Australia's Housing Shortage: Is it just an urban myth?

I have been accepting as "fact" for 8 years that Australia has a housing shortage. But what if that was not the case. Would you still buy a home? Is that the question?
Investment Banker Mortgage Stanley recently released research that pointed to Australia actually having a glut of housing, rather than the much touted housing shortage we have all heard about that keeps growing like an evil magic pudding.
Admittedly, I have heard about this housing shortage since 2003 and wondered where all the tent cities were being erected in Australia to justify these claims.
Maybe we will see fake one's sprouting up all over Australia soon?

Housing Shortage, Fact or Myth:Australia goes from an estimated 228,000 housing shortfall to a 341,000 home glut in the time it takes to produce a report!

So how did we get this 569,000 housing turnaround in weeks?

There has to be a reason that house prices have not collapsed in the wake of the GFC.

The estimated 228,000-home shortfall, cited by everyone from the construction industry to economists at the major banks as evidence for why prices remain so high, may, in fact, be an excess of 341,000 homes, according to Morgan Stanley.

Whether the new figures are accurate will only become clear in time, as house prices either level off because real estate is scarce, or prices fall and attract more scrutiny about the fundamentals of the market.
But what if there are other reasons why home prices are staying high in the gloom. Here's a few.

1. Real estate is worth what someone else will pay you for it. People have not been willing to pay what many buyers want, but...
2. Real estate is also worth what you are prepared to let it go for if you are selling. When people have not been able to sell at the price they want or even need, they are hanging on to it.
3. If you have a job you can afford the mortgage till things come good. In Australia's case the job market never went bad, so people can hang onto property for longer.
4. If you hang onto to the old property, then real estate agents are not going to be happy, because you don't effect your sale, and you therefore can't buy the next home. This is exactly what is happening.
5. People are now hanging on to their homes longer and their mortgages longer.
6. From a generational point of view, people are living longer and staying in their homes for longer. And the Government assists this with carers and other services to help people stay out of nursing homes longer.

But the all-important nature of house price movements underscores a bigger issue: we simply don't know what impact elevated property prices have on other aspects of the economy because we don't have a long history of clean, robust and comparable data to rely on.
But I will give it a try here.

1. When you pay too much for a home, you have to hang onto it for longer or risk going underwater.
2. When you pay too much, your mortgage is bigger than it should be. That makes banks happy and rich and that means that you pay more of your income in mortgage repayments than you should be, for the next 30 years. That causes a thing called mortgage stress. As these things have happened then we can say people have paid too much for their homes in the recent past.
3. Are they still paying too much? That will be clear in 2 years time. If prices go down, then yes they are still paying too much today.

In Australia, there is no clear, undisputed authority of information in this area crucial to the economy.

In the US, the S and P Case-Schiller index, which measures changes in prices of the same properties over time, and that is only 25 years old. So where do investment gurus pull 100 year figures from?
The problem I have with any long range figures is that they only rate the homes that are still standing,and over 100 years maybe more than half the housing stock may be demolished. SO counting just the best ones that are left is a hardly a way to determine the appreciation of housing generally. Its taking a generalisation and making it specific. But what about the home that was bought, and later demolished. Surely its worthless. When these homes are included in the overall picture, actual returns are lower.

In Australia, Residex's repeat sales index goes back to 1991, in the middle of a Sydney house price correction on 17% pa interest rates just before the two-decade run-up in house prices began.

One thing for certain is that it is unwise to expect the "boom conditions" to persist indefinitely. That is a interesting term. I thought the boom finished in 2003 and we got ripples in 2006, and last hurrah in 2010?

In 2010, Reserve Bank governor Glenn Stevens appeared on breakfast TV to warn viewers it was a mistake to ''assume a riskless, easy, and guaranteed way to prosperity is just to leverage property''.
That advise I was giving out from 2005, but nobody wanted to listen back then. That's why home prices went too high. Are they still too high. Well RBA Governor Stevens says no, they are not.

Source; Mr Mortgage

Will house prices really go up 20% over the next 3 years?

House prices are predicted to grow between 9% and 20% over the next 3 years. Mr Mortgage disagrees. Here's why.

