The future of Australian property prices

[medicowallet]

Agree with you there - i need look no further than on of my friends. Same age as me, with 3 investment properties, 2 of which were acquired using equity from the first, all accumulated in 2 years. He just drew out his equity for a new pool and some landscaping. He has no cash and no buffer in the event of a drop in prices - needless to say even the slightest fall could wipe him out and im sure there are many like him. Would really compound any declines in the market for sure.

I hold 15% of the asset value as cash in an offset account, so coupled with my initial 20% deposit there'd need to be a 35% fall for me to be margin called, so i have a reasonable buffer. But i'd rather not have to use it of course

Do you hold similar buffers for your IPs? Although from the sounds of it you've been in the game longer than i have so theyre probably mostly positively by now i imagine? Considering you feel strongly about a 20% fall, have you sold your propertys? If not, may i ask why?

I have not sold anything, I prefer not to. I have no gearing on any property.

I am not selling, because I do not have to sell. If, over a few years properties drop 20% AND banks decide that all loans need to be at 90% LVR as a minimum, then it will not affect me. I have also not purchased any property recently.

It amazes me how people say things along the lines that historically, prices of property do not crash, but, by going by their same logic, properties, historically, are horrendously expensive.

But, if prices fall, it will affect even those people with high equity levels, and this WILL stifle the economy and the person's ability to invest in the future.

 

[Glen48]

Its not the drop you need to worry about it how long it Will stay on the bottom for an IF it does rise how much at least we have USA to use as a guide how it all works.

 

[cynic]

I wouldn't wish a loss on anybody and certainly wouldn't take comfort in you losing money - quite the opposite. You and I have differing opinions about the future and the purpose of this forum is to share such thoughts so that we may both benefit each other to perhaps consider 'all sides of the story' and make informed decisions.

Although I currently have a pessimistic view of the near term direction of property prices, I wholeheartedly agree with the sentiments you've expressed here in relation to the value of forums and the need for people to make their own informed decisions in the management of their affairs.

Although making a profit (or preventing a loss) from somebody else's advice can be pleasant, there's nothing more annoying than making a loss after abandoning an otherwise profitable strategy solely upon someone else's insistence.

Whilst I've never enjoyed losing money from my own decisions, I've always considered this to be the price one happily pays for experience. Said experience, though unsavoury at the time, will often lead to the enhancement of skills, understanding and future profitability.

I can see from your various posts, you've done plenty of research, formed an opinion, and enacted a plan with various contingency measures in place. Should unforeseen circumstances arise, I've no doubt that you'll be quick to apply your skills to making the necessary changes to your plan and ensuring your financial survival.
I would of course caution anyone against relying too heavily upon their current employment circumstances in the present financial environment. Even the various insurance policies available might not be dependable if our economy collapses in a similar way to our economic siblings around the globe.
Of course, one cannot be expected to cover every contingency.If we did try to, we'd probably never invest any money at all!

Political (Governmental Policy) risk is also a factor to consider with real estate. It's difficult to conceal it and/or transport it if (and when) major political changes occur.

P.S. Don't take my advice unless it happens to really resonate with you. After all, it's your bank balance so you're the one whom will be financially accountable for the decisions you make, I'm just another anonymous poster.

 

[KurwaJegoMac]

I have not sold anything, I prefer not to. I have no gearing on any property.

I am not selling, because I do not have to sell. If, over a few years properties drop 20% AND banks decide that all loans need to be at 90% LVR as a minimum, then it will not affect me. I have also not purchased any property recently.

Understand not having to sell if you have no gearing on any property, but if a 20% fall is imminent why wouldn't you sell now, wait until prices drop 20% and then buy back in? Of course there'd be transaction costs and a possible CGT liability, but surely this would be offset by buying the same asset at a 20% discount sometime in the future?

It amazes me how people say things along the lines that historically, prices of property do not crash, but, by going by their same logic, properties, historically, are horrendously expensive.

