Is Melbourne in A Real Estate Bubble?

freakatronic on 29/12/2016 - 16:52
Last edited 02/01/2017 - 13:21

Happy New Year Everybody. Yes it's two days away.

Now, I thought I'd throw the question to the OzBargain audience. I got some good points of view last time I asked, so I expect more of the same. I could only be bothered looking for Melbourne information, as if I looked for other cities I'd have 700% more work to do for a forum post when I'm supposed to be working.

Reasons why I think we're in a real estate bubble:

  • Low to no wage growth ABS Data
  • Inflation similar to wage growth RBA Data
  • House price growth doubles inflation and wage growth on the most conservative measure, quadruples it on the real growers REIV data

So what I see, and correct me as I know you will if I'm wrong, is that the only improvement in earnings for average Melbournian comes from inflation. While at the same time, housing prices were bid up at 4x the rate of wage growth. I'm going to vote "yes", it's a bubble. The largest determinant of price is the market's ability to sustain those prices. We're not all doctors and lawyers, and most of us can't afford a place in Melbourne anymore. I just can't see how this is sustainable.

Go on then, educate me.

EDIT We've got some excellent thoughts from well educated people so far. Thanks to everyone who's weighing in, and to anyone else - feel free to lay it on me.

SECOND EDIT Thanks for all the useful opinions everyone. I fear people missed my point and started arguing about whether property is affordable or not. Yeah, I know it's not affordable. There are plenty of things that aren't affordable, and their price isn't going to change much regardless of the fact. It's $244k for one share of Birkshire Hathaway, but that's no bubble.

Poll Options

  • 161
    Yes
  • 46
    No
Home & Garden

Comments

  • rgr on 29/12/2016 - 17:08
    +11

    yes - wealth fueled by cheap debt

      • rgr on 29/12/2016 - 17:19
        +10

        yeah BUT i don't think it'll necessarily crash or burst, most likely the prices will remain as is until wages grow. investment properties are a big in australia and there's too many millions of people involved for it to crash. if you were a politician with friends (lobbyists) in the financial sector and holding some IPs yourself, you'd make it your job to ensure nothing like a crash happens.

      • 2jzzzz on 29/12/2016 - 17:45
        +5

        You thing Public Servants are non-producers? Are they not providing a service, just like a huge percentage of workers?

        • Baysew on 30/12/2016 - 09:38
          +40

          @freakatronic: Damn those teachers, nurses, police, fire fighters with their foresight to predict negative interest rates, and not be part of the real society.

        • bhm133 on 30/12/2016 - 11:07
          +50

          @freakatronic:
          Teacher here. Whatba load of crap. I work my goddammed arse off for my school and students. I do not have the "holidays" that everyine thinks I have. I plan, mark and hold extra holiday classes during holidays (year 11 and 12). During the term I limited time to invest in coursework. That down time is for me to get a heap of work done while the students are not around and asking for assistance during recess lunch and after school. I make a difference for shit pay. I love my job and the rewards it gives.

          I have also recieved care from nurses who are awesome and make a difference despite their shit wages and work loads. Government workers are not plebs. They make society work and actually assist the "bottom feeders" of society who are in it for the cash and themselves.

          Rant over.

        • doodo477 on 30/12/2016 - 15:13
          -1

          @bhm133: Don't take this the wrong way. Maybe you should find another profession where you're compensated more for your time than teaching? During high-school I had two teachers go from struggling to earning above 100,000 a year driving a truck on a mining site.

          You've got my admiration for what you're doing and how hard you're working, but at the end of the day if you be honest with yourself. Sit down take into account all the unpaid overtime work and the number of hours you work and then compare it to mowing lawn's, flipping burgers and cleaning.

          We all got bills to pay and at the end of the day does it really matter in the dick waving contest?

        • bluesky on 30/12/2016 - 20:49
          +30

          @doodo477:
          Please also don’t take this the wrong way. But I sincerely hope that your advice to bhm133 and others, to change profession to ones which pay more, is not taken up.

          I have total respect and admiration for people like bhm133 – who make the sacrifices, deal with bad conditions, long hours, yet not compensated adequately but continue to do it. Without you people, our society would not be what it is – which is, if one is being honest – at the moment is pretty good, if we compare it to elsewhere. And if everyone takes the advice, and just pick professions that give the most money, again, our society will not be what it is.

