Society/Culture Australian Property Prices to Crash?

[Jello_B]

You paint a bleak picture, and a pretty undesirable one.
I guess its a mindset question, why buy in the first place?

This doesn’t make a lot of sense and apologies I don’t mean to be rude. I’ve bought multiple places and I get the market. I still think buying should be good reasonable value for people to want to invest. I don’t think regularly employed people should be priced out of decent areas.
How do you think housing should be valued? If you think demand / supply and you are happy with 10% yoy growth based on immigration levels / low interest rates / allowance of overseas investment / easy credit are you happy with -10% growth for the inverse.
To be clear I’m happy with my method, and I’ll work with demand / supply.

 

[Royal Flush]

This doesn’t make a lot of sense and apologies I don’t mean to be rude. I’ve bought multiple places and I get the market. I still think buying should be good reasonable value for people to want to invest. I don’t think regularly employed people should be priced out of decent areas.

Im not sure what decent area means. Its relative to what you can afford. My parents would have loved to have purchased in Kew, but settled with St.Albans in the early 1980s.
From an investment perspective, this is just my personal perspective Identifying the ugly sister suburb with potential is not a bad strategy. Most desirable suburbs now days were once an undesirable suburb, think Yarraville, Footscray and even Williamstown as examples.

How do you think housing should be valued? If you think demand / supply and you are happy with 10% yoy growth based on immigration levels / low interest rates / allowance of overseas investment / easy credit are you happy with -10% growth for the inverse.
To be clear I’m happy with my method, and I’ll work with demand / supply.

In a free market, the market dictates. Its up to the individual in terms of the entry and exit points.
Personally I consider the numbers long term, and put a conservative estimate of 3-5% over 20. anything over 5% is bonus in terms of capital gains. With the mortgage being paid down its the revenue from rental income that becomes an important factor.

If people are wanting investment, they can equally build wealth in the share market, some choose property.

IF people want to get into the market, but dont want to live 40km from the cbd, nothing is stopping them from buying and renting it out. It opens a whole new avenue of opportunities.

 

[its free real estate]

No such thing as a free market in housing.

 

[Royal Flush]

No such thing as a free market in housing.

Government housing comes pretty close to your definition

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[CheapCharlie]

The latest Corelogic figures:

https://www.corelogic.com.au/research/daily-indices

 

[CheapCharlie]

Mortgage lending veteran Mark Bouris, the chairman of listed broker Yellow Brick Road, says conditions facing borrowers are the toughest he has experienced during his time in the industry.
In the latest warning from a broker about tighter credit, Mr Bouris said the last six months of 2018 had been "unusually tough" for Yellow Brick Road, which reported a $34.1 million loss for the half on Thursday, after its shares were suspended from trading last week for missing the deadline to file its accounts.

"It is now particularly hard for mortgage originators and brokers to assist borrowers to obtain an approved home loan," Mr Bouris said in a statement.
"In all the years of being involved in the home loan business, I have never seen such difficult borrowing conditions. These factors have caused an adverse impact to our new lending, particularly in the December quarter,” he said.

 

[Jello_B]

Im not sure what decent area means. Its relative to what you can afford. My parents would have loved to have purchased in Kew, but settled with St.Albans in the early 1980s.
From an investment perspective, this is just my personal perspective Identifying the ugly sister suburb with potential is not a bad strategy. Most desirable suburbs now days were once an undesirable suburb, think Yarraville, Footscray and even Williamstown as examples.



In a free market, the market dictates. Its up to the individual in terms of the entry and exit points.
Personally I consider the numbers long term, and put a conservative estimate of 3-5% over 20. anything over 5% is bonus in terms of capital gains. With the mortgage being paid down its the revenue from rental income that becomes an important factor.

If people are wanting investment, they can equally build wealth in the share market, some choose property.

IF people want to get into the market, but dont want to live 40km from the cbd, nothing is stopping them from buying and renting it out. It opens a whole new avenue of opportunities.