But, if prices fall, it will affect even those people with high equity levels, and this WILL stifle the economy and the person's ability to invest in the future.

True. If prices fall everyone will be impacted in some way. Investors will be limited in their ability to invest in the future, construction would fall, unemployment would rise and manufacturing of materials would suffer. This would in turn affect every person in some shape or form. As a nation we would become poorer - let's hope this doesn't eventuate, but one day the price will be paid. Can't have a boom forever.

 

[KurwaJegoMac]

Although I currently have a pessimistic view of the near term direction of property prices, I wholeheartedly agree with the sentiments you've expressed here in relation to the value of forums and the need for people to make their own informed decisions in the management of their affairs.

Although making a profit (or preventing a loss) from somebody else's advice can be pleasant, there's nothing more annoying than making a loss after abandoning an otherwise profitable strategy solely upon someone else's insistence.

Quite right Cynic! I made this mistake with my trading once, abandoning my profitable trading strategy as I was told it was 'not the way investors do it'. Needless to say, it cost me some $$ and has reinforced in me the desire to stick to my strategy as it's what works for me given my circumstances, education, personality and beliefs.

Whilst I've never enjoyed losing money from my own decisions, I've always considered this to be the price one happily pays for experience. Said experience, though unsavoury at the time, will often lead to the enhancement of skills, understanding and future profitability.

Well said. It's a costly education at times but if one starts small and makes the mistakes early it will help when dealing with bigger $$s. Can you imagine if people jumped into trading for the first time with several hundred thousand $$? Considering how much I lost (as a % of capital) in my first year I think i'd have jumped off a building if I had a big pool of capital at the time

I can see from your various posts, you've done plenty of research, formed an opinion, and enacted a plan with various contingency measures in place. Should unforeseen circumstances arise, I've no doubt that you'll be quick to apply your skills to making the necessary changes to your plan and ensuring your financial survival.
I would of course caution anyone against relying too heavily upon their current employment circumstances in the present financial environment. Even the various insurance policies available might not be dependable if our economy collapses in a similar way to our economic siblings around the globe.
Of course, one cannot be expected to cover every contingency.If we did try to, we'd probably never invest any money at all!

Political (Governmental Policy) risk is also a factor to consider with real estate. It's difficult to conceal it and/or transport it if (and when) major political changes occur.

Thanks for your input Cynic. I definitely can't rely solely on my income because as you say it could always dissappear. Unfortunately that's a risk I need to bear, as i'm sure everyone did when they first started investing. I'll do my best to have contingencies in place but as you pointed out, you can't have a contingency for everything. I too hope we don't suffer like our economic siblings, no-one wants to go through a prolonged downturn.

Politic risk is something I had not considered (save for removal of FHB grants, negative gearing, etc). I am not educated enough in our political parties to be able to make informed decisions on that front, but have been reading books and articles in recent months to try and understand it better.

P.S. Don't take my advice unless it happens to really resonate with you. After all, it's your bank balance so you're the one whom will be financially accountable for the decisions you make, I'm just another anonymous poster.

Appreciate you giving your thoughts. As I mentioned before, I welcome feedback and views from both sides of the fence - it helps in making more informed decisions. As you say, in the end i'll be accountable for the decisions I make. Given my circumstances and beliefs I believe I made the right one. No matter what the outcome i'll be a winner in the end - i'll either increase my wealth or learn some important lessons (albeit at a high cost )

 

[medicowallet]

Understand not having to sell if you have no gearing on any property, but if a 20% fall is imminent why wouldn't you sell now, wait until prices drop 20% and then buy back in? Of course there'd be transaction costs and a possible CGT liability, but surely this would be offset by buying the same asset at a 20% discount sometime in the future?

1. I dislike RE agents (the con artists) so much, I will not line their pockets.
2. Would you sell a property that you like (sturdy construction, no asbestos, excellent tennants)
3. I hate paying CGT.
4. I don't have to sell.
5. I have other investments to "play with"

 

[medicowallet]

Whilst I've never enjoyed losing money from my own decisions, I've always considered this to be the price one happily pays for experience. Said experience, though unsavoury at the time, will often lead to the enhancement of skills, understanding and future profitability.