          Secondly, as bhm133 said,

          I make a difference for shit pay. I love my job and the rewards it gives.

          Other discussion threads on this forum have also reveal that although many people are in jobs which compensate well cash-wise, they feel unhappy or unfulfilled, like they are in the wrong occupation. One reason people are happy in their job is because they know they are making a difference to society, or to other people’s lives. This is real happiness, as a society we need more of this. Other countries, e.g. Bhutan, which is less materialistic, has a Minister of Happiness, and it has measures like Gross National Happiness Index. We sometimes lament that our society is getting too materialistic and more people are unhappy than ever before. So I would think that if we do not concentrate on the pay so much, and work in jobs that make us happy, as a nation, we could be better off.

          Just my 2c.

        • bhm133 on 30/12/2016 - 21:53
          +4

          @doodo477: Thanks for the message. I'm happy where I'm at. I was reacting to OP's comments about goverment workers being underperformers. Insteresting comment about dick waving though… Was my rant that bad?

        • bhm133 on 30/12/2016 - 21:55
          +3

          @bluesky: Your 2 cents was worth a lot more. Thank you for the praise. I also learnt something new about Bhutan.

        • mrham on 30/12/2016 - 22:00
          +2

          @Baysew: I think he is talking about the public servants who chair/participate in various local government committees, reviewing which donuts to buy for their upcoming morning tea.

        • bhm133 on 30/12/2016 - 22:03

          @mrham: If so, my rant went completely the wrong way.

        • mrham on 30/12/2016 - 22:13

          @bhm133: Maybe, but I lived with a teacher once and what you said about them was pretty well spot on.

        • 2jzzzz on 30/12/2016 - 23:00
          +2

          @freakatronic:

          I wonder what wonderful job this guy does that produces so much good. Probably negatively gears and pays sh*t all tax after creative accounting. Could argue these types contribute even less.

        • Bunnyburger on 31/12/2016 - 10:59

          @bluesky: Bet the victims of Bhutan's mass ethnic cleansing weren't that happy! =D

          Seriously though, it's human nature to want more stuff and I don't think any Minister of Happiness is going to change that.

        • Fagin on 31/12/2016 - 12:29

          @bhm133: "Government workers are not plebs" I think you may want to check the meaning and origin of "Plebs".

        • bhm133 on 31/12/2016 - 17:35

          @Fagin:

          Noun. Derogatory. An ordinary person, especially one from the lower social classes. Tis what I wanted to communicate in regards to OP's comment.

        • edgar28 on 01/01/2017 - 00:02

          @freakatronic:

          I think you generalised all public servant with RBA and regulators.

          Talk to Economic lecturers in University, they will tell you that the regulator normally screws up (9 out of 10), i.e do more harm than good

          Wait till you deal with some overpaid consultants and regulators vs public servants…..

        • edgar28 on 01/01/2017 - 00:38

          @mrham:

          I work for few industries and public, private company before

          there are always some bad seeds around

          same for races……

    • SeVeN11 on 30/12/2016 - 19:40
      +18

      It's only a bubble if household default on their loans. To simplify this there are two possible way this can occur.

      1) interest rate rises so much that it causes households to default on their loans, but given banks are using benchmark interest rates of about ~7% when you borrow money (i.e. Banks calculate whether you can afford the loan based on an interest rate of ~7%) and interest rates is around 4%, we would need about 10-14 rate rise before household start crumbling. This assume no further deterioration to the job market between now and then, otherwise it will likely happen a bit sooner.

      Note: if interest rate rises, it does suggest inflation is increasing (i.e. hopefully including your salary) and the economy is overheated.

      2) The other alternative is the economy remains slow and interest rates remain low. (i.e. like now) In this scenario the only way household will default on their loans is when they lose their job. Some serious shift in employment would need to occur to make large amount of household to default on their loan. e.g. loss of industry like manufacturing, larger scale natural disasters, major change in fiscal policies.

      In Summary:

      I don't think it is a bubble if the economy does not literally shits itself, but if unemployment rate deteriorates and/or interest rate rises large enough to cause enough household to default on their mortgage then you want to be worried. The good news is that it will happen slowly over years and if you keep an eye on these indicator to give you some guide as to buy, sell or hold.

