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Australian House Prices Could Be About To Explode - NAB; Prices are currently way below household borrowing capacity, so no stretched conditions or bubble here
Topic Started: 3 Dec 2013, 08:36 AM (4,809 Views)
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NAB's Chief Economist Shares A Chart Showing House Prices Could Be About To Explode - But For One Thing

Greg McKenna Oct 29 2013, 4:38 PM 1

This spectacular chart by NAB Chief Economist Alan Oster shows the relationship between house prices and borrowing capacity, the ability to service loans, of Australians in the six capital cities.

Oster, as an econometrician, has built a model with the hypothesis that Australians love property and want to borrow as much as possible to buy a home. This would drive prices.

Not much room for argument there.

The model that results measures the deviation of house prices on average from a borrowing ability embedded in average lending standards across the market.

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Prices are currently way below household borrowing capacity, so no stretched conditions or bubble here.

The chart shows a lot of room for rises. House prices could be at the start of what could be an explosive move upwards.

Business Insider asked Oster what he thought the chart signalled and he said that there was no housing bubble, and:

It suggests if anything house prices could go up 12% on average across Australia (or 20% in Sydney) and it would just bring relationships back to historical norms (as per the early 1980s)

But he added an important caveat: a move like that “supposes consumers want to gear up like they used to. Clearly they don’t.”

Australian consumer behaviour has, at least for the moment, changed.

At the Customer Owned Banking Association conference in Melbourne, Oster also showed a chart of the stickiness of the household savings rate since the GFC which, taken with this housing story, paints a picture of Australian households still hunkered down and wary of debt and spending.

Once the economic sunshine comes out again – or at least if Australian families feel more relaxed about borrowing more – that’s when house prices might really rocket.

Read more: http://www.businessinsider.com.au/nabs-chief-economist-shares-a-chart-showing-house-prices-could-be-about-to-explode-but-for-one-thing-2013-10
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newjez
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I'm sure similar analysis was done before the GFC, the dot com boom, tulip mania just to mention a few. Numbers can convince you of anything. I would probably trust him more if he didn't work for a Bank.
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Black Panther
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Finally the secret that BP shared on this forum is out. This Upcycle will be the BIGGEST in the history of Australia.

No doubt NAB is positioning itself to lead from the financial side.

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mel
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I'm not about to rule it out, but if it happens it will be due to the fresh money coming in from the new arrivals. I agree many people aren't gearing up the way they used to and am quite surprised at the numbers people are able to borrow today. Who knows what might happen if the locals become pressured further.
Edited by mel, 3 Dec 2013, 10:00 AM.
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stinkbug
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It's still too soon, the GFC is still in peoples' minds. In 10 years it will all be a bad memory, and people will forget the lessons.

I expect property to at least double between now and 2030.
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mel
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stinkbug
3 Dec 2013, 10:28 AM
It's still too soon, the GFC is still in peoples' minds. In 10 years it will all be a bad memory, and people will forget the lessons.

I expect property to at least double between now and 2030.
there's also the whole 2.75% cash rate thing. I think the Count was correct yesterday when he said much of it depends on what will happen OS.

I wouldn't underestimate China though.
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stinkbug
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mel
3 Dec 2013, 10:34 AM
there's also the whole 2.75% cash rate thing. I think the Count was correct yesterday when he said much of it depends on what will happen OS.

I wouldn't underestimate China though.
Indeed.

The thing with China is that a lot of people think we are tied only to China. Now this is true to a degree, but our exports are gradually increasing to other countries. As places like India commence their transformation into a middle-class country (as China is now) demand will rise. There are also a number of other smaller countries going through the same thing.

Interest rates will throttle things for sure, but remember that rising rates means an economy that is growing strongly, with more money and opportunity flowing through.

EDIT: China represents about 20% of our total export market.
Edited by stinkbug, 3 Dec 2013, 11:03 AM.
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First home buyer affordability is as good as it has ever been

By Terry Ryder
Tuesday, 03 December 2013

One of oldest clichés in journalism is that they never let the facts get in the way of a good story. And we’re seeing that shallow principle in play daily as media hammer the myth that first-home buyers are being squeezed out of the market.

All the available facts say otherwise.

Last week two new reports were added to the great pile of evidence that affordability is particularly strong right now. Some of the regular indexes have affordability at its best in 10 years. The one published quarterly by the Commonwealth Bank and the Housing Industry Association showed further improvement in the September quarter, with all capital cities benefiting.

Financial ratings firm Canstar published research showing that while the national average mortgage is today four and a half times bigger than it was in 1990, affordability is much better today than then because interest rates are much lower and wages have risen. Repayments as a proportion of income are considerably lower than they were in 1990.

We can add that to the ABS report which found that average house prices, relative to average incomes, are today at the same level as they were in 1995; and to the affordability index published by the Adelaide Bank and the Real Estate Institute of Australia, which basically concurs with the Commonwealth Bank report.

The thing that appears to conflict with all that evidence is that first home buyer numbers are low at the moment. Far too many attention-seekers are leaping to the erroneous conclusion that the only possible explanation is that young people cannot afford to buy.

The real explanation has nothing to do with affordability. It has to do with choices. Many recent surveys have found that today’s twenty-somethings are not prioritizing home ownership the way previous generations did. They are opting for lifestyle and travel. Home ownership can wait.

The surveys indicate many young adults prefer to rent in an inner-city suburb rather than moving to the suburbs and taking on a mortgage. Some are renting in the city while getting on the property ladder by buying an investment property in a cheaper location, often a regional centre.

It’s a major demographic shift, similar to the one that has Australians delaying parenthood. We no longer live in a nation where young adults move automatically to marriage, children and a suburban mortgage.

But someone seeking a bit of media limelight can always generate some cheap publicity by declaring the ‘Great Australian Dream’ dead. Media will always run that and in a nation of 23.3 million people you can always found a twenty-something malcontent willing to have a public whinge about how hard it is to save a deposit.

Journalists seem to think we’re all desperate for news about the sad plight of the wannabe first home buyer. They apparently imagine Australians are gathered in pubs and homes across the country talking about nothing else. What else could explain their obsession for this story line?

I have to confess I’m not interested in first home buyers. Even at their peak they have never been a major force in real estate and their importance to the property market and to the nation is greatly over-rated.

Buying a first home today is what it has always been: really hard. It’s a massive commitment and you have to really want it. It takes compromise and sacrifice. If you want it badly enough, you’ll go get it. It has always been thus.

The nation offers owes everyone shelter. But no one has a divine right to own the shelter. And certainly no one has a right to achieve ownership in their dream location as a first purchase.

Read more: http://www.propertyobserver.com.au/first-home-buyers/first-home-buyer-affordability-is-as-good-as-it-has-ever-been
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Foxy
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Zero is coming...

i think they are correct, pent up demand.
Boom Baby???
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Mike
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Quote:
 
Financial ratings firm Canstar published research showing that while the national average mortgage is today four and a half times bigger than it was in 1990, affordability is much better today than then because interest rates are much lower and wages have risen. Repayments as a proportion of income are considerably lower than they were in 1990.


So property is more affordable now then in 1990.

Veritas needs to read this. Another bear myth destroyed. This is something Bulls have been trying to explain for sometime to bears.

Perhaps this few year window is the best time to buy a property in a 40-50 year cycle. The most affordable since 1990 (23 years) with prices rising and interest rates certain to rise some time in the next few years. Property may not be this affordable again for decades to come. Is that a risk worth taking, missing the most affordable period to buy a home in decades and perhaps for decades to come.
http://mike-globaleconomy.blogspot.com.au/
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