Badge

1) As I am trying to work out worst case scenarios for the Australian housing market, and do I buy or not, does anyone know where I can get
Aussie base rate,
av house price,
av earnings,
the US Dollar FX rate to UK
US dollar FX rate to Aussie Dollar

(Uk as well)

info going back 25 years (or more).

I'm gonna be a real swot/Ronald Research on this one, not because I want to get the 'answer', but because I want to be 'informed'. I certainly won't make any wild guesses.

I want to identify the trend cycles that's all with a view to establishing the indicators at various key points of last and past cycles and study how they related to each other..

The men for the job would be Mr BP or OzTennis..maybe

eg. We know that Aussie and Uk had large rate hikes and repossessions in c. early 1990s, but want to go back a fair bit more..

2) when the Uk market crashed, what were the average pc collapeses, are we talking one third, one half. Did this happen literally overnight, how did people know it was happening, did it get worse and worse over a period of time. When did it recover? Did the press report it? I was a spotty teenager so didn't give a fig at the time.

3) The Aussies, arguably with a degree of 'sense' have "hiked" their base rate, whereas the pommies haven't. In some perverse way I want the Aussie market to crash, or at least slump say 20pc. Og course, then the buyers market is crap anyhow because more people are chasing fewer sales, some of which are repossessions. Everyone else holds on.

Alternatively we can turn this in to a kind of educational seminar, calling on our experts.

Thanks

Badge

bondipom

I have read a few reports from investment banks that certain sectors of the housing market are overvalued by 20% taking into account migration, population growth and income.

Worst case scenario is a 20% drop. Your comments re UK interest rates are interesting considering the BOE raised rates by 25 basis points last month.

The UK is running a budget defecit and Oz a budget surplus and combined with rising Aussie rates I cannot see the AUD dropping much. Unless Gordon Brown makes either tax rises or spending cuts I cannot see the pound rising much.

I have seen esteimates that prices dropped by as much as 20% in the late eighties and early nineties. The economic indicators then were very different because rates were set by politicians and not by independant central banks.

This was followed by a couple of years of low growth in house prices.

The big killer for the UK was dropping out of the exchange rate mechanism which immediatly devalued the pound and sent inflation soaring. Interest rates had to go up to check inflation and combined with the recession and uncontrolled borrowing caused the price crashes.

A comparison to now would be the rise in the Euro against the pound although the USD is dropping like a lead balloon. The difference to now is that the economy is not in recession.

Hopefully Megalania can fill us in on the reasons for Australias house price crashes at the end of the eighties and early nineties but I gather it was to do with government defecits (keating and the Banana republic comment), high interest rates and recession.

From first hand experience I only know the Sydney market and people have lost their sense of reality. Pieces of junk in dodgy inner western suburbs are going for sky high prices.

One thing I would also be interested to know is how WA prices relate to commodity prices. I used to live in Aberdeen (oil city) where the housing market was linked to the fortunes of the oil industry.

There is currently a commodity boom and was wondering if Perth cycled around that market rather than the standard cyle.

Badge

I got the impression that the aussies have increased more than the UK thats all. and their base rate was always a tad higher?

Historical lesson:People say the boom started in 1988, peaked in autumn 1989, and recession was 1990 onwards..I forgot there was also the shock of ERM which was what, autumn 1992?

I'm hoping, for example, that aussie hikes will not cancel out the 20pc or so correction (assuming it happens). This is my main driver. At grass roots level, for any given change in rate I want to know the necessary price drop to establish equilibrium at that point, all things being equal - and the resultant salary to earings which will give me an idea of economic 'stability'- of course people go out and outbid each other for limited supply of properties so there is always another added on inflation. This is, I guess, a notion of the consumer being "elastic". There's no point in negotiaing a low sale price if the rate increase makes the real price no lower. Economics ay?

Badge

bondipom

I am interested to see what the next BOE annuncement will be it cannot be far off. One reason for the lower rates in the UK was the higher exchange rate which lowers inflation because imports are cheaper. I expect all that to be changing soon.

Wol

Badger - be very careful! (I'm sure you will be).

Over 25 years there will have been very many different sets of changing parameters in both places, some cancelling out and others exascerbating economic data.

Three economists will give four answers..............

