House Prices - Where Are They Going?

LWakasonu on 04/07/2018 - 10:18
Last edited 04/07/2018 - 10:26 by 1 other user

I would like to share my experience on this as I was in discussion many times with different groups of people whether to buy or not in the last couple of years, I was on the side not buy as the prices were inflated due to unreasonable price movements & foreign investments.

Now the time has come , where the prices are going down, investors are pulling out with more than 60% drop in investment activity, 50% of interest only borrowers had no idea what interest only does mean.

The downturn would be nasty turn. Remember this from GFC time.

Home & Garden

Comments

  • 87percent on 04/07/2018 - 10:24
    +9

    thats nice

  • SBOB on 04/07/2018 - 10:49
    +3

    Nice that you specified where in Aus you're talking about…

    rising prices - unlikely, especially at recent historic %'s
    flat prices - likely (+/- small % amounts)
    massive nasty downturn - more unlikely

  • geek001 on 04/07/2018 - 10:57
    +5

    I was looking for a house in Brisbane during the GFC, there wasn't much of a downturn as the media reported, I think maybe around 10%? Even then, it was hard to find a seller who would sell at 10% below asking price. The only sellers who sold their houses were the ones who needed to sell. Other sellers just held out for higher prices. The "huge" losses reported by the media are the ones that paid too much for the house in the first place, ie. maybe 30% above suburb average and is more an exception rather than the norm during that time.

  • HighAndDry on 04/07/2018 - 11:02
    +6

    Uh. If you were saying "Don't buy" in the last couple of years… you've been way off the mark. Basically anyone who bought before end of last year have still made huge capital gains on property. I don't blame you - I've been bearish about the property market for a long time too, but I readily concede I've also been wrong for basically all that time.

    • Stimps on 04/07/2018 - 12:23
      +4

      Corelogic has Sydney dwelling values annual change at -4.5% yoy, so I fail to see how anyone who brought in Sydney over the last year would be sitting on huge capital gains.

      • HighAndDry on 04/07/2018 - 12:30
        -1

        Year on year changes include the first half of this year, which has been… bad.

        You also have to realize, market data like that of core logic is generalized and so have their averages skewed by outliers like outer western and south-western Sydney. Yeah - if you bought out there, you're taking a loss, but literally no one with any intelligence was buying that far out as a short-term investment anyway.

        But you're right, the prognosis going forwards is utterly catastrophic apparently (I assume this is the same report you're using):

        https://www.afr.com/real-estate/sydney-posts-biggest-annual-…

        Nationally, -0.8% annual change, though for the last few years:

        Nationally, dwelling prices are still 32 per cent higher than five years ago

        Just needed to have gotten in early-ish, and get out now.

        • mskeggs on 04/07/2018 - 14:01
          +3

          Don't cloud your claims.
          You said anyone who bought before December made huge gains. Just say you were being a bit hyperbolic or casual with figures, no need to try and obfuscate to prove your comment right by cherry picking.
          Anybody who has held longer than 3 years has made good gains, so you weren't far wrong, but if you bought anytime in 2017 or 18 you would be losing if you had to sell now, counting transaction costs, stamp duty etc. and price drops. I would say you could include buyers from 2016 too, though they would likely be around break even.

          Graphs that show Corelogic figures for some Sydney regions are here:
          https://www.macrobusiness.com.au/2018/07/recent-sydney-home-…

          And they show 4%+ falls in North Sydney, Inner West, Sutherland, Northern Beaches etc. It isn't just people in the south west or outer west who are going backwards.

        • HighAndDry on 04/07/2018 - 14:05
          -6

          @mskeggs: Tsk tsk…

          Don't cloud your claims.

          I agree, this is good advice.

          You said anyone who bought before December made huge gains

          Cough. No I said:

          Basically anyone who bought before end of last year

          It's more vague, but that was by design because I don't have the numbers and dates right in front of me. Even then I'm probably a tad off because taking into account transactional costs, a month or two of even spectacular growth wouldn't be enough to make much of a profit.

  • Wakasonu on 04/07/2018 - 11:12
    -1

    Well , looking back about what happened during the GFC , was loans have been given for the sake of greedy brokers commissions. Looking at the current situation. I think we have a similar situation where 500 BILLION are liar loans !!!!!

    In regards to the media , I don't get facts from the biased media . The facts I mentioned are from independent financial institutions.

    • Baysew on 04/07/2018 - 13:33

      Sounds interesting, please link.

    • HighAndDry on 04/07/2018 - 13:57

      From your linked article:

      More borrowers are overestimating their incomes and underestimating their expenses when applying for a mortgage, swelling the value of so-called "liar loans" to $500 billion

      Seems like it's a problem with borrowers. But nah, we don't like holding actual individuals responsible for anything these days…

  • maxx on 04/07/2018 - 11:14
    +3

    Home prices are trying to find their way back….home.

