MORE than 10 per cent of Australian households – or 850,000 – spend so much on rent or mortgage payments they have little left over to cover other bills, a study shows.

In particular, many households that rent are struggling, with one in four considered to be in ”housing stress”.

The study, by the National Centre for Social and Economic Modelling at the University of Canberra, was commissioned by the group Australians for Affordable Housing. It kicks off a campaign today to encourage all levels of government to tackle the housing crisis.

The group’s campaign manager, Sarah Toohey, said people were struggling to build a life after they had paid their housing costs.

”People feel the impact of food and utility price increases so keenly because housing costs take up so much of their income,” she said.

The study, Housing Costs Through the Roof, focuses on households with the lowest 40 per cent of incomes, taking family size into account, who spend 30 per cent or more of income on rent or mortgage payments. This is a recognised measure of housing stress.

It found almost 300,000 renters and home buyers in New South Wales were in ”housing stress”, at risk of falling into poverty once they had paid for a roof over their heads.

After Hobart, Sydney put the tightest squeeze on renters with 25 per cent, or almost 107,000 households, deemed to be in housing stress, and 180,000 in NSW.

A high proportion of Sydney’s 15,134 first home buyers were also at risk of poverty – 15 per cent – but not as high as in Hobart or Melbourne. Overall, almost 74,000 mortgagors in Sydney were struggling, and 112,000 in NSW.

“Government action needs to be coordinated to deliver the goal of affordable housing, by providing:

• More low cost rental housing
• More opportunities for low income households to get into home ownership
• Better financial assistance for low income renters
• Revised housing investment tax arrangements to put them on a fairer footing with other investments
• Options to make home ownership easier for first home buyers
• A clear national plan to deliver affordable housing to all Australians”

How can the government create “more opportunities for low income households to get into home ownership”?  For example, could the government provide super low mortgages to suitably qualified people?  This is just one idea, that probably has a range of faults.  What else can the government at all levels do to ease housing affordability?

Despite a veritable army of doomsayers – as evidenced by the number of websites and chat rooms – salivating at the prospect of a crash in property prices, it has stubbornly failed to materialise. There is no doubt residential real estate prices are on the slide. And if the economy stalls and unemployment rises, they will continue to edge lower. But don’t count on a crash.

According to the latest numbers by RP Data-Rismark, capital city residential prices are down just 3.2 per cent on a national basis compared with this time last year.

…

The main difference is in the way our banks lend. Our mortgages are fully recourse whereas in the US, they are non-recourse. Default on a home loan here, and the bank will chase you for the outstanding cash and bankrupt you if need be. Not in America. If you owe double the value of your home, you can simply walk out, leave in the keys in the door and let the bank take the pain. The result is that Australians are less likely to default than Americans, even under extreme duress. That means fewer houses on the market during a recession, which means less pressure on prices. When the housing bubble burst in the US, an already soft market suddenly was flooded, causing home prices to slump by more than 50 per cent.

…

The chances of an Australian property crash? Rare as hen’s teeth.

Here’s the article in full – Case for a crash is a house of straw

Now there are a LOT of Australians out there who think differently.  They say that Australian real estate prices have started sliding, and they’ll continue to fall for a long time to come.

But perhaps the reality is different.  Perhaps circumstances here provide stronger support for the housing market.

What I’m hearing from real estate agents is that sellers just aren’t prepared to give their property away at bargain prices.  After all, unless a seller is being forced to sell their property (maybe they can’t meet their mortgage repayments), they can choose to hold on to it if buyers aren’t willing to pay the price the seller wants.

What do you think?

To view my other articles on property prices in Australia, click here.

• “The ratio of housing assets to GDP confirms the view that Australian housing is relatively expensive by international standards …”
• “As you can see, Australia’s national Median Multiples [comparing median house prices as a multiple of median wages] at the capital city and rest-of-state levels are 6.6 and 6.1 respectively …
  No major Australian housing market could be considered affordable under this measure. Each market’s Median Multiple is well in excess of 3.0 times, which is commonly considered the benchmark for an affordable housing market and represents the level of house prices relative to incomes that was commonplace in Australia in previous generations.”
• “At the national level, the growth of Australian house prices has far exceeded the growth of rents, suggesting that the housing market is significantly overvalued.”
• “What should be apparent from the above analysis is that Australian housing is relatively expensive. And without continued solid capital growth – an unlikely prospect given the already high levels of household debt and the deteriorating global economic environment – the investment fundamentals currently do not stack-up for Australian housing.“

Summary: Australian real estate IS overvalued … but that doesn’t mean prices are coming crashing down anytime soon

Based on this data, if you want to buy a house or unit to live in, then that’s fine right now (provided you can meet repayments). However, short term property investment may not be such a good idea.  Generally speaking (and there are always exceptions – some towns and areas in Australia may still be performing very well), you should currently only invest in the property market  if you’re prepared to wait for a very long time and hope that the property market increases in value over time at 5% or more per year (which is a minimum for what you could achieve if you invested that $400,000 in the bank instead of in bricks and mortar).

