Senior economist Ange Montalti also says the current short-term trends affecting housing prices, including a decline in demand and the lack of first-home buyer stimulus, won't last for more than a year, predicting stronger growth in 2011-12.
"We've had a few rate rises, but these are temporary reactions, we believe, and are not significant in the long-term. Our view is that with the housing market being quite tight, we should see some support for prices over the next 12-18 months."
Montalti says the new report was written in order to bring into consideration pricing factors that are not recognised, including those that are less quantifiable such as deregulation which has caused credit to become more widely available.
"So what happens is that people tend to look at main pricing measures including house to income ratios to determine the affordability of the market. But those are only okay as a starting point and don't take into account bigger movements over long periods of time."
"In the late 1980s you had very high mortgage payments, which meant for any given dollar of debt you had to pay 15 cents in the dollar. Any dollar in debt today only costs you seven cents – you can sustain double the debt levels for the same burden."
The ANZ report lists a number of measuring ratios including the actual price level, house price to income ratio, debt-servicing ratio and purchasing affordability.
But these are all flawed in providing a sense of the how the market overall is holding up, Montalti argues. For example, the house price to income ratio mode is listed as "ignoring shifts in cost of funding, other structuring shifts, housing market conditions and credit availability".
The debt-servicing ratio is, "Okay as a guide...[but] little direct insight offered to house price analysis". The purchasing affordability ratio, which is listed as the "interaction of interest rates, incomes and house prices", is labelled as "useful for typical first-time buyers" but otherwise takes no account of affordability for investors and upgraders.
More importantly, Montalti says, is how the market is performing now and where those prices are actually moving. He points out the country has quite a low delinquency rate, which is evidence of a largely affordable market that is valued correctly.
"Critically, the persistence of very low housing loan delinquency rates over several decades (including through the most recent GFC) is the greatest testament to the sustainability of debt levels and house prices in Australia," the report points out.
"That lenders continue to adhere to tough eligibility criteria minimises the probability that any event shock will emanate from 'over-provision' of credit."
Montalti says buyers need to look at the "bigger picture" when it comes to house prices.
"That ability to service the mortgage is critical to this whole discussion, and that on its own explains a big chunk of where prices are at the moment."
"For instance, if you only considered income, then prices would need to fall 48%. That's a big number, but if you consider income, along with the decline in interest rates over the past 20 years, then prices only need to fall about 13%. The same interest rates are what determines serviceability."
Then, he says, that remaining 13% can be attributed to financial regulation and less-quantifiable examples including changes in tax conditions and "the overall impact of deregulation which moves from a system of rationed credit... to one that uses debt facilities to use credit"
Montalti says the question of affordability is not irrelevant, but at the same time, "is not an easy one to answer".
"What you have to look at is whether or not conditions are going to change moving forward that stabilise the market or use the opposite effect. We use these measures of tools."
So what's going to happen in the future? Montalti says the current low level of delinquencies right now means affordability is on track, but warns that "a substantial increase" in interest rates over a short period of time could threaten to destabilise the market.
"But having said that, that's not something the Reserve Bank is going to do without giving a considerable amount of thought to, and it's not on the cards. There would need to be certain circumstances which require that."
"There are always swings and roundabouts in the housing market, with regard to interest rates. But it would take a substantial swing upwards to disrupt the market."
Looking forward, Montalti believes a shortage of properties in certain areas, based on the population growth models, will keep prices moving in the second half of 2011, moving on into 2012.
"Worst case scenario is that we get some more flatness for a bit longer. But we have pent up demand, and there aren't enough homes, so we suspect there will be upward movements in prices going into 2012 and 2013."
The report also points out that in a risk scenario based around a major collapse in the terms of trade, could likely prompt policy settings "that can only be favourable for house prices, particularly if house price momentum has been restrained".
"Policy-makers intent on preparing for a 'post-terms of trade collapse' environment are likely to shift settings to a more accommodating stance. While the economy is likely to slow, the interest rate-sensitive sectors such as housing will benefit considerably and swiftly."
Related Items :Companies : ANZ
Comments (24)
written by Nexus123, January 17, 2011
The authors seem to assuming that interest rates remain historically low, China does not slow down, increasing credit via 'lose' lending is not an issue, employment and incomes remain buoyant, inflation is not an issue....etc. All upside and no downside so it must be a good time to invest.
written by PityTheFool, January 17, 2011
"What you have to look at is whether or not conditions are going to change moving forward that stabilise the market or use the opposite effect. We use these measures of tools." - don't you mean "we use these measures of fools" - there are no greater fools Mr Stafford - and no shortage or property either - hence the property listings up 44% and no-one buying for obvious reasons.
I think it is quite irresponsible to be spruiking when property has already hit a downturn, do you feel nothing for the taxi driver trying to support his wife and 3 kids and just bought a 350K home in the burbs at 95% LVR and in a year's time it will be worth 250K, he'll probably default on his payments due to interest rate rises and will have to declare bankruptcy because he can't sell his house for what he bought it for.
The current state: credit is tight and getting more expensive, capital gains will be negative in next 1-2 years and then at least flat for the following 5 years so investors are selling up to go elsewhere. They can't increase rents as middle-class is already stretched on their mortgage (retail sales show this), interest rates will rise further increasing the pain on investors as bank interest greatly overshadows rental yield forcing them to sell, as it will force mortgage-stressed first home buyers to sell, baby boomer (investors) wanting to retire in next 1-7 years are trying to cash out now before price drop kills their nest egg. All this is true in all capital cities - not just sunshine coast. Expect 40% price drop like those in-the-know have been saying for over a year. See bubblepedia.net.au
I think it is quite irresponsible to be spruiking when property has already hit a downturn, do you feel nothing for the taxi driver trying to support his wife and 3 kids and just bought a 350K home in the burbs at 95% LVR and in a year's time it will be worth 250K, he'll probably default on his payments due to interest rate rises and will have to declare bankruptcy because he can't sell his house for what he bought it for.
