It did go to air on the 16th May, so apologies if this important chart has already been discussed.
Based on the latest data from numerous highly regarded sources (the ABS in the case of Australian data), the good people at The Economist have created an impressive global house price index interactive trend chart covering the years 1975 - 2013.
Several initial observations:
*Australian house prices against average income accelerated dramatically (literally vertically) above the long term average for the 2002-2004 period, and have not come back to earth since. *Australian house prices against rents also accelerated dramatically above the long term average for the 2002-2004 period, and have not come back to earth since. *Australian house prices in real terms - ditto *Lower incomes or not, US property is still much much better value against average income than Australian property
It did go to air on the 16th May, so apologies if this important chart has already been discussed.
Based on the latest data from numerous highly regarded sources (the ABS in the case of Australian data), the good people at The Economist have created an impressive global house price index interactive trend chart covering the years 1975 - 2013.
Several initial observations:
*Australian house prices against average income accelerated dramatically (literally vertically) above the long term average for the 2002-2004 period, and have not come back to earth since. *Australian house prices against rents also accelerated dramatically above the long term average for the 2002-2004 period, and have not come back to earth since. *Australian house prices in real terms - ditto *Lower incomes or not, US property is still much much better value against average income than Australian property
If it doesn't burst then, I'll buy every bull on the forum a pint.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
*Australian house prices against average income accelerated dramatically (literally vertically) above the long term average for the 2002-2004 period, and have not come back to earth since. *Australian house prices against rents also accelerated dramatically above the long term average for the 2002-2004 period, and have not come back to earth since. *Australian house prices in real terms - ditto
So you're saying Australian prices finally dragged themselves off the floor ten years ago, and have now sustained current levels for a decade.
Quote:
Lower incomes or not, US property is still much much better value against average income than Australian property
Price to income ratios in the USA are lower than in Australia, but you can't tell that from The Economist charts.
You can tell using Numbeo, which shows the USA has the lowest price/income ratio in the whole world (out of 103 countries analysed).
Australia is in the middle of the pack globally...
25.4 Singapore 25.0 China 24.8 Indonesia 23.7 Hong Kong 19.8 Morocco 17.7 Thailand 16.4 Philippines 15.5 Taiwan 13.8 Vietnam 13.3 Brazil 12.6 Italy 12.0 Russia 11.6 Greece 11.5 South Korea 11.2 Egypt 10.3 Israel 10.0 India 9.5 Spain 9.4 Finland 8.5 Austria 8.4 Sweden 8.4 France 8.1 Australia 8.0 Portugal 7.2 Norway 7.0 Japan 7.0 Denmark 6.8 Belgium 6.7 United Kingdom 6.7 Luxembourg 6.7 Malaysia 6.4 New Zealand 6.3 Netherlands 6.2 Switzerland 6.0 Iceland 5.3 Ireland 5.1 Canada 4.8 Germany 3.2 South Africa 2.2 United States
It did go to air on the 16th May, so apologies if this important chart has already been discussed.
Based on the latest data from numerous highly regarded sources (the ABS in the case of Australian data), the good people at The Economist have created an impressive global house price index interactive trend chart covering the years 1975 - 2013.
Several initial observations:
*Australian house prices against average income accelerated dramatically (literally vertically) above the long term average for the 2002-2004 period, and have not come back to earth since. *Australian house prices against rents also accelerated dramatically above the long term average for the 2002-2004 period, and have not come back to earth since. *Australian house prices in real terms - ditto *Lower incomes or not, US property is still much much better value against average income than Australian property
It looks impressive until you factor in the real bubbles of Spain, Ireland, and South Africa.
When you take into consideration that prices in the USA are rising strongly, and even prices in Ireland are gaining. In Dublin they rose over 8% in the last 12 months.
My views are that some decades ago governments worldwide moved away from proper wealth redistribution policies, and so ever more wealth is accumulating in ever fewer pockets, and this is what happens in that environment. Governments have substituted tiny Band-Aids to keep people happy for genuine long term solutions. Taxes such as death duties are very unpopular, so we get the government that we deserve.
It's basically every man for himself in a time of uncertainty, but has it ever been certain.
Any expressed market opinion is my own and is not to be taken as financial advice
No not at all. You might be mistaking price for affordability..
Affordability is a function of price, household disposable income, interest rates, and how much banks are willing to lend.
Quote:
Against the historical average, affordability is in an obvious bubble.
My view is that price to income ratios experienced a one-time increase during the late 90s and early 2000s as banks became more willing to lend based on dual incomes, household incomes rose in real terms, and interest rates fell to a new lower structural level than was prevalent during the previous two decades.