Decent area to me relates to the distance from central business hubs and public amenity.
I agree with your comment about the ugly sister suburbs I have done the same with my investments. I have also bought and rented that out while I have rented.
No issues with your free market comment (as much as it can be a free market). Hence why I have no issues that a whole lot of investors are losing a lot of manufactured capital gains. The market is correcting. Labour winning the election (I hope this doesn’t happen), market sentiment, and slowing of overseas investment hopefully brings the market down another 15%-20%. PPORs should be fine as they can just live in the same house for the next 10 years if they bought at inflated prices (which is their fault anyways and due punishment for contributing to inflating the prices). Real estate agents are overpaid so they can take a hit (their jobs should be automated soon anyway). Investors that bought 5 properties on interest only, and expecting capital gains from adding absolutely no value to this world can find some other industry to snake oil their way into. Overall property becomes cheaper for everyone. Seems like a win win win.

 

[CheapCharlie]

A couple more intersting graphs relating to Chinese buyers and foreign investment in residential real estate
From Bloomberg

 

[Royal Flush]

Decent area to me relates to the distance from central business hubs and public amenity.
I agree with your comment about the ugly sister suburbs I have done the same with my investments. I have also bought and rented that out while I have rented.
No issues with your free market comment (as much as it can be a free market). Hence why I have no issues that a whole lot of investors are losing a lot of manufactured capital gains. The market is correcting. Labour winning the election (I hope this doesn’t happen), market sentiment, and slowing of overseas investment hopefully brings the market down another 15%-20%. PPORs should be fine as they can just live in the same house for the next 10 years if they bought at inflated prices (which is their fault anyways and due punishment for contributing to inflating the prices). Real estate agents are overpaid so they can take a hit (their jobs should be automated soon anyway). Investors that bought 5 properties on interest only, and expecting capital gains from adding absolutely no value to this world can find some other industry to snake oil their way into. Overall property becomes cheaper for everyone. Seems like a win win win.

The fluctuation never bothers me.
When there is a bull market there will always be a bear market waiting.



I had breakfast with mate who's a real estate agent this morning.

He's had the slowest December/January in 20 years.

Subject to finance deals are falling through at a rate of 1 in 3 in his experience. It used to be 1 in 10

.

I know project builder's had huge pipeline projections going into Q2 2018.
They have disappeared Q3 2019

Like you, a retrace doesn't bother me and is generally better for the greater good of the sector. I'm more comfortable with slow steady growth.
But I never wish anybody to do their ass in.

I need an economist to butt in here,
But a slow down in the construction sector has huge ramifications for the greater economy.


I guess on another note, you do know there is a segment of public opinion that thinks people that buy multiple properties are greedy , selfish and deserve to do their ass in.
They hope for total destruction of the housing sector without considering the implications of that to their own lives and earning capacity.

I bet that those spruiking catastrophe won't take advantage of the retrace to get in and will find another reason to whine why the system is unfair to them.





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[Royal Flush]

A couple more intersting graphs relating to Chinese buyers and foreign investment in residential real estate
From Bloomberg

View attachment 631361

View attachment 631362

Interesting to see how this plays out.



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[Nuggs Bunny]

n

Reserve Bank governor Philip Lowe says population spikes sparked downturn

MARCH 6, 2019 9:48PM

[https://cdn-newsapi-com-au]With Australian housing prices declining rapidly over the past year, first homebuyers could potentially corner the market.

Alexis Careynews.com.au

Many Aussies believe our housing downturn was caused by factors like unemployment, interest rates or even the banking royal commission.

But according to RBA governor Philip Lowe, there’s a different and surprising factor that really kicked it all off.

Speaking at the Australian Financial Review’s business summit this morning, Dr Lowe revealed falling prices were the result of sudden spikes in population — and a lack of available dwellings to meet that demand.



But now supply has caught up with that earlier increased demand — and as a result, prices have started to fall.

“The origins of the current correction in prices do not lie in interest rates and unemployment,” Dr Lowe told guests.

“Rather, they largely lie in the inflexibility of the supply side of the housing market in response to large shifts in population growth.”

Dr Lowe also claimed in the five years to 2017, house prices grew by almost 50 per cent — but they have since dropped 9 per cent, meaning they are now at 2016 levels, with the Sydney and Melbourne markets the hardest hit.

He said while Australia’s population started to climb rapidly in the mid-noughties, it “took the better part of a decade for the rate of home building to respond”.

“It took time to plan, to obtain council approvals, to arrange finance and to build the new homes. Not surprisingly, house prices went up,” Dr Lowe said.

[https://cdn-newsapi-com-au]

Reserve Bank of Australia governor Philip Lowe said interest rates were unlikely to rise this year. Picture: AAP Image/Mick Tsikas

But despite the significant drop in prices, particularly in our two biggest cities, Dr Lowe said stagnating wage growth was a bigger problem than a housing downturn when it came to the broader economy.