The current state: credit is tight and getting more expensive, capital gains will be negative in next 1-2 years and then at least flat for the following 5 years so investors are selling up to go elsewhere. They can't increase rents as middle-class is already stretched on their mortgage (retail sales show this), interest rates will rise further increasing the pain on investors as bank interest greatly overshadows rental yield forcing them to sell, as it will force mortgage-stressed first home buyers to sell, baby boomer (investors) wanting to retire in next 1-7 years are trying to cash out now before price drop kills their nest egg. All this is true in all capital cities - not just sunshine coast. Expect 40% price drop like those in-the-know have been saying for over a year. See bubblepedia.net.au
written by Nick Christian, January 17, 2011
Ditto Plaingreeds comments on Alan Kolhers article today:
Coming to a country near you - Australia! It's not different here.
n explanation:
1. Negative gearing introduced in the 80s brought on an ever-increasing wave of Mum and Dad investors looking to minimise their tax and somehow feeling good about themselves that they were "providing a roof for renters". However, each investment property purchased had the effect of taking a home off the market that would have otherwise been available for kids leaving home to buy, and forced to rent.
2. Introduction and increases of first home owners grants in recent decade fuelled the price increases, as well as the rise of the mega-housing developers dictating the new McMansion lifestyle.
3. Cheap credit and relaxed lending conditions saw prices rise even further this last 5 years (bigger and riskier loans enabled first home buyers to bid higher - but still lost out in auctions as investor speculators could always pay more).
4. Changes in government policy made it easier for cashed-up overseas investors to enter the market, driving prices even higher.
The current state: credit is tight and getting more expensive, capital gains will be negative in next 1-2 years and then at least flat for the following 5 years so investors are selling up to go elsewhere. They can't increase rents as middle-class is already stretched on their mortgage (retail sales show this), interest rates will rise further increasing the pain on investors as bank interest greatly overshadows rental yield forcing them to sell, as it will force mortgage-stressed first home buyers to sell, baby boomer (investors) wanting to retire in next 1-7 years are trying to cash out now before price drop kills their nest egg. All this is true in all capital cities - not just sunshine coast. Expect 40% price drop like those in-the-know have been saying for over a year. See bubblepedia.net.au
BTW, if any of you commentator's try to contest that we are in a property bubble, please also give an economically sound explanation of what I was able to achieve. I bought a property in 2008, and sold it in 2010 for 60% more - with absolutely NO renovation. This kind of growth not only is unsustainable, but is proof housing is massively overvalued and MUST return to normal pre-boom prices in line with average inflation/wage ratios.
Note: I did not buy and sell the place for capital gain, I bought and sold it for non-financial reasons - but am now aware of this bubble and am NOT going to re-enter the market any time soon.
MY COMMENTS:
Why does Patrick and the media play continued creedence to this topic?
Because so many people, SME's, wealthy smart business owners have such a big vested interest in thier residential property prices going up?
This is exactly the reason you should be getting out of it! Your blindly following the 'herd' like a flock of sheep. Continuing to try and catch a 'rising tide'
Why would you listen to someone propoting to be a 'professional' about the state of the Australian housing market who has a vested interest in seeing continuing rising prices?
I will also add one more thing to your comments 'Plaingreed'. A multi-layered stifiling of suppy by 'prescriptive planning' instead of pro-active or 'reactive' planning by all levels of government.
C'mon media team put this issue to bed. stop this to-and-fro from people with vested interests.
It's a clear winner, WE DO HAVE THE HIGHEST HOUSE PRICES IN THE ENGLISH SPEAKING WORLD!
And they said the Brisbane river will never flood again!!!!!!!
Coming to a country near you - Australia! It's not different here.
n explanation:
1. Negative gearing introduced in the 80s brought on an ever-increasing wave of Mum and Dad investors looking to minimise their tax and somehow feeling good about themselves that they were "providing a roof for renters". However, each investment property purchased had the effect of taking a home off the market that would have otherwise been available for kids leaving home to buy, and forced to rent.
2. Introduction and increases of first home owners grants in recent decade fuelled the price increases, as well as the rise of the mega-housing developers dictating the new McMansion lifestyle.
3. Cheap credit and relaxed lending conditions saw prices rise even further this last 5 years (bigger and riskier loans enabled first home buyers to bid higher - but still lost out in auctions as investor speculators could always pay more).
4. Changes in government policy made it easier for cashed-up overseas investors to enter the market, driving prices even higher.
The current state: credit is tight and getting more expensive, capital gains will be negative in next 1-2 years and then at least flat for the following 5 years so investors are selling up to go elsewhere. They can't increase rents as middle-class is already stretched on their mortgage (retail sales show this), interest rates will rise further increasing the pain on investors as bank interest greatly overshadows rental yield forcing them to sell, as it will force mortgage-stressed first home buyers to sell, baby boomer (investors) wanting to retire in next 1-7 years are trying to cash out now before price drop kills their nest egg. All this is true in all capital cities - not just sunshine coast. Expect 40% price drop like those in-the-know have been saying for over a year. See bubblepedia.net.au
BTW, if any of you commentator's try to contest that we are in a property bubble, please also give an economically sound explanation of what I was able to achieve. I bought a property in 2008, and sold it in 2010 for 60% more - with absolutely NO renovation. This kind of growth not only is unsustainable, but is proof housing is massively overvalued and MUST return to normal pre-boom prices in line with average inflation/wage ratios.
Note: I did not buy and sell the place for capital gain, I bought and sold it for non-financial reasons - but am now aware of this bubble and am NOT going to re-enter the market any time soon.
MY COMMENTS:
Why does Patrick and the media play continued creedence to this topic?
Because so many people, SME's, wealthy smart business owners have such a big vested interest in thier residential property prices going up?
This is exactly the reason you should be getting out of it! Your blindly following the 'herd' like a flock of sheep. Continuing to try and catch a 'rising tide'
Why would you listen to someone propoting to be a 'professional' about the state of the Australian housing market who has a vested interest in seeing continuing rising prices?
I will also add one more thing to your comments 'Plaingreed'. A multi-layered stifiling of suppy by 'prescriptive planning' instead of pro-active or 'reactive' planning by all levels of government.
C'mon media team put this issue to bed. stop this to-and-fro from people with vested interests.
It's a clear winner, WE DO HAVE THE HIGHEST HOUSE PRICES IN THE ENGLISH SPEAKING WORLD!