Experts are rarely good at predicting the future because their minds are full of facts from the past. I have a problem with future house price forecasts and it is this almost never materialises.

When you have someone who has a vested interest in the result [QBE is a house insurance player] then take house price forecasts with a grain of salt.

A QBE "survey" compiled by BIS Shrapnel says house prices will growth between 9 and 20 per cent in Australia's capital cities over the next three years. Really? So I guess that means that you should be paying 9% to 20% more for your insurance then? I see!

The biggest problems I see with House prices forecasting using median house prices

1. The median price is not an actual price. Any house price survey relies on the notion of the median price of a home. These are the homes that are sold.
2. There are two problems with this.
   1. Many homes sold are new, and therefore are usually better than an established home and worth more to buyers.
   2. Most established homes are dolled up prior to sale [paint jobs, renovations, staging and the like]. They are "pushed" and "promoted" and "marketed" to fetch a higher price. Even then many are not currently selling.

We need a segmentation of median house prices

At least if we got a segmentation of house sales [new apartments, new homes, established homes etc, I would be more comfortable believing these figures. That won't happen because the output is designed to deceive buyers and sellers to believinghouse prices are higher than they are.

Here's an example of how median house prices distort true values.

A new apartment block is released for sale with the penthouses at 2.2 million a piece, and apartments from $400,000.

One of the penthouses is sold, and two older units down the road sell for $220,000.

How median house prices are calculated

The median house price is $2.64 million divided by three. That gives a median unit price of $880,000! Whilst this may seem a silly example it is how median house prices are calculated.

Home buyers might begin to believe that the older units down the road are worth more than $220,000, and the $400,000 are worth more too.

Can you see why median house prices is not a good guide?

What about interest rates affecting housing prices?

Australia's housing market [some say housing bubble] has so far fared better than most parts of the US and the UK markets.

In the US for instance they have 30 year fixed interest rates retailing at under 5% pa., and they could go lower to help keep people in their homes, let alone prop up the housing market. No such luck here in Australia.

Australia's mortgage interest rates will rise over the next twelve months

We face a home mortgage interest rate in Australia of over 8% over the next 12 months.

Whilst the "experts say fix your mortgage interest rates now, that's fine if you are buying now or if you have a variable mortgage already. If you are buying in 12 months time that is not going to help you because I believe that rates will be as much as 1.25% higher than they are now.

Result? I see "median" house prices moderating, and home prices for Joe average softening over the next 12 months.

What Mr Mortgage believes.

Anytime is a good time to buy a house that is well priced and what you need to live in, and is affordable, if you intend to live there for more than 5 years. If not its better to rent and invest the savings and housing costs. If you are an investor, there are better places to park your money.

Australia's "Housing bubble" will not pop but lose some of its froth and just shrink to a less inflated size.

Lower returns for property investors, and more certain yields and easier picking elsewhere will keep investors out of the housing market, and moderate home values.

Future house prices will not be a mirror of our past. The RBA has it eye on house prices and the board will do what ever it takes to keep a lid on the housing market to ensure affordability for future home buyers.

The baby boomer influence has run its course in the general housing market, and as they move out of established housing this will take more heat out of house prices.

Author: Rick Adlam Mr Mortgage

First home buyers deluge a housing market in drought of property investors and move up home buyers.

