Society/Culture Australian Property Prices to Crash?

[greyhound punter]

You're right, it's hard to find an equivalent really. But adelaide metro includes Elizabeth and Salisbury. I don't know if you've ever been there but I would imagine that's fairly equivalent. Rest of adjacent isn't exactly the Riviera in terms of reputation either.

In not arguing there's going to be some imminent crash either. There's deliberate policy settings from the government that make Australia a bit different. It'll be interesting to see what happens with an iron ore price sustained decline though

No doubt - the huge immigration rate at the moment is designed entirely to try and put a floor under prices.

However, I see that as weakness, not strength.

 

[FIGJAM]

You're right, it's hard to find an equivalent really. But adelaide metro includes Elizabeth and Salisbury. I don't know if you've ever been there but I would imagine that's fairly equivalent. Rest of adjacent isn't exactly the Riviera in terms of reputation either.

I am. Did high school in Adelaide for 5 years in the peak of the grunge era.

I know how ordinary Elizabeth and Salisbury are, but every joint has those suburbs. Adelaide has got a slice of Detroit; it's not the whole of Detroit!

Adelaide on the whole though has great weather, clean air, parks, the hills, wineries, beaches, good education etc. It's a top place to live and in my view, underrated based on the relative population growth for those who move to Australia. It's why it's always high on liveability ratings and multiplier of average income to average house prices.

 

[FIGJAM]

Interest rate cuts are years away.....this has been a speculative bubble for the ages and the crash will be a slow burn....let's enjoy the show.

Isn't a bubble bursting going to be sudden? A "slow burn crash" seems like an oxymoron.

If house prices don't move anywhere for 10 years, does that constitute a "bubble" or a "crash"? I'd have thought there would be some considerable trauma associated with these terms.

Simple math allows one to identify a bubble. A year 7 student would be able to do it.

The average median house price in Sydney is $1 600 000.

Assuming a modest 6% pa growth rate in prices will mean that in 10 years the median house is $2 800 000. Indeed, in 20 years the median price would be $5 100 000.

Just allow that to rattle around in your brain for a bit....those prices....at the same time as the government is actively trying to suppress wage growth.

If you believe those prices will manifest in 10 years and 20 years respectively, then I have a banana straightner for you to invest in.

The most likely scenario IMO is that interest rates continue to grind higher over time, accompanied by a falling Aussie dollar and eventually, a situation where population growth goes backwards as recent immigrants flee the country to escape crushing debts on properties that are worth 50% less than what they originally paid for.

The government will at some stage have to step in at some stage and allow debt relief/forgiveness once all the dust and smoke clears, but it will come at a cost to our reputation internationally and in terms of our dollar.

This is a tragedy unfolding - make no mistake about that.

You're making an assumption that prices incrementally go up consistently all the time. They don't and went backwards last year in most suburbs. They've been pretty steady this year, despite some modest positive uplift.

I'm old enough to remember the crash of 1991. That was the last bubble burst. After the crash, the 1990's barely saw much growth or decline at all. There were some green shoots in 1998.

Then the 2000's hit and there was a quick uplift from that time until now. A large driver of this is double incomes affecting serviceability. But there were heaps of flat times too 2004/5 were steady. The GFC hit. 2012/13 were flat and some expensive houses went backwards. Late 2017 to 2019 were dead. Early 2020 you could barely even sell a house before another boom and in the past two years, it's been subdued market that has been tempered by equally low supply.

I agree with your year 7 maths in the event that house prices go up 6% per annum on average and wages don't go up dramatically too. But my above year 7 maths and 25 years experience valuing houses would suggest that it's far more complicated than that oversimplification and I wouldn't be warming up the popcorn just yet, while you wait for the residential market to explosively shit itself.

 

[peetoo]

No doubt - the huge immigration rate at the moment is designed entirely to try and put a floor under prices.

However, I see that as weakness, not strength.

