Oh dear... socialists think that can manipulate the market

[Leftwinger]

The overall situation continues to splutter......

Land sales fall to 10-year low

Australian residential land sales have reached their lowest level in a decade, after almost halving from a year earlier, a housing report shows.

The HIA-RP Data Residential Land Report found the volume of land sales fell sharply in the December quarter, with sales down 40.4 per cent compared to the same period in 2009.

The fall in sales comes as the weighted median land value for Australia grew 4.1 per cent in the quarter to $194,161, the report found.

Over the year to December 2010, the median value was up 5.9 per cent.

HIA economist Matthew King says the results highlight the ongoing deterioration in new home affordability.

http://www.abc.net.au/news/stories/2011 ... 194579.htm

The last paragraph in bold says it all as far as I'm concerned. And rising prices on falling sales volumes are a classic sign of something in a bubble, though it is obviously more complex than that. We have had the floods etc. However, they mainly only occurred in QLD and VIC while the industry languishes over most of the country - were there floods in Perth or Adelaide? Also, the December quater results were recorded before most of the flooding. Overall, things began turning south in about May last year.

Experts question fall in property pricesProperty experts have questioned new data that shows the median Australian house price has fallen as much as six per cent in 2011, according to Smart Company.

The Real Estate Institute of Victoria released its quarterly median house price for March last week, which it said had fallen six per cent to $565,000 in the three months to March.

But Louis Christopher, from property research company SQM Research, told Smart Company that the REIV data could be skewed by large fluctuations in certain suburbs.

"I don't think house prices have fallen that far in a quarter," Mr Christopher, who has forecast prices to decline by five per cent, told the website.

"But the drop in Melbourne house prices is clearly on

http://www.businessspectator.com.au/bs. ... nt&src=rss

I thought it was just Melbourne where the price fall was mentioned, though the Gold and Sunshine coasts have taken a hammering, up to 20% in some places. And unemployment in Gold coast city is rising sharply as the flow of credit money into the broader local economy slows down as a result.
Louis Christopher is a respected man in property circles so I tend to believe him when he says the fall may be exaggerated. However, he remains bearish overall.

I have some correspondence every now and then with a Brisbane mortgage broker. Though we are on opposite sides of the debate, I respect his calm, rational approach to arguing. There’s no emotional outbursts or trash talk from him. However, there is one question that I don’t feel he has ever satisfactorily answered, giving brief dodging or brushing off–type answers – how much more can the average person keep paying for housing? Prices have risen so high that the average (I’m aware of the differences between mean, median and average but they are very slippery terms, each with multiple definitions in this particular case so I’ll just use “average”) household now needs to sacrifice at least 50% of their income to service the average mortgage. Official mortgage stress – arbitrary though the figure may be – begins at 35%. This isn’t a 12 month interest free loan from Harvey Norman we’re talking about here – it’s for the rest of a person or couple’s working life. How much longer can prices continue to increase faster than incomes?

I should point out that I have nothing against landlords or property investors. Many people I know either are or have been one. But at the end of the day, houses were not invented to make investors rich - they were invented to fulfil the basic human need of shelter from the elements. What purpose is served by allowing prices to rise so high through lightly restricted credit issuance, that the average person is beginning to struggle to afford ownership of a roof over their head?

We have poured massive sums of money into housing. And it’s not money we have, it’s money we owe. If it was used to do something productive then that might be justifiable but it has been used to do nothing more than hugely inflate the price of existing assets. This approach has destroyed other economies – the nominal wealth has simply evaporated as prices collapsed but the debt and the servicing commitments to it remain as a millstone around the neck for a long time to come.

Interesting times.

[Jovial Monk]

Bubbles eventually deflate. I hope we get a slow steady deflation of the bubble not a pop! State/fed govts should be ready to act or a sudden bursting of the bubble could have drastic consequences. It may be time for the RBA to cut rates.

[Leftwinger]

I hope we get a slow steady deflation of the bubble not a pop! State/fed govts should be ready to act or a sudden bursting of the bubble could have drastic consequences

I hope so too. Taxes on property transactions make up a very large percentage of state government revenue and the sharp pullback in both this and the flow of credit money around the broader economy would quickly introduce a serious recessionary bias.