As investors and second and third home buyers stay away from property, by default the first home buyer share of the mortgage market has risen to a seven-year high in response to big rate cuts and generous grants to new home owners.
The Australian Bureau of Statistics (ABS) data also showed that overall home loan approvals rose for the second straight month in November while the popularity of fixed-rate loans dived to a record low.
The number of housing finance commitments for owner-occupiers rose 1.3 per cent in November, seasonally adjusted. In Queensland this was a negative number, so some States got a good bounce from the incentives put to first time home buyers.
This followed October's 1.4 per cent gain, which reversed eight consecutive monthly falls.
Commonwealth Bank senior economist Michael Workman said aggressive rate cuts and the Federal Government's boost to first-home buyer grants had restored housing sector confidence.
"It is indicating that the interest rate cuts and also the first home buyers scheme have had quite a strong impact on lending,'' Mr Workman said.
The Real Mortgage Picture is still bleak
On an annual basis, mortgage commitments have fallen by a quarter, with 49,192 mortgages taken up in November compared with 65,495 a year earlier.
In October, the Federal Government doubled the first-home buyer grant for established dwellings to $14,000, and tripled the subsidy for newly built homes to $21,000.
The housing finance take-up was likely to improve in coming months as borrowers responded to the increased first-home buyer grant and recent rate cuts, and put aside fears of unemployment.
New dwelling mortgage commitments climbed by a hefty 9.8 per cent in November, while established home lending rose by 1.1 per cent, the ABS data showed.
The mortgage market also boosted by the Reserve Bank of Australia's (RBA) decision to slash interest rates by one percentage point in October and by 75 basis points in November.
Interest rates were slashed again in December, by one percentage point, taking the cash rate to a six and a half year low of 4.25 per cent.
Expectations of more interest rate cuts appear to have affected the popularity of fixed-rate home loans, which fell to a 2.5 per cent market share in November - the lowest proportion since the ABS started collecting this data in 1991.
Whilst the rate cuts were enticing owner-occupiers and first home buyers, a recovery in the home building sector was still some way off.
Overall, confidence in the property market is still missing and job uncertainty is high.
The value of lending for investor housing fell by 6.1 per cent in November, while the number of loan commitments to build new dwellings dropped by 0.3 per cent.
NSW enjoyed a strong recovery in home loans during November, with the 5.8 per cent rise in housing finance for owner-occupiers reversing nine consecutive months of decline.
Only Tasmania had a bigger monthly increase of 6.5 per cent.
The story was different in the former commodities-boom state of Western Australia, where mortgage commitments fell by 5.8 per cent in November.
The ACT had the steepest monthly fall of 13.8 per cent.

Rising mortgage applications a sign that housing market has turned the corner

Westpac economists said in a research note that the rise housing finance in October signalled the start of a recovery for the housing market.
This momentum will hopefully support the recovery in the housing market.
The RBA's decision to slash interest rates by 400 basis points since September, and the federal government's stimulus package for first home buyers, would get new home buyers into the housing market.
The only downer is the fear of unemployment that is creeping into the scenario.

JP Morgan forecasts the RBA will lower the cash rate by 50 basis points at their next meeting in February, and by another 25 basis points in March to a 3.5 per cent rate, lowest rate since 1965.
Others are now saying that another 100 basis point reduction in February is on the cards.

Queensland housing market on firm foundation

Who says young people are struggling to get their foot in the door of the real estate market?
Buyers, many of them in their 20s, are piling their cash into bricks and mortar, snapping up bargains as quick as they come up for sale.
And here's the reason why. A modest house in Brisbane has grown in value by 513 per cent since it was sold in 1992 for $57,500.
Jack Tsao, 27, bought the Mt Gravatt East investment property last year for $295,000 and will take it to auction next month.
Mr Tsao said his decision to sell follows an extensive six-month renovation on the house, which included painting, the installation of a new kitchen and bathroom and the addition of an extra room on the lower floor.
"I was going to keep it and rent it out," Mr Tsao said. "But then there was a lot of fixing up to do. It was my first experience at renovating."
According to the Real Estate Institute of Queensland the median house price for the suburb is $349,000.
The Courier-Mail has tracked the price growth of the house, at 909 Cavendish Rd, over the last 15 years.
Since 1992 the 625sq m property has been bought and sold four times, gathering a 513 per cent capital gain along the way.
If the price of consumer staples grew at the same rate, Brisbane shoppers would today pay $5.39 for a litre of milk, $7.44 for a loaf of bread, and $3.18 litre for petrol.
Newlyweds Georgina and Neil Mackenzie-Forbes have recently bought a property together for the first time - a New Farm townhouse they will live in but intend to rent out or sell in the future.
Both experienced property investors when they were single, Mr Mackenzie-Forbes, 36, said he and his wife were willing to pay up to $1 million for the right property. They paid $675,000 for their 200sq m house.
"This one was close to the city, and we liked the fact that it didn't need any work - we were able to just move in and enjoy (it)," he said.
Mrs Mackenzie-Forbes, 29, said she intended to keep investing in the property market in the future. "I think there are bargains still to be had, you've just got to get in there," she said. Source: Courier Mail