  • Redoctober00 on 04/07/2018 - 11:17
    +2

    I agree prices are starting to come down (NT in particular). Unfortunately I dont think we will ever see the pre-2008 prices.

    Talking to a few rental investors who are having to drop rents and other friends that jumped in few years back watching at horror as their house valuation drops (I know its a long term game but still hurts).

    I'm thinking that this year maybe I can make a jump into my first home.

    I am over the media coverage of the property market. They change from week to week on it being a buyers/sellers market and I don't trust real estate groups being quoted as news sources as their obvious conflict of interest in talking the market upwards.

    My 2cents anyway..

    • Wakasonu on 04/07/2018 - 11:30

      You did right about the media . But the other thing is the wholesale money providers which the big banks in needs to are demanding higher return which means higher interest rate

      • popcornready on 06/07/2018 - 07:41

        Generally speaking. Rents rise in these situations.

  • Ocker on 04/07/2018 - 11:25

    Great advice giver, so for the past couple of years you told people not to buy - WRONG!

    Now you are saying the downturn will be nasty.

    Afraid I think you have been listening to the doomsday journo's and so-called investment bank experts.

    • Wakasonu on 04/07/2018 - 11:34
      -1

      No , My background is in finance , I don't listen to these outlets as you mentioned. I get my facts right. Trusted financial institutions. Plus considering the previous experiences and geopolitical situation as well.

      • HighAndDry on 04/07/2018 - 11:49
        +6

        Unfortunately being in that sector makes us tend to be more cautious (because we're more aware of the risks) which leads to.. well missing out on short-term gains. Someone who bought 3 years ago and sold last year would've made absolute bank, regardless of what happens to the market going forwards.

        • Third_Gear on 04/07/2018 - 13:39

          Bought a fairly basic new home in a crap suburb 3 years ago. Friends etc thought I was nuts for even considering living there. They were busy waiting for property prices to drop but instead I got what we could afford. Well have since moved on after living there for two years and it is currently rented and cash flow positive. Went up in value a considerable amount too!

          But the OP sounds risk adverse so buying property as investment may not be right for them….

        • HighAndDry on 04/07/2018 - 13:44
          -1

          @Third_Gear: Good for you. Honestly if the economy was made up solely of people like me and OP, it'd be in perpetual free-fall because consumer and investor confidence would be stuck to zero.

          Especially if it's cashflow positive, you don't really even have to worry about short-term capital losses because you can afford to just keep holding onto it. Not a bad spot to be in at all.

        • Wakasonu on 04/07/2018 - 13:50

          ;))))

  • thord on 04/07/2018 - 11:28

    It's going to go pretty badly. Even on the more measured group at r/finance, negativity is setting in: https://www.reddit.com/r/AusFinance/comments/8vpgll/snap_up_…

  • mreddie on 04/07/2018 - 11:45
    +10

    Prices will continue to rise over time, sorry.

  • try2bhelpful on 04/07/2018 - 12:10
    +2

    In roughly 1980 my brother in law paid $54,000 for a small Victorian place in Richmond and we were horrified about the price he paid for it. I wish we had bought a couple of them looking back on it now.

    The answer is that, in the long term, prices will go trend upwards for housing but it may not have the rises shown in the last few years. Housing is a commodity that is backed by an actual product and people always need somewhere to live - it will never have a zero value - as opposed to some shares etc.

    The issue raised with using housing as an investment is you can't sell a small parcel to cover a shortfall you have to sell the entire asset; although you could may be able to increase the mortgage on the asset to get additional funds. Housing also requires a signficant amount of upkeep and management; there is always the risk you get a useless tenant that costs you money rather than giving you money.

    My 2c.

    • dresh on 04/07/2018 - 12:23

      A sharp rise is always followed by a decrease. If we keep having the upward trend you mentioned an apartment would be 20 millions in 20 years (not an accurate calculation). Question is, how low will it go?

      You are right about the zero value, but the issue with housing is that in a bad market with a sharp economic downturn you won't find a buyer. What if you need the money? What if you can't repay the mortgage?

      Agree on your last point.

      • try2bhelpful on 04/07/2018 - 12:45

        I think you may have missed my points. Housing will trend increase in value pver time; however, it will, probably, not be at such a rate as we have been seeing. If people got in to bitcoin at it's highest they would have taken a massive loss; which is not something you will see with housing. Companies have been known to go bust and their shares worth nothing - even AMP is doing it very tough at the moment. It is an extreme market where housing will drop 20 -30% but this can happen in a day with shares.

