Hi
I am new to this site, but have been investing very slowly for a number of years. I really just want to guage opinion on the future direction of the market.
I can't remember the exact figures, but the increase in the median house price over the last 10 years has been staggering. Rents have in no way kept pace with this increase. In addition, interest rates have risen sharply recently and while Australia is experiencing the kind of resource based growth predicted, it does not look like rates will fall anytime soon.
You have to start asking what is underpinning this market really.
Demand
1. Have incomes risen in proportion to the rise in house prices. No the average multiple of income people are buying on is now significantly larger than the 80's/90's
2. Higher employment certainly may have contributed, going from double digit unemployment late 80's to full employment today.
3. Returns – Rents as mentioned previously have not kept pace with house prices or interest rate rises, but capital growth has been phenominal.
4. Greater movement of investment capital – recently I was living in London and I regularly saw advertisements for Australian realestate. So possibly.
5. A greater number of households than ever before – 1940's it was common to have several generations under one roof, these days you have the same generation in several houses.
6. The plethora of Property Investment Seminars all encouraging people to buy property today have increased demand significantly.
7. Less regulation in the banking sector which has led to the easy access of capital today.
Supply
1. The number of new dwellings built does not seem to keep pace with demand.
Given these points it seems that housing prices will continue to rise, however it is starting to look a little like the dot com mania of the late 90's early 2000's.
I am starting to wonder what proportion of properties are being purchased as residential and investment. I would guess that a fair number changing hands in the major cities are for investment. If that is true then in most cases they are going to rely on capital gain as a strategy and not cashflow. When you consider this where the majority of seminars (the ones I have attended) have advocated buying, mortgaging to the hilt to buy the next property. If enough people have been doing this then continued interest rate rises RBA sponsored or US Mortgagte crisis inspired will start to hurt these investors as well as ordinary property owners on high multiples (especially the ones with credit card debts). The question is will this move the market?
Also if capital growth stagnates, what underpins the market then?
I found Steve's book so refreshing as I was getting sick of hearing the no equity, negative gearing and never sell approaches.
Anyway sorry this wasn't a little more structured or coherently argued, but its the weekend. Would be interested in any thoughts.
HW.
I think that the recent good growth around the Country is largely due to the (still) relatively cheap finance, the easy access to it, the continued good employment figures and buyer sentiment, and the fact that the supply is being outsrtipped by the demand.
I don't believe that investors have had much of an impact, or ever do; in any given period the percentage of investors in the buying market is only ever around 20-30%? of the market, and they will be trying to buy low; not buy on emotion and push the prices up. Also, add to the fact the crap rental yields, and my guess is the investors are not around in a big way; certainly not Aus investors.
If the rates continue to rise, and if the living expenses go up as per the article in The Herald Sun:
http://www.news.com.au/heraldsun/story/0,21985,23008609-661,00.html
I suspect the amount of Owner/Occupier buyers will drop off, so the rents will remain under pressure, forcing them up and attracting the investors back. But as I said; they are the minority; especially while the stock market is going well.My guess is a slow-down late this year for maybe a year or two. Could be a good time to be an investor with the rents going up.
Watch out for a number of properties going on the market due to the rising interest rates with the very highly geared folk out there.
At the end of the day, we have more people wanting houses than can be supplied apparently, so any slow-down would be soft, and there are always areas that defy the the trend.
LA Aussie your comments about the present high demand for housing appear to be correct. Was having a chat to a sales manager for one of the local project builders today when he called at my place to pick up his son who had stayed over night (when do the school holidays end!!!). Asked him how things were travelling at work and expected to hear something like “boy these interest rate rises are making it tough”. Instead he told me that December was their biggest month ever. I’m sure that things must slow a little sooner or later due to a range of economic reasons but there is still this apparently inescapable reality that more housing is required in many part of Aust. In the same conversation he told me that they have recently lifted their average house price by $3000 due to increased costs. I would have thought these increased costs for new homes also helps to underpin the value of existing houses (if not increase them).
Hallg
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