      Also keep an eye on population growth and dwelling approval as a simple sign of supply and demand. If a city has population growth of 20,000 people and there is 2.6 people per household then you would want to see 7700 household being built. If more are being built, it will drive price down, if less are bing built it will drive price up.

      I think this is the current problem with Sydney and to an extent Melbourne is that it received a large influx of people from the end of the mining boom. These people sold their houses in Perth and moved their money and family to VIC/NSW depending where they found a job.

      That's my 2 cents.

      PS: If you believe there is a bubble in Melbourne, then you would likely agree the bubble has popped in Perth. If so, simply sell Melbourne and buy Perth.

      • serpserpserp on 31/12/2016 - 14:25
        +4

        It is interesting that people still believe that banks use the 7% benchmark for affordability. Given that 7% is at least an 80% increase in my current rate, and there is absolutely no way I could afford my home loan at 7%. To be honest i'd really struggle at 5 to 6%. I think most people who have bought in the last 2 years would be in the same boat.

        • SeVeN11 on 31/12/2016 - 15:37

          Is this because your circumstances has changed since you got the loan? i.e. less income? If so, then you better start thinking of some backup plan.

          If not, when the Bank use the benchmark interest rate of ~7% they would have used either your state living expenses or some sort of household expenditure measure (which is really just above poverty line).

          What this means is (assuming your circumstances has not changed since the Bank lent you the money) when interest rate start increasing you will find yourself cutting back unnecessary expenditure in your life to meet your mortgage repayment. i.e. you will
          * stop buying those xiaomi ip camera, another lenovo laptop, and those unnecessary SSDs that you have on yourself that's unopened…
          * cancel your netflix/foxtel subscription
          * start brining lunches from home
          * cutback on coffee or better yet, quit or just drink whatever free one work provides
          * catch public transport to work
          * no more holidays
          * etc.

          When the time comes, I am sure you will be resourceful enough to find 'fat' in your budget to cut back to pay the mortgage. If not you will obviously sell… but that may not help because you'll still need a place to rent. If you do get into this situation, I suggest you rent out your spare room. A better recommendation is to cut the 'fat' now, i.e. just live above the poverty line now and start repaying that debt off as fast as possible.

        • serpserpserp on 31/12/2016 - 21:44
          +3

          @SeVeN11:

          Some great advice, but you are missing the point of my post. If a lot of people were forced to pay say double their weekly payments from rates going to 7%, ie. $1,200 instead of $600, 1.4k instead of $700 etc. I think you would find that making your own lunch or cancelling your Netflix account won't do anything to support such a massive change in outflow. This isn't your mum & dad recession ideals where interest rates go to 17% but on a house that costs 100k or a mortgage at that level, you can find ways to pay it.

          I'm telling you, I didn't lie to the bank about my earnings or expenses, but they certainly didn't base my payments off of 7%, they must have tweaked it so I just made it under whatever threshold I had. I actually went back afterwards and asked for 10k extra and they said no, so I must have been at my absolute max limit.

        • Ahan on 31/12/2016 - 22:59

          @serpserpserp: The bench mark rate has only recently increased as bank started tightening lending. Six months before I got loans up to 1.6 mil. It is impossible under today's policy, I have a monthly after tax cash shortage of over $2000 which is about $35,000 before tax annual income.

        • trongy on 01/01/2017 - 13:39
          +1

          @serpserpserp:
          I don't understand why you think payments would double if rates went to 7%

          Currently mortgage interest rates seem to be in the region of 4%. Going from 4% to 7% increases weekly repayments by 40%.

          e.g Using the Commonwealth bank homeloan calculator with $500,000 loan on a 30 year loan (principle + interest):
          4% -> $597 weekly repayment.
          7% -> $832 weekly repayment.

          That's still enough to cause hardship to many people, but not nearly as bad as doubling the repayments.

        • tomleonhart on 01/01/2017 - 19:17

          @serpserpserp: most major banks use 7%+ and most minor banks (i.e. ING) use 8%+ when they assess your serviceability.

          I work with a lot of their credit teams. It's not a myth.

      • drprox on 01/01/2017 - 23:22

        Work at a bank. We calculate on standard variable + 2.25 so closer to 8% (not that anyone pays standard variable of course!)

