Thinking a bit further I have to agree with CBA assessment of AU property. There is actually no bubble here in Sydney Affordability more or less the same in last 20 years. Australia changed structurally so that higher prices are warranted. Reason for this is that now double income family is a norm. Therefore one would expect cost of housing doubles. But the point is that houses are considerably larger or better. Yup, you will pay up for Bali inspired sanctuary. There was no luxury apartments available in '90. Unfortunately for sydneysiders property sucks in all income and people end up in retirement with paid off (too) large houses and nothing else. And this is not good. The beneficiaries are tax office, lawyers, RE agents, handymen, banks, builders ... and not the least important land owners.Pretty decent % of population really. As one longterm property investor pointed out. Property investment is a game of basis points. Lots of risk & leverage for 1% or so net gain a year. Same as play forex with margin 100 : 1 and no stop. As it appears price growth is at at the level where nobody loses- in balance. Why not continue ? Some people obviously have nerves for this type of leverage. Shorts on AU banks, no thanks. Expecting to get rich with flipping property in sydney: wouldn't hold my breath. Transaction costs 6-10%. you need to wait 2 years to break even except if buying from distressed or successfully selling shady renovation. Quality of build is also not always there. Am I am looking wrong area ? My data faulty ?
digging thru sales a bit further, one notices dip in prices around 2006-07 which was not publicised from my memory. This coincides with mortgage rates = 8%. So, reasonably to assume 8% is real pain level, especially now as lots of new buyers came in with the stimulus money. currently rates at around 6.9%.
I would recommend looking at plenty of past bubbles first. You are citing things that show an unfamiliarity with the pattern of bubbles. For example, you are citing property improvements to show that price rises are justified. Do you think there were no improvements in properties in the USA or Ireland from 1990-2010? Not to mention, buildings tend to depreciate rather than rise in value. Rising values are based on rising land prices, rather than the bricks & mortar. You are also looking at the creme de la creme of blue chip areas. They tend to be more resilient due to the cash-rich nature of buyers and owners, and also attract less development (and thus less supply) due to strict zoning laws and lack of free land. 5th Avenue co-ops didn't crash as bad as condos in Miami or Las Vegas, or inland California McMansions. What you want to look at is price increases for relatively new build mass-construction apartments in the provincial cities and resort areas. Also, look at land prices rather than the prices of old buildings. Bear in mind too that 1990 was just before the start of a global recession. A better baseline is 1995 which was roughly when the economy picked up again for healthy growth. In any case, with proper timing it is not required to guess. Simply wait for the most aggressive developers to have a major earnings miss, and place your initial probing position, then wait for a 2nd miss to double up. Then, start looking at the banks, they will go 2nd, along with secondary companies exposed to real estate. As long as the market reacts very badly to the misses, you are probably at the start of a major collapse in the stocks. The US, PIGS and Japanese housing bubbles burst once the results of the most aggressive speculators, financiers, and developers started nosediving. After all, in a bubble you should be minting money, not missing targets. That is how to time the bursting of a bubble. So, even if you think there is no bubble, it's very simple - just monitor the leading-edge bubble stocks, and if you are right, their earnings will just keep growing, and never have a major profits warning, and you will get rich. But if you see them miss badly, you may want to reconsider your view and start playing the short side.
2 nice bubbles waiting to burst: Australia and China, once prices start to tumble the next correction of 20%+ awaits these markets.
GOC, i did not say that prices are not overstretched. But you have govt supporting property investment via tax and also direct propertyy purchases, artificially low IR policy and probably more. People believe government to take care of prop buyers forever That's what this bubble is based on. Trust & only trust ! Around 850K of vacant properties in AU. And queensland govt already started selling their stock at significant discount. Thats why prices down there. Suspect West Australia too. This are only two areas in AU that can "afford" to delevelage, maybe Unit values going up 3% pa, house values around 5% and land around 9%. More land in your house close you are to 9%. Thats why suburbia up more as houses rest on large land blocks. Long term land values are 6% pa, so there is 50% overvaluation of land in last 15 years or land value fall of 35% would make it back to longterm average. Houses, more like 25% fall.
In Australia a lot of statistics are fudged. The unemployment numbers are a joke! One only has to work 2 hours a fortnight to be considered "employed". (How many people do you know who can pay for petrol, food, rent/mortgage working 2 hours a week?) Steven Keen lost his bet because the same housing price stats are fudged, the are a lie. Having said that, When (not if) the housing market collapses it will collapse big time. Banks will almost go under -just like in the early nineties when Westpac was allowed to trade whilst insolvent. Our banks have been fudging their bad debts for years now. This is the land of smoke and mirrors.
There are a lot structural reasons for high housing prices in Australia - and most of it is a result of government policy. Firstly, for high income earners, the only way to reduce tax is to negative gear shares or investment property and deduct the interest payments from earnings. This is one of the reason while investors are happy to accept 4% yield on property. As long as they get the capital gain, it all works out rosy in the end. This has resulted in about 1 in 4 Australian adults becoming direct property investors, (basically everyone). This places a lot of pressure on the market. The government have no plans to change this. Secondly, your primary residence in Australia if free of capital gains tax, so there is huge emphasis on buying dumps and adding value to the property you live in. They upgrading after 5 or so years. Any gains are free. I know a lot of people that make cash money in retail businesses and instead of declaring it to the tax man, spend it on extension and renovations. Then when they sell, it all looks like capital gains on which they pay no tax. Thirdly, Australia's housing bubble is to a large degree, also a labour cost issue. The mining boom has dragged skilled tradesman away from the building industry, and driven up the real cost of trade wages in the building industry. A brick layer in Australia can earn about $150,000. As can an electrician or a plumber. This means the cost of building a house in Australia is one of the highest in the western world. Now all the tradies working for mining companies have piles of spare cash, so you know what they do with it? The buy houses and apartments with it. Finally, because building has become the backbone of the Australian economy, at the expense of other industries, the government has been forced to continue fueling the growth of the sector to maintain full employment. And the only way they could do this was through immigration. The whole set up works while your increasing your population by 3% a year. But now all of a sudden, Australians have realised we're running out of things like water. And we actually can't continue down this path. Make no mistake, if china bursts, everything in Australia will burst. Ask any corporate lawyer or banker what he is working on. It's all property or mining deals. I walked into a bar in perth a year ago and I couldn't get served. I hold the manager she needed to get more staff. She turned around and said' I'll give you $45 an hour if you start now. I cant get any staff. Everyone is working in the mines.' There is not a business or job in Australia that is not reliant of the mining/building boom. It is going to end ugly.
landowners control AU govt, therefore policies that help increase value of land. Appartment buyers pay for it, typically ticket to AU citizenship. Who cares if there are water shortages ?!?! It is another moneymaking opportunity. Especially valuable is appartment block common pool which will be subject to large fees increases soon. Property industry takes on masses that would otherwise be unemployed as no production in AU. So, high prices are in a way hidden socialist tax to support unemployed in AU.
then i will add bit more It is not the worst possible solution. Letting markets play out based on capitalist criteria of supply and demand would probably produce much worse results. And governmnets know that well. Officially recognising capitalist thinking has failed. Price for that is now and then will show up black swan event. With all the simulation/spy tools available today (read control), governments may be able to smooth the process. And, yes, we are in strictly controlled communist style environment, if you didn't realise that yet. Just names are different From history point of view, they don't last too long, but will not be smooth undoing.