I've no doubt that you'll be quick to apply your skills to making the necessary changes to your plan and ensuring your financial survival.

1. Never lost money?? Are you serious? You are either generation Y (and have never known hard times) or have very little investment exposure.

BTW most people I know become much better investors only once they lose considerable amounts of money.

2. "financial survival" can occur with massive capital deterioration.

 

[moXJO]

1. I dislike RE agents (the con artists) so much, I will not line their pockets.
2. Would you sell a property that you like (sturdy construction, no asbestos, excellent tennants)
3. I hate paying CGT.
4. I don't have to sell.
5. I have other investments to "play with"

man that is some emotional investing, or you just don't want to do a Steve Keen.
The latest I heard was property to head up even more

 

[KurwaJegoMac]

1. Never lost money?? Are you serious? You are either generation Y (and have never known hard times) or have very little investment exposure.

BTW most people I know become much better investors only once they lose considerable amounts of money.

2. "financial survival" can occur with massive capital deterioration.

Medicowallet, Cynic is not saying he has never lost money - he says that he doesn't enjoy losing it. But even if he does lose it, he's fine with it because it's the price he pays for experience.

Whilst I've never enjoyed losing money from my own decisions, I've always considered this to be the price one happily pays for experience.

I do agree with your second point and about most 'better' investors having lost considerable amounts of money. Same goes for business owners too I find. I've heard some say that the best thing that ever happened to them was going broke.

 

[medicowallet]

Medicowallet, Cynic is not saying he has never lost money - he says that he doesn't enjoy losing it. But even if he does lose it, he's fine with it because it's the price he pays for experience.



I do agree with your second point and about most 'better' investors having lost considerable amounts of money. Same goes for business owners too I find. I've heard some say that the best thing that ever happened to them was going broke.

Ah, my bad

I think losing considerable amounts of money due to poor decisions gives you some perspective on the importance of researching and making a plan b. I see that is what you have done, and good work..... but it still does not prevent you losing money in a downturn.

 

[explod]

The latest I heard was property to head up even more

Who or where did you hear that from?

 

[cynic]

BTW most people I know become much better investors only once they lose considerable amounts of money.

2. "financial survival" can occur with massive capital deterioration.

Yep, sure do, and surely can.

I've experienced the truth of both your statements. Although massive and considerable to me might not be quite the same as massive and considerable to others. A significant loss during the GFC gave me quite an education. I think I would've preferred a cheaper lesson, but the loss amount turned out to be critically important for other reasons that I shan't elaborate on here.

 

[trainspotter]

Who or where did you hear that from?

Here -------------> http://au.news.yahoo.com/thewest/a/-/breaking/9711405/perth-housing-prices-tipped-to-leap-20pc/

 

[KurwaJegoMac]

Here -------------> http://au.news.yahoo.com/thewest/a/-/breaking/9711405/perth-housing-prices-tipped-to-leap-20pc/

I see your article and raise you a "House price slide eclipses GFC drop".

HA! Take that!

http://www.theage.com.au/business/house-price-slide-eclipses-gfc-drop-20110630-1gruy.html

 

[explod]

Here -------------> http://au.news.yahoo.com/thewest/a/-/breaking/9711405/perth-housing-prices-tipped-to-leap-20pc/

When was your name moXJO?

Notice you talk little of markets and stocks, just sitonthefenceandpicksh itoneveryone and sundry who do not agree you with you, Your Worship. Not to mention very undemocratic. At least labor and the greens are endevouring to settle issues on a consensis basis. The Abbott just says nah to everything and refuses to be drawn on costings of anything either. Amounts to nought.

Texas is having a 50 year drought I notice.

 

[KurwaJegoMac]

When was your name moXJO?

