Why I believe there will be a price ceiling..

Thanks I appreciate your insights, and for sharing your experiences.

 

I don't know you behind you avatar either so the feeling is mutual.

But in what universe is 'let's agree to disagree' a bad thing? I mean what's the alternative? Stay up all night arguing and fight to the death?

I come here to share ideas and learn from those with much more knowledge and experience than me, not to argue or change people's minds.

 

This whole thread (for the most part) ignores the underlying basis for the expansion and contraction of the money supply itself. Most people simply do not understand inflation - they think inflation is the price of things going up, and it's not. Inflation is simply the inherent weakening of your dollar by its assignment to existing commodties using an ever increasing supply. Think of like like this:

It takes one person to lift a box in 2021

It takes four people to lift the same box in 2030

Has the box changed? No. Each person has become weaker over time and it takes more people to lift the box. Yes, each person represents a dollar. The box represents a 7/11 coffee

Essentially, as the money supply increases it has to be assigned to something - kind of like how a vaccuum can't exist in an air supply. So as the money supply ever increases (through a process called Fractional Reserve Banking) the power of your dollar continually goes down and inflation occurs.

I would strongly recommend that anyone who invests in property look up the fractional reserve banking system and how the supply of money is actually created. What you'll learn very quickly is that there is essentially no choice but for the money supply to increase - and therefore for inflation to occur over time - or the system implodes. Every single dollar in existence is simply a form of debt and because debt must be paid back with interest, more dollars (and thus more debt) needs to be created to pay the interest....but then those dollars need to be paid back with interest...and the cycle continues.

Youtube has plenty of videos on Fractional Reserve Banking.

So when it comes to calling a ceiling on house prices, with respect, it completely ignores the fundamentals of how our money supply and therefore our baseline economy works meaning it essentially won't and can't happen over a reasonable period of time. For there to be a ceiling on house prices in perpetuity there would have to be a fundamental collapse of the modern monetary system as we know it. I'm not saying this can't happen, but if it does we'll all be worrying about more important things than whether our asset prices are increasing or not. Like eating and having electricity.

- Andrew

 

Different market (UK), but found this an interesting read given some similarities around themes/trends over long-term:

What does centuries of UK housing data tell us? - Private Investor - Schroders

For me, I think property prices in major Australian cities should continue to benefit from:

• *relatively* younger populations with greater rates of childbirth vs W. Europe, Japan etc. Immigration plays a big part, and will continue to do so after this hiccup we're currently in.
• Australia will remain attractive to wealthier/better educated immigrants due to climate, geography, political stability, (relatively) low rates of corruption, mature capital markets and investment opps etc. This compares with immigration demographics into W.Europe, for example.
• Urbanisation will not stop, notwithstanding small movements to regional areas due to short-term C-19 effects. The CBD economy will continue to attract better educated (and paid) 'knowledge' workers, even if they spend more time WFH in future. Governments and corporations both benefit from this - for example, transport infrastructure makes more financial sense if it serves a concentrated, rather than dispersed, user demand.
• Inner City land is limited, and difficult/expensive to redevelop (unless the product is sufficiently highly priced). I see less investor money chasing dog-box units given all the issues, so new product is likely to be larger/better quality in these areas to the extent there is development. Most new house building will continue to see expansion of the outer ring of major cities - making inner areas even more attractive, relatively, because of distance from the core and its amenities.
• Financial factors. Interest rates to remain "lower for longer", backed-up by QE. Regulators will continue manage flow of home loan debt through managing access to credit (e.g. serviceability assessments) in place of interest rate manipulation in order to avoid markets overheating. It's in no-one's interest to see asset prices crash, particularly in a world characterised by high personal debt.
• Baby boomers expiring. No death duties here, so next generations stand to inherit substantial wealth. This injection of equity is then built-upon via new borrowings as recipients then gear their incomes into bigger home loans, leading to competition and price growth in sought after areas. Income growth may be lower these days, but over time, wealth then concentrates further into fewer hands, as it did in C19th Europe before WW1/2 spoilt things (!)

 

Also what other asset can you borrow up to 10x your deposit (or more if 100% lvr) with likely positive carry and entitled to repayment holidays when the economy hits the fan!

Best loan you will ever get

 

Not at all! I'm not arguing, merely share my opinion on the subject. People can discuss things in a civil manner. That's how you learn. I was only saying that it sounded like you wanted to stop discussing when others proved you wrong.

My views, and experiences are similar to @wylie and others of a similar age. We've seen many booms first hand, and while the past is no guarantee of the future, it sure does give you a bit of insight into how things work.

 

If you look back at property prices in Sydney, as an example, they always have booms. Or a better term would be cycles. It is never steady growth. Also, take a look at Sydney prices prior to the 2010 boom. They essentially went nowhere since the end of the previous boom in 2003. Which accounting for a decade of inflation means they went backwards.

There tends to be a boom, a slight correction, sometimes a significant correction, a consolidation period and then another boom. Some of this is attributed to the investors who tend to buy in a rising market and max out serviceability. Over the following years they pay down debt and increase serviceability.