Don

Badgers,

You could buy last week's copy of the Economist (good couple of articles on housing in UK and Aus). You could subscribe (free) to the Motley Fool (www.fool.co.uk) and check out the housing forums there (very intelligent level of discussion). You could check out the Nationwide's site for historical and current UK data/ trends - all nicely graphed + presented with commentary (general - http://www.nationwide.co.uk/hpi/?s=bw , specific - http://www.nationwide.co.uk/hpi/monthly.htm (see graph at bottom right).

Long Term Real House Price Trend (UK)

RichS

You are spot on with your timing of the boom/crash in the UK.

I left to travel the world in Jul 89. My best mate bottled out and bought a flat with his then girlfriend for 72,000gbp. I came back in Autumn 1990 and shortly after his flat went pear shaped and was valued at 56,000. The timings might not be exact, but the valuations are. The area was South London.

He sold the place 3 years ago for 125,000, but it took til 1998 to get him out of negative equity. He was never bothered - he said he bought a home not a commodity.

Megalania

Median Sydney house settlement (rather than asking) prices dropped around 15% from around 1990 to 1993. Had a few sweating but not an abnormal amount of trauma. Some cashed out and went elsewhere causing a ripple out.

The Sep 1987 stock market correction caused a flood of frightened money out of the stock market and into real estate. When the stock market recovered the herd charged out of real estate and back into the stock market. Real interest rates started to increased around 1990 and remained a little higher than previously.

Booms and busts are as much about herd behaviour as about trade, population changes, economic conditions. Herd behaviour is poorly understood, partly because no metrics have been developed. It leaves governments and traders largely non-plussed, consequentially booms and busts rather than steady change.

My advice in the current conditions is live below your means, save and be on constant look out for housing you can comfortably afford, think very carefully about what you actually need in housing function and location, borrow as little as possible and buy the least expensive housing (purchase price and maintenance costs) with which you are comfortable.

Jirrupin

Very sound advice

bondipom

The comment about stock market crash is relevant today. Although the stock markets did not crash they have certainly suffered a long term correction and investors have been ramming their money into property. Now the markets are slowly recovering sentiment is reversing. There are a lot of IPOs around taking advantage of the sentiment.

Anyone with any tips on stocks? Of course all stocks have a risk attached but as with housing there is a long term upward trend above inflation and interest rates.

bondipom

Article on trade and house prices

Perth prices rose 5.5 per cent and Canberra prices 5.4 per cent, while Adelaide added 4.1 per cent, Sydney 2.2 per cent and Melbourne 1.9 per cent.

ABCDiamond

Hi bondipom,
You missed out "The ABS said Brisbane had the biggest price rises in the quarter, up 6.4 per cent"

I wonder if this is caused by the demand for property from increased migration to Brisbane ? (tongue in cheek)

I spend a lot of time on an Australian Property Investors Forum, and just about the only area that everyone thinks is best protected from possible price drops is the Brisbane area.

Most people think that property in OZ will keep going up, but at a much lower rate than the last few years.

bondipom

I agree as lots of people are retiring up there especially Victorians fed up with their winter. This means houses attractive to retirees are the best bet but then what retiree is going to rent? What do you think of the Brissie inner city apartment market?

DagBoy

I have used this -
Exchange Rate History - seems to go back about 10 years.

Don't have figures for averages - just my own sad experiences.

I bought my first house with my then g/f just before they abolished double MIRAS tax relief in late 87. Got a 1 bed Barratt box started home (described by the estate agent as "quarter detached") for GBP61k. Had 6 years of paying extra special high rate mortgage (as a high risk borrower the BS decided to add 1 or 2% to their rates - specially for me) - at one point it was up near 15% I think. Sold it in 93 for GBP46k and then had a 5 year unsecured repayment mortgage to clear the negative equity.


The plus side was that the next house I bought cost less because of the slump and I actually made money - eventually.

Good luck with your analysis - if you get the answer - let us know

ABCDiamond

Brissie inner city apartment market? = OVERPRICED if you are buying(my opinion), but good deals will be available for renters.

I know of some investors who are selling out now. There is plenty of talk about all the new apartment blocks still being developed, and what happens when they become available for sale.

But this applies to almost all Apartments in Inner Cities.

I personally feel safer with standard housing on the average 800sq m block of land, (or larger), and as close to the water as possible.

Check this forum for discussions on property prices