“We’re in a balanced market at the moment, so it will take another good 12 months of low construction for a deficiency [in new dwellings] to build up and for vacancy rates to drop and rental pressure to build before it starts having more significant affects on the market in 2012/13.”

- Brisbane Times

“People in places like Sydney or Tokyo or Miami say, ‘Hey, real estate can never go down here, we’re a great place, everyone wants to move here, there’s not much land for development’, and what I say is that is exactly the kind of place that bubbles.”

“Outside Hong Kong and Shanghai, Australia is the most expensive real estate market in the world compared to income.”
- The Age, “‘Tsunami’ to hit Australian real estate”

- Harry Dent

So who is Harry Dent?

From Wikipedia:

“The basis of Dent’s research is the highly predictable nature of consumer spending based on a family’s formation pattern: minimal spending as young adults, increased spending while rearing children, peaking their spending as their children leave home, and then slowing spending during the last 15 years of working life (48-63) while saving more and preparing for retirement.

In the late 1980s, Dent forecast that the Japanese economy, then the darling of the world, would soon enter a slowdown that would last more than a decade. In the early 1990s, he predicted that the DOW would reach 10k. Both of these predictions were met with much skepticism, and yet both eventually came to pass.

In Japan, Dent was using their peak of 45-50 year olds (1990–1994) as the beginning of a long slowdown. In the US, he used, and continues to use, the peak year for 48-year-olds, 2009, as the top of a long term growth pattern.

…  snip …

Dent popularized the baby boomer spending wave theory. According to him, after baby-boomers’ children leave home, they begin paying down debt and saving for retirement, which means spending less. That means that the stock-market should peak sometime between 2007 and 2009. This is based on his observation that spending peaks at around age 50 for individuals, the average age for a family’s children to leave home.”

- Wikipedia

Does Harry Dent get it wrong?

Yes.  Here’s some criticism from the same Wikipedia entry:

“Dent has been criticized also by many economists for being downright wrong in several of his predictions. In fact, www.maxfunds.com, a financial reporting site awarded him the The “Ultimate Charlatan” Award. They write:

“The worst investing advice usually arrives near the top and bottom of stock market cycles. Demographic trends guru Harry S. Dent is making the rounds again, and touting his latest book, The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History ….” In his 2006 work, Dent predicted,

“The Dow hitting 40,000 by the end of the decade, the NASDAQ['s] advancing at least ten times from its October 2001 lows to around 13,500, and potentially as high as 20,000 by 2009 … The Great Boom['s] resurging into its final and strongest stage in 2007, and even more fully in 2008, lasting until late 2009 to early 2010.”

Of course, those who read The Roaring 2000s, Dent’s 1999 masterpiece, should soon be buying each of us a turkey with all the fixin’s. According to the book, only a year remains before the Dow breaks 40,000 and the Nasdaq hits 20,000, at which time we’ll simply amplify our fortunes by shorting stocks in the coming depression. We can’t underestimate how big this final move up will be before the depression kicks in, since The Dow and Nasdaq are currently quite a bit lower than they were back in 1999 when The Roaring 2000s was published.”

- Wikipedia

So what does this mean for Australian real estate?

Well, it’s hard to tell if Dent will be right or wrong.  We should definitely not see his prediction as necessarily right as then it simply becomes a self-fulfilling prophecy. He has been very wrong before, and he may well be wrong again. I have a couple of questions for Harry Dent to consider:

Has he looked in detail at the Australian property market? 

What does he know about property prices here, and the difference between our mortgage market and the USA?

I suspect he doesn’t know a whole lot about real estate in Australia, but is just looking at the global figures and throwing Australian real estate in with everything else. That doesn’t mean he’s wrong – Australian property prices may continue to decrease, but I wouldn’t accept Harry Dent’s explanation just because he said so.

What do you think?  Please leave a comment below.

How many real estate developers walk in to a press conference as though it was the red carpet at the Oscars? Odd. But anyway, it will be interesting to see what Paris adds to the design elements of the development. Any thoughts?

“Laglan” – from her completion on 18 May 1914 this has always been a much-loved family home.  The property is renown locally for her stunning street presence and extensive gardens on a massive 1275sqm allotment, all in one of Clayfield’s finest streets.