Biggest growth during covid when the net population went down

 

[evolved2]

Biggest growth during covid when the net population went down

In fairness, all asset classes pumped during covid. The money printer is a miracle worker.

 

[evolved2]

Another poster said it elsewhere, and I agree. Our economy depends on the property market Ponzi, and the Ponzi will be propped up as long as humanly possible by our pollies.

I've given up on any hope of a property crash in the short to mid term.

 

[greyhound punter]

Isn't a bubble bursting going to be sudden? A "slow burn crash" seems like an oxymoron.

If house prices don't move anywhere for 10 years, does that constitute a "bubble" or a "crash"? I'd have thought there would be some considerable trauma associated with these terms.


You're making an assumption that prices incrementally go up consistently all the time. They don't and went backwards last year in most suburbs. They've been pretty steady this year, despite some modest positive uplift.

I'm old enough to remember the crash of 1991. That was the last bubble burst. After the crash, the 1990's barely saw much growth or decline at all. There were some green shoots in 1998.

Then the 2000's hit and there was a quick uplift from that time until now. A large driver of this is double incomes affecting serviceability. But there were heaps of flat times too 2004/5 were steady. The GFC hit. 2012/13 were flat and some expensive houses went backwards. Late 2017 to 2019 were dead. Early 2020 you could barely even sell a house before another boom and in the past two years, it's been subdued market that has been tempered by equally low supply.

I agree with your year 7 maths in the event that house prices go up 6% per annum on average and wages don't go up dramatically too. But my above year 7 maths and 25 years experience valuing houses would suggest that it's far more complicated than that oversimplification and I wouldn't be warming up the popcorn just yet, while you wait for the residential market to explosively s**t itself.

All financial crisis' are caused by, essentially, the same thing. People assume what has happened over the previous 10 to 15 years will continue into infinity and position themselves accordingly - even as the ground is changing beneath their feet.

How much more complicated is it? Enlighten me. If housing goes up 6% (on average) year in and year out - then 10 years from now the median house price in Sydney will be $2 800 000 - in 20 years - over $5 000 000.

Time to nail your colours to the mast - do you think median prices will be at that level? Yes or No?

 

[greyhound punter]

Another poster said it elsewhere, and I agree. Our economy depends on the property market Ponzi, and the Ponzi will be propped up as long as humanly possible by our pollies.

I've given up on any hope of a property crash in the short to mid term.

Indeed it does - but there is always a complication or two along the way. Anyone buying into one of the greatest housing bubbles of all time under the assumption that the government won't let it fall really deserves everything they get.

 

[peetoo]

Nobody is ‘buying in’ these are our homes which are protecting our wealth against future knocks/inflation/misfortune

If it become a less attractive investment option that’s a good thing surely, the balance is way off.

Apartments, property are being designed for investment not people. Its a crock.

 

[Madas]

All financial crisis' are caused by, essentially, the same thing. People assume what has happened over the previous 10 to 15 years will continue into infinity and position themselves accordingly - even as the ground is changing beneath their feet.

How much more complicated is it? Enlighten me. If housing goes up 6% (on average) year in and year out - then 10 years from now the median house price in Sydney will be $2 800 000 - in 20 years - over $5 000 000.

Time to nail your colours to the mast - do you think median prices will be at that level? Yes or No?

Try using 2-3 % as an average capital growth over 20 years
It provides much more realistic outcomes when speculating

 

[FIGJAM]

All financial crisis' are caused by, essentially, the same thing. People assume what has happened over the previous 10 to 15 years will continue into infinity and position themselves accordingly - even as the ground is changing beneath their feet.

How much more complicated is it? Enlighten me. If housing goes up 6% (on average) year in and year out - then 10 years from now the median house price in Sydney will be $2 800 000 - in 20 years - over $5 000 000.

Time to nail your colours to the mast - do you think median prices will be at that level? Yes or No?

I'm not a soothsayer, so I don't know, but using history as a guide, I've already outlined what are the usual patterns are and why the first quarter of this century has had particularly sharp rises in values.