Funny how as individuals we often don't stop to think where the result of very large numbers of other individuals all doing the same thing at the same time might ultimately lead. People from my age up - 40-ish - have benefitted at the expense of our own children.

My mortgage is piddling compared to the average cost today, giving my very average earning household a disposable income almost as high as many of the very highly paid resource sector workers in this town. All that long, family time-destroying shift work in an unpleasant and sometimes dangerous environment to earn the big coin, and it's all eaten up in servicing a huge mortgage.

[Jovial Monk]

GST revenue already drying up with the retail buyers strike, now a stamp duty slump and state budgets will really get hit and austerity even hits here.

[Leftwinger]

Most of the advanced world - including us - went on the biggest private sector credit binge in history over the past decade or so. But this can't continue for ever. At some point, households must repair their balance sheets and economic growth must start being once again lead by income growth, not credit growth.

Meaning that one of the big drivers of our economy - strong, annual price growth in housing - cannot continue to be so forever, even if prices don't actually crash.

[lisa jones]

Interesting posts there Left Winger.

It's impt to remember that you should never take an isolated article on real estate and then think it can somehow apply to all of Australia. Because it won't.

Real estate is doing quite well in various areas within the Sydney domestic real estate market ( the area I specialise in ).

[Leftwinger]

I agree Lisa but if you look around, you will see the reverse is currently more apt - we should not assume that the Sydney market (currently about the strongest) is a representation of the rest of the country. It looks more the case that the Sydney situation is isolated from most of the rest.

Housing - in general - has started becoming too unaffordable for too many people. Despite a significant rise in our disposable income, we would struggle to afford the same relatively humble house again today. This was becoming true well before the word "LNG" was mentioned here in Gladstone.

It is conventional wisdom that house prices roughly double every 10 years. When we look back down the time line, we see that this has indeed been fairly accurate. But we are talking about exponential price growth here. What portion of the working population experiences exponential wage/salary growth? Exponential growth tends to creep up. At first, it's not so significant. Then all of a sudden, the doubling becomes huge.

I think prices in general are getting fairly close to as high as they can go. If they were to double again by 2020, the average price would vary between $800 000 and $1.5 million. What percentage of the population is likely to be able to afford this?

[Jovial Monk]

5-6% like miners etc.

[lisa jones]

I think prices in general are getting fairly close to as high as they can go. If they were to double again by 2020, the average price would vary between $800 000 and $1.5 million. What percentage of the population is likely to be able to afford this?

Left Winger .. not sure what's happening in Melbourne .. but an average to above average house in an average to above average area here in Sydney has been sitting at $1 --> $1.5 million for the past 12 months.

Most of my friends who are newly married ( all in their late 30's ) .. have $1 million dollar mortgages right now. It's nothing new over here in Sydney.

[Leftwinger]

Most of my friends who are newly married ( all in their late 30's ) .. have $1 million dollar mortgages right now. It's nothing new over here in Sydney.

Lisa, the current Sydney median is a little over half that price, meaning that nearly half of the market is around half the size mortgages your friends have or less. Which is still very expensive. What sort of incomes are your friends on? For a large percentage of working households, repayments on $1 millon dollars would equal 100% of their total income. No food, no clothes, no car, no petrol - no anything except mortgage payments.

Clearly, the average house price across the board is not going to reach a million dollars any time soon.

What you're indicating to me is that you travel in the more upmarket circles of life in this country. I'm not concerned about house prices in upmarket places. What concerns me as that the average working John and Jane Doe can reasonabley afford ownership of the roof over their heads. If an average earning couple like ourselves would struggle to buy the same shoebox again, despite a significant rise in our incomes over that time, then affordability is not reasonable. We would afford it per se - but it would be a life of debt peonage, living would be very much tighter, we would not be able to do many of the things we do now and any substantial rise in the general cost of living (petrol, food, utilities etc) would see us weighing up the issue of if we should just rent. Even now, the average rent - only around half the cost of owning - is more than we pay on our mortgage!


I think prices in general are unlikely to do any better than creep along at the same, heavily strained level of affordability, slowly increasing in line with broad real income growth - that I think is the best possible outcome for those who wish to see prices keep growing (outside the more upmarket section). More likely I feel, is a long, steady deflation as the primary driver for the amazing run up in prices over the last decade – quick, high capital gains for investors resulting from strong and rapid price growth – begins to wither as the threshold of general affordability is reached.