  • raziel on 29/12/2016 - 17:33
    +2

    I've wondered about this myself. While everything the OP said makes sense, I'd like to point to London as a point of comparison. The same questions could be asked of London, couldn't it? Most Brits cannot afford to buy a house in London, yet the real-estate prices in cities like London have continued to grow into stratospheric heights during the last 20 years, with no apparent signs of abating.
    https://fullfact.org/economy/brief-introduction-housing-issu…

    • freakatronic on 29/12/2016 - 17:35
      -1

      There we go, nice counterpoint. Yes, London might be comparable BUT it's right next to Europe and Melbourne's right next to nothing.

      • 2jzzzz on 29/12/2016 - 17:47
        +12

        It's close enough to HUGE populations in Asia though. Melbourne is still a very desirable city yto live in and if I were wanting to move here, it's be my pick over Sydney and little Bris, Adelaide, Perth etc

        • 2jzzzz on 29/12/2016 - 20:12
          +27

          @freakatronic:

          I tried.

        • megadeth on 30/12/2016 - 00:41
          +1

          Darwin is even closer to the huge Asian populations, however, the prices are going nowhere in the short to medium term. Although imho none of the Australian capitals are currently overpriced. Try looking international real estate markets and you'll realise, if buying for living.

        • MrBear on 30/12/2016 - 10:03
          +2

          @quasims: Real Estate in Darwin is very expensive for what you get. Plus you get the wet season, so not so desirable to live in. Melbourne also has a large trading port which deals with Asia.

        • edgar28 on 01/01/2017 - 00:40

          @freakatronic:

          I tried, but half way north of Australia some recommend me to swim across …..

      • raziel on 29/12/2016 - 17:54
        +3

        True, so your suggestion is that the money to prop up these prices are coming from the rest of Europe?

        It does raise a couple of issues:

        1. Despite it not making sense from an average wage and affordability perspective, house prices can continue to grow.
        2. This may be an indication that the wealth to actually buy these houses is either:
          • Coming from elsewhere (say Europe in the case of London, China in the case of Melbourne)
          • Concentrated in a few, with the rest of the population becoming permanent renters (this is a throwback to the feudal age, but it is consistent with the current state of inequality - 1% vs 99%)
        • HeyThereJim on 30/12/2016 - 12:11
          +2

          Just popped my lurker cherry to reply and to add to this comment.

          I think you're absolutely correct with your first point. There has and currently is a huge influx of young(er) workers in Australia who either have (A) PR via the university education route (which I think has been tightened up but 'too little too late' for some) or (B) are residents via sponsorship or partner visa. I'm not just talking about the stereotypes that are usually thrown out with these kind of topics i.e. Chinese or people from the subcontinent, but people from Europe, North & South America and South Africa.
          A lot of these folks have access to foreign money but for all intents and purposes are considered local buyers.

      • tonka on 30/12/2016 - 08:56
        +2

        Thats what makes it attractive, it's isolated without being 3rd world. I'd pick mist Aussie towns over London any day. So would a lot of Brits too.

      • ozbjunkie on 30/12/2016 - 13:06
        +7

        Just as Londoners are being priced out by rich and possible dodgy oil money and Russian oligarchs, along with citizens willing to take on ever increasing debt at near 0 interest, Melbourne and Sydney prices are being driven up by either Asian investors and local debt lovers.

        Either it crashes, or in the longer term we end up like Dubai or Singapore where locals don't own any decent property in the city.

        Much similarity between London and Sydney, in that they are close and desirable to other nations with massive wealth (inequality).

        Note it's also a intergenerational issue - a couple of my friends were arguing recently 'why can't we afford property's and I weighed in with 'because each of you have parents which own 4 of them'.

      • darkmattersunB6c0MV on 31/12/2016 - 11:09

        London is to Europe, what Melbourne is to Tassie.

        JustKidding

    • bluesky on 29/12/2016 - 18:26
      +3

      I do not know if Melbourne real estate is a bubble, but inclination is towards yes.

      London may not be a good point of comparison, in my opinion, because more foreigners are attracted to invest in property in London, compared to Melbourne or Australia. We have mainly the Chinese investors, but they have the rich Middle-Eastern, Russian, Chinese, Greeks (after banking crisis), Pakistanis, and Asia in general, amongst many others.

