Just curious to hear what the MMM hive mind thinks about Australian property at the moment?
And where to from here?
By any measure, Australian property is expensive - relative to income. But Australian wages and prices seem rather high by global standards as well.
Data is everywhere. But in my mind its inherently unreliable to use as the basis of long term projections. You can make as many projections for the future based on current price to income ratios (which are very very high), increased/record levels of investor activity etc, but the housing market can stay pretty irrational on the upside, or downside, for a pretty long time. And recent data always looking at the rear vision mirror.
I note that Parliamentarians, Property economists, Real Estate agents, representatives of major lenders are all convinced that property is at fair value/slightly expensive. And there's no reason to panic just yet. Rather unconvincing in my mind as its confirmation bias stemming from their own entrenched positions. Here's what I think is a repository of their thinking, with the occasional nods to the bears:
http://www.propertyobserver.com.au/ However, I'm similarly unconvinced by some of the permabears out there, i.e. Steve Keen, Phillip Soos, Callum Pickering.
But I do enjoy reading Christopher Joye (mainly because he changed his mind. Like the Robert Manne of Australian economics):
http://www.afr.com/p/blogs/christopher_joye/house_prices_are_set_for_fall_ujN20Ujc6FF5Db2CaZnnbI).
But the shining light for reading about Australian property to my mind is Catherine Cashmore , who writes perceptive insightful articles pointing out failings in the current way we do things in Oz, from a market driven, but progressive community building framework (i.e. we shouldn't subsidise rich people to own 60 properties, and perhaps letting low income workers endure prolonged housing stress is a bad thing too).
http://catherinecashmore.com.au/wp/The value investor in me sees the increasing price growth of houses (as with any other asset/investment) as resulting in the increasing risk profile of that asset (whereas I guess a lot of mums and dad investors will see it as confirmation of the sagacity of their investment decision). The investor in me is also convinced that house prices will go up (in nominal terms). That's the easy part. This to me is a no-brainer. However, what I never know is
when!! And in
real terms, by how much!!
The opportunistic investor (with a bias towards equities) in me thinks that there are likely to be better investments elsewhere, in equities.
But then the gardener in me and the unit dweller in me (who hates having to deal with his slightly noisy neighbour downstairs), would like to once again enjoy the intangible lifestyle benefits of owning a detached house somewhere. And I can appreciate how these issues inform a lot of purchasers who enjoy the lifestyle benefits and enforced savings discipline of a mortgage.
I started working in 2000 and it seems to have been a perennial hot topic since then. Note: I bought an expensive PPR in 2003 that morphed into an unsuccessful IP (due to relationship reasons) that was sold in 2009 to only break even. Aargh.
What I'm particularly interested is thoughts from those who lived and prospered or struggled through the previous cycles. Who've seen it all before. The sharemarket is generous enough to give us scares/buying opportunities every 7 years or so so that we can learn from the price run up and eventual decline.
But because Residential property is such a slower moving asset, is so highly leveraged and subject to minor interest rate fluctations, is such a variable market due to changing demographics, the growth and decline of cities, gentrification of inner cities, benefits from tax concessions in relation to the PPR etc etc - its a complex issue.
My view is that metropolitan residential is expensive at the moment. That there may be a bit more of a kick up in the short term. And this will remain the case while interest rates make capital so cheap to borrow. However, I think that this means that past stellar performance is unlikely to be repeated in the medium term. I don't think there will be a crash. People irrationally service mortgages even when its not fiancially sensible to do so. And the transaction costs of selling are so high its a real disincentive to get rid of an underperforming asset. But my view is that property has done its dash for a while.
But I've been wrong before. I didn't see post GFC residential price rises coming.
I'm from Sydney, but relocated to Melbs about 5 years ago for what its worth.
Woah. Long post. So over to you. What do you think?