Notice you talk little of markets and stocks, just sitonthefenceandpicksh itoneveryone and sundry who do not agree you with you, Your Worship. Not to mention very undemocratic. At least labor and the greens are endevouring to settle issues on a consensis basis. The Abbott just says nah to everything and refuses to be drawn on costings of anything either. Amounts to nought.

Texas is having a 50 year drought I notice.

Interesting how if you're a property 'spruiker' and you pick on the bears you get flamed hard. But if said bears pick on the 'spruikers' no one comments about it or cares? The 'spruikers' come in, offer their opinion and then get hammered by 50 bears - most of it by one-line, baseless and factless armchair economists.

Granted there are some bears out there posting legitimate views, concerns and information - but the vast majority just hurl jibes. It's no wonder there's 50 bears vs 1 'spruiker' at any given time. Notice how there's usually 1 to 2 max at any time? See how long they last before they tire of the jibes and give up. Meanwhile the majority of drivel that's posted here keeps jibing the next person to come along with an alternate view and the process repeats itself.

The poo is flying from both sides of the fence, let's not stoop to personal attacks.

 

[CamKawa]

Interesting how if you're a property 'spruiker' and you pick on the bears you get flamed hard. But if said bears pick on the 'spruikers' no one comments about it or cares? The 'spruikers' come in, offer their opinion and then get hammered by 50 bears - most of it by one-line, baseless and factless armchair economists.

Granted there are some bears out there posting legitimate views, concerns and information - but the vast majority just hurl jibes. It's no wonder there's 50 bears vs 1 'spruiker' at any given time. Notice how there's usually 1 to 2 max at any time? See how long they last before they tire of the jibes and give up. Meanwhile the majority of drivel that's posted here keeps jibing the next person to come along with an alternate view and the process repeats itself.

The poo is flying from both sides of the fence, let's not stoop to personal attacks.

I think you'll find the Bull vs Bears ratio fluctuates with the property market. I agree though that more analysis is needed in this thread. One of the problems with property analysis is the majority of the stats are created and published by spruikers themselves... which is all fair game to hurl rocks at (Greek style) I reckon.

 

[KurwaJegoMac]

I think you'll find the Bull vs Bears ratio fluctuates with the property market. I agree though that more analysis is needed in this thread. One of the problems with property analysis is the majority of the stats are created and published by spruikers themselves... which is all fair game to hurl rocks at (Greek style) I reckon.

Agreed - it'd be nice to see some independant stats. But with almost all stats they can be manipulated - and often are. Hard to get an independant view when almost all suffer from confirmation bias.

Best to just ignore the spruiker's articles, look at how many comments those articles generate - more advertising revenue. Best way to harm those sort of 'authors' is to just not read their rubbish and drop advertising revenue for those sorts of articles.

 

[trainspotter]

I see your article and raise you a "House price slide eclipses GFC drop".

HA! Take that!

http://www.theage.com.au/business/house-price-slide-eclipses-gfc-drop-20110630-1gruy.html

I raise your article and flip the river on the table with this "Sydney house prices to soar 20 percent by 2013"

Ha ha ..... Touche'.

http://www.dynamicbusiness.com.au/news/sydney-house-prices-bis-shrapnel-1680.html

 

[trainspotter]

When was your name moXJO?

Notice you talk little of markets and stocks, just sitonthefenceandpicksh itoneveryone and sundry who do not agree you with you, Your Worship. Not to mention very undemocratic. At least labor and the greens are endevouring to settle issues on a consensis basis. The Abbott just says nah to everything and refuses to be drawn on costings of anything either. Amounts to nought.

Texas is having a 50 year drought I notice.

WOW ! Where did that come from explod?

I generally do not talk much about markets and stocks as there are people far more smarter and astute than me to bang on about it. I used to post heavily in the stock threads I held interest/shares in but have told all and sundry I am now in cash and property with NIL shareholdings in speculative ATM.

Why are you dragging politics into this thread? What has a Texas drought got to do with Australian property prices?

Mate, if you want to have a go by all means PM me and we can sort whatever is blocking your sphincter muscle.