Laglan is a large single level house covering in excess of 500sqm.  A large family or entertainer will be easily accommodated.   Apart from a generous open plan living space there is a wide variety of private nooks to escape the bustle of family life.  Relax with a good book in the library, laze at one of the 3 bay windows, retreat to the formal living room, find a quiet spots on the veranda or escape safely to the children’s retreat and enclosed garden.

Contact:
Gail Havig from Havig & Jackson Real Estate
http://www.hjre.com.au

You can see the episode with our photos below  … our images start 2:35 mins in to the video:

The Renovators – Episode # 9 / Part 1 by TheRenovators

Will they cover their costs of purchase?

Watercress Productions paid about $950,000 each for the dilapidated Victorian and Edwardian houses, and they expect to sell for somewhere between $800,000 and $1 million each.  Did they pay too much initially? Probably, but there was a reason:

“… Biggin Scott Richmond director Russell Cambridge, who is selling Polly and Waz’s property at 37 Cameron St, said Watercress paid above the market rate to secure four properties side by side in fashionable Richmond.”
- The Block 2011 houses set to make a loss

Ok, so that makes sense … but does it show that buying a property, doing a big reno and then trying to sell it a few months later is not the money spinner it used to be?  They would have to have paid just $550,000 to make a reasonable profit, and I’d say that it would be impossible to buy a block of land in Richmond for that price.

Wanna check them out?

Jenna and Josh:

View the property online: 37 Cameron Street, Richmond
Selling agent is Ruth Roberts from Woodards Camberwell.
Inspection times: Saturday or Sunday 10:00am to 1:00pm

Polly and Waz:

View the property online: 39 Cameron Street, Richmond
Selling agents are Russell Cambridge and Sam Davenport from Biggin & Scott Richmond.
Inspection times: Saturday 4:00pm to 5:00pm

Katrina and Amie:

View the property online: 41 Cameron Street, Richmond
Selling agents are Jodie McCarthy and Glen Coutinho from Hocking Stuart Richmond.
Inspection times: Saturday 2:30pm to 3:30pm and Sunday 10:00am to 1:00pm

Tania and Rod:

View the property online: 43 Cameron Street, Richmond
Selling agents are Clayton Smith and Allan Cove from Jellis Craig Richmond.
Inspection times: Saturday 2:30pm to 3:00pm and Sunday 10:00am to 1:00pm

A few points:

• The open for inspection times are often different. 41 and 43 Cameron Street have similar times, but the others are very different.  I would have coordinated the opens with other agents to maximise exposure across very similar properties in the same price bracket … but then I’m not a real estate agent, so perhaps there are good reasons for staggering the times.
• The properties have all been photographed in the early evening, which gives a very similar look.  However, they all seem to have used a different photographer, as the style of photography is slightly different. For example, Katrina and Amie’s place has been photographed with a lot of flash or tungsten light to really light up the exterior, but Jenna and Josh’s place has been shot using largely natural light.
• The homes were all initially advertised with a price range (even though they are going to auction) of $800,000 to $880,000, with Jenna and Josh’s place at 37 Cameron St looking at $900-990,000 (as it’s a larger property).  However, I see now that at least a couple of the properties are advertised as “Price on Application” … what changed?

Update – 12th August, 2011:

Last night Polly and Waz (aka “Bubba”) won “a massive advertising and marketing campaign in print and online for three weeks, worth $15,000″, provided by Domain.com.au.  What did that $15,000 campaign give them?  I thought it included a featured listing at Domain.com.au.  So I just did a search of homes for sale in Richmond, and their home at 39 Cameron Street didn’t come up in the search results until page 3, below all of the other homes.

Did that campaign primarily focus on newspaper advertising?  If anyone down in Melbourne can fill us in, that would be great.

Update – 21st August, 2011:

“Inspectors from Victoria’s consumer watchdog seized sales documents and advertising material from the offices of Hocking Stuart, Biggin & Scott, Woodards and Jellis Craig on Thursday.

The agents, who have all strongly denied any wrongdoing to the Sunday Herald Sun, face fines of close to $25,000 each if found guilty.”
- The Herald-Sun, “Block raided, investigated for underquoting”

However, the selling agents have defended their actions:

“Jellis Craig Richmond director Clayton Smith, who handled the sale of Rod and Tania’s house at 43 Cameron St, also denied under-quoting and said the homes were hard to price as estimates were done during the renovations.

“Initially when we looked at the properties they weren’t finished so there was a bit of guess work as to what the finished product would look like,” he said.

Woodards Carnegie director Ruth Roberts, who acted as agent for Melbourne couple Josh and Jenna’s property at 37 Cameron St, stood by her quote range. “It is fair and reasonable if anything I over-quoted,” she said.”
- The Sunday Telegraph, “The Block’s real estate agents under investigation”

I understand that the agents would have first been introduced to the properties when they were only part finished, but I thought that by the time the auction campaign began about four weeks ago, all of the properties were finished.  If so, wouldn’t they be able to amend their initial price range and list a more appropriate price range with their properties?

