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The Forum > Article Comments > A plague on Aussie housing > Comments

A plague on Aussie housing : Comments

By Philip Soos, published 21/1/2013

Is Australia's residential property market in a price bubble and will it burst?

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I can understand that the author would get so caught up in his academic theory that he would lose sight of reality, but to suggest that the Australian housing market is in bubble conditions is absurd.

At least the author is right to suggest that you know a bubble when you see it, and one of those is a lot of buying and selling activity and rapid increases in prices in the short term, and by that I mean a lot shorter term than on the graphs the author presents.

Those graphs point to a long term trend which I won't explore here but the grim reality is that house prices have been static for years, except in WA and Brisbane where they have climbed significantly for solid economic reasons. The author should dump the theory and, for greater insight, do a state by state breakdown of house prices.

He should also take another look at his negative returns graphic, taking into account the tax break from negative gearing, and that his own graphic seems to suggest that the market is correcting.

All that said, house prices in all states probably won't do much this year, but a catastrophic decline is highly unlikely.
Posted by Curmudgeon, Monday, 21 January 2013 9:50:35 AM
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Australian house prices, as measured by the IMF, World Bank and various other leading economic organisations are already over-valued by about around 50%.

Credit availability globally is still drying up and risk aversion from investors continues to rise.

Additionally, Australianís have one of the highest ratios of private debt in the world, now exceeding this countries GDP. Consumers in general are pretty much tapped out.

Some commodity prices, particularly iron-ore, will stagnate or again fall and stabilise at a much lower levels, this will have a major impact on the Australian economy in 2013.

House prices may rise over the very short-term, but by mid 2013 will begin a long-term contraction. I would estimate by about 20% over the next couple of years, ever heard of negative equity?

The housing industry is busy telling consumers, particularly first home buyers, that now is a great time to buy into the market, particularly noting the low interest rates. What they fail to mention is the high possibility these consumers will not have an ability to repay their debts if they economy continues to tank as it continues to do so globally.

Global per capita wealth is rapidly disappearing and we are headed into a debt deflationary spiral, Australian consumers are effectively running one of the world's largest housing Ponzi schemes.

It's a shame that more people can't seem to grasp these very simple truths. Of course Curmudgeon won't admit this, his on-going employment relies on growing more consumers and 'positive' financial news for the minion's who read his employers newspaper.
Posted by Geoff of Perth, Monday, 21 January 2013 11:31:48 AM
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Interesting informative article.
One only has to compare us with the rest of the English speaking world to know there is a bubble!
We have the highest median house prices in the English speaking world. The only thing I take issue with, is the suggested over-valuation of just 44%?
I think the average, could be closer to 60%?
One of the things that have contributed to this factor, is negative gearing, and or, the 1.7 million residential property investors who use it and residential property as a tax minimisation strategy!
Credible reports has this costing the Australian taxpayer in excess of 5 billion PA.
Welfare for the rich, writ large!
Making millions from housing should rely exclusively on new build volume, not over leveraging; and or, massive margins!
Repealing negative gearing, would restore the basically abandoned budget surplus.
And make property investment/hoarding, a great deal less appealing, but particularly if a possibly punitive capital gains tax was to replace the current tax breaks, for basically, land banking!
This money could actually fund the very decentralisation, we need to depopulate our gridlocked and overpopulated cities, where the carbon footprint on average, is 2.5 times that of country town residents!
Our cities have grown like topsy, with no thought of putting hundreds of thousands of people, in harms way, on flood plains!
Arguably, our most arable land.
The median house price used to require 2.5 times the average income to fully pay off, now its somewhere between 7-10 times!
Don't tell me there's not a bubble!
The sooner it blows up in the faces of the greedy the better! Maybe then our kids will be able to once again afford a house?
Rhrosty.
Posted by Rhrosty, Monday, 21 January 2013 11:51:16 AM
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My figure is 40% overvaluation, The difference between house and land + improvements is exorbitant. For some reason as soon as a house is put together the price triples, for what. The sooner these prices come off the better for all.
House prices are a two bob million airs dream, anyone that buy's into flood prone land, remember it is your decision.
Posted by 579, Monday, 21 January 2013 12:36:54 PM
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Geoff of Perth, Rhrosty and 579

Look Fellas, pound this hard into your heads.. high prices by themselves have nothing to do with price bubbles, you are confusing the two concepts. Our house prices are higher than elsewhere for various reasons, mainly geographical as I understand it.. urban concentration, among other factors .. As houses are not internationally traded, there are bound to be big regional variations in prices, just as there between the different states in Aus.

There is no indication of any kind in the actual market (as opposed to the graphs the author relies on) that we are in some sort of over-heated bubble that will burst. House prices had a big run up in the eastern states a few years back and have nothing since .. in fact, since well before the GFC.. Qland and WA are a different story as I indicated. But mostly the property markets have been in the stagnant - gently declining state for years, and everyone seems to know this but you guys.

Geoff of Perth's efforts to throw a little muck were wildly off target.. a housing bubble would be good for newspaper ad revenue.. Otherwise I would not dignify that piece of sillyness with a response.
Posted by Curmudgeon, Monday, 21 January 2013 1:05:36 PM
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Government taxes account for 44% of the cost of a median priced home.

http://hia.com.au/media/Industry-policy/~/media/Files/documents/CIE%20Tax%20Report.ashx

It is only to be expected that government and the apologists for it are not going to mention an inconvenient fact like that.

As well, there is no comparison with the increase in pays, ie., average weekly earnings.

If you take the remuneration of those who advise and determine government policy, the bureaucrats and politicians, the pay, benefits and golden handshakes they receive far outpace inflation and the very humble 2% gross made out of rental houses by the small aspirational mums and dads investors.

Most Gen X and Y would spend more on their lifestyle and electronics than on rent. Few even blink paying $500 for a mobile phone to bolster their ego and $200 on a night out is chicken feed. Expensive electronics are churned on a whim. You can always tell the rentals in the street by the discarded cartons of the most recent fad in TVs and other electronics dumped on the nature strip.

It is not so long ago that such discretionary expenditure would have been regarded as a complete waste, an obscenity.

Eschew the self-indulgent lifestyle and save. Learn that government has no money and all of those demands have to be paid for out of taxes, and yes, all levels of government regard home owners as milch cows for ramped up taxes.
Posted by onthebeach, Monday, 21 January 2013 2:11:45 PM
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