The future of Australian property prices

[Julia]

Wayne Swann is a good treasurer.

Could you outline your reasons for this assertion?

 

[Tysonboss1]

Personally I hope they lose the lot and the kids go hungry. I don't think the government should help these people, infact I think they should actively take action that would result in rate raises.

Why ? These people stopped being families the minute the paid 350k for a 3 bedder on the urban fringe because of "capital gains" and became investors, who should suffer for their poor investments if the market dictates this is the case.

What these selfish evil people do not realise is that each dollar in capital gains means that some other family will be $1 worse off.

So tough to them - I hope they lose the lot.

You really are a bitter little man aren't you

Oh well I wish you the best, You are going to have trouble getting anything good in life with that lousy attitude,

All I will say is that the economy is not a cake where if one person gets rich it means they have a bigger slice and some one else will miss out.

The economy is more akin to candles, where we all work to light each other candles.

If I use my candle to light your candle I am not dimished anyhting and you have light,

But if your sitting there complaining and moaning no one is going to want to light your candle.

 

[McLovin]

Yes that may be true for owners who are near 100% LVR's but the average home loan has 50% equity at the the moment.

It doesn't matter. The people who have 50% LVR's can continue making payments. The ones on 100% LVR's are the ones who will have to sell and the ones who will drive down prices.

Even if property did suffer a 30% fall, it wouls still function as an investment, Property is a longterm asset class.

Unless the bank demands extra security. Then what do you do?

People are less tied down these days; they're not getting married at 21 and having their first kids at 22-23. The idea of taking out a huge mortgage being tied down and foregoing other significant opportunities (working overseas, traveling, spending your 20s on an endless summer or winter) is no longer appealing. Household formation is happening later in life and with less frequency. Apart from that, rents are so ridiculously cheap, relative to property value, that I'm quite happy to let some property "investor" subsidise my housing.

 

[Glen48]

Rents are good when you can rent a house with 3 toilets and 4 bedrooms 2 car garage large open area many can stay there and slit the 6 ways and party hard with the change.
They live in a house the owner can't afford.

 

[Vixs]

With regards to the idea that interest rate reductions change nothing as people continue to make the same repayments - while people with the capacity to do so may make above minimum payments and try to further reduce their LVR, people in any sort of financial dire straits will be speaking to the bank and trying to minimise what they are paying. There are plenty out there in this position.

 

[Tysonboss1]

With regards to the idea that interest rate reductions change nothing as people continue to make the same repayments - while people with the capacity to do so may make above minimum payments and try to further reduce their LVR, people in any sort of financial dire straits will be speaking to the bank and trying to minimise what they are paying. There are plenty out there in this position.

I don't think any body did say that,

What I said wast that somebody who was comfortable making their payments on their home loan would not automaticly be in dire straits because the market value of the house dropped 10%.

They probably wouldn't even notice anything had changed,

 

[Tysonboss1]

There are plenty out there in this position.

what percentage of the population do you think are in this position,

26% of people rent,
30% of people own their home with no debt,

that leaves 44% with debt against a house, and the average LVR is 50%, So maybe only 5% of people have high levels of debt against their home,

And out of those 5%,... 95% of them are employed, So probably less than 1% of the population are in danger,

But that 1% do happen to be the ones paraded on today tonight as representing "Normal" so I guess I forgive you for thinking that every one is hurting.

 

[bellenuit]

AUSSIE PROPERTY SLOWDOWN HAS JUST BEGUN

http://www.thebull.com.au/articles/a/26400-aussie-property-slowdown-has-just-begun.html

 

[Klogg]

AUSSIE PROPERTY SLOWDOWN HAS JUST BEGUN

http://www.thebull.com.au/articles/a/26400-aussie-property-slowdown-has-just-begun.html

I would argue that the gains just won't keep up with wages in years to come (which does mean a slowdown)...
Given the low unemployment and strong Australian economy, I don't see our property crashing anytime soon - And if the RBA were to cut and the AUD fell, our economy would go into over-drive.

If there is any sort of 'crash' though, I'd say it'd be limited to the one/two bedroom dogboxes they keep putting up in the cities (there seems to be an over-supply of these, especially in Melbourne).

 

[McLovin]

I would argue that the gains just won't keep up with wages in years to come (which does mean a slowdown)...

That seems to be the consensus. I also think that much like stocks when growth slows PE will compress. Rents will continue trending up (in line with inflation/wage increases) as prices move sideways. It's pretty amazing when you think about it that yields on property are so low and are unfranked. Without capital growth who would accept less than bank account returns?

 

[Miss Hale]

It's pretty amazing when you think about it that yields on property are so low and are unfranked. Without capital growth who would accept less than bank account returns?

I wonder that too. I suppose the benefit of negative gearing compensates a bit.

 

[Tysonboss1]

Without capital growth who would accept less than bank account returns?

While I give it to you that at the moment yields are not enough to get me in.

yields of say 5.25% on good ressie property win against bank interst hands down,

the benefits are that the property yield is inflation hedged, eg over time it will rise with inflation bank interest does not.

the principle value of the property should also be some what hedged against inflation.

The tax benefits are also there, ( not neg gearing, I don't believe in that) You get to use the depreatiation against the income and you get any capital growth tax free for your ppor or 50% discounted for investment.

Also the relative safty and control of cashflows from the property can give you peace of mind compared to other asset classes.

