# This sell off should drop the price of houses



## Ken (15 August 2007)

Does Logic say this?

The economy now has less money due to the sell off of stocks. People would have lost money. Hopefully this effects how much they have to pay for housing, and investors are forced to sell houses.

SO although I may have lost 10k on the stocks if property falls by 2-3% in effect it could be a good thing.

Although the majority of housing is for owner occupier obviously. 

Combined with interest rate rises. surely! this would slow, or drop the level of houses to some extent.

Am I clutching at straws here?

Does the market have an effect on property?  Or is just a supply and demand thing solely.


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## numbercruncher (15 August 2007)

*Re: this sell off should drop the prices of houses*

lenders will raise there Interest rates for hundreds of thousands of people beyond the reserves raise ..... Lenders will be alot more choosy whom they lend to ......

All the dominoes are in place for realestate to get hammered in the coming months/years.


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## bigt (15 August 2007)

*Re: this sell off should drop the prices of houses*

Isnt there an inverse correlation between the stock market and the housing market (generally) i.e. stocks down/houses up?

Or does this go beyong the generalisation, as its related to credit issues?


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## YOUNG_TRADER (15 August 2007)

*Re: this sell off should drop the prices of houses*

Thats one way to look at it, here's another which I think is far more important,

I know plenty of big hitters with over $1m in cash sitting in thier accounts, now the longer this volatility lasts in equity marekts the more they consider alternative investment options such as Bonds/Fixed Interest Securities and Property,

So if anything a falling stock market in my opinion makes alternative investments more attractive, not that I think we're quite there yet,

As for myself, I have just finished building another property and have been flooded with buy offers for it, so I can tell you the demand is still there

Keep the faith, RESOURCE BULL = STRONGER FOR LONGER!!!!!!!!!!


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## UPKA (15 August 2007)

*Re: this sell off should drop the prices of houses*



numbercruncher said:


> lenders will raise there Interest rates for hundreds of thousands of people beyond the reserves raise ..... Lenders will be alot more choosy whom they lend to ......
> 
> All the dominoes are in place for realestate to get hammered in the coming months/years.




Boral has disagreed, they have "predicted" a recovery in housing sector by 2009:
http://www.news.com.au/business/story/0,23636,22248385-31037,00.html

bt with the rising interest rate, I seriously cant see that happening anytime soon. not to mention that labour might come into power by then.


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## numbercruncher (15 August 2007)

*Re: this sell off should drop the prices of houses*



> Commonwealth Bank chief Ralph Norris concedes that interest rates could rise for hundreds of thousands of mortgages - regardless of official increases by the Reserve Bank - because lenders are struggling with a global credit squeeze caused by the crisis in the US housing market.





www.smh.com.au/news/national/credit-squeeze-to-push-rates-higher/2007/08/14/1186857512018.html


Labor wont have any effect on Interest rate decisions.


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## wayneL (15 August 2007)

*Re: this sell off should drop the prices of houses*



bigt said:


> Isnt there an inverse correlation between the stock market and the housing market (generally) i.e. stocks down/houses up?
> 
> Or does this go beyong the generalisation, as its related to credit issues?



It used to be the case, a la the economic clock.

But Greedscam through pebbles into the cogs after 911. The clock's now broken and everything will tank together.


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## numbercruncher (15 August 2007)

*Re: this sell off should drop the prices of houses*

Basically the days of spending more than you earn with asset price rises picking up the tab are gone.


No one really beleived that house prices could rise at a double digit rate for ever did they ?

Wonder if they can fall at the same exhorbarant rate ?

Politicians will be blamed ? Johnny will surely be strung out over the whole realeGate scandal ....

Maybe theyll drop interest rates to 1pc and let the party go full swing (>:


Time will tell i guess .....


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## YOUNG_TRADER (15 August 2007)

*Re: this sell off should drop the prices of houses*



wayneL said:


> But *Greedscam* through pebbles into the cogs after 911. The clock's now broken and everything will tank together.