And they said the Brisbane river will never flood again!!!!!!!
written by Dan8, January 17, 2011
fair call Nexus, and this was information from the bank... but the flipside must also be an option
ie interest rates rise to historical rates maybe the highs in the 80s, China slows down, credit availability decreases, employment and incomes decline, inflation is an issue....etc. All downside and no upside so it must not be a good time to invest.
This is all crystal ball stuff and in truth no one really has a clue. The data streams are so complex that they defy definitive analysis (art not science). People need to take on the advice of the experts and raw data available then be responsible for their own decisions in life.
40% drops? i don't thinks so, make your own decisions and jump in (or not). game on.
ie interest rates rise to historical rates maybe the highs in the 80s, China slows down, credit availability decreases, employment and incomes decline, inflation is an issue....etc. All downside and no upside so it must not be a good time to invest.
This is all crystal ball stuff and in truth no one really has a clue. The data streams are so complex that they defy definitive analysis (art not science). People need to take on the advice of the experts and raw data available then be responsible for their own decisions in life.
40% drops? i don't thinks so, make your own decisions and jump in (or not). game on.
written by dlovep, January 17, 2011
It's not overvalued, it's not worth to value when your house going underwater. The QLD effects will halt the economic growth, if one state in trouble, will other states un-affected ? Think about foods, fruits, petrols,.. will you see that 30% cheaper in some states than QLD.
Our dollar go very strong, it's telling you to sell your properties than exchange to US dollars or buy house in US, keep for some time and get some interests, later on when AU dollar drop back, you earn the gap, that will be much bigger and quicker than the AU's properties market.
Our government still dreaming about their policies, it's a shame that government cant even manage the total citizens size of around 23 millions, what if 200 millions like US, it must be a diaster. Dont even compare to China, at least they show they can manage it.
Our dollar go very strong, it's telling you to sell your properties than exchange to US dollars or buy house in US, keep for some time and get some interests, later on when AU dollar drop back, you earn the gap, that will be much bigger and quicker than the AU's properties market.
Our government still dreaming about their policies, it's a shame that government cant even manage the total citizens size of around 23 millions, what if 200 millions like US, it must be a diaster. Dont even compare to China, at least they show they can manage it.
written by Hercc130, January 17, 2011
Well the Anz report would say that would'nt it. As they are the ones trying to sell debt. The bigger the debt the more money made for the bank. They would have all, your after tax income, if you were willing to give it. House prices need to fall 48% to where they should be valued at. So we can all afford a house, without signing all the family income over to the bank for the next 30 years or so. So theres money left to spend on the family (holidays the kids, invest? etc). Where does the economy come from (the population having disposable income to spend). Right now, probably most folks have got non, having payed too much for their house. The banks are getting all the money (no economy)
The Truth is you can only afford a house safely, with a value, at a level your income can sustain (afford), with interest rates up to 17%. Maxing out your income at such low interest rates in order to offer MORE MONEY to the seller is asking to lose your home. The banks can and do move the goal posts once you have signed up. Even if it does mean removing you from your home. Remember also, they all love it the more you pay the more they all gain, not just the seller. The selling agent has doubled his income over the last few years. Have you? Government stamp duty must have doubled if the home value has, so they love it. By the time you finish paying the bank back the home probably cost 2.5 times what you offered for it (and more). Well if the home price doubled so did the banks MASSIVE PROFITS.
Why do people complain about hikes, when its what they signed up to. Having done the budgeting before hand. Yes the manager should have told you about 17% rate, but that may put you off signing up if thinking straight. Remember they are a business and want ALL your money.
They operate like loan sharks i.e. offer you a loan you can't afford (flexible rates, potential 17%) To allow you to borrow more, so they can make more money (from you) So you can pay more for a house thats not worth it (home prices double in 5 years? not realistic). After signup on moving the goalposts (interest rates) the threat of reposession if you don't pay
NOTE if you can't borrow the ammount at a higher interest rate, because your income won't allow. You can't offer it the seller for that house. The seller can't sell it, prices stay stable.
Question - Why does the bank manager not assess your income to loan requirements at 17%. - ANS. Because you can't afford it and they can't sell you the loan
DON'T YOU FEEL WE ARE ALL BEING FLEECED. TIME TO WISE UP. If you want affordable homes stop buying. Watch the prices come down and leave them to come down. As soon as you start buying again. They are going up again.
House prices only stopped going up because the average persons wages won't allow you to borrow MORE MONEY (can't afford)
The Truth is you can only afford a house safely, with a value, at a level your income can sustain (afford), with interest rates up to 17%. Maxing out your income at such low interest rates in order to offer MORE MONEY to the seller is asking to lose your home. The banks can and do move the goal posts once you have signed up. Even if it does mean removing you from your home. Remember also, they all love it the more you pay the more they all gain, not just the seller. The selling agent has doubled his income over the last few years. Have you? Government stamp duty must have doubled if the home value has, so they love it. By the time you finish paying the bank back the home probably cost 2.5 times what you offered for it (and more). Well if the home price doubled so did the banks MASSIVE PROFITS.
Why do people complain about hikes, when its what they signed up to. Having done the budgeting before hand. Yes the manager should have told you about 17% rate, but that may put you off signing up if thinking straight. Remember they are a business and want ALL your money.
They operate like loan sharks i.e. offer you a loan you can't afford (flexible rates, potential 17%) To allow you to borrow more, so they can make more money (from you) So you can pay more for a house thats not worth it (home prices double in 5 years? not realistic). After signup on moving the goalposts (interest rates) the threat of reposession if you don't pay
NOTE if you can't borrow the ammount at a higher interest rate, because your income won't allow. You can't offer it the seller for that house. The seller can't sell it, prices stay stable.
Question - Why does the bank manager not assess your income to loan requirements at 17%. - ANS. Because you can't afford it and they can't sell you the loan
DON'T YOU FEEL WE ARE ALL BEING FLEECED. TIME TO WISE UP. If you want affordable homes stop buying. Watch the prices come down and leave them to come down. As soon as you start buying again. They are going up again.
House prices only stopped going up because the average persons wages won't allow you to borrow MORE MONEY (can't afford)
written by Hercc130, January 17, 2011
Oh! forgot to mention anyone ever heard of negative equity in property?