        The idea is to structure your finances so that you don't have to sell in a bad market, that is economics 101. Spread the load and ensure you have enough liquid assets to ride out the worst of it. People who think the good times roll forever, and overgear themselves, tend to roll the dice once too often. This can be true no matter what you are investing in.

        BTW - I currently don't have an investment property so I'm not hoping prices will hold up from a personal perspective.

        • HighAndDry on 04/07/2018 - 13:59
          -1

          I currently don't have an investment property so I'm not hoping prices will hold up from a personal perspective.

          Property is such a huge part of the economy, really anyone wanting the economy to do well (which should be everyone) should want property prices to hold up. Maybe not go as gangbusters as it did over the previous decade, but at least maintain steady growth.

        • [Deactivated] on 04/07/2018 - 15:52
          +1

          @HighAndDry: Australia has an extremely high cost base because the population face such large costs in terms of housing that they need to demand large wages to keep a roof over their heads (far more than they had to previously).

          E.g. the more house prices go up, the more people need to be paid to survive, the more businesses pay, the more indebted we become, the less discretionary money we have to spend in the real economy, the more pressure on business survival (hello how many retail closures over last 5 years?!)

          Rising house prices have been like a sugar hit to the economy.. it made the last two decades appear that we were doing well when in actual fact we were binging on debt, trashing the productive parts of the economy and selling the nation out to the highest bidders with dire consequences for any of the population that was not already capital rich, or able to access finance to join the artificial ponzi wave.

          Australian's would be PHYSICALLY richer if they were paid less, (& from this prices were less but employment higher), immigration was at a level that stabilised population (i.e. near zero) and taxes and housing were lower as they were not being artificially pressured by mass immigration (the highest in the world along with Canada, also facing the same problems as us).

          If your income goes from $60kpa to $65kpa but everything in the shops costs 5% more and house prices double (whilst block sizes shrink) and the national wealth is shared amongst 5 million more people, and the nation is further in debt you are not getting richer, in fact far poorer.

        • dcep on 04/07/2018 - 16:16

          @HighAndDry:

          an economy based largely on housing will leads to multiple boom bust eventually

          germany has done well without it

        • HighAndDry on 04/07/2018 - 16:18

          @phunkydude: Because of its inherent characteristics (scarcity, value, etc), all economies are based substantially, even if not primarily, on real estate. And all economies go through boom and bust cycles - the cyclic nature is unavoidable, no matter what an economy is based on. If anything, real property is more stable than most other commodities.

  • peterpeterpumpkin on 04/07/2018 - 13:19

    I always go off-topic, but anyways…

    At the end of the day, house prices in a politically and environmentally stable area will be dictated by the international demand of those that can afford to legally buy there, but the final say will always come down to the local government. A government can always introduce new lending laws, new tax laws, new interest rates, new foreign buyer laws etc

    So if right now Sydney is spending around half of their pre-tax income on their mortgages (which is high both absolutely and as a percentage compared to European markets), then we know that even in the absence of governmental intervention that there's not much room for house prices to grow in the current employment market and interest rate level. That doesn't mean they won't. Gentrification is real and the people left behind could go to Adelaide or wherever. But I don't think a lot of people that grew up in Sydney would like that and would prefer that people calm the f down.

  • Wakasonu on 04/07/2018 - 13:32

    The other thing is The inflation pressure with the AUD going down in value like that we will see rate hikes no question which means massive impact on the mortgage stress . In addition to that the interest only mortgages which account for a fair bit of total mortgages supposedly needs to be turned into interest plus principal in the coming 3 yrs.

    • [Deactivated] on 04/07/2018 - 16:02
      +1

      There is a sensible solution but to carry it through you have to have the best interests of Australians at heart and I am not sure that our banks/politicians and their owners do:

      RBA interest rates should be lowered whilst additional restrictions on lending are placed (e.g. deposit requirements are increased).

      The aim is to balance:

      falling interest rates ordinarily increases property prices / balanced with increased regulation prevents this
      WINNING: existing householders keep most of their gains (no hard crash), it gets cheaper for existing owners to hold property (so no pressure to sell), new buyers get a leg up once they have saved sufficiently as interest rates are lower and house prices have stopped increasing.

      Secondary effect:

      a lower RBA interest rate reduces the value of AUD, this negatively effects overseas holidays but increases the competitiveness of domestic production improving our terms of trade (allow debts to be paid), and increasing the level of employment in the workforce, which in turn, along with the lower burden of debt facing people (from lower rates) increases spending in the economy helping businesses.

      Overall the economy is put on a much more sustainable footing, and generally only those that were in unsustainable businesses anyway, or making obscene profits (e.g. banks) tend to lose, and even then only to the extent of still doing well, just that the 'wellness' is shared very broadly across society rather than just the few.

      We don't need socialism to deliver a good dose of equality and fairness, just sensible management of economic policy.

      TLDR
      RBA should lower rates and balance with increased banking regulation to prevent an asset price blowout

      iPhones get a little more expensive & overseas holidays but a huge crash is averted, Australia starts building its wealth, and the benefits of living here get shared more broadly within the current resident population, including better access to housing for those without, and much increased employment for those currently underemployed and unemployed (14% of the population).

      • Gandalf the Thrifty on 05/07/2018 - 08:11

        Interest rates people pay isn't always controlled by RBA official rate. RBA held rates unchanged on Tuesday and banks started putting up rates anyway eg ING +0.1% and others will follow. Same thing happened decade ago when rates got close to 10%. Some Banks would increase rates higher than rba increases

  • Euphemistic on 04/07/2018 - 18:28

    I can’t see prices going significantly down unless interest rates start hiking and owners can’t afford to pay off their massive loans. Until then if you own you won’t be forced to sell. Most people would try to ride out a downturn and not be forced into selling at a big loss.

    • Gandalf the Thrifty on 05/07/2018 - 08:20
      +1

      Depends on the true number of people who can barely pay at current 3-4% and haven't bothered to calculate increase to a higher % of a huge personal mortgage.
      Media would have you believe there is lots of people in that situation.

      • Euphemistic on 05/07/2018 - 09:12

        The media would have us believe lot of things! but I agree it does depend on the figures. I don't think that a significant rate hike is likely in the near future, and therefore a craash in the property market is unlikely. For the mean time the heat has gone out of the market a bit which will affect price growth in the short term

        • HeWhoKnows on 05/07/2018 - 19:49
          +2

          Go check out whats happending right now. See my post below.

          The RBA is too scared to increase interest rates because they know it will suffocate many people but they are no longer in control.

          The US Federal Reserve and other overseas central banks are now in control and pushing up interest rates.

          You may ask…So what?

          Our banks have borrowed over 1/3 of loan funds from overseas whilst the rates were ultra low. And also because Aussies dont save money any more. So thats why overseas banks now control our interest rates

  • Micko179 on 05/07/2018 - 10:01

    I bought about 10 years ago when the market was about to crash! Paid absolute top dollar $260k(highest in street/estate) then spent over $100k on renos as it was previously a rental. Thought I'd double my money in 12 months, but reality was, went to the bank after spending everything to refinance & bank valuation came back at $238k, less than I paid! About 10 years on have been offered in excess of $600k on several occasions which I've declined!

    My best mate has been procrastinating (talking) about buying for around 15 years & will spend $50k on a digital printer he doesn't need in the blink of an eye, but keeps baulking at buying because 'he might lose money!' Go figure!

    • Wakasonu on 06/07/2018 - 13:55

      Do you think at the end you made a profit ?? You are not. Do you know that your $360k 10 years ago worth around 600k in today's money!!! So basically your savings still about what they were 10 years ago.

      If you need to know more . Look at the future value of your savivg

      • Micko179 on 07/07/2018 - 04:55

        I'm not sure how you could borrow $360k then profit by putting that money in a term deposit or similar to obtain your figures? I said, I've been offered over $600k, offered! I was told by the bank valuer(10 odd years ago) when I refinanced that he can get me $1.2M(10 years ago) by subdividing (my block is 2401sqm) but I'm not interested in doing any of that. When someone offers me $1M (which could be anytime as Westfield has recently bought the Shopping Centre 100 metres from me) I'll walk away, so yes, I think so!

  • HeWhoKnows on 05/07/2018 - 19:43

    Whats happening with prices depends on location.

    Most areas prices have either stabilized or have started to fall.

    In some areas interest has completely evaporated and as such since there are little or no sales has not transated into falling prices yet.

    In high flying areas such as Sydney's eastern suburbs where there are always plenty of buyers, classic two bedroom apartments which were mostly selling at AUCTION for around $1M or more just a few months ago can now be found FOR SALE from as little as $650K !

    If you want a gauge on the current level of interest and hence what will potentially happen to prices in any one suburb do the following:
    1. go to realestate.com.au
    2. select any property in your suburb of interest
    3. scroll well down to the heading SUBURB PROFILE AND MARKET DATA and click on it
    4. Scroll down to where it shows "Supply and Demand" for that suburb vs the state average.

    Anything well below the state average is not looking good at all and will mostly likely experience big falls in prices.

    The new and over-developed suburb of Wolli Creek in Sydney is one such catastrophy waiting to happen.

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