As I said, the sharp rises early this century has been significantly driven by dual incomes. Prior to that in the later 20th century, my generation had a heap off Mums that were stay at home and/or did part time work on the side.

After a boom in the late 1980's and sharp price rises, the market crashed and remained pretty steady for a decade. There's no reason why the market can't stay still for some time, or increase at an average level at far less than the 6% that you keep quoting (which would be my guess).

Other major drivers are of course the fact that in the likes of the east coast capitals, there has been a significant increase in population. And it's continuing to increase as we speak and we have a large percentage of our immigrants being wealthy.

Mapped: The Migration of the World’s Millionaires in 2023

You can't print more houses with with land in good areas, so the demand is perennially supported by low supply.

Our planning doesn't help, as we've basically permitted high density development in secondary urban areas and left the accommodation mix to developers and developer agents, who naturally gravitate to what is quickly saleable (ie. 1 and 2 bedders). Having been to Singapore recently, they've instilled smart planning regulations that see lots of family sized apartments built.

Right now, we're seeing a heap of micro lots on the greater Melbourne fringe so that people can build houses. This phenomena is happening because people need family accommodation and they can't afford houses in inner, apartments in inner melbourne, or even houses on larger land areas of established stock in the middle to near-outer suburbs.

I haven't seen any change in planning sentiment on this front, so we will continue to see houses, townhouses and family-sized apartments in areas that people want to live be in undersupply.

For a crash / bubble burst to happen, you need a lot of variables to go the wrong way. And yes, we're in a perilous position with regards to affordability, mortgage stress, more inflation from wars, weakening economy etc., but we also have a lot going right at the minute by way of strengthening demand for limited supply. There's a reason Corelogic are reporting (modest) month on month increases in house prices this year.

 

[greyhound punter]

I'm not a soothsayer, so I don't know, but using history as a guide, I've already outlined what are the usual patterns are and why the first quarter of this century has had particularly sharp rises in values.

As I said, the sharp rises early this century has been significantly driven by dual incomes. Prior to that in the later 20th century, my generation had a heap off Mums that were stay at home and/or did part time work on the side.

After a boom in the late 1980's and sharp price rises, the market crashed and remained pretty steady for a decade. There's no reason why the market can't stay still for some time, or increase at an average level at far less than the 6% that you keep quoting (which would be my guess).

Other major drivers are of course the fact that in the likes of the east coast capitals, there has been a significant increase in population. And it's continuing to increase as we speak and we have a large percentage of our immigrants being wealthy.

Mapped: The Migration of the World’s Millionaires in 2023

You can't print more houses with with land in good areas, so the demand is perennially supported by low supply.

Our planning doesn't help, as we've basically permitted high density development in secondary urban areas and left the accommodation mix to developers and developer agents, who naturally gravitate to what is quickly saleable (ie. 1 and 2 bedders). Having been to Singapore recently, they've instilled smart planning regulations that see lots of family sized apartments built.

Right now, we're seeing a heap of micro lots on the greater Melbourne fringe so that people can build houses. This phenomena is happening because people need family accommodation and they can't afford houses in inner, apartments in inner melbourne, or even houses on larger land areas of established stock in the middle to near-outer suburbs.

I haven't seen any change in planning sentiment on this front, so we will continue to see houses, townhouses and family-sized apartments in areas that people want to live be in undersupply.

For a crash / bubble burst to happen, you need a lot of variables to go the wrong way. And yes, we're in a perilous position with regards to affordability, mortgage stress, more inflation from wars, weakening economy etc., but we also have a lot going right at the minute by way of strengthening demand for limited supply. There's a reason Corelogic are reporting (modest) month on month increases in house prices this year.

You've written a lot without saying anything of value.

Housing price growth post gfc is almost entirely speculative imo. Prior to this, as you correctly point out, the introduction of double incomes and improving living standards can largely explain house price growth, along with deregulation in the banking system.

My issue is with growth post gfc. This is the area I'm interested in. This is the area that I believe is largely speculative.