Not a safe place to be at the mercy of the interest rates. You have no control. If the rates keep going up, the reposessions start. House prices fall massively = negative equity
I've seen it before. Trouble is these cycles take so long to go around that theres allways a new generation (who have not been through it) waiting to bid up the prices of property, until they bid themselves out of the game.
Until the reposessions start and the wealthy come in to snap up the bargains and the wealth is cycled back to the top.
Don't you think its organised that way?
Been some good reading today (comments) As you said above, the media hypes it up for those with a vested interest. Everyone believes and follows the herd.
The daily news tell you what bargains are to be had, as soon as theres a halt to the market and suggest you go out and buy now while you can. Instead of wait Don't buy, and they will come down even more with even bigger bargains.
As I have said before the house is worth, what you will go out and borrow to pay for it. TIME TO FIGHT BACK. Don't people want income left over to spend on the family. Or rather just hand it over to the banks. BORROW LESS/OFFER LESS
Not a safe place to be at the mercy of the interest rates. You have no control. If the rates keep going up, the reposessions start. House prices fall massively = negative equity
I've seen it before. Trouble is these cycles take so long to go around that theres allways a new generation (who have not been through it) waiting to bid up the prices of property, until they bid themselves out of the game.
Until the reposessions start and the wealthy come in to snap up the bargains and the wealth is cycled back to the top.
Don't you think its organised that way?
Been some good reading today (comments) As you said above, the media hypes it up for those with a vested interest. Everyone believes and follows the herd.
The daily news tell you what bargains are to be had, as soon as theres a halt to the market and suggest you go out and buy now while you can. Instead of wait Don't buy, and they will come down even more with even bigger bargains.
As I have said before the house is worth, what you will go out and borrow to pay for it. TIME TO FIGHT BACK. Don't people want income left over to spend on the family. Or rather just hand it over to the banks. BORROW LESS/OFFER LESS
written by infinet, January 17, 2011
Typical vested-interest rubbish from the ANZ. Good to see from the other comments that people are aware of this...
Just one thing. The ANZ analyst suggests price to income ratios don't take into account the deregulation in the banking industry that led to credit growth and consequently house price growth. He fails to mention that the implication of this is that for sustained house price/credit growth like we've seen in the past 15 years we would need further deregulation and even poorer lending standards.
This would take a fragile, overpriced market over the edge very quickly.
Also the housing shortage myth has been busted many times over. ABS data shows that residential construction has outstripped population growth for 10 years and there are close to 1 million vacant properties in Australia (mostly in the capitals).
We're not different to US, UK, Ireland, Spain, Japan, etc...
Just one thing. The ANZ analyst suggests price to income ratios don't take into account the deregulation in the banking industry that led to credit growth and consequently house price growth. He fails to mention that the implication of this is that for sustained house price/credit growth like we've seen in the past 15 years we would need further deregulation and even poorer lending standards.
This would take a fragile, overpriced market over the edge very quickly.
Also the housing shortage myth has been busted many times over. ABS data shows that residential construction has outstripped population growth for 10 years and there are close to 1 million vacant properties in Australia (mostly in the capitals).
We're not different to US, UK, Ireland, Spain, Japan, etc...
written by OzHousing, January 17, 2011
I have an idea for yet another 'measure', ANZ: how about looking at the average interest being paid by the average household over time? After all, this is just a spruiking piece tryign to convince people that Australian households are not carrying too much debt, when such a measure would indicate they are. A number of cost of living factors are going up, such as food, utilities, etc, and unlikely to retreat. It takes two incomes to pay off a mortgage these days, while kids are being raised in childcare centres rather than at home. There is no social justice in your proposals, and your recipe for delivering higher profits to yourselves is socially corrosive in the big picture.
There is no reason to expect Australian house prices to go up, especially in the context of total household debt in Australia at present. Overseas wholesale funds are already increasing their interest rates to Australian banks, including yourselves, as you would well know. The Reserve Bank is forced to continue to ratchet up the overnight cash rate ('interest rates') to cool a speculative borrowing bubble in housing where the price to earnings ratio is ridiculously high -- and to cool growing inflation in the economy as wage claims fight to keep pace with housing inflation.
So perhaps keep your self-interested PR attempts at 'analysis' to yourselves, ANZ. Pigs at the trough.
Sean Reynolds
www.housingaffordability.blogspot.com
There is no reason to expect Australian house prices to go up, especially in the context of total household debt in Australia at present. Overseas wholesale funds are already increasing their interest rates to Australian banks, including yourselves, as you would well know. The Reserve Bank is forced to continue to ratchet up the overnight cash rate ('interest rates') to cool a speculative borrowing bubble in housing where the price to earnings ratio is ridiculously high -- and to cool growing inflation in the economy as wage claims fight to keep pace with housing inflation.
So perhaps keep your self-interested PR attempts at 'analysis' to yourselves, ANZ. Pigs at the trough.
Sean Reynolds
www.housingaffordability.blogspot.com
written by leithvo, January 17, 2011
All. I have written a scathing attack on ANZ's report on my blog. I'm sure that you will all get a kick out of it:
http://www.unconventionaleconomist.com/2011/01/never-trust-bank-economist.html
http://www.unconventionaleconomist.com/2011/01/never-trust-bank-economist.html
written by Dan8, January 18, 2011
over analysis from every corner, pro and con. Economics defy analysis as it is just too complex and unpredicatable. I'm not saying why bother but to be so adament that any one view is correct is scary.
People need a place to live. House prices just keep going up, how many more decades do people want to get it wrong? People have made fortunes by not accepting negative arguements. I guess when it eventually crashes (yes! it will as some point) you can rush out and say i told you so... but you miss the point. A 50% crash wouldn't even wipe out my profits. Get in the game. Actually, don't as there will be more for me. :)
PS if it crashes i will just buy more!
PPS oh does it look like I contradicted myself? Well, i think it will go up but i am not so blind as to not be open to the opposite. I have things in place and have managed the risk for that. Have any of the negatives managed the risk of property continuing to climb? or are all your eggs in one basket because it is 'wrong' or doesn't make sense?