Government urged to take heat out of housing market

The Northern Territory Chamber of Commerce says rising house prices are contributing to Darwin's high inflation rate.
The latest consumer price index (CPI) shows Darwin's inflation rate this year is 3.7 per cent, 2 per cent more than Sydney and Adelaide.
Chamber of Commerce spokesman Chris Young says a shortage of available land for development is not helping.
"We're asking the Government to accelerate the release," he said.
"They've got a number of planned releases over the next couple of years.
"Our concerns are that they maybe need to accelerate those a little bit to try and take a little bit of heat out of the market."
Source: ABC

Hot property areas as housing market heats up with mortgage business surge ahead of the election.

Melbourne and Canberra were the hot property standout performers in a mixed bag of capital city housing price increase results for the June quarter while home unit and apartment prices are improving nationwide.
Melbourne house prices jumped 6.5 per cent to a median of $398,217, the strongest growth in six years, according to researcher Australian Property Monitors.
But it was a different story in other capitals.
Prices in Hobart falling 1.6 per cent and Perth's housing bubble deflating at a rate of 0.2 per cent.
Sydney inched along with growth of 1.1 per cent, though apartments turned in a better result with prices rising 2.2 per cent.
"Melbourne, Canberra and Brisbane property markets are booming," APM general manager Michael McNamara said.
Prime property is hot
The growth is being driven by the premium end of the market while many outer suburban areas suffer, particularly in Sydney.
Canberra recorded the best growth of all, with 7.4 per cent for the quarter and a surge of 17.6 per cent over the year, taking the median price to $319,587, according to APM.
In Brisbane, prices jumped four per cent for the quarter, or 12.8per cent for the year.
In Melbourne's inner urban area, which includes suburbs such as Malvern, Port Melbourne and St Kilda, prices grew 10.7 per cent for the quarter.
Prahran recorded a massive 22 per cent jump based on 63 sales, Mr McNamara said.
Inner-city heats up
Melbourne's inner south market was also on the boil, with 11.5 per cent growth in house prices, for the quarter.
"It's difficult to see that this heat will be as sustained as in the first three years of this decade," Mr McNamara said.
"It's more likely a six to 12-months phenomenon," he said.
"Low stock levels mean that more cashed-up buyers are competing fiercely for a smaller pool of available properties on the market.
"First-home buyers are also competing with investors trying to take advantage of increasing gross rental yields."
Clearance rates improving
JP Morgan chief economist Stephen Walters said auction clearance rates - about 80 per cent in the past few weekends - pointed to better fortunes in Melbourne.
Mr Walters said investors were likely to be a major factor in the price growth with Melbourne's median price still about $100,000 lower than Sydney.
Adrian Fini, executive director, development, for Mirvac Group, one of Australia's largest apartment developers, said Melbourne residential prices and turnover had been recovering throughout the first half of this year.
While the Sydney market, apart from the strong top end, had been flat, the beginnings of a turnaround were expected later this year, Mr Fini said.Source: The Australian

Labor promises housing relief for home buyers in its election platform

Australia's Labor Party has promised to work with state and local government to cut red tape for home buyers, reducing delays in the real estate development application process, if it wins the upcoming federal election.
Australia's hopeful "Government in waiting" says industry bodies like the NSW Urban Taskforce has found that delays cost up to $4 billion a year alone in the state, and in some local council areas development applications are taking at least 12 months.
Holding costs and delays can add up to 15 per cent to a project's overall cost, it says.
“These delays add unnecessary cost burdens to the home buyers and this is significant to first time home buyers on limited budgets,” Labor leader Kevin Rudd said in a joint statement with treasury spokesman Wayne Swan and housing spokeswoman Tanya Plibersek.
Labor's national housing affordability summit on July 26 will consider how to roll out a national online real estate land development application tracking website that would be uniform across all states, territories and local government planning departments.
“This would allow all home buyers, including first time home buyers to check the status of their approval at any time of the day,” Mr Rudd said.
“It would also save local councils time and money. A similar scheme known as the Application Tracking Online Service is already operating in northern Sydney at Pittwater Council.”
Labor says the process of complying minor housing projects – such as extensions – also needs streamlining in local government councils.
Source: AAP