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- yeh compound 1% a month for a couple of years and you will be surprised what it comes out at! a friend was day late returning paperwork with their builder a few weeks back, so they kindly applied a $7500 price rise
Sometimes this forum reads like a tech stock forum circa 1999. Where are the fundamentals to support this insanity?
amazing to think the average Finnish home is the size of a typical 1 bed apartment in Australia.I live in a suburb where 80sqm apartments regularly sell for over $500K.
Whilst I have never heard of a Finnish real estate bubble, I very much doubt that the Finnish have even heard of Australian real estate!Sure, but many economists in the US and the UK have heard of the Australian real estate bubble, and cite our market as an example of how bad things can get.
If the index is 100, the household uses 25% of its gross income for loan servicing. The lower the figure, the better the household’s ability to buy a home.So with Helsinki at 51.3 the household is using around 13% of its gross income to service the loan. That doesn’t sound too unaffordable to me.
I have to say, I don’t recall seeing any economists warning about a Finnish real estate bubble, but I see plenty warning about a bubble in Australia.
The number you quote for Helsinki (51.3) is actually a ratio of house-price to loan-servicing-costs-per-month. The numbers for Australia, UK, USA etc are ratios of house-prices to incomes.
http://www.nordea.fi/eng/info/news/20050217.ASP?navi=yritysinfo&item=news
With rents at such low levels it could be said that renters are getting a free ride on the coat tails of homeowners.Do you think its possible the rents are reasonable and its the house prices that are high?!
I thought prices were declining in NSW though, or is that not correct? IF there is a bubble I understand it is deflating anyway.Growth in house prices have outstripped growth in incomes for 6-7 years now. House prices have to come back to the long-term trend line either by falling quickly or remaining flat for many years. I suspect a gradual, grinding decline is the most likely scenario.
Chart showing house prices vs incomes:
http://www.cis.org.au/policy/autumn05/autumn05-1_clip_image002.giffoundation asked:
Do you have any idea why Demographia does not seem to include the UK / Europe?I found some UK figures here:
http://news.bbc.co.uk/1/hi/programmes/inside_money/3132575.stmAdmittedly its a bit out of date (August 2003) but it shows that UK house-price-to-income ratios range from 2.3 (North East) to 4.8 (London). Certainly nothing like the 6-9 ratios seen in most Australian cities.
Can anyone find a country where housing affordability is worse than Australia?
Yes, the whole point of the Demographia website is to push their anti urban consolidation agenda (aka “Smart Growth”) but I don’t think that completely discredits their observations about Australian housing market. Their most unaffordable city (Los Angeles) is hardly a prime example of urban consolidation!
BTW, Today’s SMH draws comparisons with the US tech bubble and the Australian property market.
A chief investment strategist for HFA Asset Management, Jonathan Pain, says the tech bubble “illuminated the saying that clever people do stupid things”. He believes Australia is moving toward another dangerous bubble in the shape of an overheated property market.“Bubble history” demonstrates that people who are making money aren’t easily persuaded that they might shortly start to lose money on the same venture. “As Mark Twain said: ‘Denial ain’t just a river in Egypt,”‘ he says.
http://smh.com.au/articles/2005/04/12/1113251627650.html
Remember the “New Economy”? Remember “Irrational Exuberance”? Now the author of that book (Robert Schiller) is warning of a US real estate bubble. If the US has a bubble I hate to think what we have!
superman – so your point is that the affordability situation in Brisbane is actually worse than the Demographia figures suggest?
BTW, I had already made this point in another post:
Sydney is even less affordable when you consider that mortgage interest is tax deductible in the US, US interest rates are considerably lower, and US personal income tax rates are lower (meaning you have more after tax dollars to meet the mortgage repayments)This is the story of how the Demographia affordability rankings came to be:
http://www.demographia.com/dhi-pavrls.htmThis is where their source data came from:
http://www.demographia.com/dhi-notes200502.htmI cannot vouch for the accuracy of the survey, or why Brisbane is rated as (relatively) affordable (you can see the figures they used here http://www.demographia.com/dhi-data200502.htm) but it adds to the evidence that something is seriously out of whack in the Australian housing market.
