Comments on: How much downside might there be in real estate?

By: billie

billie — Wed, 27 May 2009 07:31:31 +0000

Prof Keen made the point that in a normal year only 9% of the housing stock turns over. Already in the upper echelons house prices have dropped 40%. House proces are very buoyant in the first home buyer end of the market, but as more finance bods lose their jobs and are forced to move back home to mum when the proportion of the housing stock on the market exceeds 9% then the bottom will fall out of the market.

I wryly note that now that the finance sector is facing lay offs they recognise that unemployment exists. On behalf of all the laid off factory workers and former IT workers, welcome to the club. You can’t access Newstart until you are down to your last $500 and the incompetent Centrelink staff will micromanage your affairs with invasive diligence and perhaps a few sour grapes because you were once so RICH. Insultingly you will get $100 a week less than a pensioner, be expected to go to job interviews and your numbers will be systematically UNDERREPORTed

By: THR

THR — Wed, 27 May 2009 06:54:10 +0000

I think Prof Keen predicts a 40% plunge in real estate over the next few years. I’m not quite sure how he comes to this figure, and it seems a little excessive, but he may be right about the general trend.
The housing shortage is a furphy. The real shortage is in public housing, with its dire waiting lists. However, since most of those on the waiting lists struggle with private rental, they’re aren’t the ones driving up housing prices. Hence why the shortage isn’t pushing up prices, and why you don’t see shanty towns on the outskirts of Australia’s major cities.
There are already plenty of people waiting for the first home owner’s grant to lapse before buying. The RBA can cut interest rates all it likes, the banks aren’t going to pass on any savings. Add 8.5% unemployment, as a relatively optimistic estimate, and the demise of the grants, and it’s hard to see the survival of the housing bubble.

By: conrad

conrad — Wed, 27 May 2009 06:51:44 +0000

I agree they’re interesting (no matter what — I was just wondering about their predictive power), although I think that even in the last couple of decades there were some major changes, like more women working (even in 1980, it was only slightly above 50%) and two I missed from before, more gay couples (dual incomes) and people having less children (less expenses). Less obviously, I imagine that people’s ability to tolerate large distances from work must be nonlinear, so, if there are big drops, it will be interesting to see whether Melbourne and Sydney experience them as much as everywhere else (although it doesn’t explain why smaller cities also rose).

In any case, I guess we might not have to wait too long to find out whether prices really do drop back to historical averages, so the question should really answer itself!

By: Ingolf

Ingolf — Wed, 27 May 2009 04:05:18 +0000

Each to their own, Conrad, I guess. For my part, I generally find longer-term perspectives like this both fascinating and useful. By the way, you might have missed the fact that as well as being deflated by the CPI, the index was further deflated by 0.6% p.a. in an attempt to take account of increasing quality.

In any case, as I said, the really large deviation came in the last couple of decades, a time when most of the differences you were concerned about no longer apply.

By: conrad

conrad — Wed, 27 May 2009 03:03:23 +0000

At least for housing, are charts dating back to 1880 of any great use? I mean, at least in Australia, cities were tiny, people rode around on horses, there wasn’t any social security system, the job market was nothing like today, women didn’t work, etc. . Surely these sorts of factors make comparisons between then and now rather hard.