House prices soar in city's hot suburbs

Story link: House prices soar in city's hot suburbs | News.com.au

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Steven Richards
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I would expect prices to go up intitally even at what I percieve to be the top of an exponential increase (almost) some of these owners are topping up the price with the expences already incurred and want out now while things still look rosy. I attended an Auction in one of the aforementioned suburbs...I have been to livelier Funerals..2 Bidders. It sold, the new owners are not a happy lot, especially after the water pipe in my unit 2 stories above them leaked via Gravity to permeate the new Timber Floors and matching Robes etc. $300K for a large 1 BR with Driveway facing Tram tracks.. It cost my owner $170 for the Plumber, as I protected his carpets by cutting off the water, to late for them sadly.

So maybe they sold a few high-flying apartments, houses, whatever in affluent areas that may have been brand new expensive builds, with a low volume of sales in the area due to a sluggish market, which completely skews the median for the month.

Then the spruikers can crow that 'the new median in suburb X is $1M' or whatever off the back of two high-end sales int he month -- it's a completely meaningless number, doesn't represent the average value of most properties in the area, or whatever.

What's the end result of this biased reporting? RE agents and the REIs hope other home owners in that area will see the story, and decide to list their property to 'cash in' on the apparent boom, and get locked into the empty promises of how much their property will fetch at auction until they're legally committed to do it -- then they will probably be disappointed at sale time, but the RE agent got another listing, sale and commission. It seems to be all about driving up sales activity for RE agents' commission.

Further, potential purchasers read the story and either rush in 'before prices go any higher' or purchase speculatively to try to cash in on what they think is a booming suburb (although it will already be too late by then you would think), and, once again, the RE agent gets a sale and interest in the suburb. Either way, the panic spreads around the community about the fear of rising prices in every suburb. The same story works both ways for them!

What's always missing from these stories is who actually wrote them and why. They're pretty clearly payola cash fro comment stories written by RE vested interests with occasionally a newspaper staffer's name attached to them. Apparently a lot of bylines attached to stories aren't written primarily by that journo at all but by an underling, also.

I've lived in Melbourne my whole life and have seen house prices leap from a median of $130,000 in 1996 (about $195,000 in today's money) to around $500,000 now.

I am a town planner by trade (and part time economics student) and I am in the early stages of writing a book called "Houses of Cards". This book advocates the idea that town planning could entirely absolve the affordability crisis in respect of land prices (not the cost of development) in all of Australia's capital cities. It is something I have thought long and hard about for the last 4 years.

Using Sydney as an example of why, here is the basics of my reasoning.

Sydney is approximately 12,000 square km. Considering that there are 1 million square metres in a square kilometre, and that sydneys population is about 4.3 million, there is about 2,790 square metres per person within Sydney. Considering there is an average of 2.6 people per household, times that 2,790 by 2.6 and you get the figure per household, 7, 255 square metres.

Businesses, infrastructure, roads, government buildings, parks etc.. take up approximately half of that land, which leaves over 3000 square metres of land per household.

Hence why is there fierce competition for residential land within Sydney? Shouldn't it be vastly abundant compared with societies needs and hence near free (plus the cost of paying for utilities and local infrastructure which is about 50k), at least on the urban fringe? Why do buyers have to compete with other buyers for a 500 square metre lot on the urban fringe? Shouldn't sellers of lots be competing with other sellers for too few buyers and not the other way round? The answer to these questions are far less simple than they appear on the surface (it is by no means simply a matter of supplying more residentially zoned land, which was what I initially thought), but they are related to town planning controls, something which most economists do not understand well. Likewise, my understanding of economics may not yet be adequate for the task I have set myself. I do however believe I have a comprehensive solution to the housing affordability crisis, but that as a result of the absolvement of said crisis, Australia's economy might crash severely as many people will enter a state of negative equity. If a large ratio of people also lose their jobs and cease to be capable of paying for their mortgages, thats toxic debt for banks. The major land developers who have large stocks of land will probably all go bankrupt, leaving banks with huge toxic debts. I do however, see this situation as the lesser of two evils as we will eventually recover, whereas at present Australia is simply becoming more and more unegalitarian.

If Steven Keen would like to have an input in my book he is welcome to send me an email.

I get the feeling Melbourne's current lunacy might have capped out at this place..

46 Leslie Street RICHMOND SOLD - $732,000 @ domain.com.au

LOL

If anyone thinks it's time to get yourself up to the eyeballs and pay a truckload of interest to get into a place like this, you're kidding yourself. House prices may not crash but $732K for that house isn't leaving much room for upside!

Keep saving and compound interest you're earning instead of paying. Prices can only rise with incomes and there's mean reversion ahead one way or another.

How weird is it for the younger generation to be saying "we need to save.. that's just too much debt", while the baby boomers are screaming from the rooftops "borrow, borrow, borrow!"?

Maybe we should let the seniors (those who lived through the depression) settle it? I think I know who's side they would be on..

Gold John! My sister rents a neat little renovated place in Richmond for $440 a week, just moved in, much better than that joint. That is madness!

The comments on the generational differences with attitude to debt is very true too.

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The essence of this convention — though it does not, of course, work out quite so simply — lies in assuming that the existing state of affairs will continue indefinitely, except in so far as we have specific reasons to expect a change. - John Maynard Keynes

Jaw drops........wow, just wow. It's really insane now. As someone looking I can honestly say my gut is telling buying is just a flat out BAD MOVE. Wow. Where is all this cash coming from?

Ladies and Gentlemen, the greatest fool of all has just left the buildng.

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The essence of this convention — though it does not, of course, work out quite so simply — lies in assuming that the existing state of affairs will continue indefinitely, except in so far as we have specific reasons to expect a change. - John Maynard Keynes

You have to remember that people abroad can invest here still, with loans at MUCH lower rates to what we get in Australia. Most people are completely oblivious to the reality of this situation and totally gullible in buying up a market they're told will still go to the moon.

For my 2 cents, sit back and LET it go as high as they want to take it. The further the insanity goes, the less of a meaning it has to me.

May as well say the above property sold for 50 million dollars. It's still 100% unaffordable and a derelict piece of crap in my book.

But if the Australian housing market shows you anything it's that a fool and his line of credit are soon parted!

When the value of that house does keep rising for the next 30 years (to insane levels) as you suggest, would you still say the person who paid $732K was a fool? $732K might seem like a very good price ten years from now. I'm sure people were saying the same thing 10 years ago... i.e. that $350K was a crazy price for that house. And 10 years before that people probably said $175K was ridiculous.