Greedscam, lol Wayne thats a nice one!


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## Ken (15 August 2007)

Well I can say house prices have been rising around Melbourne. Median house price up to 410k.

I hear a lot about home owners being stretched, but house prices keep rising.

Kew rose by 12% since the start of the year. Unsustainable I would have thought.

The economy is too confusing..

errr


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## Pat (15 August 2007)

Ken said:


> Well I can say house prices have been rising around Melbourne. Median house price up to 410k.
> 
> I hear a lot about home owners being stretched, but house prices keep rising.
> 
> ...



Agree mate, far too many variables to place a bet.

You thinking of buying?


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## ROE (15 August 2007)

*Re: this sell off should drop the prices of houses*



bigt said:


> Isnt there an inverse correlation between the stock market and the housing market (generally) i.e. stocks down/houses up?
> 
> Or does this go beyong the generalisation, as its related to credit issues?




Only way house goes up is cheap credit and low interest rate.
Stock fall during those times is just pure random chance  

but having said that House price should move up in line with inflation so I'm talking about a boom here something in the order of 8-10% or more a year.


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## ROE (15 August 2007)

Ken said:


> Well I can say house prices have been rising around Melbourne. Median house price up to 410k.
> 
> I hear a lot about home owners being stretched, but house prices keep rising.
> 
> ...




I dont know  some of the figure may be dodgy as hell because rich suburb where borrowing isn't a factor for rich people then they just buy what ever they like at any price so they push the general price up ... but look to outer suburbs and average folks I dont think so..


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## ROE (15 August 2007)

*Re: this sell off should drop the prices of houses*



UPKA said:


> Boral has disagreed, they have "predicted" a recovery in housing sector by 2009:
> http://www.news.com.au/business/story/0,23636,22248385-31037,00.html
> 
> bt with the rising interest rate, I seriously cant see that happening anytime soon. not to mention that labour might come into power by then.




Real estate people and real estate related industry every three months 
they talk up the market there going to be a recover soon and demand are picking up but the fact is they been saying that since 2003


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## Kathmandu (15 August 2007)

Rockhampton Central Qld is being touted as having the most affordable housing in QLD.

Houses that were selling here 4 years ago for $60k are now $300k+ 

http://www.realestate.com.au/realestate/agent/ray+white+rockhampton/xrwxem/104189368

Today I moved into my new build that cost house and land inc A/c, turf ,fences $380k  , the price rise in 7 mths ? , well this is for sale a few houses away.

http://www.realestate.com.au/realestate/agent/l.j+hooker+rockhampton/xljroc/page2/104138952

Dave


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## toothfairy (15 August 2007)

*Re: this sell off should drop the prices of houses*



ROE said:


> Only way house goes up is cheap credit and low interest rate.
> Stock fall during those times is just pure random chance




Not absolute, I don't know whether you are old enough to remember the 1987-1990 housing boom period, what was the interest rate?


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## Kathmandu (15 August 2007)

*Re: this sell off should drop the prices of houses*



toothfairy said:


> Not absolute, I don't know whether you are old enough to remember the 1987-1990 housing boom period, what was the interest rate?




Bring on that 18%, I'm ready and waiting.

Dave


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## toothfairy (15 August 2007)

*Re: this sell off should drop the prices of houses*



Kathmandu said:


> Bring on that 18%, I'm ready and waiting.
> 
> Dave



Thank you, here comes the interesting part :

AND the 1987-1990 high interest rate housing boom came AFTER the 1987 stock market crash. 

SO anything is possible, but not absolute, never say never.


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## Broadside (16 August 2007)

this is an interesting discussion, not sure though that money looking for safety will flow into property given valuations *by historic measures* have reached all time highs.  Frankly I see more safety staying in the market or hiding cash under the mattress.

But after 1987 yes property boomed, seems a different set of conditions this time.

Do many people think real estate is a safe bet at this point in time?  With liquidity tightening and real estate in the US under the pump, I certainly don't.