And he also rubbished the suggestion that tightening lending practices had played a significant role in driving down prices, claiming only around 10 per cent of Australians borrowed the maximum they are offered by banks — a move he deemed “sensible”.

However, he also warned against lenders tightening the reins too much.

“ … credit conditions tightened more than was probably required. Now, as lenders continue to seek the right balance, we need to remember that it is important that banks are prepared to take credit risk,” he said.

While many homeowners in our capital cities have been watching the housing market with increasing anxiety, Dr Lowe also stressed the market had been through similar cycles before and recovered.

“Declines of this magnitude are unusual, but they are not unprecedented,” he said.

“In 2008 and 2010, prices fell by a similar amount, as they did on two occasions in the 1980s.”

[https://cdn-newsapi-com-au]

House prices are now at mid-2016 levels, according to RBA governor Philip Lowe.

Dr Lowe’s address comes just one day after the RBA decided to leave official interest rates at 1.5 per cent, and he told attendees there was little chance of a rate rise in 2019.

“It’s hard to think of a scenario where interest rates would need to go up this year,” he said.

“Inflation pressures are very benign, wage growth remains low and the current rate of wage growth is unlikely to generate an inflation rate of 2.5 per cent.”

AFR editor-in-chief Michael Stutchbury said the “big boom” that sparked the house price correction was not interest rates or employment figures but rather the lack of available properties and the delay in constructing new dwellings as populations soared.

Continue the conversation @carey_alexis | alexis.carey@news.com.au

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I think Dr. Phil has actually touched on a vital issue; the eastern suburbs in the inner and eastern ring are still very underpopulated compared to other major cities and even compared to some areas in the inner north & inner west. No doubt a large reason behind the lack of development are NIMBY councils determined to preserve the original quarter acre blocks of the area and not allow as many apartments & townhouses to spring up on subdivided lots.

 

[Jello_B]

The fluctuation never bothers me.
When there is a bull market there will always be a bear market waiting.



I had breakfast with mate who's a real estate agent this morning.

He's had the slowest December/January in 20 years.

Subject to finance deals are falling through at a rate of 1 in 3 in his experience. It used to be 1 in 10

.

I know project builder's had huge pipeline projections going into Q2 2018.
They have disappeared Q3 2019

Like you, a retrace doesn't bother me and is generally better for the greater good of the sector. I'm more comfortable with slow steady growth.
But I never wish anybody to do their ass in.

I need an economist to butt in here,
But a slow down in the construction sector has huge ramifications for the greater economy.


I guess on another note, you do know there is a segment of public opinion that thinks people that buy multiple properties are greedy , selfish and deserve to do their ass in.
They hope for total destruction of the housing sector without considering the implications of that to their own lives and earning capacity.

I bet that those spruiking catastrophe won't take advantage of the retrace to get in and will find another reason to whine why the system is unfair to them.





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Fortunately there is significant construction investment in other areas such as defence and transport. There is enough momentum in these industries to keep capable people employed.
But yes the low level contractor charging $100+ hour for undertaking straight forward work may have to delay the purchase of their second jet ski, and the developer planning to extract significant margin from cheaply constructed apartments with shitty fixtures may have to get a job.

 

[Royal Flush]

Fortunately there is significant construction investment in other areas such as defence and transport. There is enough momentum in these industries to keep capable people employed.
But yes the low level contractor charging $100+ hour for undertaking straight forward work may have to delay the purchase of their second jet ski, and the developer planning to extract significant margin from cheaply constructed apartments with shitty fixtures may have to get a job.

I think you have a misunderstanding of the construction industry.

The construction industry aligned with building dwellings.

Like your $12.6 per hour 1st year apprentice.

Infrastructure spending will help to continue stimulate construction sector growth and government spending creates it.
What I'm referring to is private sector investment.

Getting a plumber to check your dunny @ $100 for first 30 minutes , feels like a rort.
I agree. The problem lies not in the plumber charging that rate , but the fact that there is a shortage of plumbers.

I guess why go to uni to do an arts degree with no real career outcome and a massive debt when you can do a plumbing apprenticeship and get $100 call out fee once qualified.


