House prices to keep falling for years

Beej · 23 November 2008

numbercruncher said:
Link to that article Beej ? How much did this run down unit sell for ?

Do you work in the RE industry Bej ?

As I said it was on Sydney CHANNEL 7 6PM NEWS on sat night - not an article I can link to. I am sure that the 1 million people or so in Sydney who watch the CH7 news will have seen it though and can verify the story for you if you like.....

They didn't say how much the terrace sold for, however they said it was $150k over reserve. They filmed the auction and did quite a story on it.

PS - it's funny how anyone with a less negative view on property is questioned as to whether they work in the R/E industry!! For the record, MY WORK/BUSINESS HAS NOTHING WHATSOEVER TO DO WITH THE REAL ESTATE INDUSTRY. My interest is as a private owner and limited investor, with a keen interest in the market from observing and participating in it over 20 years. No 10+ 100% LVR massively negatively geared property portfolio here

Cheers,

Beej

shaunQ · 23 November 2008

As I said it was on Sydney CHANNEL 7 6PM NEWS on sat night

Ok. A channel 7 exclusive eh? Do they often send a TV crew out to cover auctions? Did they just pick a property out of the hat? Who owned the property? Who bought the property? Was channel 7 paid to show it? Was the real estate institute involved? If so, which is HIGHLY likely, what influence do they have on Channel 7, and the media in general.. (Lots).

Personally, stories like this only confirm the down turn and are desperate tactics from a very influencial sector.

ROE · 23 November 2008

man why bother arguing about house price ..the market will decide

in the short term it's a voting machine, long term it's a weighting machine.

if it's over price it will drop, if it's under price it will goes up

those think it will go up forever good for them, those are more conservative sit and wait
and if you want the action now join in with the herd .

Beej · 23 November 2008

shaunQ said:
Ok. A channel 7 exclusive eh? Do they often send a TV crew out to cover auctions? Did they just pick a property out of the hat? Who owned the property? Who bought the property? Was channel 7 paid to show it? Was the real estate institute involved? If so, which is HIGHLY likely, what influence do they have on Channel 7, and the media in general.. (Lots).

Personally, stories like this only confirm the down turn and are desperate tactics from a very influencial sector.

Sheez - I give up! You can't win with you guys! You'll quote the mainstream media ad nauseum if it suits you...... Wasn't an exclusive, just a news story. I presume they picked an auction at random but who knows? The buyer was briefly interviewed and was someone who was (obviously!) planning to do the place up.

Do you think that every successful house auction currently (all 139 of them in Sydney this weekend!) are somehow rigged by the REI or something??

Beej

chops_a_must · 23 November 2008

Beej said:
There are two flaws with this particular statistic/view:

1) The use of average full time WAGES as the "multiple" by which house price norms are predicted. This is incorrect and leads to flawed analysis. Housing is important (culturally) to many/most Australians, and as such a significant proportion of our incomes (at all levels) will be devoted to housing - either through FHB purchase, sevicing mortgages, or funding renovations/improvements to our homes. As such, what matters to most people, and what defines AFFORDABILITY is AVERAGE HOUSEHOLD DISPOSABLE INCOME, NOT INCLUDING HOUSING COSTS. If you look at this stat, you will find a much closer correlation to historic price growth - eg it accounts for the change from 1 to 2 income households,

Ah yeah.

So what's 2 x 0? 3 x 0? 4 x 0 even? Which is likely to be the case for a lot of families, with mortgages, in the not too distant future, for years to come.

What the house prices have factored in over the last few years, is that everyone will have a job permanently for the next 30 years. It doesn't work like that, but that's how everything has been priced. There is absolutely no margin for error when it comes to home ownership and repayments, for a substantial chunk of home owners IMO.

And there was an tv news article about house prices continuing to fall yesterday over here in Perth. Seems like there is about 1 or 2 out of every house for sale, in my area at the moment.

So_Cynical · 23 November 2008

numbercruncher said:
Link to that article Beej ? How much did this run down unit sell for ?

I saw the piece about the "renovators special" and the sale price was $650.000
(i think) so at 150 over reserve its fair to say it was a bit of a setup...the property
was a classic looking proper terrace in need of lots of money and care.