This one-time shift in the price/income ratio finished around 2003, and since that time, price/income ratios have been fairly steady at their new level for a decade now. Although the price/income ratio is now higher than it used to be, the ability to afford a home hasn't really changed, because interest rates are lower, and banks are more willing to lend higher amounts based on dual incomes.
My view is that price to income ratios experienced a one-time increase during the late 90s and early 2000s as banks became more willing to lend based on dual incomes, household incomes rose in real terms, and interest rates fell to a new lower structural level than was prevalent during the previous two decades.
This doesn't add up, and it's due to how sudden the rise was in the affordability index. The rise in the index was near vertical for about 2 or 3 years (2002 - 2004) and has since danced about well over the long term average. This is best viewed through looking at the 'Prices Against Income' tab, and looking at Australia alone between 1975 and today.
No doubt, lending standards for housing became very loose at the turn of the new millenium, but if it was really due to dual incomes we would see a much more gradual increase corresponding closer to female participation rates in the workforce.
Quote:
This one-time shift in the price/income ratio finished around 2003, and since that time, price/income ratios have been fairly steady at their new level for a decade now. Although the price/income ratio is now higher than it used to be, the ability to afford a home hasn't really changed, because interest rates are lower, and banks are more willing to lend higher amounts based on dual incomes.
I understand the point you are making, but once again I bring it back to FHB's whom are meant to be the main growth engine for the purchase of boomer property. We have seen Government policy intervention in this area again and again through FHB grants, and this is because the amount required for a deposit is simply out of reach. It's not affordable. In addition to your other point, relying on interest rates staying at the level they are at now for any length of time is a very dangerous tactic for a first home buyer, especially when lack of affordability is where it is and underemployment is on the increase.
We’re lucky here that we have all these smart economists who can tell all these stupid Asians how to really run an economy.
The stupid Chinese with their stupid government could really benefit from a course in Australian economics!
Any! Nah! We’ll be right! All we gotta do is get the RBA to keep lowering interest rates and for the governments to run massive deficits. That way we’ll get consumption going and all those retail shops really flying! With that the coffee shops and restaurants will keep booming. All the Westfields will be really humming.
Then we can employ more public servants to create more rules, regulations and thought control legislation. The new regulations will require supervision and enforcement which will require more public servants. Of course this also results in private sector employment as the private sector employs people to ensure conformity with the new regulations. This all then creates a positive feed-back loop into the coffee shops and restaurants!
With all this new prosperity we can then all go and buy new SUVs to keep all those shiny new car dealerships spit and polished!
Automatically from all this we get BOOM! BOOM! BOOM! in Sydney/Melbourne/Canberra Real Estate. Bloody bewdy!
That’s how life’s meant to be for us Aussies. We deserve it!
Lucky nobody here knows about Current Account Deficits and their implications so we can ignore that! We are running out of mines to sell to cover the CAD but look at all the rural land we still have to sell! Our farmers are getting too bloody old anyway!
In a spirit of good-will we can bring Wayne Duck back out of retirement to advise all these stupid Asians how they can run their economies like ours. In a spirit of bi-partisanship we’ll team him up with Andrew Robb. Wow! What a team!
So no worries mate! It’s no wonder the world loves us.
if it was really due to dual incomes we would see a much more gradual increase corresponding closer to female participation rates in the workforce.
It was in the late 90s and early 2000s that lenders finally started treating women equally and lending based on dual incomes.
Quote:
We have seen Government policy intervention in this area again and again through FHB grants, and this is because the amount required for a deposit is simply out of reach. It's not affordable
FHB grants are all but gone right now. House prices are rising and FHB numbers are increasing despite the disappearance of FHB grants.
Quote:
In addition to your other point, relying on interest rates staying at the level they are at now for any length of time is a very dangerous tactic for a first home buyer, especially when lack of affordability is where it is and underemployment is on the increase.
Expecting interest rates to go back up to 1980s levels any time soon is a more dangerous tactic for property bears.
Current interest rates are consistent with levels seen for most of the past 160 years...
This doesn't add up, and it's due to how sudden the rise was in the affordability index. The rise in the index was near vertical for about 2 or 3 years (2002 - 2004) and has since danced about well over the long term average. This is best viewed through looking at the 'Prices Against Income' tab, and looking at Australia alone between 1975 and today.
The Economist tool doesn't have an "affordability index".
FHBs tend to have small deposits and borrow most of the money to buy a house. Thus affordability for FHBs is about the cost of repayments compared to their incomes, rather than the price to income ratio (which is anyway no higher now than it was 10 years ago).
The following chart thus presents affordability for people who require an 80% loan which is very typical for FHBs. The chart shows the percentage of household disposable income required for the repayments. It therefore represents affordability for FHBs.
The chart is a little out of date and repayment costs have now fallen further.
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