People need a place to live. House prices just keep going up, how many more decades do people want to get it wrong? People have made fortunes by not accepting negative arguements. I guess when it eventually crashes (yes! it will as some point) you can rush out and say i told you so... but you miss the point. A 50% crash wouldn't even wipe out my profits. Get in the game. Actually, don't as there will be more for me. :)
PS if it crashes i will just buy more!
PPS oh does it look like I contradicted myself? Well, i think it will go up but i am not so blind as to not be open to the opposite. I have things in place and have managed the risk for that. Have any of the negatives managed the risk of property continuing to climb? or are all your eggs in one basket because it is 'wrong' or doesn't make sense?
written by Nick Christian The Intelligent Adviser, January 18, 2011
Dear Infinit
I certainly agree with almost all of your comments.........But I'm sorry my friend Independent think tank and Overseas based report Demographia.com has consistently highlighted the lack of policy and ignorance of the problem by government at all levels to increase land supply.
Read the report here:
http://www.demographia.com/dhi.pdf
Here is an excerpt of the opening comments in the introduction by Dr Tony Recsei.
"The Dream of Home Ownership: A country such as Australia is blessed with a sunny climate and enough space to enable people to enjoy a relaxed free lifestyle. The “dream”
(called by various names, such as the “Great Australian Dream” or the “American Dream”) has
traditionally been to own a single family home. Home ownership has been a source of boundless
opportunity. In addition to providing the preferred environment for people trying to carve out a
decent life for themselves and bring up a young family, it has been the instrument by which even those of modest means have been able to become property owners. They thus acquire a valuable asset that can be used as collateral for business ventures and entrepreneurial activity.
In the future, for most, this will remain but a dream. Although only about a third of one percent of the land surface of the continent-sized country is urbanised, Australian urban areas, especially Sydney, have emerged as perhaps the most aggressive examples of high-density policies in the world. This is being effected by a two-fold strategy, called “urban consolidation” (or “smart growth”).
The first part of this high-density strategy is to artificially strangle the land supply. Words from the Australian national anthem...
For those who've come across the seas
We've boundless plains to share
...now have a hollow ring. Residential land release in Sydney has been reduced from an historic average of 10,000 lots per year to less than 2,000 (in 2007). In the face of the scarcity resulting from such a miserly allotment it is unsurprising that the land component of the price of a dwelling has increased from 30% to 70%. The result has been a cost increase of some three times what it was a mere ten years ago.
It's far from a 'dead issue'. But read the report and take your own stance from it.
My job as an intelligent investor is determine what I would consider a reasonable price to pay given all the information to determine what I consider 'value.' using all the information of "useful relevance" to arrive at a decision. It's better to be approximately right rather than precisely wrong.
Based on the information at hand the crosses clearly outweigh the ticks
I certainly agree with almost all of your comments.........But I'm sorry my friend Independent think tank and Overseas based report Demographia.com has consistently highlighted the lack of policy and ignorance of the problem by government at all levels to increase land supply.
Read the report here:
http://www.demographia.com/dhi.pdf
Here is an excerpt of the opening comments in the introduction by Dr Tony Recsei.
"The Dream of Home Ownership: A country such as Australia is blessed with a sunny climate and enough space to enable people to enjoy a relaxed free lifestyle. The “dream”
(called by various names, such as the “Great Australian Dream” or the “American Dream”) has
traditionally been to own a single family home. Home ownership has been a source of boundless
opportunity. In addition to providing the preferred environment for people trying to carve out a
decent life for themselves and bring up a young family, it has been the instrument by which even those of modest means have been able to become property owners. They thus acquire a valuable asset that can be used as collateral for business ventures and entrepreneurial activity.
In the future, for most, this will remain but a dream. Although only about a third of one percent of the land surface of the continent-sized country is urbanised, Australian urban areas, especially Sydney, have emerged as perhaps the most aggressive examples of high-density policies in the world. This is being effected by a two-fold strategy, called “urban consolidation” (or “smart growth”).
The first part of this high-density strategy is to artificially strangle the land supply. Words from the Australian national anthem...
For those who've come across the seas
We've boundless plains to share
...now have a hollow ring. Residential land release in Sydney has been reduced from an historic average of 10,000 lots per year to less than 2,000 (in 2007). In the face of the scarcity resulting from such a miserly allotment it is unsurprising that the land component of the price of a dwelling has increased from 30% to 70%. The result has been a cost increase of some three times what it was a mere ten years ago.
It's far from a 'dead issue'. But read the report and take your own stance from it.
My job as an intelligent investor is determine what I would consider a reasonable price to pay given all the information to determine what I consider 'value.' using all the information of "useful relevance" to arrive at a decision. It's better to be approximately right rather than precisely wrong.
Based on the information at hand the crosses clearly outweigh the ticks
written by Hercc130, January 18, 2011
In Response Dana8
Hey lucky you! Like I said depends where your looking from. Sounds like you had good fortune, hope you keep it. Thats mean't seriously I would wish most people good fortune.
But I don't much care for the 50% crash or your profits. Some people need a 50% crash to even get started in the game as you say. Thanks to the mental attitude of people running around outbidding each other to secure that property and take on MAXIMUM DEBT. As I said better hope rates never hit 17% again. Or there will be some cheap houses. Hey again good for you if you can buy more. I don't care but I might be able to get a place for my family.
I am also glad for you that you have put measures I place to secure your fortune. this is obviously easier to do if you have had the good fortune to create a fortune.
When you have wealth, its easier to hang on to it than it is to create it. Unless some very bad decisions are made Or just damn unlucky. We don't control all the forces in and around our lives and despite good choices shear bad luck thrust upon us can take it all away.
At the very bottom is the hardest place to be, and the hardest to get up from. The more money you make (with hard work and good fortune). The easier it should be to make more.
MONEY MAKES MONEY heard of that one.
A friend once said to me (who was doing quite well). We are all born equal with the same chances. This comment would only probably come from someone doing okay? I said so a child in africa born in a mud hut had the same chance as you. Or a closer to home example I said was a child born to a poor family has the same chances as someone born into riches.
Of course all people have a chance at whatever life throws your way or what you can create from your persistance and hard work. But you still need some luck along the way. Putting yourself out there don't guarantee nothing only increases your chances.
Havin a win don't mean your allways gonna win.