Beej · 23 November 2008

chops_a_must said:
Ah yeah.

So what's 2 x 0? 3 x 0? 4 x 0 even? Which is likely to be the case for a lot of families, with mortgages, in the not too distant future, for years to come.

LOL - so you are prediciting $0 as the national average wage figure?? Even with 10% unemployment that means 90% of people have a job...... might halt wage growth for a little while but, really, I can't see it going down to zero!!

What the house prices have factored in over the last few years, is that everyone will have a job permanently for the next 30 years. It doesn't work like that, but that's how everything has been priced. There is absolutely no margin for error when it comes to home ownership and repayments, for a substantial chunk of home owners IMO.

Well not really: 33% of houses are owned with no mortgage at all still. Then, for the other 2/3 (of which half are rented out for all the property bears to live in! ), the AVERAGE time for a mortage to be paid off is 7 years. So in fact virtually no one has the same mortgage for 30 years - that's just the contracted maximum term of the loan.

The whole impact of unemployment issue has been discussed before anyway. Unfortuneately, long term structural unemployment tends to effect those on the lower end of the socio-economic scale to a greater extent than those on the upper ends (lower skilled, less savings, less family financial support, etc etc). That group is less likely to own property anyway, so the potential impact of rising unemployment on house prices is usually greatly over-exagerated.

And there was an tv news article about house prices continuing to fall yesterday over here in Perth. Seems like there is about 1 or 2 out of every house for sale, in my area at the moment.

Not surprising, compare Perth prices to Sydney prices over the last 10 years, and you would have to expect to see something of a return to the historical norm with respect to relative prices there, which means they have a way to fall yet. Sydney is about done now though I reckon.

Beej · 23 November 2008

He he - well seems Jennifer Hawkins is still bullish on quality Sydney property: http://www.smh.com.au/news/entertai...achside-stunner/2008/11/22/1226770798641.html

Cheers,

Beej

numbercruncher · 23 November 2008

the AVERAGE time for a mortage to be paid off is 7 years

More misleading spruiker chit chat .....

Paid out should be how its written, this statistic is made up mostly of Home sales settling mortgages and refinances .....

So your dodgy run down Sydney unit sold for 650k - 150k above the 500 reserve or a 30pc premium in a market that falling - what a bunch of SUCKERS huh ? well if truth be known I bet it was a realestate institutes setup to try fool the masses ...... and gurantee the TV network some more advertising dollars ?? ..... yup thats the kind of world we live in.

spooly74 · 23 November 2008

Beej said:
Well not really: 33% of houses are owned with no mortgage at all still. Then, for the other 2/3 (of which half are rented out for all the property bears to live in! ), the AVERAGE time for a mortage to be paid off is 7 years. So in fact virtually no one has the same mortgage for 30 years - that's just the contracted maximum term of the loan.

Hi Beej,
A link or source to the above, particularly the highlighted?
Cheers

hotbmw · 23 November 2008

i just got a market appraisal for my newcastle beach apartment from a well respected agent who specialises in apartments in the city centre. 2 yrs ago next door sold for 650k. i just got told id get between 490k to 550k (best case). I purchased it for 433k - 5.5 rs ago.

im disappointed that i spent a good part of the last few years overseas so i didnt really keep much of an eye on whats really happening in the market. it shows that u really need to keep on eye on things even if its property, unlike what we have been told for well over a decade - property only goes up....

50k or so profit in almost 6 yrs, not much of an investment. so the prices really have come down a long way.

the agent said the commission fees are 2.6% gst inclusive.

do u think on over 500k that 2% can be negotiated? does anyone have any experience advice on this?

Thanks
Rob

robots · 23 November 2008

hotbmw said:
i just got a market appraisal for my newcastle beach apartment from a well respected agent who specialises in apartments in the city centre. 2 yrs ago next door sold for 650k. i just got told id get between 490k to 550k (best case). I purchased it for 433k - 5.5 rs ago.

im disappointed that i spent a good part of the last few years overseas so i didnt really keep much of an eye on whats really happening in the market. it shows that u really need to keep on eye on things even if its property, unlike what we have been told for well over a decade - property only goes up....