      They also have speculations of a bubble even 1-2 years before the brexit was known. Now, brexit more likely to burst the bubble. I saw a documentary in which fabulous/rich neighbourhoods in London are completely dark at night (includes Knightsbridge, if I recall correctly), because the houses are all bought by overseas investors who prefer to leave them vacant. They probably have more demand in this regard to sustain the bubble for a longer time.

      Our situation here could be a bit different; still, if demand outstrip supply, prices might be maintained for quite a while.

      Edit: London housing collapse might have begun already …

    • Odin on 30/12/2016 - 14:04
      +4

      AUS and the UK have similar migration stats, my bet is that the house of cards is held up by massive immigration numbers. Brexit effects will be interesting on the UK housing market.

    • antzz on 02/01/2017 - 00:34
      +1

      The fact that you can not buy doesnt mean there is a bubble. Comparing Melbourne house price to many leading cities with more than 4 mill population you will see that melbourne is actually cheap, have very good standard of infrastructure, good jobs, good uni, good school, good hospital etc.

      Compare to shanghai, singapore, vancouver, hongkong, Zurich, berlin, san fransisco, london etc you can see why many americans, asian and european are migrating and buying real estate. The price is still cheap compare to those places and for those migrating after they sold their initial place of living in those city, buying house or apartment in melbourne by cash you will still be able to have plenty of spare change

      Melbourne price should rise to at least at sydney level for it to be considered expensive for expat

      Very sorry for many local working daily job trying to buy houses, melbourne and sydney are very good cities in many ways. Economic laws said limited item will have its price going up until balance of demand and supply is achieved.

  • Diji1 on 29/12/2016 - 17:49
    +1

    It's simple really: as people are priced out of the market they still need a place to live so they rent. I am unclear as to why you think this is an indicator of a bubble.

    • freakatronic on 29/12/2016 - 18:22
      +1

      I could rent for the rest of my life at these prices and not have paid more than buying a place in Melbourne. Not even factoring interest repayments in.

      • tonka on 30/12/2016 - 09:04
        +13

        But you wont be paying rent for the rest of your life at todays prices. In 10 years time you may well be paying twice as much rent and wishing you were paying interest on the home prices of 10 years ago.
        After 20 years the equation is usually a no brainer.
        I bought my Sydney house 15 years ago. My current mortgage payment is half the current rental price plus I have a million dollar asset.
        Sure history may not repeat itself but for the last 100 years it always has and with popularion growth budgeted at the same growth I can't see why it would change.

        • serpserpserp on 31/12/2016 - 14:27

          10 years ago you we all weren't paying 50 less in rent though.

        • tonka on 31/12/2016 - 14:31

          @serpserpserp: True, that's why I said 'May be', could be your suburb has a revival or gets exclusive in that time and it's more than doubled.

      • Powershopz on 30/12/2016 - 13:47
        -1

        It depends on the area. If you know where to buy and have the financial stability for a 8 year+ investment, property is a very solid investment netting great returns (4-8% p.a.)

    • [Deactivated] on 03/01/2017 - 07:08

      Rents are no longer covering even very low interest rate mortgages. Basically rents can only rise so fast as well, and those can only rise if wages in high property value areas do as well. Rents have already come off the boil (as have wages) and investors are seeing their properties sit empty. If interest rates go up and people have mortgages that are all of a sudden more than they can pay for with their income and they can't rent them? A flood of forced sales = cheap sales.

      Basically every politician and his dog has been pushing the bubble along. At the very least we're in for a period of stagflation.

      The real key question has to be, will someone with a really good income want to live here, is it close to employment and transport? If not, there's nothing holding that value much above $0.

  • [Deactivated] on 29/12/2016 - 17:50
    +5

    It's only in a bubble if it will burst…and the banks are insanely profitable right now. The banks won't be going on a foreclosure spree as they will be the biggest victims of that decision. If there is a spike in unemployment or banks start reporting much smaller profits or losses, maybe there will be action, but I expect the banks to act pretty conservatively while they have a golden goose.

  • try2bhelpful on 29/12/2016 - 18:36
    +8

    In the 80s we were scandalised that my other half's brother paid $54,000 for a small Victorian terrace in Richmond. Everytime you think it is a bubble people seem to be willing to pay more. I honestly can't understand the market; otherwise I would've purchased a bunch of places in the 80s.

