Welcome Guest [Log In] [Register]


Reply
Far from slowing, the housing market is accelerating. Why Australian house prices will keep surging.; You need to save $88,000 per year in Sydney just to keep up with house price growth
Topic Started: 4 Nov 2014, 07:28 PM (475 Views)
Admin
Member Avatar
Administrator

Quote:
 
Why house prices will keep surging

Adam Carr

It’s been confirmed! Far from slowing, the property market is accelerating, and that’s despite the considerable jawboning efforts of the Reserve Bank of Australia.

The actual result is a little lower than what RP Data’s daily index implied, but it’s still impressive. Taking that result, it looks as though house prices surged an annualised 11.4% in the second-half of 2014, a marked pick-up from the 6.6% rate we saw in the first half of 2014.

Now, while it’s probably true to say that there is a sizeable difference in performance between the major capital cities, it’s not all that helpful to obsess about that. As chart 1 shows, total returns, outside of Canberra perhaps, are very attractive relative to the cost of debt. I mean you can borrow at less than 5%, and while property prices in, say Perth, may not be going gangbusters – down 0.1% in the month and only 3.4% higher annually – your total return (which includes rent) is still nearly 3% above what you pay to borrow. That’s the benefit of a 4.2% rental yield. You can’t even get that on a bank deposit!

Looking elsewhere, the spread of your total return to borrowing costs (i.e. the difference between what it costs to borrow and the return you get on that from property) is much more favourable and rises to 12.6% in Sydney. This is important, because left unchecked house price inflation creates its own momentum. That’s especially the case when:

Interest rates are on hold and;
Household debt servicing is low – the lowest in about a decade.

Low debt servicing means that households can take on more debt -- there is no point in highlighting record debt levels when the cost of servicing that debt is so low. It’s meaningless.]

Posted Image

At the same time all that’s happened, there is another concerning development. Building approvals have slumped. Numbers released by the ABS show approvals fell 11% in September, which is the biggest fall in over two years. Ok, the numbers are lumpy and the 11% fall we saw in September follows two months of gains – around 5.6% on a cumulative basis.

Yet over 2014 so far, approvals have declined, on average, by 0.8% per month. Don’t forget that this is a market that the RBA’s Head of Financial Stability [Luci Ellis] described as being a long way from excess (in building) -- a long way. Yet the approvals numbers suggest housing construction is already set to ease.

Posted Image

That’s not a trend we can put down to volatility, notwithstanding the fact that the 11% fall was driven by a 22% drop in approvals for apartments. That may correct next month, but even if it does it’s unlikely to change the direction approvals are heading. Even prior to the September result it was clear that approvals for apartments were waning: with an average lift of only 0.5% per month, down sharply from 3.6% growth we saw in 2013.

For detached housing the results are even worse. Approvals here have declined in three of the last four months (six of the last nine) -- for an average fall of 0.7% per month. There is a clear downtrend in place here, with approvals for this component down nearly 5% from a peak in January.

On that basis, I think it’s a little flippant to regard housing as an ‘irrational obsession’. On current policy it is entirely reasonable for would-be owner-occupiers to be concerned about missing out -- while for investors, the math is obvious. There is a clear failure of policy here -- interest rates are at their lowest in a generation and we’re still not building enough houses. Worse, what construction activity we have seen is already showing signs of slowing. Indeed, the only success policymakers seem to have had in trying to jawbone the investor market is to spook developers.

For would-be owner-occupiers there is only one thing to consider. In Sydney and Melbourne, you’re going backwards waiting for the housing market to crash in the hope of buying in at cheaper levels.

You need to save $88,000 per year in Sydney just to keep up. In Melbourne, that’s about $50,000. Yet, in both cases, that’s well above the capacity of most. The average annual wage is roughly $75,000. While the other capital cities appear to be lagging somewhat at this point, it’s only a matter of time before they catch up (in terms of price growth).

Debt servicing is low, debt levels are low for most households, and the labour market is improving. Relative value ensures that investors will soon cast their gaze to the other capitals.

Read more: http://www.businessspectator.com.au/article/2014/11/4/property/why-house-prices-will-keep-surging
Follow OzPropertyForum on Twitter | Like APF on Facebook | Circle APF on Google+
Profile "REPLY WITH QUOTE" Go to top
 
Guest
Unregistered

This article demonstrates the point that John Frum misses. I mean no disrespect to John, I've been in a similar position in the past and it frustrated the crap out of me.
"REPLY WITH QUOTE" Go to top
 
1 user reading this topic (1 Guest and 0 Anonymous)
« Previous Topic · Australian Property Forum · Next Topic »
Reply



Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.

Forum Rules: The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.

Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.

Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.

This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.

For more information go to Limitations on Exclusive Rights: Fair Use

Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ

Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy