Australian housing overvalued

Jaggannath · 17th Sep, 2014

Just to weigh in, I have been reading lately that incomes are likely to stagnate, rather than grow as they have been over the recent past. This is something I suspect a number of investors have not factored in that needs to be considered. You can't simply rely on the fact your income will increase in meaningful terms, so if you're buying now you need to factor this in. The positive of that is I suspect it will keep interest rates relatively low.

Caveat: I don't know much, I'm just guessing like many others. I'm a very conservative investor, so I'm relatively unaffected because of (excessive) buffers I maintain while I'm researching.

Francesco · 17th Sep, 2014

mumbai said:
is this what you were after:
http://www.deloitteaccesseconomics.com.au/uploads/File/Sample Business Outlook(3).pdf

Thanks Mumbai and Redom. Deloitte Access seems to know what they are analysing. The expected housing upturn in the paper materialised as expected, however in the patchy way it usually does across Australia.

MTR · 18th Sep, 2014

Australian Housing overvalued, but I have been hearing this for years, in particular when the markets are rising.

As an investor my only concern is when the media reports this stuff its probably getting close to the peak, negative reporting starts to influence the market. In the main its been pretty positive, however I would be keeping a close watch on this.

Deltaberry · 18th Sep, 2014

Over valued compared to what? Onion rings?

antistar · 18th Sep, 2014

Deltaberry said:
Over valued compared to what? Onion rings?

Looking forward to the day where I can enjoy both resi investing and onion rings without having to choose one over the other. Maybe this supposed correction that everyone is talking about will finally close the pricing gap. Phew

Deltaberry · 18th Sep, 2014

Let's just say enough have chosen onion rings that there's still a lot of pent up demand in the slightest dip

see_change · 18th Sep, 2014

Deltaberry said:
Let's just say enough have chosen onion rings that there's still a lot of pent up demand in the slightest dip

A French onion dip would be a good solution in that situation ....

Cliff

Redom · 18th Sep, 2014

Jaggannath said:
Just to weigh in, I have been reading lately that incomes are likely to stagnate, rather than grow as they have been over the recent past. This is something I suspect a number of investors have not factored in that needs to be considered. You can't simply rely on the fact your income will increase in meaningful terms, so if you're buying now you need to factor this in. The positive of that is I suspect it will keep interest rates relatively low.

Caveat: I don't know much, I'm just guessing like many others. I'm a very conservative investor, so I'm relatively unaffected because of (excessive) buffers I maintain while I'm researching.

Most economists would agree with you on this one (read Treasury Secretary speeches).

Of course it wont apply to each individual in their situation, but from a macro perspective, income growth will be much slower this decade. No mining boom and structural drivers of growth are slowing us down (ageing population, etc).

Intrinsic_Value · 19th Sep, 2014

MTR said:
Australian Housing overvalued, but I have been hearing this for years, in particular when the markets are rising.

.

One needs to differentiate between media hype and genuine risk.

Media hype is there for a reason. They need you to read, so they generate adverts for the media section. It might not be intelligent, but that doesn't matter. You read, goal accomplished.

Genuine risk:
Start reading about Howard Marks, 'the most important thing'.

In my opinion there is plenty of risk with residential property at the moment.

Player · 19th Sep, 2014

Intrinsic_Value said:
One needs to differentiate between media hype and genuine risk.

Media hype is there for a reason. They need you to read, so they generate adverts for the media section. It might not be intelligent, but that doesn't matter. You read, goal accomplished.

Genuine risk:
Start reading about Howard Marks, 'the most important thing'.

In my opinion there is plenty of risk with residential property at the moment.

Thanks for that recommendation IV.

I just ordered it for FREE

Seventh search result down the first page. If link doesn't work google Howard Marks The most important thing. There is a free pdf download

https://www.google.com.au/#q=howard+marks+the+most+important+thing

antistar · 19th Sep, 2014

Intrinsic_Value said:
Start reading about Howard Marks, 'the most important thing'.

In my opinion there is plenty of risk with residential property at the moment.

Yes great book but Wall Street is a million miles away from Ramsay Street.

Deltaberry · 19th Sep, 2014

Redom said:
Most economists would agree with you on this one (read Treasury Secretary speeches).

Of course it wont apply to each individual in their situation, but from a macro perspective, income growth will be much slower this decade. No mining boom and structural drivers of growth are slowing us down (ageing population, etc).

Thta's what they said about the last 4 years, and the previous decade too.

Player · 19th Sep, 2014

antistar said:
Yes great book but Wall Street is a million miles away from Ramsay Street.

I've just skimmed through it earlier this morning and have now commenced reading it. It's as relevant to a retail investor as it is to managed funds or insto's on Wall Street. The latter of whom Joe Smith average retail investor can't control anyway. I fall in that camp

Really, the only thing we can control is ourselves.

The consideration it gives to risk and understanding the relationship between price and value is interesting. The principles in the book are more about "how to think" and are as relevant to the stock market as they are to the property market, albeit the latter is far more cumbersome and illiquid. Risk (mitigation) and cycles are relevant to many asset classes of investing. I think a property investor would also benefit (by extrapolation) from the lessons on how to approach the mind set necessary to firstly invest safely and preserve capital and then seek the right type of property at the right time. And, yes! Luck does play a role as well.

So far it is quite an interesting read.

truong · 20th Sep, 2014

Food for cooler heads?
http://www.businessinsider.com.au/h...es-just-mean-less-growth-in-the-future-2014-9

David Bassanese, the chief economist of BetaShares, has an interesting note out this morning where he argues that Australian house prices are nowhere near the levels of overvaluation the BIS claims.

Bassanese says that while on the basis of the house price-to-income ratio, prices are 30% above their average since 1986, a better measure is the period since 2003 when there has been a material, and structural, step down in interest rates in Australia. On this basis he says prices are "only 7.5% above its average since 2003", with a broadly similar result for "the house price-to-rent ratio ? as declining interest rates have facilitated a structural decline in rental yields".

Bassanese says that mortgage affordability - which takes account of the structural step down in Australian interest rates - is a better way to judge house price valuations. On this basis he believes "there has been no obvious structural worsening in mortgage affordability over recent decades".

Low interest rates and a level of affordability, based on repayments as a percentage of income, means "further gains in house prices are entirely possible over the next few quarters - even pushing the house price-to-income ratio to even higher cyclical peaks".

But with that potential price rise comes a warning and Bassanese says "the further house prices continue to rise relative to incomes in the current low interest rate environment, the more they will need to underperform income growth in the years ahead".

IFBF · 20th Sep, 2014

More stats & economists predictions

About 2 years ago I took on a client who worked for one of the major consulting firms here in Australia. he had been advising one of the majors on strategy and had access to more information than I could read in this lifetime.

Within 6 months - after restructuring his finance, advising him on how to invest in two properties he said this after emailing me a pic of the stack of books from the floor to the ceiling..... "I have read every financial review, journal and piece of literature I could find..... attended several property seminars from various experts - but I found no solution to suit my needs - you have provided a strategy that I have implemented" ....

Another good one..... A major bank invited all its Sydney Private Bank clients and had their chief Economist present a market outlook. One client stood up at the end of hi presentation and made this comment "I listen to you every time and hedge my bets against your advice - it always seems to go the other way.."

So don't believe this BS you read .... so long as there are buyers and lenders, property will sell to the highest bidder.

joeExpat · 20th Sep, 2014

IFBF said:
So don't believe this BS you read .... so long as there are buyers and lenders, property will sell to the highest bidder.

That's the catch though, sometimes there are no buyers or lenders and that's when the *** drops out of the property market. Hasn't happened much in Australia yet but it has in plenty of other places around the world who thought it couldn't happen to them because they'd never experienced it before.

Lou Reed · 20th Sep, 2014

I haven't read the comments but how is the job market in comparison to the house price ratio?...Good for the sellers but there will be a correction,you'd be stupid to think otherwise imo,too much is at play.

Jaggannath · 20th Sep, 2014

Yup... I had a co-worked resign, move to Ireland with his life savings and wife for a job, and buy a house there. He returned a couple of years later with no savings, no job (but kept his wife), and is back working. Tough break, he was a nice guy who just believed the hype and didn't hedge.

Deltaberry · 21st Sep, 2014

IFBF said:
Another good one..... A major bank invited all its Sydney Private Bank clients and had their chief Economist present a market outlook. One client stood up at the end of hi presentation and made this comment "I listen to you every time and hedge my bets against your advice - it always seems to go the other way.."

So don't believe this BS you read .... so long as there are buyers and lenders, property will sell to the highest bidder.

As what some banks consider biger borrowers, my folks sometimes get to sit on the head table at various bank functions with their heads of private wealth or chief economists. Everytime they come back and tell me what the chief economist says, I realise 2 years later the market has done the opposite.

Redom · 22nd Sep, 2014

Jaggannath said:
Yup... I had a co-worked resign, move to Ireland with his life savings and wife for a job, and buy a house there. He returned a couple of years later with no savings, no job (but kept his wife), and is back working. Tough break, he was a nice guy who just believed the hype and didn't hedge.

Ouch - thats rough. Seems like a big big choice to pack everything up and move away based on a bet on the housing market.

My flatmate packed up from Sydney a few years back to go up to Brissy making the same play. Didnt really work out for him either. His the type of bloke to live with a lot of regret, so every article he reads about Sydney growth he gets a little worked up!

Australian housing overvalued

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Jaggannath

Francesco

MTR

Deltaberry

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Deltaberry

see_change

Redom

Intrinsic_Value

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antistar

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truong

IFBF

joeExpat

Lou Reed

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