I wish everyone the best and good fortune. But its not easy with so much GREED in the world. GREED causes wars.
In our quest to better ourselves we have been purchasing our everything from china because its cheap. So all money goes to china and in the process there is a potential monster growing on the doorstep. Better hope they never get greedy or nobody will be worrying about how much the house is worth.
People who have had the good fortune allways seem to talk, like them that have not must be their fault.
Hey lucky you! Like I said depends where your looking from. Sounds like you had good fortune, hope you keep it. Thats mean't seriously I would wish most people good fortune.
But I don't much care for the 50% crash or your profits. Some people need a 50% crash to even get started in the game as you say. Thanks to the mental attitude of people running around outbidding each other to secure that property and take on MAXIMUM DEBT. As I said better hope rates never hit 17% again. Or there will be some cheap houses. Hey again good for you if you can buy more. I don't care but I might be able to get a place for my family.
I am also glad for you that you have put measures I place to secure your fortune. this is obviously easier to do if you have had the good fortune to create a fortune.
When you have wealth, its easier to hang on to it than it is to create it. Unless some very bad decisions are made Or just damn unlucky. We don't control all the forces in and around our lives and despite good choices shear bad luck thrust upon us can take it all away.
At the very bottom is the hardest place to be, and the hardest to get up from. The more money you make (with hard work and good fortune). The easier it should be to make more.
MONEY MAKES MONEY heard of that one.
A friend once said to me (who was doing quite well). We are all born equal with the same chances. This comment would only probably come from someone doing okay? I said so a child in africa born in a mud hut had the same chance as you. Or a closer to home example I said was a child born to a poor family has the same chances as someone born into riches.
Of course all people have a chance at whatever life throws your way or what you can create from your persistance and hard work. But you still need some luck along the way. Putting yourself out there don't guarantee nothing only increases your chances.
Havin a win don't mean your allways gonna win.
I wish everyone the best and good fortune. But its not easy with so much GREED in the world. GREED causes wars.
In our quest to better ourselves we have been purchasing our everything from china because its cheap. So all money goes to china and in the process there is a potential monster growing on the doorstep. Better hope they never get greedy or nobody will be worrying about how much the house is worth.
People who have had the good fortune allways seem to talk, like them that have not must be their fault.
written by Hercc130, January 18, 2011
Sorry China is another issue. But the gov. have concerns co's they're talkin to americans about bases here.
written by MattCooper, January 18, 2011
Sean of OzHousing, we saw massive population rise during the past years and interest rates are still low. Most cities saw rises of 20% in property value since GFC. Consequently renters face catastrophic rent rises or better choice of buying property before house prices skyrocket further (already unfolding). Bears tell you we’re "going to crash, low demand, overpriced" and this makes them feel better. They say "houses will fall 40%, severe recession blah". They say rubbish like "banks will margin call investors". The bears myths are blown apart on the Zetaboards Australian Property Forum. Doomsayers have rotten egg on their faces. The smarter bears worked out what's coming and bought. Make no mistake houses in Australia will rise significantly. Some cities facing 30%+ rise over next few years according to BIS. Holiday towns will rise 10-15%. I can't see anything to prevent the massive boom unfolding. The recent slowdown passed and Australia's prices will rise to higher levels than most countries. After every slowdown is inevitable boom and the boom Australia faces will be biggest on record. By the time this finishes, it will leave the early noughties boom looking like a mild uplift. Think 60% trough to peak increase in house prices. Sydney faces very steep rise, main driver low rates, immigration, and a realisation the economy pulled through the GFC in excellent shape. We know burocrats barely touched the surface of what’s possible to maintain house prices on upward trajectory, prices will remain high, building costs high, the economy will soar on the back of a building boom. Hooray! Matt.
written by Nick Christian, January 19, 2011
To all
See the article today
Government reforms needed to increase land affordability, housing industry warns.
When a market or is not in equilibrium such as ours as an intelligent investor you should ask yourself "Is this sustainable" "can it go on"
I'm not saying there will be a 'bust up' or prices will dive 50% (even though theoretically they would only be classed as 'fair value' to the intelligent investor if that did happen).
Booms such as this could go on for 20 years. As a investor above you need to ask "is the market SO distorted and out of whack is the all important 'margin of safety' really there?
Naturally you would use the same assessment when buying anything, Business' shares gold or diamonds.
Matt: the price rises may well occur but you need to have your I should really consider other options on rather than wear your "i love property' boxer shorts on.
Remember folks Warren E Buffett said "risk is something you get when you don't know what your doing" and Ben Grahams "Investing is most successful when it is done in a business-like manner".
Read 'all' the reports such as the Demographia.com I mentioned above not just the ones that confirm your position/gut feeling.
The article today from the HIA backs up Demographia's findings.
Good luck
Yours in successful investing
The Intelligent Adviser
See the article today
Government reforms needed to increase land affordability, housing industry warns.
When a market or is not in equilibrium such as ours as an intelligent investor you should ask yourself "Is this sustainable" "can it go on"
I'm not saying there will be a 'bust up' or prices will dive 50% (even though theoretically they would only be classed as 'fair value' to the intelligent investor if that did happen).
Booms such as this could go on for 20 years. As a investor above you need to ask "is the market SO distorted and out of whack is the all important 'margin of safety' really there?
Naturally you would use the same assessment when buying anything, Business' shares gold or diamonds.
Matt: the price rises may well occur but you need to have your I should really consider other options on rather than wear your "i love property' boxer shorts on.
Remember folks Warren E Buffett said "risk is something you get when you don't know what your doing" and Ben Grahams "Investing is most successful when it is done in a business-like manner".
Read 'all' the reports such as the Demographia.com I mentioned above not just the ones that confirm your position/gut feeling.
The article today from the HIA backs up Demographia's findings.
Good luck
Yours in successful investing
The Intelligent Adviser
written by Hercc130, January 19, 2011
Thoughtfull comments Nick.
I would just like those people who think it can go on for ever, up and up and up. to explain to me.
Where's the money comin from to buy this property thats gonna go up for ever. I mean the average family are not multi millionares. There is a cap on what the majority can borrow, because there wages dictate that. The bank manager says NO eventually.