    • freakatronic on 29/12/2016 - 18:49
      +1

      That's true too. I wonder what purchasing power was like at that time.

      • try2bhelpful on 29/12/2016 - 18:54

        As an example we paid $93,000 for a one of a pair in Glenhuntly and at that time I was paid $23,000 per annum. There was a small Victorian we could've bought for roughly $120,000.

    • TimApple on 29/12/2016 - 23:12
      +1

      That's also because we're in the longest economic growth in the history of the world. Go back a couple generations to the 20s and 30s and it wouldn't be so true anymore.

    • Odin on 30/12/2016 - 14:05
      +4

      $ figures are irrelevant. Price to income is what should be discussed.

      • T1OOO on 31/12/2016 - 17:55
        +3

        Not really. It's ability to service debt. It's irrelevant what the price actually is as long as your 4000$ a month can make the repayments 4million or 400k dosnt matter.

  • Geekomatic on 29/12/2016 - 18:54
    +16

    I think real estate, in general, is insanely inflated. If you look around at everything else you must buy to live (utilities, groceries, etc) things aren't too badly priced & are doable with some scrimping. But then you look at housing (including the crazy rents being charged to shops) & you see how out of whack it is by comparison. You go into a small, family-owned deli for lunch & your sandwich & drink has to cost $50 just so they can pay that huge rent. It really is getting to the point that I can't afford (single mother of two) to take us out to eat at all any more. That, is just ridiculous. It's sad to know that, barring a miracle, I & many others, will never be able to afford to buy our own home.

    • bluesky on 29/12/2016 - 19:11
      +4

      It's sad to know that, barring a miracle, I & many others, will never be able to afford to buy our own home.

      I totally empathise; maybe a correction is the miracle …
      But such a correction may also leave some, who barely scrape together, and just manage to get into the property ladder, in the cross-fire. So very ambivalent about this …

    • freakatronic on 29/12/2016 - 20:21

      Are you talking about Melbourne as well?

    • Powershopz on 30/12/2016 - 13:44
      +1

      It's nor entirely due to rent though. For most businesses their highest cost is payroll due to high base wages.

  • usmanyousaf on 29/12/2016 - 19:18
    +5

    The points raised by the ob are compelling. However, i just want to show another perspective.

    The ratio of the growth of population only in Melbourne is more than any other city in Australia. Especially, comparing with Sydney, i heard Melbourne will have more population in 2030 than Sydney. (Correct me if i am wrong with year)
    If u consider this, these people coming to Melbourne need a place to live in.
    What i think, Melbourne is the best place at the moment to invest. Unless, there is a big disaster(hope not) happens, i don't see this bubble will burst.
    Infact i think otherwise, that the prices will eventually become same as Sydney in Melbourne in couple of decades.
    Furthermore, what people say for Sydney atm that it has become unaffordable place will start saying the same for Melbourne. Thats where people coming from overseas will look for another city.

    • wanga1983 on 30/12/2016 - 09:43
      -1

      Good points, mostly agree. However, I don't think prices will be affected by average household income than it will population size.

    • aerom on 30/12/2016 - 21:24
      +1

      just the argument of population increase is not enough. With increasing population purchasing power needs to increase as well. If you look around the world the bubbles popped when purchasing power stagnated or went negative compared to the past. Our wage has been stagnant for few years now after adjusting for inflation. Reduced wages and layoffs are at earshot of almost everyone. Anecdotal evidence would say Melbourne real estate is in bubble.

      • usmanyousaf on 30/12/2016 - 22:14
        +1

        Population increase is an indication of the demand. In Sydney, it is only un-affordable for the people who are trying to buy their first homes.But not for investors. Reduced wages and less income worries only people like us(atleast myself) who came from overseas and are trying to settle. Either continuously saving for First home or started paying mortgage.
        People who already have their houses paid, will definitely be investing their income somewhere. invest in businesses,share, term deposit or buy house.
        Buying property has always been considered as safe investment. It is the investor making hard for first timers to get into the property market. It will become even harder in coming years.

        • aerom on 31/12/2016 - 13:21

          population is just one of the variables. If people don't have the purchasing power no addition of population will create any new demand unless prices comes down to what market can afford. I believe the shortage of supply is an indicator of such a market.