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## toothfairy (16 August 2007)

I am only talking about very selected properties for investment only. They should be within 5 km of CBD. In Vic. that restricts to Carlton, Fitzroy, South Melbourne, Richmond etc. The reason being the restricted number and the style/period of these houses will not be repeated. Also, furthering the distance will decrease the exclusivity by a factor of the square of the distance. It works for all parts of the world, why not here? These are not the first home buyers' choices because they are too small for the price, first home buyers like a bit of comfort value. These are for rental purposes for the pre-first-home-buyers who like to be near action areas.


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## bingk6 (17 August 2007)

*Re: this sell off should drop the prices of houses*



wayneL said:


> It used to be the case, a la the economic clock.
> 
> But Greedscam through pebbles into the cogs after 911. The clock's now broken and everything will tank together.




Wayne,

If the sharemarket jitters continue for much longer then more and more funds from the sharemarket will be pulled out and these funds will need to find a home. In the case of the 87 crash, which is significantly bigger than what we are seeing at the moment, the funds from that crash essentially powered the property boom for the 3 years after the crash. 

I don't recall how high the interest rates were at the time of the crash or shortly thereafter when the property boom took hold, but if they were at the reported 18%, then it reinforces the point that people who bailed out of the stockmarket would not be happy with ther funds in the bank. One can talk about liquidity squeeze affecting property prices today, but 18% at the time would have been one hell of a squeeze as well.

Mr point is that funds withdrawn from the stockmarket has to find a home, and I'am pretty sure that the home is not in a bank. If that is the case, and if the funds are not to go to property then where will they go ?? My point is that they can't all tank together.


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## numbercruncher (17 August 2007)

*Re: this sell off should drop the prices of houses*



bingk6 said:


> My point is that they can't all tank together.




Try telling that to the good citizens of the old U S of A


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## nizar (17 August 2007)

toothfairy said:


> I am only talking about very selected properties for investment only. They should be within 5 km of CBD. In Vic. that restricts to Carlton, Fitzroy, South Melbourne, Richmond etc. The reason being the restricted number and the style/period of these houses will not be repeated. Also, furthering the distance will decrease the exclusivity by a factor of the square of the distance. It works for all parts of the world, why not here? These are not the first home buyers' choices because they are too small for the price, first home buyers like a bit of comfort value. *These are for rental purposes for the pre-first-home-buyers who like to be near action areas*.




The yield on residential property isnt much these days at about
3-4% nett.

Carlton is pretty good for growth though, i heard around 12%pa historically.


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## numbercruncher (17 August 2007)

> CAPE CORAL, Florida (Reuters) - Phone books that were delivered but never opened rot away next to empty driveways and overgrown lawns, telltale signs that once-booming southwest Florida is now the center of the U.S. housing storm.
> 
> Until two years ago, middle-class retirees vied with property speculators for houses and apartments in Cape Coral, a town near Fort Myers on Florida's sun-drenched Gulf Coast. Now almost every other house on some of its streets has a for-sale sign outside.
> 
> ...





http://www.reuters.com/article/newsOne/idUSN1230248820070814


Stories like this all over the States at the moment, I wish you all the very best of luck in your realestate investments at the peak of the cycle, I just cant see for the life of me how realestate is currently a sure fire/sky is the limit investment as many would like to tout.


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## jammin (17 August 2007)

Speaking for the Sydney residential market only and drawing on the following points made above namely: Higher interest rates to come, cash being pulled out of the Stock market and looking for a new home. 
I see the 2 speed Sydney market expanding in disparity even further. Residential property in the outer west and South west will continue to fall/ remain weak due to the impact of interest rates (and no demand) whist the remainder of the market will continue to rise as cashed up buyers, (not as impacted by interest rates) find new "homes" for their ex stock market cash. 
Simplistic view.. Yes, but it is a possible explanation of what I am seeing in the property market in Sydney.


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## wbooo (17 August 2007)

If you look at property crashes throughout history they are 99% of the time International, due to the domino effect.