The plain truth is that, the majority of peoples incomes are Maxed out. They can't borrow any more, so they can't pay any more for those houses. THATS THE REASON THEY ARE NOT SELLING NOW. If the average person could still buy they they would still be borrowing and pushing up prices. Because that is what they are good at (paying too much).
Haven't real estate agents had a ball.
Did someone forget that the bank managers won't lend, if you can't afford the repayments from day one. They ain't that daft.
The only people still buying are those that money's not a problem YET!
GOOD LUCK
Sid
I would just like those people who think it can go on for ever, up and up and up. to explain to me.
Where's the money comin from to buy this property thats gonna go up for ever. I mean the average family are not multi millionares. There is a cap on what the majority can borrow, because there wages dictate that. The bank manager says NO eventually.
The plain truth is that, the majority of peoples incomes are Maxed out. They can't borrow any more, so they can't pay any more for those houses. THATS THE REASON THEY ARE NOT SELLING NOW. If the average person could still buy they they would still be borrowing and pushing up prices. Because that is what they are good at (paying too much).
Haven't real estate agents had a ball.
Did someone forget that the bank managers won't lend, if you can't afford the repayments from day one. They ain't that daft.
The only people still buying are those that money's not a problem YET!
GOOD LUCK
Sid
written by Hercc130, January 20, 2011
One last note. Are we analysing so much now that we sometimes no longer see the simple answers?
Don't you think that if people could still afford, they would be at the bank asking for more money? If they were still really affordable, who would be worried about A QUARTER OF ONE PERCENT INTEREST RATE HIKE? If you could afford it you would'nt worry about full percentage hikes (yes we would'nt want it, but could handle it)
Why is it we go out and offer more and more, till we can't offer any more because the income is Maxed out. No money left to enjoy for the family?
Don't nobody feel that over the years, we have been continually suckered into paying more than we can afford.
I mean once a 25 year morgage and one income earner covered it. Now we have 30 year plus morgages, and pay weekly not monthly in order to borrow more from the bank. On top of that now most families require two incomes in order to BORROW MORE. Baby's are put in care 10-15 hrs a day.
WHATS NEXT 50 year morgages, Sign over your inheritence to the banks BEFORE the parents are gone. Hey lets not forget to include the Kids paperound money in the budget.
Better still forget being kids, got no money left for fun anyway (all income signed over to the banks upon reciept). SEND THEM OUT TO WORK as soon as they can walk and you can offer more income to the banks to borrow more. TO OFFER THE SELLER MORE MONEY.
Whatever happen to driving a hard bargain, getting yourself a good deal. this no longer apply to buying a house?
TIME TO START GETTING A DEAL! They are not selling are they? KNOCK THEM DOWN! Or better still don't buy at all and watch the prices fall. The alternative is above (sell your life and those dear to you, to the banks to buy that house)
The truth probably is, we've not been able to afford property for decades, just found new ways to borrow more money to be able to offer more money. Roll on 50 year morgages? Like I said earlier would you pay $20000 for a car worth $10000 just because the bank manager will lend it to you. I think not.
I have stood at real estate agents windows and laughed at some of the old sheds on offer, and what people are prepared to pay.
Don't you think that if people could still afford, they would be at the bank asking for more money? If they were still really affordable, who would be worried about A QUARTER OF ONE PERCENT INTEREST RATE HIKE? If you could afford it you would'nt worry about full percentage hikes (yes we would'nt want it, but could handle it)
Why is it we go out and offer more and more, till we can't offer any more because the income is Maxed out. No money left to enjoy for the family?
Don't nobody feel that over the years, we have been continually suckered into paying more than we can afford.
I mean once a 25 year morgage and one income earner covered it. Now we have 30 year plus morgages, and pay weekly not monthly in order to borrow more from the bank. On top of that now most families require two incomes in order to BORROW MORE. Baby's are put in care 10-15 hrs a day.
WHATS NEXT 50 year morgages, Sign over your inheritence to the banks BEFORE the parents are gone. Hey lets not forget to include the Kids paperound money in the budget.
Better still forget being kids, got no money left for fun anyway (all income signed over to the banks upon reciept). SEND THEM OUT TO WORK as soon as they can walk and you can offer more income to the banks to borrow more. TO OFFER THE SELLER MORE MONEY.
Whatever happen to driving a hard bargain, getting yourself a good deal. this no longer apply to buying a house?
TIME TO START GETTING A DEAL! They are not selling are they? KNOCK THEM DOWN! Or better still don't buy at all and watch the prices fall. The alternative is above (sell your life and those dear to you, to the banks to buy that house)
The truth probably is, we've not been able to afford property for decades, just found new ways to borrow more money to be able to offer more money. Roll on 50 year morgages? Like I said earlier would you pay $20000 for a car worth $10000 just because the bank manager will lend it to you. I think not.
I have stood at real estate agents windows and laughed at some of the old sheds on offer, and what people are prepared to pay.
written by Dan8, January 24, 2011
Nic and Hercc I think you make some good points indeed. There is a lot of passion here (myself included!) and obviously people are pushing their points.
After reading through the above I bet if we sat down for a beer we would arrive at about the same conculsion! Scary I know. Agree that greed is a real problem and responsible for a lot of strife both in the past and to come. I wonder how many investors work out 'how much is enough' and set a target or if it is just richest man in the graveyard time.
Good luck to everyone, I wonder if there is a way investors can pay the bills with the next generation also able to enter the market and pave their future? If not we may end up with the inter-generational loans they have in parts of asia (imaging handing your mortgage down to the kids!). Might happen if we leave the decisons to greed and the market makers as it would solve the affordability issue and satrt the next double/tripling of house price cycle.
After reading through the above I bet if we sat down for a beer we would arrive at about the same conculsion! Scary I know. Agree that greed is a real problem and responsible for a lot of strife both in the past and to come. I wonder how many investors work out 'how much is enough' and set a target or if it is just richest man in the graveyard time.
Good luck to everyone, I wonder if there is a way investors can pay the bills with the next generation also able to enter the market and pave their future? If not we may end up with the inter-generational loans they have in parts of asia (imaging handing your mortgage down to the kids!). Might happen if we leave the decisons to greed and the market makers as it would solve the affordability issue and satrt the next double/tripling of house price cycle.
written by Nick Christian, January 24, 2011
Dan8
Mate, Id rather scrap the issue and just go for the beers.