    • MessyG on 31/12/2016 - 10:00

      I couldn't agree more - Melbourne has a long way to go before it approaches Sydney level of inflation. I say this as someone who lived in Sydney for 10 years who got priced out of the market ($800k for a 2 bedder apartment 11km from the city) who moved to Melbourne this year and bought a place because it was so much cheaper than Sydney. It is still a lot cheaper than Sydney with much better transport and roads (believe it or not) and it's why people like myself moved back here and paid what people might have thought was too much ($800k for a 3 bedroom house 11km from the city). Melbournian's also tend to have artificial boundary lines and areas they simply will not buy into which I think will evaporate like it did in Sydney.

      If I was going to invest in Melbourne, I would still buy apartments, in small size older blocks with low body corporate fees near the ocean. They are virtually impossible to get in Sydney now.

      • usmanyousaf on 31/12/2016 - 16:42

        Thanks and i am sure there are many more like u moving to Melbourne.
        This will definitely increase the demand in Melbourne.
        There r many Sydney investors purchasing properties in Melbourne. It has been most liveable city in the world.
        Melbourne is the centre of interest for international investors.
        Its very hard to see the prices come down. It may stay stable for a while but will rise again.

        • MessyG on 01/01/2017 - 13:00
          +2

          No but if you're looking to buy, take advantage of the fact that so many Melbournians are irrationally snobby about where they will live. In the north it was all about not buying over Bell St for example. If you buy just over an imaginary snob line you can save around $100k - this is exactly what we did. We measured distance to the city, not distance to our self esteem!! If I had more money I would buy along the coast and work my way down it until I got to a suburb I could afford. When I moved to Sydney ten years ago, no one wanted to buy south of Coogee and in the time I was there it exploded all the way down to Wollongong (90 mins from CBD). People love the beach and will commute from the beach even if the commute is ridiculous.

        • Lyndo Lowkey on 07/01/2017 - 19:42

          @MissG:

          Hi MissG, are you able to tell me a little more about these snob lines besides the Bell st one?

          I'm interested in saving a good 100 G's myself. I am sure it would benefit the OzBargain community greatly as well!

        • MessyG on 07/01/2017 - 19:49
          +1

          @Lyndo Lowkey: Easy enough to figure out by using realestate.com.au - that's how I did it. Find the suburb you'd like to live in, compare with price of suburb next door. If still expensive, go one out again. Find the boundary road, buy just over it.

          Also recommend The Property Couch podcast, that's where I first heard of the concept.

        • Baysew on 07/01/2017 - 20:32
          +2

          @MissG: It's known as the Hipster Fence

        • MessyG on 07/01/2017 - 20:52
          +1

          @Baysew: That's hilarious and far more appropriately named!

  • poboy on 29/12/2016 - 19:28
    +18

    Apartments? Yes.

    Houses with land? Not so much.

    Houses with land within 10km of the city? No.

  • outlander on 29/12/2016 - 20:36
    +14

    Bubble? Yes, but how much further it can grow is up for speculation. Some people live their whole lives in a bubble..

    Or, maybe the prices are real, and its our money which isn't worth as much as we think it is

    • freakatronic on 29/12/2016 - 21:42

      …my…my head…

    • megadeth on 30/12/2016 - 00:49
      +4

      This… We bought after my exact same conclusion after years of waiting for the bubble to burst. That itself is a distant memory now though…

    • Lyndo Lowkey on 07/01/2017 - 19:53

      Hi outlander,

      Agree wholeheartedly. I think I'm in the generation who will live their whole lives in these environments:

      *Permanent low interest rate environment
      *Bigger divide between the Top 10% : Bottom 90%
      *Even bigger divide between Top 1% : Top 9%
      *Continuous steady growth in property prices (one or two years we may see 11 - 15% growth, followed by one or two years of cooling down of 1 - 5% but over the long term it evens out at around 8 - 10% growth per annum)
      *At a macro level, migration into more liveable cities (good infrastructure, public transport, politically and economically safe and stable)
      *At a micro level, migration to more "lifestyle" suburbs close to the beach or hip shopping strips
      *Less demand for quarter acre blocks for the sake of living (big % of current demand is there for quarter acre blocks now for future subdivision potential)
      *More demand for apartment / unit style living (easier to maintain, clean and upkeep + better security)

  • spacemansam on 29/12/2016 - 20:58
    +2

    Have been looking to buy a property over the last 2 months in Melbourne and have found that most properties are going for between $150-$200k above the listed price. According to the real estate agents we've spoken to, the amount of houses on the market are down 30% compared to last year but the demand for the houses remains the same. Unfortunately it means we have been competing against more people than usual and at this rate we may never find a place!

