What are house prices doing in your area?

In My Humble Opinion
1

I live in Australia. Here in Oz, we have the mother of all housing bubbles. Have a look at this graph for a comparison to US property prices:

Very scary graph

Note those are real home prices (i.e. inflation adjusted).

It seems every country in the world that has had a property bubble has also had a crash, except for Australia and possibly one or two others (namely Canada and New Zealand, although from what I’ve read both have much smaller bubbles anyway).

While a “normal” market supposedly has a median house price that is 3 times median income, here in Australia median prices are typically 7-9 times median income (depending on which stats you look at). In Melbourne (or perhaps more accurately, the state of Victoria), the median house price has now risen above half a million dollars. To give an idea of just how ridiculously unaffordable that is, median income Australia-wide is about, I believe, $62,000. (Melbourne won’t be far from this mark.)

So what can possibly explain this? Why have prices not crashed like they have overseas? The property “spruikers” talk about housing shortages and high immigration, but the truth is that ABS statistics show that building has kept up with immigration quite well. Between the last two censuses in 2001 and 2006, the number of houses in Australia has increased at a quicker rate than the population, yet it was during this time that property prices sky-rocketed. And even if building hadn’t kept up with population rises, supposed housing “shortages” in places like the UK or California didn’t stop their bubbles from bursting.

So what else? Another common reason given is that households are now dual income, and that property prices have increased to reflect that. But then, why have rents not increased at the same rate, for the same reason? And why would this cause prices to only increase in the last decade? And most importantly, why then would this same logic not apply overseas (where prices have crashed)? No, this doesn’t make any sense either. Other reasons can also be ruled out on the same grounds - they haven’t stopped prices from crashing elsewhere in the world, so why should they have that effect in Australia? (I’d go over some more of them, but this post is probably long enough as it is.)

The real reason prices have risen, of course, is loose credit. Banks have been lending like crazy, which has allowed people to spend like crazy, and now we’re all up to our eyeballs in debt. And since the GFC banks have begun to tighten lending standards, which would point to prices falling back to something reasonable.

But countering the tightening-credit effect is our lousy federal government, which is seemingly doing everything it can to keep the bubble alive even longer. Grants to first home buyers, changes in legislation to make it easier for non-residents to purchase houses, changes to superannuation laws to allow it to be invested in property… anything to keep house prices at record highs.

But the government can surely only do so much. And with record-low interest rates expected to rise soon, combined with the end of the First Home Owners Boost from January 2010, next year is shaping into being a very interesting year for property prices down under.

Aside from wanting to get that off my chest, I’m starting this thread to ask for your opinions and experiences in your own property market, and how it compares to Australia’s. Has there been a bubble in your country/state/region? Has it burst? Has your government also gone to ridiculous lengths to stop it from bursting? And how do you see property prices moving from here?

2

US, California, San Francisco area. Yes, we had a bubble; yes, it popped – painfully and with splatter.

Looks like prices have at least stopped rising in Australia, if that little flip at the end of the graph is correct; the policies you describe don’t sound like they’re geared for a soft landing, but I could be wrong, and there’s still time to get lucky.

3

US, California, Los Angeles area (well, 30 miles east-ish). We had a ridiculous bubble. Condos are faring worse than single family homes.

We bought our condo in 2000 for $166,000. (Refinanced it in 2004ish for $200,000; used the cash for remodeling…and still had a LOWER mortgage payment despite the higher balance.)

We sold it in 2007 for $405,000 (Monopoly money to us in a sense, as a large chunk of the equity was rolled into the down payment for our current house. That down payment evaporated–we now owe a tad bit more than it’s worth, maybe $10,000.)

The condos are currently selling for about $280,000.

So, the prices snapped back, but about 4-5 years, not 7 years.

FWIW, the houses in my area lost about 22% of their value by my calculation. The condos (a mere 2 miles away in a nice neighborhood) lost about 35%.

4

In the UK they are now back up to the level they were at this time last year. News report

5

In my corner of the Desert Southwest (AZ), there are still grunt loads of foreclosures, bank owned houses and short sales. AFAICT, the distressed stuff is selling pretty well, but prices are still declining and I think they’ll go down even more once the first time buyer tax credit deadline has passed. Doesn’t look like this thing will be turning around any time soon in my master planned, over-speculated, stucco McCommunity.