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[Royal Flush]

10 Statistics Defining the Australian Construction Industry
Written by David Cartwright | Sep 5, 2018 3:04:00 AM
Australia’s construction industry is one of the largest growing sectors in the country, with commercial construction work expected to increase by 9.3% in 2018 alone. With such rapid growth, the industry will continue to demand a larger share of the overall GDP, employ more people, and contribute to the larger economy of Australia.

Australian construction is influencing (and is being influenced by) population growth, housing, technology, and labour. Here are 10 statistics that provide valuable insights into the state of the sector today and what we can expect in the years ahead.



1. Australia’s population is growing by 1.6% every year
Australia has experienced steady population growth, with an annual growth rate of 1.6% as at the end of 2017. This is being fuelled by two main factors:


Net overseas migration (62%)
Natural childbirth (38%)
Population growth is contributing to rising demand for new structures in both the residential and commercial space.



2. Urban areas of Australia account for 50% of the nation’s population
Unsurprisingly, construction work in urban areas of the country has been increasing steadily, attributed to the growing population in our major cities. In fact, 50% of the population is now settled in one of our 11 major cities (with Sydney and Melbourne accounting for 40% of the country’s total population).



3. Australia’s construction industry comprises 8% of the GDP
The size of Australia’s construction industry is best-represented by its share of the GDP (gross domestic product); 8%. The sector is the largest non-service related industry, contributing $134.2 billion to the country’s economy.

We can expect increased investment in construction as a result of its size, value, and productivity.





4. Total construction work continues to rise by 2% each quarter
The number of active construction projects is increasing by 2% every quarter. This is perhaps the biggest evidence of the growth of the industry in Australia.

With this growth, we can expect more innovative techniques to fuel more efficient and effective commercial and residential structures.



5. Productivity in the construction industry is increasing by 2.8% annually
Australia’s construction industry is not only growing in size, but it’s also growing in productivity. With an increase of 2.8% per year in productivity, the industry is equalling (and sometimes surpassing) its annual employment growth rate.

This increase in productivity can be attributed to technology (like modern estimating software) innovative building techniques and modern construction materials.



6. 1.1 Million people are employed in the construction industry
The construction industry is not only a large GDP producer; it’s also a large employer.

1.1 million Australians find work in the construction industry in many different capacities. And because the industry as a whole continues to expand into the technology, service and financial sectors, we’re bound to see this number increase in upcoming years.





7. Construction software helps the industry as a whole save $25B a year
Construction software platforms have enabled builders to save costs, boost efficiency, and design better structures. The industry is expected to increase in value by $25 Billion a year (over the next decade) due to the use of these software platforms.

Indeed, savings from better resource management and cost-cutting can be redirected to other parts of the industry, adding value back to the sector as a whole.



8. Commercial construction work in Australia is expected to rise by 9.3% in 2018
According to the Australian Construction Outlook Survey (2018), non-residential work is expected to rise by 9.3% in 2018 alone. This falls in line with population growth in urban areas of the city, where we’re bound to experience more commercial structures scraping the sky.



9. Employment in Australia’s construction industry is expected to rise by 3% in 2018
We can expect a rise of 3% in employment rates within the industry in 2018 alone. The constant growth in this sector is also opening up more positions for work and expanding the economy of the country.

For builders, this is the perfect time to invest in technology and more efficient construction techniques.



10. Prefabricated construction expected to grow by 5% every year
Modular construction is a sustainable, cost-effective and durable technique for designing homes and buildings. Builders realise that the modular technique has many different benefits and is the construction method of the future.

With an annual growth of 5% in modular construction every year, the industry is slowly moving towards a less labour-intensive and more cost-effective construction model.




View full post

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[Jello_B]

I think you have a misunderstanding of the construction industry.

The construction industry aligned with building dwellings.

Like your $12.6 per hour 1st year apprentice.

Infrastructure spending will help to continue stimulate construction sector growth and government spending creates it.
What I'm referring to is private sector investment.

Getting a plumber to check your dunny @ $100 for first 30 minutes , feels like a rort.
I agree. The problem lies not in the plumber charging that rate , but the fact that there is a shortage of plumbers.

I guess why go to uni to do an arts degree with no real career outcome and a massive debt when you can do a plumbing apprenticeship and get $100 call out fee once qualified.


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I’m not sure how this post is intending to debate anything I propose. What are you trying to say here.
I am saying that the construction industry isn’t going to fall over because of a reduction in residential dwelling construction as a result of falling house prices.