It will be interesting to see what the properties sell for when the auction is screened on Channel Nine tonight.

Post Auction Update – 22nd August, 2011:

What an amazing result in the auction that was screened last night!  39 Cameron Street (the home of Polly and Waz) was the only property to be sold at auction, as the rest were passed in below the reserve price. See:
The Age – “One buyer, many moments for Block finale”

What’s interesting is that Polly and Waz were the couple that received a bonus $15,000 marketing campaign from Domain.com.au. Did that make the difference?  It looks like it might have, as their property was the only one to receive a serious bid above $850,000.  Maybe it’s true – marketing makes the difference.

As for the investigation from Victoria’s consumer watchdog, well that seems a bit of a beat up.  All four homes were sold or passed in within the advertised range.

Now for the big question -

What does this result say for the Melbourne real estate market, and perhaps the national market?

I’d love to know your thoughts, so please leave a comment below.

Update – 23rd August, 2011:

Further to my question above Carolyn Boyd has posted an interesting comment at Domain.com.au – “The Block … that’s reality”:

If anything The Block showed exactly what’s happening in the market at the moment. Buyer interest does exist – at the right price.

However, armed with information both about properties in the area and what’s happening in the broader economic world, buyers are educated, and cautious. And, as a nation, we’re all much more aware of taking on too much debt these days, so have really reined spending in.

- Carolyn Boyd – Domain.com.au

Update – 24th August, 2011 – ALL SOLD

The final two properties have been sold.  Tania and Rod’s place sold for $922,000, meaning they get to keep $72,000 as that is what they achieved above their reserve price.  According to The Age:

“Rod and Tania’s house sold on Tuesday night in a backyard “mini-auction” attended by six potential buyers – only one of whom attended the filmed auction on Saturday night.”

Why were the wrong people at the auction?  I see two possibilities:

1.  The people who were invited to the auction had talked the talk to get them in … perhaps saying to the agents that they were seriously interested in purchasing but really just wanted to be on national TV.  Based on what some of the people said they would bid, and then their actual low or non-existent bids, it seems possible.

2.  The real buyers were too shy and did not want to appear on national television purchasing a property.  For some people the buying of real estate is a very personal matter that they like to keep private, so waiting until after the auction worked far better for them.

Jenna and Josh have also sold their place for $1,000,000, which means they get to keep $50,000.  On Saturday night, they turned down an offer for the house at its reserve price, believing they could get more for it.  Good move.

Update – 19th October, 2011

Here’s some bad news for the new owners of The Block homes -

Coles has lodged plans with Yarra Council to demolish the Richmond Plaza centre between Bridge Road and Church Street and replace it with 12 storeys of apartments and shops. The proposal includes 12,000 square metres of retail and commercial space and 530 basement car parking spots to be built opposite Cameron Street …

- The Age: The Block hammered by Coles proposal

Wow, talk about lucky timing for The Block producers and Channel Nine.  Imagine if news of this had come out before the houses had sold?  I had heard that Coles were planning on redeveloping their shopping centre, but I wasn’t aware of this large development.  Had any of you heard of this project before today?

There’s a lot of talk around of falling property prices.  From The Age:

The National Australia Bank residential property index, which predicts houses prices, rents and real estate market conditions over the coming year, said national home prices would drop by 1.4 per cent in the 12 months from June, reversing an earlier prediction that home values would rise 0.6 per cent in the 12 months from last March.

- The Age

I’ve seen quotes from people saying that they won’t be buying now, and that they’ll be waiting until property prices start rising again.  Now I can kind of understand why someone from outside the market might want to delay purchasing a first home.  If prices are coming down, whether it’s 1.4 per cent or 10 per cent, then that can lower the mortgage, lower repayments, and work out well.  However, they will want to watch that they don’t wait too long because then everyone waiting around to get into the market will all go together, and that will increase demand and push prices back up again.

But the point I’m trying to make is the same one as is made in the video above – that if you do want to move house, now is as good a time as any to do so.  And in fact, if you do it right (choose a good agent, market well, etc) you can actually come out ahead.

You might say:

“Why would I want to sell now when prices are falling?  I think I’ll wait and get myself a bargain once they’ve dropped another 15 per cent.”

That’s fine, but your current property may also drop in value by 15 per cent (or whatever it is), so you don’t come out ahead at all.  Provided you buy and sell in the same market, everything is relative.

Conclusion: now is a great time to sell your home.  There’s no need to hold back.