bondipom

http://www.smh.com.au/articles/2003/...522601981.html

Apparently the average Aussie property investor believes the laws of supply and demand do not apply to bricks and mortar.

Megalania

Ding, Dong; Time to ditch your poorer investment properties, keep your abode.

Goodpubmisser

This article is actually very inaccurate. The rental return is far less than what they propose for a $400,000 unit.

Also you don't have to know that much to predict when the next slump in prices will occur.

Megalania

Not too fast, when prices start dropping, some sellers go back to renting. Rents will rise if people have jobs.

JaneandJim

We have practically full employment in the UK and rents are still dropping.

OzTennis

Very interesting article.

Are we talking slump as in real estate prices actually falling or slump as in a slow down in the rate of appreciation? I can't see property prices falling anywhere if you take a sufficiently long term view. What's the alternative to investing in bricks and mortar? Interest rates are at a 40 year historical low, stock markets are performing poorly (note the small print, share prices can go up as well as down), final salary pension schemes are being closed down etc, etc. Add to this the over 100,000 p.a. migrant intake with the government supposedly wanting to increase this and IMHO I can't see the property market collapsing as in prices falling for any length of time. Another factor which will fuel the demand for housing stock is the increase in the rate of the breakup of families (to live in more than one house).

Just my few cents worth!

OzTennis

P.S. I don't think it is a case of the laws of supply and demand don't apply, I think it is a case of prices rise when demand continues to outstrip supply and for some of the reasons above I think it will continue. The other thing is that there isn't a single property market which operates in the same way. For example, people will always be willing to pay a premium for a water view (said to add $300k to Melbourne prices), a nice rural view (said to add around $100k in Melbourne) or inner city living. Make a wise choice and you'll not see prices fall me thinks.

OzTennis

And I meant to say we aren't dealing with a basically static population as in other countries. 20 million early December 2004, 25 million when?

OzTennis

Megalania

Note the use of the adverb "when"

JaneandJim

I didn't know 'when' was an adverb, well there you go.

Prices have been slowly falling in my little pocket of England for a while now. The rental flat next door to me has been empty for at least 7 weeks. Perhaps the situation is a bit different here, as prices are way beyond the reach of first time buyers. Absurd times.

Jane

Herman

I am inclined to agree that for the next couple of years its unlikely that property prices will slump, since demand is outstripping supply (in both Oz and the UK), inflation is still low and gross interest rates are still low. (Note though - the real interest rate, being gross interest less inflation (good if you are a net borrower - it decreases the value of your loan) is NOT at an all time low and is actually at a fairly normal level). However, I am not assuming that this stable property market will hold beyond the next couple of years and I am keeping a close eye on things. Inflation is beginning to creep, fuelled by credit cards and wage inflation, adding to the pressure on the Bank to push up interest rates.
A significant driver for the current UK property boom has been perceived low interest rates, leading to a lot of people upgrading or investing, fuelling property demand in a market where supply is relatively fixed due to tough building restrictions. But the fact is that the population of the UK us currently shrinking (hence the immigration policies of this government), less people are having babies, divorce rates are stablising and those that are alive are aging fast. So what happens when interest rates increase and the inevitable increase in equity markets stems the flow of investment money? What happens when tax rates increase significantly as they must to support the aging population? Will the underlying trend of the baby boomers reaching an age when they no longer want to move home and a shrinking population of moveable age (families) lead to a long slow decline in property prices? Lots and lots of basic population trends suggest this is a distinct possibility which may be accelerated if equity markets pick up and interest rate increases improve bond yields to attract investment funds away from property.
I think those who believe property prices can never decrease may be being naive and a the population timebomb will start exploding in the next 25 years. Other people are also thinking along the same lines. I look at a lot of investment management businesses in my job and I can tell you that a VAST amount of money is currently being shifted from property funds into bond funds and increasingly equity funds (particularly Euro stocks).

Sorry if this long and rambling, it reflects my long and rambling thought processes!

OzTennis

Agree with all you say Herman - very insightful, thanks. I see the population time bomb as being one of the main social and financial issues facing western society (and other societies further down the road if they go through a long period of accelerated economic development). As a general rule there is an inverse relationship between levels of economic development (or real GDP per capita or however you measure it) and the rate of natural increase in the population. This is an interesting area in itself and has many causes other than availability or otherwise of contraception (eg in poorer countries one reason you have children is to look after you in your old age because of a lack of pension provision - but old age might be from say 45 onwards with lower life expectancy; and does a large number of children take the place of the latest DVD player or whatever in western society?)

Australia has of course had to rely on net migration for a long time as its main source of population growth. We've always been conscious as a nation of the potential 'yellow peril' to the north. I'm not being racist here folks it is what it was called - big empty land, teeming hordes to the north etc).

I liked your analysis of the UK property market BTW. The governor of the BoE is obviously worried about levels of personal debt and the housing market. He recently warned people about this as you will know when he announced the base rate rise. I get horrified at all the ads on TV for loans, credit cards etc which make it seem so easy. Consolidate all your different loans into one and only pay off £160 per week - yeah, bottom of the screen it says repayments for 25 years and your house is at risk because it secures the loan. 'Call Ocean Finance' - customers tell you they are nice people, settled it all in one call, so easy, blah, blah, blah. And as for the credit card ads which make it seem so easy to pay - research shows that some people believe you don't have to pay for the goods, just flip the plastic. Rant over!

So, I think we both don't see the property market collapsing in Oz in the immediate future and long term there is the worry of the population time bomb kicking in.

OzTennis

P.S. Like you I have posted a long reply but issues like this can't be covered with a text message and a few smilies can they.

Enzo&Chloe

the UK population is actually increasing according tho the UN

"The British population rose by 10 million between 1950 and 2000, and is expected to reach 61 million in 2015 before passing 66 million in 2050 according to a UN Report. England's population density is more than treble the European average of 117 people per sq km. England is also one of the most densely populated countries in the world."

OzTennis

Haven't the census result for 2001 and 1991 been 58 million odd (no pun intended folks and 57 million odd respectively? That is what I was basing it on. The predictions are interesting. Where are the extra people going to go with such strict planning regulations on where you can and can't build? Let me guess - more people will live 'in the air' (ie blocks of flats, high rise etc).

OzTennis

P.S. I also meant that Australia's population has increased about 50% in 20 years which is a much faster rate of growth than probably 56 to 58 mill over a comparable time in UK.

Herman

I read somewhere that the population is currently growing at a very slow rate, eg 2001 census versus 1991 census showed a tiny growth (about 1.5% I think), due to people living longer and immigration. With an increasingly aging population the mortality effect will cause a temporary increase (but not in those buying houses) and who knows what will happen with immigration. The rate at which population grows from births is declining, which means less families around to buy family houses in 10 years time.

CHnJ

A few months ago the Economist did a 10 page spread on the furture of Real Estate and debt. Unfortunately I printed it out rather than kept an electronic copy I could post. The gist was that it took apart in detail all the reasons that people give for the bubble continuing - e.g. family break ups - and wasn't able to find any that held up to scrutiny.

The scary bit was that at the end it said that the only people who were going to get hurt badly were those who depended in any way on property for finance rather than as a roof over their heads.