I shall explain this in greater detail

If there is a property crash in the US, due to it being the largest consumer market in the world, Americans personal wealth and confidence are hit, as we all know consumer confidence is important for general spending, if Americans spend less in the shops, retail business is hit, this includes imported goods, since the US is one of our largest customers, in addition to other countries in the worlrd, our export market will suffer, thus ozzie jobs will be cut, which will in turn effect our economy, (it is a double whammy effect because Europes exports and Chinas exports also get hit, as their economy and consumers are effected, our exports and tourism industry are effected further) as unemployment rises throughout the world, we have a situation of unaffordable housing, rising unemployment and falling stockmarkets, since manufacturers and the service industries suffer from falling sales.

All is not doom and gloom, some people will continue to prosper those in industries less reliable on the global economy and lower end stores/discount stores, lower end service sector eg Mcdonalds etc.  People will start to trade down, eg instead of buying clothes from Myers and David Jones, they will buy from less expensive stores, instead of fine dining they will eat burgers and take aways.

The staple industries should be o.k wg, Woolworths, since we still need to eat, also utilities will be o.k since we still need electricity.


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## Kathmandu (17 August 2007)

numbercruncher said:


> http://www.reuters.com/article/newsOne/idUSN1230248820070814
> 
> 
> Stories like this all over the States at the moment, I wish you all the very best of luck in your realestate investments at the peak of the cycle, I just cant see for the life of me how realestate is currently a sure fire/sky is the limit investment as many would like to tout.




Who said anything was sure fire and why do you think *everything* is at the top of the market ?

Sydney has been flat for a while and could be on it's way back in selected areas, I hold no stock,and have no intention of,  but know people that have been getting some over the last 18 mths and some getting developments off the ground now, after land banking for a while.

Adelaide is doing it's thing at the moment, some good stuff there.

Most of the east coast  of QLD is on it's way and most of the big regionals have been going gangbusters for a while with no real sign of letting up.

Sure Perth it could be argued it is at it's peak, but other WA areas are on the charge, it is not all about Perth.

Dave


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## bingk6 (17 August 2007)

jammin said:


> Speaking for the Sydney residential market only and drawing on the following points made above namely: Higher interest rates to come, cash being pulled out of the Stock market and looking for a new home.
> I see the 2 speed Sydney market expanding in disparity even further. Residential property in the outer west and South west will continue to fall/ remain weak due to the impact of interest rates (and no demand) whist the remainder of the market will continue to rise as cashed up buyers, (not as impacted by interest rates) find new "homes" for their ex stock market cash.
> Simplistic view.. Yes, but it is a possible explanation of what I am seeing in the property market in Sydney.





I find this explanation highly plausible and it does match closely with my own observations in Sydney. Therefore if these observations are correct then it would appear that in the event of a more prolonged bear stock market, that funds will be withdrawn from the share market and then pumped back into the more affluent areas of Sydney. In that case, the more affluent areas will continue to prosper and will not tank together with the share market. World order will be restored for them. 

For the less affuent areas, things will not look as rosy. They will cop a almighty hiding due to interest rates rising and credit crunch. For them, both property and share market will tank. For the folks in the USA that are suffering badly, I suspect most would fall into the latter category.


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## Ageo (17 August 2007)

30 years ago my dad earnt $400p/m and houses around here cost $6000 (so he almost earnt the same amount the house cost him in the 1st yr) and interest rates were high. Even if they were 20% back in the day, 20% on $6000 is better than 10% on $300,000.

With interest rates going up i cant see property going up in the near future. Less people buy which means prices stagnate and or even go lower.


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## randy86 (17 August 2007)

1st post!

if you think about it, the economy as a whole hasn't lost any money at all. Some people have lost, some have gained.

Whenever a trade is placed, money is exchanged, its not like money is lost.


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## Ageo (17 August 2007)

randy86 said:


> 1st post!
> 
> if you think about it, the economy as a whole hasn't lost any money at all. Some people have lost, some have gained.
> 
> Whenever a trade is placed, money is exchanged, its not like money is lost.