    • CyberMurning on 29/12/2016 - 23:14
      +14

      And you believe real estate agents?
      That's the bubbles…

      • spacemansam on 30/12/2016 - 01:19
        +3

        In regards to the fact that there has been less supply of houses this year? Why wouldn't I?

        There has clearly been less houses on the market in the areas I have been looking at. It seems to be taking weeks for new properties to pop up when months earlier when I had a stint looking it was a mere matter of days. It also seems that open for inspection days are excessively crowded compared to usual.

        Thats just my opinion and I may be naive in belivieving the consistent message that the agents have been giving us, but thats something I've decided to factor in as to whether its the right time or not to buy. For me, if there is a lack of supply, why would I want to compete at this time? I may as well give it a few months to see if things change over a longer period of time. In the end, I won't be paying more just because of the fact agents have told me there is an under supply.

        • Jolakot on 30/12/2016 - 21:27
          +1

          If you're thinking of buying somewhere, chances are everyone else is too, especially in the east. You've got to be ahead of the pack, Jacana was a great place to buy a few years ago, now Broadmeadows a few months ago, people keep moving further out as houses with their own land dry up so it's slightly predictable. If I had to pick a place, Dallas near the Upfield station would be a good bet.

        • Providence on 30/12/2016 - 22:32
          +1

          @Jolakot:
          New Zealand, Indonesia after that.
          Travel time's a bitch though.

        • spacemansam on 31/12/2016 - 07:04
          +1

          @Jolakot: weirdly enough I actually grew up in those areas you mentioned!

      • payless69 on 30/12/2016 - 09:53
        -4

        perhaps we learn to love rice!

    • knk on 31/12/2016 - 10:52

      We found the same, we bought in lets say the Wyndham Council area a touch shy of 30kms from the city.

      We would walk into some inspections and feel like idiots. One that springs to mind was a mid sized house listed at I think 450k. Very well presented.

      Spoke with the agent about putting down an offer, and they tell me that unless they get a significant offer ie well over asking price it'll be going to auction. This was common practice and just waste our time. I believe that ended up selling for 550k.

      We purchased a house which needed a little b it of work (just floors paint and new showers) for 440k in a much nicer spot. Pumped 15k and some blood sweat and tears into it and have a house twice the size on a block 50% larger for 100k less.

      So many people get roped into paying way more than they have to, always good to hunt around and get a feel for what property is actually worth before dropping so much money.

  • FirstNameLastName on 29/12/2016 - 21:01
    +5

    steven keen will have to be right one day.

    • [Deactivated] on 29/12/2016 - 23:38
      +3

      Great comment ;) He sits alongside aviation experts as ABC's 'goto' know nothing experts. He desperately wants to be the next Schiff.

      • megadeth on 30/12/2016 - 00:53
        +4

        Keen can only be right if the prices go below 30% of pre-2008 prices… iirc, that was when he lost the famous bet… The irony is that the people who followed him at the time have already missed the bus by a decade… :-)

  • try2bhelpful on 30/12/2016 - 08:19
    +13

    Housing is risky as an investment, purely because it is a large chunk of money and it needs to be disposed of in one go, rather than being able to sell parcels of shares as needed. The world is so volatile at the moment I have no idea on what is the best way to invest but I would certainly not be buying an apartment; Melbourne is being over run with them and some of them are very badly built. Particularly if you are buying off the plan, it is a tad "buyer be ware".

    • sushirais on 30/12/2016 - 12:11

      Fair point, a landed house would be quite safe imho? Land seems quite safe, no?

      • try2bhelpful on 30/12/2016 - 19:33
        +1

        A house is certainly a better bet than apartments. If you look at how property appreciates houses always do better. From a land perspective you always need to look at flood plain maps and, if in Melbourne, look at what was flooded out yesterday. The problem is more around if you have extended yourself and have to sell something in a hurry - you might find yourself significantly out of pocket if the price has gone down in the area you bought, particularly if you take into account the costs associated with selling.

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