 

[Nuggs Bunny]

I’m not sure how this post is intending to debate anything I propose. What are you trying to say here.
I am saying that the construction industry isn’t going to fall over because of a reduction in residential dwelling construction as a result of falling house prices.

Part of it will, as construction isn't a homogeneous industry of a few core skills that apply to all facets of work and there's a huge difference in skillset between residential construction and building a tunnel or a skyscraper. Even if residential construction workers can find work, it will be outside of their specialty and likely in a field where they have little experience if any at all and the pay they take home will adjust accordingly.

No matter which way you cut it, the earnings for many will be going down and that's less money into the economy which in turn will effect everybody. We can try all we like to convince ourselves that the only people who suffer will be the ones who truly deserve to but it's not going to be the case.

 

[Bombermania]

I guess why go to uni to do an arts degree with no real career outcome and a massive debt when you can do a plumbing apprenticeship and get $100 call out fee once qualified.

Arts degrees often lead to high paying corporate sector jobs, I know of several people with arts degrees that enjoy six figure incomes.

 

[Jello_B]

Part of it will, as construction isn't a homogeneous industry of a few core skills that apply to all facets of work and there's a huge difference in skillset between residential construction and building a tunnel or a skyscraper. Even if residential construction workers can find work, it will be outside of their specialty and likely in a field where they have little experience if any at all and the pay they take home will adjust accordingly.

No matter which way you cut it, the earnings for many will be going down and that's less money into the economy which in turn will effect everybody. We can try all we like to convince ourselves that the only people who suffer will be the ones who truly deserve to but it's not going to be the case.

Oh no doubt, I’m just of the opinion that the quantum of people that had previously been priced out of the market and that can now afford a property, outweighs the negative.

 

[Royal Flush]

Oh no doubt, I’m just of the opinion that the quantum of people that had previously been priced out of the market and that can now afford a property, outweighs the negative.

That doesn't equate.
Hypothetical 20% drop for argument sake.
Are you suggesting there are people that didn't get into, let say 1.2 mill in Sydney's west but all of a sudden will at 960k?
I wouldn't think the numbers are to justify this mindset change that it would offset the down turn in the sector.
Second, with a sharp drop like that , do you think banks would half hazard loan large amounts in the current climate based on a dropping market?

I think there is a lot of uncertainty and goes against the grain that banks have tightened their lending even at an 80% LVR





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[Jello_B]

That doesn't equate.
Hypothetical 20% drop for argument sake.
Are you suggesting there are people that didn't get into, let say 1.2 mill in Sydney's west but all of a sudden will at 960k?
I wouldn't think the numbers are to justify this mindset change that it would offset the down turn in the sector.
Second, with a sharp drop like that , do you think banks would half hazard loan large amounts in the current climate based on a dropping market?

I think there is a lot of uncertainty and goes against the grain that banks have tightened their lending even at an 80% LVR





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There has already been a 20% drop, so overall drop of 40% would help yes. What do you mean by half hazard? Banks should apply diligent lending practices at all times and be penalised when they don’t.

 

[Royal Flush]

There has already been a 20% drop, so overall drop of 40% would help yes. What do you mean by half hazard? Banks should apply diligent lending practices at all times and be penalised when they don’t.

Nationally or just Sydney.
20-40% drop?

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[Jello_B]

Nationally or just Sydney.
20-40% drop?

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Sydney and Melbourne. Perth already did what it should have. Adelaide is fine. I dont know enough about the other regions to comment sorry.

 

[Messenger]

Oh no doubt, I’m just of the opinion that the quantum of people that had previously been priced out of the market and that can now afford a property, outweighs the negative.

Indeed. They just may not be able to get finance now.

 

[Royal Flush]

Sydney and Melbourne. Perth already did what it should have. Adelaide is fine. I dont know enough about the other regions to comment sorry.

I don't get how you found 20%drop.
Nationally?
Can you please post a link.
Because google does my head in

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[Jello_B]

I don't get how you found 20%drop.
Nationally?
Can you please post a link.
Because google does my head in

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Sorry, there has been a 20% drop in Sydney. I think Melbourne is not that much but catching up (maybe 13%) at moment. Perth already dropped a few years ago and still isn’t bouncing.
Be careful with online reporting, it usually lags and looks at medians. To get the best data you need to be on the ground going to properties. Speak to agents and get data as well (but don’t believe their rehtoric).