Randy if you look at it like that then no one ever loses money its always exchanged 

I think the best way to look at it is who is taking the money when someone loses it (Someone in Australia or Overseas?) Of its in Australia then at least the money stays here


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## algis (17 August 2007)

jammin said:


> Speaking for the Sydney residential market only and drawing on the following points made above namely: Higher interest rates to come, cash being pulled out of the Stock market and looking for a new home.
> I see the 2 speed Sydney market expanding in disparity even further. Residential property in the outer west and South west will continue to fall/ remain weak due to the impact of interest rates (and no demand) whist the remainder of the market will continue to rise as cashed up buyers, (not as impacted by interest rates) find new "homes" for their ex stock market cash.
> Simplistic view.. Yes, but it is a possible explanation of what I am seeing in the property market in Sydney.




This logic makes sense to me as well.  Unless there are structural changes, I see increasing divergence in suburbs that are gaining in value and suburbs that are dropping in value.  For if the 'local inflation' of a suburb is greater than the amount you borrow to purchase your home, well, it remains a good proposition to borrow as much as possible.  No point in borrowing or even purchasing debt free if the local inflation of the housing market is below that of the cash rate from a purely capital gain point of view.


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## toothfairy (17 August 2007)

Ageo said:


> 30 years ago my dad earnt $400p/m and houses around here cost $6000 (so he almost earnt the same amount the house cost him in the 1st yr) and interest rates were high. Even if they were 20% back in the day, 20% on $6000 is better than 10% on $300,000.
> 
> With interest rates going up i cant see property going up in the near future. Less people buy which means prices stagnate and or even go lower.




One cannot derive a conclusion today based on apparently similar scenario 30 years ago. Things have evolved, which incudude our expectations and ways of life. Figures and %tages meant different things those days & now. ( I was in my 20s 30 years ago).
When you said "less people buy" that to me means "less people wanted to sell at THAT price also". That means people who own prime real estate do not have mortgages, do not want to be forced to sell @ buyers' prices. After all, if they sell, how else will they invest their money? Shaky stock market? Bank deposits?


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## wayneL (17 August 2007)

randy86 said:


> 1st post!
> 
> if you think about it, the economy as a whole hasn't lost any money at all. Some people have lost, some have gained.
> 
> Whenever a trade is placed, money is exchanged, its not like money is lost.






Ageo said:


> Randy if you look at it like that then no one ever loses money its always exchanged
> 
> I think the best way to look at it is who is taking the money when someone loses it (Someone in Australia or Overseas?) Of its in Australia then at least the money stays here



I would do some more research on this fellas. 

That may have been true in the days of the gold standard, but is not correct in a fiat currency system.


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## tech/a (18 August 2007)

nizar said:


> The yield on residential property isnt much these days at about
> 3-4% nett.
> 
> Carlton is pretty good for growth though, i heard around 12%pa historically.





People continually forget the principal of leverage.
If I am leveraged 4:1 then growth of funds used is 12-16%.



> I just cant see for the life of me how realestate is currently a sure fire/sky is the limit investment as many would like to tout.




Its not just like every approach to the stock market isnt successful.
Right now High Density,low rental/purchase units are impossible to find.
This is what you build.(Have one project in the pipeline myself).
Those who bought at the so called "High" in 2003 in Adelaide inner suburbs are making a killing now.

If your thinking lodoc buy anything anywhere at anytime then sure you'll likely get burnt.
But its no different to me posting on a home buyers website that random buying of shares with no due diligence and proper planning from the investor.

I could well be saying


> I just cant see for the life of me how the stock market is currently a sure fire/sky is the limit investment as many would like to tout.




But there are some who see this time as OPPORTUNITY.


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## Ageo (18 August 2007)

wayneL said:


> I would do some more research on this fellas.
> 
> That may have been true in the days of the gold standard, but is not correct in a fiat currency system.




Thats ok Wayne i wasnt actually being serious, just showing him that unfortunately life doesnt run like that. 

But thanks for the heads up


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