There have been discussions that house prices cannot remain flat in “real” CPI adjusted terms because we are earn much more in “real” terms today that few decades ago. I agree that CPI adjusted prices should not be flat because CPI adjustment does not reflect standard of living improvements over time. House prices should follow more realistic measures of our improved wellbeing.
Chart 1 shows house prices in “real” (CPI adjusted) terms as well as growth of our real per capita GDP and per household GDP. These measures are one of few only with long historical series that could be used for price “trend” estimation.
Real per capita GDP is good measure because real GDP by itself ignores the fact that more than twice as many people contribute to GDP today compared to 50 years ago. On the other hand, houses are asset needed and owned by households, not the individual persons. In addition, number of homes is closely following number of households. For these reasons, real GDP per households seems to be better measure of the increased ability of households to spend money on home.
From the chart you may see that “real” (CPI adjusted) house prices followed real GDP per household with only few smaller property bubble events in mid 70s and late 80s. Prices returned toward the real GDP per household trend soon after. Since late 90s, house prices significantly deviated from real GDP per household trend. This deviation is strong indication that we are currently experiencing big housing bubble that is not supported by fundamentals.
This chart could give us a feel how much our homes are overvalued - inflated beyond historical and fundamental trend and what level of correction we may expect in near to mid future. Correction may happen with slow deflation in real terms or quick crush. It could be even combination like it was in 1990s when prices fell quickly by 10% in “real” terms and than stagnated while real GDP per household increased.
I have been saying it for years - all items simply must rise in line with CPI or GDP! This proves my other thesis of the greatest bubble in the world - and its right here in Australia. Check it out!!!
I predict cigarette prices to "crash" by 40% (real) at a minimum!.
My other prediction, is the great computer hardware boom. Check out the price of computers over the past ten years. Now we know everything must rise with GDP / CPI, so the analysis is simple. Buy as many Commodore 64 computers you can get your hands on and sit back and enjoy the ride...
I have been saying it for years - all items simply must rise in line with CPI or GDP! This proves my other thesis of the greatest bubble in the world - and its right here in Australia. Check it out!!!
I predict cigarette prices to "crash" by 40% (real) at a minimum!.
My other prediction, is the great computer hardware boom. Check out the price of computers over the past ten years. Now we know everything must rise with GDP / CPI, so the analysis is simple. Buy as many Commodore 64 computers you can get your hands on and sit back and enjoy the ride...
you think you are smart? :lol:
as expected, you are not able or willing to consider other factors that affect prices
- in first case - you are missing the fact that tobacco market is not free - by any mean if government decides to control house prices the same extent they do control tobacco prices I will be the first one to say that prices will not fall, fortunately we live in relatively free country where government doesn't control house prices (by significant extent)
- in second case - you are missing technological advancements (increase in productivity) as you probably know technology for house construction didn't change significantly over the last few decades. We built houses slightly more efficiently today but that effect is offset by the fact that we are building bigger houses
so both of your "arguments" are at preschool child level and as expected wrong
1. Houses are larger and better appointed than 60 years ago (media rooms, 2.5 indoor dunnies instead of an outdoor one etc)
2. Government imposes larger taxes on housing development than 60 years ago.
3. As the real cost of other goods decreases, people have more disposable income left over for housing.
4. Banks are more willing to recognise dual incomes when assessing serviceability.
1. productivity of home building increased to cover increase in house size. Appliances are cheaper - see your point 3 and decrease in block size is so significant that house prices should be much cheaper.
2. This may be true for 60 years ago but clearly not for period 15 years ago when prices were not high (house price deviation from trend happened in the period when this was not true)
3. So, yes, other goods are cheaper but we are buying so much of them that actually even less is left for houses. ABS claims that our consumption of other goods increased even more than real GDP per capita growth.
4. Banks are more willing to lend irresponsibly, there is lower share of dual income households today than 10-15 years ago, but banks are willing to borrow more - so, yes, irresponsible lending is the main cause of this bubble and as in all other instances irresponsible debt bubbles always end badly.
BTW. Deviation from the trend happened 15 years, not 60 years ago so you should be finding reasons why house prices are so much higher now than during period before latest deviation from the trend.
~40% in "real" terms fall seems very likely ~25% seems to be minimum
~40% in "real" terms fall seems very likely but I doubt it will be the bottom. A 40% fall still leaves property grossly overvalued.
People generally still view property as a financial asset but this this mentality will change as losses mount. At the bottom property will be seen for what it really is: a depreciating asset on a not so rare commodity (land). Bulls view the future based on the conditions they have been used to for many years and are unable to understand that society and it's favourite money making scheme change.
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