GDP per capita and take home pay has been flat/declining during this period - hence any growth in prices has imo been almost entirely due to lower and lower interest rates and poor lending standards.

This is only my opinion of course. I could well be wrong. One thing I will say is this: the permahousing bulls get very antsy to anyone that dares to question that housing may be overvalued.

Seems incongruent with their stated confidence in housing as an asset class.

 

[greyhound punter]

Try using 2-3 % as an average capital growth over 20 years
It provides much more realistic outcomes when speculating

A 2-3% annual return is shithouse - it is just covering the historical rate of CPI.

 

[FIGJAM]

Housing price growth post gfc is almost entirely speculative imo. Prior to this, as you correctly point out, the introduction of double incomes and improving living standards can largely explain house price growth, along with deregulation in the banking system.

My issue is with growth post gfc. This is the area I'm interested in. This is the area that I believe is largely speculative.

GDP per capita and take home pay has been flat/declining during this period - hence any growth in prices has imo been almost entirely due to lower and lower interest rates and poor lending standards.

This is only my opinion of course. I could well be wrong. One thing I will say is this: the permahousing bulls get very antsy to anyone that dares to question that housing may be overvalued.

Seems incongruent with their stated confidence in housing as an asset class.

Post GFC we've also had a population increase in Melbourne of over 1.5 million people. That's as tangible as the dual income driver in the early 2000's.

I don't especially care if prices fall or rise one way or the other. I own a house with a mortgage, no investments, no speculation. I'll be paying the same mortgage no matter what.

The reality is that prices went backwards last year, so I'm not sure why you're "antsy". Was the correction not spectacular enough for you? Why do you and Steve Keen barrack a circa 1991 crash?

 

[Kwality]

The supply side of housing is in a world of trouble:

Industry hit by faltering energy transition

Boral is having to regularly wind back production when power prices spike, showing the toll that Australia’s stumbling energy transition is taking on manufacturing.

www.afr.com

'The stuttering energy transition is forcing big industrial companies like Boral to temporarily shut down cement production to avoid peak electricity prices, putting at risk the nation’s build-out of housing and infrastructure stock.

Boral’s electricity price rose by 54 per cent in the 12 months to the second half of last year, and have not retreated, counter to expectations.

He said Boral had about 5500 “blue collar” workers who were being told to stand aside and do nothing for 30 minutes at a time when power prices made it too expensive to operate.'

“At a certain price during the day, when the price goes up [to] a certain level, our manufacturing stops because we’ve worked out economically it’s actually better to have thousands of people waiting idle for the prices to come down then actually do the work,” he said.

“That’s a real issue we are facing every single day on 300 manufacturing sites across the country.'

 

[greyhound punter]

Post GFC we've also had a population increase in Melbourne of over 1.5 million people. That's as tangible as the dual income driver in the early 2000's.

I don't especially care if prices fall or rise one way or the other. I own a house with a mortgage, no investments, no speculation. I'll be paying the same mortgage no matter what.

The reality is that prices went backwards last year, so I'm not sure why you're "antsy". Was the correction not spectacular enough for you? Why do you and Steve Keen barrack a circa 1991 crash?

Because high property prices are destroying our economy - they offer no tangible benefit to an economy other than making people feel "rich" when they go to bed at night and can feel warm and fuzzy at their "paper value".

An example as such: I am booked in to see a medical specialist in a few weeks. The consultation fee: $400. A Medicare rebate of $80. It is my first booking with this practitioner and I recieved a welcome email after making the booking outlining prices etc.

I was referred to this practitioner by another practitioner of the same speciality - this person trained the doctor I was being referred to.

The original doctor (40+ years of experience) charged me $200 ($80). The doctor I am going to see is charging, as I said above, $400 ($80 rebate), despite being less experienced etc.

The reason for the discrepancy - a large % being due to the inflated property prices the new practice had to pay to get the medical business up and running.

A perfect illustration of why high property prices stifle business and innovation.