Eventually property starts to appear cheap and prices start getting bid up. The investors with their new found equity and borrowing power appear and prices rise some more. Upgraders (as you have mentioned) take advantage of their capital growth and start looking for a family home which they are prepared to pay more for as it is a long term emotional purchase. FOMO starts to creep in and prices get higher again. Finally the government provides first home buyer grants to help them get into a booming market and they too add to the final price increase before the "ceiling" is reached and everyone stops buying.

Prices flat line until something triggers the start of the next cycle.
Meanwhile wages grow (possibly slowly), inflation creeps up, interest rates change and any other number of events take place that hurt or help property prices.

But one thing is key. The cycles will continue. They may change. But they will continue.

But yes, there is always a ceiling. However as long as fundamentals of modern economic theory continue. That ceiling is going to continue to get higher.

It would pay to read some commentary on the US FED's plan to inflate away their debt.
Don't fight the FED.

I can assure you. If there were internet forums at the time, very similar discussions about how expensive house prices were would have been just as prevalent.

"my parents paid $2k for a house. Now they are nearly $200k!!"

 

When I've looked at historical prices in the past they have tended to double in each cycle . I know the 7 year number is quoted , but I think that's an exaggeration . Last cycle in Sydney really peaked 2003 to 2017 , so 14 years . The cycle before that was more than 7 years .

Cycle peaked in Brisbane in 2009 , so that goes to 2023 if it followed .

We were in a show room last weekend and they had a display of the original subdivision - blocks on Sydney's north shore sold for 20 Pounds .

When we arrived in Sydney in 1969 , my parents paid 22,000 for a house in Davidson Ave , Warrawee . Block of land in that street now would probably be over 3 mill , maybe more . If you'd said back then this will sell for 3 mill , they wouldn't have believed you .

Every time I've been looking at buying property , there have been people who have said , It was different back then and there won't be another boom ... each time the trigger factors have been different . Inflation will eventually lead to price rises . Will that occure every 7/10 / 14 years , who knows .

But , my guess is that Sydney will keep on going up in price and I'm pretty certain that other places will follow .

Is Sydney a good place to buy now ? If I was looking for an investment , I'd look elsewhere . PPOR ? if you want to own you're own house , it's a different scenario .

Will we see 8-10 % annual increases ? Who knows . What I expect to see is prices rises that follow a historical pattern of long periods with minimal growth and then a catch up period where we see increases of well over 8-10 % .

Hobart has gone up around 15-20 % in places in the last few months

Outer regions in Brisbane in many places are below what they were in 2009 and some places dropped significantly from the 2009 high . Typically the entry houses in Brisbane end up at a similar level to Sydney , so sometime in the next few years I expect a significant price increase well above 8-10 % , but then another long period of no or negative growth .

Cliff

 

Hi Poby

Many of the long time members know each other in real life and have for many years . You are getting advice from investors who have been investing for several cycles and have made millions of dollars from those endeavours . They've benefited from the advice they've received here and are happy to give advice as a result .

I've seen this ( or very similar ) discussion multiple times over the last 20 years .

My son , has suggested a similar view to you . Is that you Stephen ?

Cliff

 

I think the term ceiling might be a bit wrong but yes I do believe that after a boom there is often a point where the market cannot sustain the price increases which maybe because of lack of available money (interest rates go up, credit policies change, salaries do not increase enough) or because of other market forces (pandemics, lack of immigrations, stock market crashes etc)

So generally the property market is like the tide up and down. You may see a boom, then a correction (a drop after it gets too hot due to FOMO back to more sustainable levels) or you might see a crash or just stagnation.

It is highly likely that Sydney won't see the growth that it's seen in the past 5 years for awhile but may see moderate growth. Prior to 5 years ago Sydney was in a long term slump from recollection. Perth has not enjoyed the growth that Sydney and Melbourne have enjoyed over the past 5 years, after it's last boom (2014) it had a correction then a longer term decline (not really fast enough to be a crash) and has been in decline/stagnation mode for the last 6 years and started to pick up last year in some areas. Perth is supposedly now primed for good growth and quite often behaves counter cyclical to other states.

 

Most dont believe it can happen until it does.

Never underestimate the power of Gov.

 

But its only recently ie last 25 years where property has appreciated massively relative to
Incomes and consumer inflation thanks to increasingly low rates, easier lending, 2 income households, massive immigration etc. The best we can say is we are in uncharted territory. If we looked back in 10 years and the property market was 30 to 50% less than now, no one could say it was not forseeable based on fundamentals. Not saying that will happen but it looks more and more likely as prices divorce further and further from incomes. The old rules have to be completely rewritten for this to continue in the long term .... but to be fair money printing govts are doing their best to rewrite the rules.

 

There were: Somersoft Property Investment Forums

 

Australian businesses and households have $200b in savings

No holidays, not international travels, much less eating out, Austra;ians are flush with cash.

 

don’t worry, the government borrowed more than enough on our behalf

 

You could go back to the old site and have a read about this circular argument ,as it's been going on for the last 20 years ..
Several of the last few posts are from people that have been posting for a long time,so it would pay to listen ,about how they made their first million in property investment ..

 

Last report was 95 billion right? We’ve doubled it in the last few months.

Each 10k in savings conceivably pushes the upper end by 100k if you think about it.

 

not in 1997, but 1999 is very close and I have to admit earlier than I thought.

 

It was fun on the old dial up.