6

Here in the Greater Toronto Area, house prices aren’t declining much, and people are still lining up for debt and the speculation rollercoaster, in spite of the odd high-profile failure. Such failures included the eighty-storey condo project at Yonge and Bloor, whose penthouse went for 25 million back in late ‘07, but which is now an empty lot after the Kazakh developers’ financing collapsed. Another developer has picked up that torch though.

Linky.

7

San Jose Ca here.

I purchased a bank owned house March of 2009,for $250,000. It had been on the market over 6 months. Two years ago it sold for &585,000.

According to my agents prices bottomed out the begining of April 2009. Homes like the one I bought are now being purchased by cash investors with multiple offers. the house across the street just sold for $317,000 last month.

Prices now make sence. My note is $1200 a month and I could rent it for $1800 a month. Ane it will positive cash flow. Before the bubble busted houses were over priced. to neutral cash flow the down qwould have to be in the 50 to 60 percent range.

8

Hm…

Here’s a really good commentary on the chart you link here.

In short, that median price chart doesn’t take into account inflation (or housing quality.)

From that link:

So 2.7% over inflation on average per year if you leave out adjusting for quality is hardly a huge bubble, IMO.

The government has, indeed, encouraged house purchase as part of the overall stimulous, which the RBA has said is one of several reasons we never had a technical recession like other countries. Although I do agree (as a professional credit and risk manager) that credit has tightened considerably since last year - yet many people were still able to get loans under the new criteria.

I’m in NSW, and my house is right at the median - on the other hand, I live less than 4km from the CBD, and for that reason alone my house will continue to appreciate. What we saw is that the middle belt suburbs (again, Sydney, I can’t speak for VIC) took a huge hit in value and there were some forclosures, because, as you say, credit was a.) too lose and b.) banks loaned 105% of value, which was damned dumb of them.

But on the whole, it’s not a huge bubble about to burst as you speculate, at least where I sit. (With the caveat my area of expertise is not in housing risk, but I do have to evaluate housing risk as part of my overall risk assesment.)

9

I’m not sure what you mean, Gleena. That chart does in fact take into account inflation - it’s a real (not nominal) house price index. If you want to see a chart without inflation taken into account, here’s a nominal house price chart, and here is the equivalent real house price chart for comparison.

And yes, 2.7% over inflation doesn’t sound so bad, but that’s because he’s amortising the price increases over 54 years. Most of the increases, however, have come in just the last decade. (Keep in mind, though, that the Sydney market, which your link seems to concentrate on, is quite different to the rest of the country - from what I’ve read, it has had stagnating prices for the past few years, after a boom that was well before the rest of the country.)

In fact, if anything, that 2.7% figure reveals just how crazy current prices are. As your link states, house prices in Australia have historically only increased by a few percent over inflation per year. But in the last few years prices have more than doubled. In Perth, prices increased by (IIRC) 60% in 2006 alone.

10

My failure to read a chart properly noted (multiple things at once and daylight savings brain is my only excuse.)

I take your point about Perth (and QLD from my nominal reading). Perth in particular - although I still think it will be ok IF the mining stays. The mining boom and lack of housing is the direct cause (IMO) of that boom. If China keeps buying, I think it will be fine. QLD and VIC concern me most.

Sydney is, of course, where I live but also where the people live that I must assess risk on, and property risk is just a small part of what I do. (You did ask for local experience, although I possibly am still outside your poll cause I’m not in the US anymore or in the UK.)

I am still not totally convinced, though, that this is a boom waiting to implode nationwide, although I concede that in some small metro pockets it might be. I think it more likely though that like here, prices will just stagnate for a long time.

I stand by my point though that the short term stimulus to encourage first time home buyers is not a bad thing. Did some people pay too much? Sure, but they also qualified under new, stricter credit guidelines, so I suspect that the default rate would be low. Of course, it just made whatever house they were buying X dollars more expensive, but right out into the economy that went, which is the point.

What’s a crime and what you correctly point out is that prior to the GFC, banks overloaned to the wrong people, here as with everywhere else. I suppose that the stricter regulation of the banks here though made it not as widespread. I suspect that a great number of people - although very much in debt - can still afford that debt and the great wave of badness in our housing market was last year with 9+ percent interest. If you didn’t go under there, I suspect you’re not going to.