Offcourse as you know I invest in businesses as well, But I do hold a bit of capital in property and I think it brings balance to my portfolio as a whole.

 

[Tysonboss1]

I wonder that too. I suppose the benefit of negative gearing compensates a bit.

Negative gearing is rubbish,

It might be the only way a guy with $30,000 can get in on a capital city property, But even then he should be working to bring it into positive cashflow asap.

 

[Miss Hale]

Negative gearing is rubbish,

It might be the only way a guy with $30,000 can get in on a capital city property, But even then he should be working to bring it into positive cashflow asap.

Well that is my opinion too, I am only interested in investments that make money not lose money, but I constantly run into people singing the praises of negative gearing.

 

[Tysonboss1]

Well that is my opinion too, I am only interested in investments that make money not lose money, but I constantly run into people singing the praises of negative gearing.

Yeah, they have bought into that rubbish of "good debt" vs "Bad debt"

I don't beileve the possible extra gain through high leverage is enough to offset the extra risk that high leverage brings,

Don't get me wrong I was spouting the same rubbish once, when I was 20 I busily went about buying as much property as I could, and it worked out well, but it's not 2001 any more and I am wise enough now to know I was taking part in pure speculation, not wise investment, luckily it worked out well it could have easily ended badly.

I would still invest in property, just not will high leverage the risk of big capital loss is bad enough but also having negative cashflow is crazy.

 

[McLovin]

While I give it to you that at the moment yields are not enough to get me in.

yields of say 5.25% on good ressie property win against bank interst hands down,

the benefits are that the property yield is inflation hedged, eg over time it will rise with inflation bank interest does not.

the principle value of the property should also be some what hedged against inflation.

That's true, although you have to wonder how many people actually view property that way and how many view it as loss on income, growth on capital, use equity to buy next IP, repeat.

I recall reading somewhere last year (I don't remember the source sorry) about the expectation of most property investors. The consensus was that a decent majority would be out of the market after 3 years of price deflation.

 

[Tysonboss1]

That's true, although you have to wonder how many people actually view property that way and how many view it as loss on income, growth on capital, use equity to buy next IP, repeat.

Yes, several years of growth has brought in some sloppy speculaters who think they are sophisticated investors, The market has a why of routing out the gamblers.

The investment club has beening spinning that idea for a while, I can see those guys, getting into some trouble in the years ahead, Unfortunatly a friend of mine believes their rubbish.

I recall reading somewhere last year (I don't remember the source sorry) about the expectation of most property investors. The consensus was that a decent majority would be out of the market after 3 years of price deflation

Again I wouldn't call those people investors to start with, and the same can be said for alot of people in share investments,

Unfortunatly ( or fortunatly ) human emotion has not changed since Graham wrote security analysis, People are still all to quick to join overpriced bandwagons while avoiding sound assets at attractive prices after market declines.

In grahams words " every bull market ends badly", and those who take a rational patient approach will do well.

 

[lurker123]

You really are a bitter little man aren't you

Oh well I wish you the best, You are going to have trouble getting anything good in life with that lousy attitude,

All I will say is that the economy is not a cake where if one person gets rich it means they have a bigger slice and some one else will miss out.

The economy is more akin to candles, where we all work to light each other candles.

If I use my candle to light your candle I am not dimished anyhting and you have light,

But if your sitting there complaining and moaning no one is going to want to light your candle.

I disagree with your rosy picture of the world. Money is created with debt, for someone to have money someone else must be in debt. That is probably the reason there is so much government debt. All the money in the economy has to be held as debt somewhere and it is currently held by governments. It is also held in the form of personal debt, I would say a huge chunk of personal debt exists in mortgages which as a side effect inflates house prices.

So sad that people think capitalism improves lives. Technology improves lives. There is no scientific evidence that technology would NOT advance at the same rate without capitalism.

 

[Tysonboss1]

I disagree with your rosy picture of the world. Money is created with debt, for someone to have money someone else must be in debt. That is probably the reason there is so much government debt. All the money in the economy has to be held as debt somewhere and it is currently held by governments. It is also held in the form of personal debt, I would say a huge chunk of personal debt exists in mortgages which as a side effect inflates house prices.

Yes, but people benefit from debt when they are sensible about it eg, I person buying a modest home with a 30% deposit making payments based on a 15 year loan, rather than a 110% lvr on a 30 year loan using 50% of their income,

Certain Businesses also benefit from debt, eg a company earning 25%+ on invested capital is fine using modest debt to equity ratio, likewise capital intensive monoploy style regulated infrastructure projects,

Or many other low lvr type investments.

So sad that people think capitalism improves lives. Technology improves lives. There is no scientific evidence that technology would NOT advance at the same rate without capitalism

Technology must not only be created but deployed to produce increases in standard of living,

My business provides goods and services to many customers each day, i work hard building and maintaining my network of suppliers, staff and customers to deliver these goods and service to customers when and where they need them,

But I only do this for personal gain, I would not be nearly as effective if I didn't have the capitalist drive, I would probally be at the beach.

Not a single day in my life have I starved, Yes this is in part because of technology, But mainly because there are thousands of people out there working to produce, process and deliver food to me all in the name of personal gain.

 

[Glen48]

As long as those thousands have money or a need for your good's it will be ok but if banks start to foreclose and you are trying to sell on a tanking market it will all implode.