Just a few simple philosiphies as guiding reference should do the trick for anyone starting out, or long time follower in the investment game.
As with buffetts most often quoted: "Quite simply, we attempt to be greedy when others are fearful and fearful when others are greedy".
Just by the passion, sheer weight of articles and amount of airtime being attributed to this topic its quite obvious that the latter is prevailing at the moment and should ring alarm bells for the 'lay' investor.
Always 'greedy' when a 'lager' is involved. But alas even that is subject to the 'law of diminishing returns'.
Mate, Id rather scrap the issue and just go for the beers.
Just a few simple philosiphies as guiding reference should do the trick for anyone starting out, or long time follower in the investment game.
As with buffetts most often quoted: "Quite simply, we attempt to be greedy when others are fearful and fearful when others are greedy".
Just by the passion, sheer weight of articles and amount of airtime being attributed to this topic its quite obvious that the latter is prevailing at the moment and should ring alarm bells for the 'lay' investor.
Always 'greedy' when a 'lager' is involved. But alas even that is subject to the 'law of diminishing returns'.
written by Hercc130, January 26, 2011
Hey talking about bank schemes, to allow us to borrow more and keep it going (the bubble). Found these articles. Check it out. makes you wonder how far they want to push it. The farther you go the bigger the potential fall. Are'nt we already looking at trouble of huge proportions.
THE ARTICLE - READ ON
Loan standards drop to keep the bubble afloat
Posted on December 23, 2010 by Steve Keen
I’ve just been alerted by Banking Day (a subscriber-only service) that Westpac–via its subsidiary St George–is now allowing potential borrowers to treat their rental payments as “evidence of genuine savings” when applying for a home loan.
This is of course portrayed as good thing in the press release that announced the development–issued by the broker Loan Market (see the press release at the end of this post). It will, they state, enable Australians who currently can’t afford to buy a home–because they can’t save a deposit–to do so. All good news.
The more cynical interpretation is that this is a way to let banks increase their maximum LVR (loan to valuation ratio) without actually saying so, and to expand their pool of potential borrowers as a consequence. At present, you need a $30,000 deposit to bid $1 million for a property if you get a loan from the Commonwealth Bank, which currently has one of the highest maximum LVRs of 97%: “The maximum we will lend you is 95% of the valuation amount. We also add the Lenders Mortgage Insurance or a Low Deposit Premium to your loan (up to a maximum of 97%), so it doesn’t cost you anything upfront”.
This press release implies that you could approach St George with $20,000 in savings, be given a $1 million loan, and have it recorded as a 95% LVR loan (since St George probably has the same maximum published LVR as Westpac of 95%) where $20,000 was your actual deposit and the effective LVR was actually 98%.
The effect of this trick is to expand the pool of potential borrowers to whom St George can extend a loan, while appearing not to alter its lending standards.
There’s at least one line that I agree with in the following press release: “This is a major step forward which will also boost activity in the struggling home finance sector and we expect other lenders to follow suit.” It will enable the banks to meet their loan sale targets, by expanding the number of applicants who qualify for a loan.
To me, this move smacks of desperation. The house price bubble has made entry into the market impossible without sky-high LVRs, and this in turn has undercut the banks’ business model. Increasing their maximum LVRs by around 5% back at the end of August apparently wasn’t enough to secure the level of loans business they wanted, and St George’s response is this ruse that gives a higher LVR without calling it such.
It will be interesting to see how regulators treat this: will they allow rent that you’ve already paid to a landlord to be recorded as “evidence of genuine savings” and pretend that St George hasn’t increased its maximum LVR?
The Loan Market Press Release
RENTAL HISTORY CAN NOW HELP OBTAIN HOME LOAN
Cheers All
Sid
THE ARTICLE - READ ON
Loan standards drop to keep the bubble afloat
Posted on December 23, 2010 by Steve Keen
I’ve just been alerted by Banking Day (a subscriber-only service) that Westpac–via its subsidiary St George–is now allowing potential borrowers to treat their rental payments as “evidence of genuine savings” when applying for a home loan.
This is of course portrayed as good thing in the press release that announced the development–issued by the broker Loan Market (see the press release at the end of this post). It will, they state, enable Australians who currently can’t afford to buy a home–because they can’t save a deposit–to do so. All good news.
The more cynical interpretation is that this is a way to let banks increase their maximum LVR (loan to valuation ratio) without actually saying so, and to expand their pool of potential borrowers as a consequence. At present, you need a $30,000 deposit to bid $1 million for a property if you get a loan from the Commonwealth Bank, which currently has one of the highest maximum LVRs of 97%: “The maximum we will lend you is 95% of the valuation amount. We also add the Lenders Mortgage Insurance or a Low Deposit Premium to your loan (up to a maximum of 97%), so it doesn’t cost you anything upfront”.
This press release implies that you could approach St George with $20,000 in savings, be given a $1 million loan, and have it recorded as a 95% LVR loan (since St George probably has the same maximum published LVR as Westpac of 95%) where $20,000 was your actual deposit and the effective LVR was actually 98%.
The effect of this trick is to expand the pool of potential borrowers to whom St George can extend a loan, while appearing not to alter its lending standards.
There’s at least one line that I agree with in the following press release: “This is a major step forward which will also boost activity in the struggling home finance sector and we expect other lenders to follow suit.” It will enable the banks to meet their loan sale targets, by expanding the number of applicants who qualify for a loan.
To me, this move smacks of desperation. The house price bubble has made entry into the market impossible without sky-high LVRs, and this in turn has undercut the banks’ business model. Increasing their maximum LVRs by around 5% back at the end of August apparently wasn’t enough to secure the level of loans business they wanted, and St George’s response is this ruse that gives a higher LVR without calling it such.
It will be interesting to see how regulators treat this: will they allow rent that you’ve already paid to a landlord to be recorded as “evidence of genuine savings” and pretend that St George hasn’t increased its maximum LVR?
The Loan Market Press Release
RENTAL HISTORY CAN NOW HELP OBTAIN HOME LOAN
Cheers All
Sid
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