Foundation linked this pdf in a few days ago. I think it is of such value, that I have created a new topic so that more people might read it. I recommend reading it in its entirety and if you have difficulty with any of it (or dispute it), lets discuss it here.
http://www.anz.com/business/info_centre/economic_commentary/House_Prices.pdf
The gist of it is that returns will be (the current yield of <3.1% + CPI) for a few years to come (lets say 5), best case scenario. The RBA’s upper CPI goal is 3%, so 6.1% (3.1+3), which is less than rates. Since this was ’02 and we’ve overshot the mark since then (house/wage of 6 then, now nearly 10) and this might even be optimistic.
For purposes of disclosure [biggrin] I’m selling in California in order to move home, but will not be purchasing in Brisbane for a few years because it is my opinion that the market is overvalued. But of course I’m open to discussing my position otherwise I wouldn’t be here. Hell I’d love to be convinced [blush2]. I enjoy owning. To be perfectly clear the cash will not be idle, there are plenty of places outside of realestate to invest!
Now go read!
Superman,
The article provides good info on what drives values, reference to capital city analysis, geographic differences, methods of assessing fair value, differentiation between owner-occupiers and owner-investors etc etc.It is good reading but I noticed it was dated 19 November 2002
Cheers
JeffThat it is. But, how would the means of determining fundamental value have changed? I suggest that given this pdf was pre-euphoria it might actually be more accurate!
I think the following article contains valuable information about true house values, the factors that have lead to excessive house price inflation and what the future may hold:
Farlow ReportCheers, F.[cowboy2]
Originally posted by foundation:I think the following article contains valuable information about true house values, the factors that have lead to excessive house price inflation and what the future may hold:
Link appears to be broken. Managed to Google for it (“Andrew Farlow” “University of Oxford”) and found the correct link:
http://www.economics.ox.ac.uk/members/andrew.farlow/Farlow%20Housing%20and%20Consumption.pdf
Also found some other interesting articles on the same page under the title “The UK Economy, Housing, Banking”, all of which relate to the UK housing market but still of relevance here, I believe:
- Part One: UK House Prices: A Critical Assessment
- Part Two: The UK Housing Market: Bubbles and Buyers
- Part Three: UK House Prices, Consumption and GDP in a Global Context
- Presentation: UK House Prices, Consumption and GDP in a Global Context
- Part Four: Risk Premia and House Prices
- Part Five: Mortgage Banks and House Prices
- A further short paper: The UK House Price Bubble
Thanks OSienna.
For the Australian perspective I think the following links should perhaps be re-posted too:
David Rees Commsec Presentation for the graph of house prices to wages on page 13 (extends to -100 years).Oliver’s Insight from AMP in particular the 04/06/04, 01/12/04 and 03/09/04 issues.
But how to measure the value of an asset / investment? I believe that immediate returns and the reasonable expectation of capital appreciation based on sound fundamentals are key. Those sound fundamentals in my opinion are the price/earnings ratio, population trends and general inflation.
Cheers, F.[cowboy2]
it would have been interesting to hear the Commsec presentation that went with those slides… what on earth was that random prediction from 1989 thrown in there? he sure got it wrong!
http://www.megainvestments.com.auExtensive list of ‘Off The Plan’ property available for sale in Perth.
John – 0419 198 856
Well, that depends on what happens over the next 5 years![biggrin]
It’s interesting to note that numbers from the REIV show the real value of the median house in Melbourne fell by 24.4% between the time when that quote was written and 1996.
Anyway, I posted it for the graph on the previous page, not as an endorsement of that prediction!
Cheers, F.[cowboy2]what would 53% of the median house price in 1989 work out to be? you must be looking for about an 80% fall within 5 years? however I take the point that you weren’t originally endorsing it.
http://www.megainvestments.com.auExtensive list of ‘Off The Plan’ property available for sale in Perth.
John – 0419 198 856
Interesting question!
Let’s see, the median Melbourne house price was $183,652 in 1989. Subtract 53%, adjust for inflation, that’s $154,572 dollars in 2004. That would require a 67% drop in real terms in 5 years. Even I’ll admit that is an unlikely scenario barring 70s style inflation in the high teens, and with growth slowing already… stagflation anyone?
I’m assuming the predictions in ‘Baby Boom, Baby Bust and the Housing Market’ were based on the theory that baby boomers were responsible for house prices breaking with the 3 to 5 times income trend which had held fairly true from the early 1900s through to the 1980s.Cheers, F.[cowboy2]
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