Foundation,
Great post about debt-servicing ratios, and good to see someone else reading Henry ThorntonDid anyone see Alan Kohler on ABC TV news tonight quoting the Demograpia Housing Affordability Rankings?
http://www.demographia.com/dhi-rank200502.htmRe: California
The population of CA is almost twice that of Australia (35 million) and incomes are much higher esp. in and around San Francisco and LA.Re: German real estate
House prices have been flat or falling in Germany for some years:
http://money.cnn.com/2004/11/11/real_estate/investment_prop/pf_worldhousing/Here’s some information about housing prices in Germany:
http://www.howtogermany.com/pages/housebuying.htmlTake the example of a typical detached, one family house of average size; one with about 125 square meters (ca. 1,167 sq. ft) of living space, including garage. Such a place in the former West Germany costs about €255,000.By comparison, I recently sold my 125sqm semi for the equivalent of €750,000, and I believe West German salaries would at least equal to those in Australia.
Yes Japan is an extreme example, but Australia’s property boom has also been extreme by international standards. American economists who are warning about a bubble in US real estate often cite Australia (and more particularly Sydney) as an example of a real estate bubble.
Re: median prices:
I didn’t say median prices were falling, I was simply making the observation that the gap between house prices and incomes is much larger in Australia than in other countries. Does anyone seriously dispute this?Re: market meeting what young people can afford:
Immigration will help sustain demand at the lower end of the market, but who’s going to buy the $1M+ houses that the boomers have been trading between themselves for the past decade? The children of boomers might be lucky enough to inherit some of their parent’s wealth, but that wealth will be diluted as the boomers sell down assets to fund retirement, nursing home care etc.Re: Japan
Correction: Tokyo prices actually rose by 0.4% in 2004 after 17 consecutive years of decline.“Back in the late 1980s, the Japanese felt the same way about real estate investing as people on the Florida coast do now. I checked the results of data on Japanese real estate going back to the 1950s (as far back as data in English exists), and I found that, with the exception of 1975, Japan home prices never had a losing year…Never that is, until the bubble burst and the bust followed. And with it, 17 straight years of pain.
At the height of the bubble, “it was a matter of pride that the land around the Imperial Palace in Tokyo was at one point worth more than California,” the Financial Times said. Those days are long gone…
“When the bubble burst, property prices plummeted more than 80%, undermining company balance sheets, wiping out many families’ wealth and helping plunge the economy into 13 years of stagnation.”
http://www.investmentu.com/IUEL/2005/20050328.html
It happened in Japan, it would be foolish to believe that it cannot happen here.
I think I posted this in the wrong thread (my apologies).
The most troubling thing about the Australian real estate market is huge gap between median house prices and median household incomes. By international standards the gap is huge. In Sydney for example it requires 8.8 years of median household income to purchase a median priced home, compared with 2.7 years in Houston, Texas.
Source: http://www.demographia.com/dhi-data200502.htmSydney is even less affordable when you consider that mortgage interest is tax deductible in the US, US interest rates are considerably lower, and US personal income tax rates are lower (meaning you have more after tax dollars to meet the mortgage repayments)
Rental yields in Australia are also very low by international standards, and Australia has one of the highest rates of property investment in the world.
Long term demographics are a worry as well. Baby boomers can’t keep selling properties to each other forever, eventually the market will have to meet what people in their 20s can afford (and that certainly isn’t the case now)
None of this really matters in the short term. What really matters now is psychology, and now that expectations of ever increasing prices have evaporated I can’t see the market turning around in a hurry.
I’ll leave you with this thought: 2004 was the 14th consectutive year of declining real estate prices in Tokyo.
The most troubling thing about the Australian real estate market is huge gap between median house prices and median household incomes. By international standards the gap is huge. In Sydney for example it requires 8.8 years of median household income to purchase a median priced home, compared with 2.7 years in Houston, Texas.
Source: http://www.demographia.com/dhi-data200502.htmSydney is even less affordable when you consider that mortgage interest is tax deductible in the US, US interest rates are considerably lower, and US personal income tax rates are lower (meaning you have more after tax dollars to meet the mortgage repayments)
Rental yields in Australia are also very low by international standards, and Australia has one of the highest rates of property investment in the world.
Long term demographics are a worry as well. Baby boomers can’t keep selling properties to each other forever, eventually the market will have to meet what people in their 20s can afford (and that certainly isn’t the case now)
None of this really matters in the short term. What really matters now is psychology, and now that expectations of ever increasing prices have evaporated I can’t see the market turning around in a hurry.
I’ll leave you with this thought:
2004 was the 14th consectutive year of declining real estate prices in Tokyo.
