to pay off the house in lets say 10 years they have to look into the small towns(or villages) and not big cities close to everything..not to mention anything with views or close to beach.Working class people here have a lot more to show,where there you could only dream,and a house would be paid off by two generations.Yes we work long hours but only talk with older onens to get to appreciate the life style we all have here this days.

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