Sir lastnail wrote on Mar 8^th, 2011 at 8:55pm:


Last Nail .. it has nothing at all to do with that.

The guy responsible for that publication has a questionable reputation/vested interest in what he is pushing.

And he talks a lot of sh.it too.

PLEASE tell me you're not RELYING on what he says.

House prices on shaky foundations
Adam Schwab
March 9, 2011 - 6:41AM

     Comments 3

Auction clearance rates have fallen in Melbourne and Sydney, and slumped in Brisbane.

Auction clearance rates have fallen in Melbourne and Sydney, and slumped in Brisbane. Photo: Jessica Shapiro

It is not a question of if a housing correction will happen, but when, writes Adam Schwab.

Property prices down 24 per cent since 2008. Dublin? Las Vegas? No, try Noosa Heads.

Contrary to popular belief, not only is it possible for Australian housing prices to fall substantially but, in glamorous Noosa Heads on Queensland’s Sunshine Coast, they already have.

According to RP Data, house prices have fallen 18 per cent in Noosa since peaking in 2008, while apartment prices have slumped by 24 per cent. With 800 properties for sale, it is unlikely that prices will rebound anytime soon.
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But it doesn’t seem as if the Australian capital cities are paying all that much attention. While prices haven’t risen since May last year, they haven’t fallen much either. This paper reported last week that capital cities are starting to lose a little bit of froth, with prices falling by 1.6 per cent nationally during January.

With auction clearance rates dropping to about 65 per cent in Melbourne and 55 per cent in Sydney (and far lower in Brisbane), and Reserve Bank interest rate rises never able to be ruled out, it is not a question of if a housing price correction will happen, but when.

Consider this: In 1994, average annual earnings for Australians were $28,080. In 2010, average annual earnings were $50,824. That is an increase of 80 per cent.

If people spent the same proportion of their income on their home in 2010 as they did in 1994, that would have resulted in an 80 per cent increase in house prices (subject to other factors being equal, such as number of people working in each household).

However, in 1994, the median property price was $148,800; in 2010, RP Data found that the median property price was about $450,000. That is an increase of more than 200 per cent.

Had property prices increased at the same level as wages, the median house price in Australia would be $267,000 – 41 per cent lower than they are. By contrast, had house prices simply tracked the consumer price index, using 1994 as a base, house prices should be $230,640 – or about 49 per cent lower than their current price.

These figures are not altogether different from the findings of the Economist magazine, which determined that house prices in Australia were overpriced by 56 per cent. This made ours the world’s most expensive market, on a price-to-rent comparison.

While housing bulls will point to a shortage of property, or rising incomes, the real reason for the rise is far more nefarious. Since 1994, the ratio of housing debt compared with housing assets has risen from 15.8 per cent to 28.7 per cent.  Even though house prices have increased, the increase in debt has been even greater. In fact, virtually all the out-performance in the housing market can be attributed not to people having more disposable income but, rather, to Australians borrowing more.

The Noosa experience has shown that Australian housing prices are not immune to basic laws of investment. As the price of an asset rises, its yield will fall. That means, to justify the higher price, the future income associated with that asset must also rise. That has not happened with housing.

This is because the increase in house prices since 1994 has not been driven by higher rentals (or higher household incomes), but rather, purchasers using more leverage to pay more for the same asset. While income from property has more closely tracked higher household earnings (as it should), the underlying asset has increased in price by a far greater extent. That is why net yields on housing in capital cities are about 2 per cent – far lower than the return one can receive in the bank.

As with the United States, the main culprits behind Australia's rapidly appreciating property prices have been mortgage lenders, who have effectively funded the boom.

Just in case you thought Australian banks had learnt their lesson, last week this country’s largest home lender, the Commonwealth Bank, announced that it would allow mortgage customers to borrow up to 95 per cent of the '‘value’' of a property, up from 90 per cent. This will have the dual effect of increasing the bank’s short-term profits (and ensuring its executives receive substantial bonuses) and further increasing the bank’s risk profile by exposing its balance sheet to even more over-priced residential housing.

An asset can be valued with reference to the income it generates, not by how much someone using mostly other people’s money is willing to pay. As many Australian property buyers will soon find out – price and value are two different concepts.

Adam Schwab is the author of Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed.

There's not a lot of booming.

Will the government intervene again?

Lisa Jones wrote on Mar 6^th, 2011 at 5:36pm:


You're competing against cashed up Asians who can access interest rates at half the rates that you and I can ... and it seems to somehow work for you.

By all means do tell us how this works for YOU! I know I am all ears.

Hopefully you will be able to let us know soon.

I note with interest that Andrei hasn't been able to respond in this topic ever since.