It also illustrates why inflation and interest rates have still got a hell of a lot more upside potential then downside.

I have said previously, immigration can work for and against property prices. They will just as quickly flee bad debts if the economy and prices tank. History shows this.

I want a huge housing crash because in the long run it will benefit our economy and standard of living.

The doctor scenario illustrates my point perfectly.

 

[Kwality]

Because high property prices are destroying our economy - they offer no tangible benefit to an economy other than making people feel "rich" when they go to bed at night and can feel warm and fuzzy at their "paper value".

An example as such: I am booked in to see a medical specialist in a few weeks. The consultation fee: $400. A Medicare rebate of $80. It is my first booking with this practitioner and I recieved a welcome email after making the booking outlining prices etc.

I was referred to this practitioner by another practitioner of the same speciality - this person trained the doctor I was being referred to.

The original doctor (40+ years of experience) charged me $200 ($80). The doctor I am going to see is charging, as I said above, $400 ($80 rebate), despite being less experienced etc.

The reason for the discrepancy - a large % being due to the inflated property prices the new practice had to pay to get the medical business up and running.

A perfect illustration of why high property prices stifle business and innovation.

It also illustrates why inflation and interest rates have still got a hell of a lot more upside potential then downside.

I have said previously, immigration can work for and against property prices. They will just as quickly flee bad debts if the economy and prices tank. History shows this.

I want a huge housing crash because in the long run it will benefit our economy and standard of living.

The doctor scenario illustrates my point perfectly.

Wanting a price crash is quite different to it happening, then being sustained.
Great post

 

[greyhound punter]

Wanting a price crash is quite different to it happening, then being sustained.
Great post

The first leg down is never the one that breaks a market's back. If we get another leg down, in conjunction with rising interest rates and rising sale volume, then we will have a ball game and the fun will begin.

It is just a matter of time

 

[Kwality]

The first leg down is never the one that breaks a market's back. If we get another leg down, in conjunction with rising interest rates and rising sale volume, then we will have a ball game and the fun will begin.

It is just a matter of time

Shortage of stock working against it & very hard to see attempts to build more, delivering.

 

[greyhound punter]

Shortage of stock working against it & very hard to see attempts to build more, delivering.

Shortage of stock if the current immigration rate continues unabated.

My theory is basically that Albanese had been briefed that Auatralia's housing market would collapse unless he opened the borders to such an unprecedented amount of immigration.

To me it reeks of desperation....it shows the writing is on the wall....of course this immigration will delay proceedings. But it is only a delay.

 

[FIGJAM]

Because high property prices are destroying our economy - they offer no tangible benefit to an economy other than making people feel "rich" when they go to bed at night and can feel warm and fuzzy at their "paper value".

An example as such: I am booked in to see a medical specialist in a few weeks. The consultation fee: $400. A Medicare rebate of $80. It is my first booking with this practitioner and I recieved a welcome email after making the booking outlining prices etc.

I was referred to this practitioner by another practitioner of the same speciality - this person trained the doctor I was being referred to.

The original doctor (40+ years of experience) charged me $200 ($80). The doctor I am going to see is charging, as I said above, $400 ($80 rebate), despite being less experienced etc.

The reason for the discrepancy - a large % being due to the inflated property prices the new practice had to pay to get the medical business up and running.

A perfect illustration of why high property prices stifle business and innovation.

It also illustrates why inflation and interest rates have still got a hell of a lot more upside potential then downside.

I have said previously, immigration can work for and against property prices. They will just as quickly flee bad debts if the economy and prices tank. History shows this.

I want a huge housing crash because in the long run it will benefit our economy and standard of living.

The doctor scenario illustrates my point perfectly.

Hang on a second, you'll be pleased to hear that commercial property has gone through something of a crash this decade!

Presumably the medical specialist is setting up in an office or retail space, both of which have been decimated as a result of COVID, both in terms of vacancies, rents paid and increased incentives (such as fitout contributions, rent free periods etc.). How come this hasn't had a negative impact on the fee charged?

Your post is kinda like my main complaint with the current cost of living issues; $15 pints. I want to pay $10 max! Sure, I could find joints that have specials going and/or downgrade from wankier craft beer, but that's often not an option and at my age, I'm not drinking shit beer or wine.

I've found myself going out a lot less as a result of the cost of hospitality. But in my perennial quest for considerably cheaper pints, the one thing I haven't done is once pose myself the following scenario; "You know what will make this beer cheaper? A housing market price collapse!".

You'd have to completely ignore the pub rental market, cost of transport, cost of production, cost of staff, cost of servicing the joint etc. and I'm not sure exactly how big a driver house values falling by a couple of hundred grand would have on the cost of a humble pint. I'd imagine that it's two fifths of **** all and I note that prices of pints went up last year despite the broader housing market going backwards in value by 5.3% in 2022 (Source: CoreLogic).

 

[FIGJAM]

Shortage of stock if the current immigration rate continues unabated.

My theory is basically that Albanese had been briefed that Auatralia's housing market would collapse unless he opened the borders to such an unprecedented amount of immigration.

To me it reeks of desperation....it shows the writing is on the wall....of course this immigration will delay proceedings. But it is only a delay.

This isn't what has happened at all!

Visa allocations did not stop over the height of the COVID restrictions and they've been broadly consistent, yet we had a negative net migration over 2020 and 2021.

Student fled the country enmasse and most people who got visas whilst overseas sat fat where they were, as our restrictions and ease/cost of relocation through 2020/21 made coming here problematic until the borders reopened.

Once the confidence in coming here was returned after the global Omnicron blitz, people have moved here in droves, creating the current imbalance, that you've mistaken as a deliberate decision by Albo who's sitting there at some 'migration taps' that he's turned on full bore!

In 2020/21, you could rent 2 bed/2 bath apartment in a good building in the CBD for $300 per week. Those very same apartments after the rebound in students returning is now $725 per week.

I note that the prices of pints went up in the CBD irrespective of the cost of rent.

Similarly, the non-student migration market, which includes new migrants, returning visa holders and Victorian COVID refugees who moved to Noosa before realising that living there long term is a bit boring, has seen the rental market boom and has helped with the relative stability of house prices.

If this migration wasn't there, you'd get your wish of falling house prices right now, no doubt about that. But the strategic migration policy is infinitely less to do with house price stabilisation / increases and more to do with the aging population issues that we and much of the world face.

 

[Kwality]

Your post is kinda like my main complaint with the current cost of living issues;

 

[peetoo]

Finances and ‘crisis’ follow demographics.

Japan and Italy are shrinking particularly in some areas

Property flatlines some time ago there

 

[DangerousD]

All financial crisis' are caused by, essentially, the same thing. People assume what has happened over the previous 10 to 15 years will continue into infinity and position themselves accordingly - even as the ground is changing beneath their feet.

How much more complicated is it? Enlighten me. If housing goes up 6% (on average) year in and year out - then 10 years from now the median house price in Sydney will be $2 800 000 - in 20 years - over $5 000 000.

Time to nail your colours to the mast - do you think median prices will be at that level? Yes or No?

A few things.

Continual price growth for housing isn’t confined to the last 10-15 years, it goes back a lot longer than that.

I will nail my colours to the mast and say that the median prices wont be at those levels.

But what i think will happen and i see it in most suburbs of Melbourne, is the size of the land the house sits, is shrinking, density is rising, so whilst median house prices may stay the same, the cost per sq metre will increase And the number of dwellings will increase.

In nearly every street of my suburb, houses are getting knocked down with two or more built in their place, by completion both houses are selling for the same price as the single dwelling recently sold for.

Living in London which has a median of just over half a million pounds, doesn’t sound vey expensive, but the size of these places is tiny, the land is tiny and what you can get for that money gradually becomes less and less,

For as long as population increases, unless there’s government intervention, house prices will too.