50k or so profit in almost 6 yrs, not much of an investment. so the prices really have come down a long way.

the agent said the commission fees are 2.6% gst inclusive.

do u think on over 500k that 2% can be negotiated? does anyone have any experience advice on this?

Thanks
Rob

hello,

i just got a valuation on my shares from Commsec I purchased 6yrs ago and its not looking too flash, gone nowhere as well hotbeemer

thankyou
robots

Glen48 · 23 November 2008

I would take what ever you can get and get out.
I had a house on 1313 SQM on the beach paid $72 10 yr late it was worth $100
The best thing is to live in the barest housing and invest your money in items which pay a better return.... which is hard to pick now ...DVD shops because every one will be at home waiting for their Dole chq.

Pommiegranite · 23 November 2008

hotbmw said:
i just got a market appraisal for my newcastle beach apartment from a well respected agent who specialises in apartments in the city centre. 2 yrs ago next door sold for 650k. i just got told id get between 490k to 550k (best case). I purchased it for 433k - 5.5 rs ago.

im disappointed that i spent a good part of the last few years overseas so i didnt really keep much of an eye on whats really happening in the market. it shows that u really need to keep on eye on things even if its property, unlike what we have been told for well over a decade - property only goes up....

50k or so profit in almost 6 yrs, not much of an investment. so the prices really have come down a long way.

the agent said the commission fees are 2.6% gst inclusive.

do u think on over 500k that 2% can be negotiated? does anyone have any experience advice on this?

Thanks
Rob

Rob, sorry to hear that your property has lost so much value. I guess it is small consolation that you didn't buy in the last 12 months.

As for agent commissions, all I can say that it will be tough negotiating a lower rate. RE agents will tell sellers that times are tough and that they will have to 'work' extra hard to sell the property, hence the higher commission rate (on the flip side they will tell buyers that now is a great time to buy!).

Good luck to you, and try playing them off one another. Also say that they don't have to do much work. Offer to do the viewings yourself. Remember, agents don't sell houses, the house/price sells itself.

Beej · 23 November 2008

hotbmw said:
i just got a market appraisal for my newcastle beach apartment from a well respected agent who specialises in apartments in the city centre. 2 yrs ago next door sold for 650k. i just got told id get between 490k to 550k (best case). I purchased it for 433k - 5.5 rs ago.

im disappointed that i spent a good part of the last few years overseas so i didnt really keep much of an eye on whats really happening in the market. it shows that u really need to keep on eye on things even if its property, unlike what we have been told for well over a decade - property only goes up....

50k or so profit in almost 6 yrs, not much of an investment. so the prices really have come down a long way.

the agent said the commission fees are 2.6% gst inclusive.

do u think on over 500k that 2% can be negotiated? does anyone have any experience advice on this?

Thanks
Rob

Agents commissions can ALWAYS be negotiated. Offer as low as you want and then see what is the minimum they will take. In that price range pay no more than a total of ~$10k/2% including advertising costs.

PS re your profit - not the best market timing, you will have a MINIMUM of $50K (net) profit from your numbers, maybe as much as $100k. If it's your PPOR then that's a tax free annual capital appreciation/return of 2.5% -> 4% pa. Depending on your marginal tax rate, that's equivelant to a minimum of 3.5% effective gross return and a maximum of 6.5%. Add to that the rental return (either realised while you were away or effective when you were living there) of another 4% gross pa, and that's a 7.5% -> 10.5% gross annual return. Not that bad really. Of course if you have borrowed to buy then the actual return you have achieved on your directly invested capital would be several multiples of that again due to your leverage. Of course the bottom line is that unless you time things perfectly this would be a typical return from residential property over a relatively short period of time (5-ish years). At least you are in the black! Unlike most peoples share portfolio's acquired anytime in the last 3-4 years.

Cheers,

Beej

Mofra · 23 November 2008

numbercruncher said:
More misleading spruiker chit chat .....

Paid out should be how its written, this statistic is made up mostly of Home sales settling mortgages and refinances .....

No, actually the average length of mortgage is Australia is just over 4 years, hence ERFs are generally set at 4 years for NBLs. MFAA tend to quote 4-5 years as average mortgage length.

*cue bears assuming 100% LVR on median properties on median income comment here *

Beej · 23 November 2008

Glen48 said:
I would take what ever you can get and get out.
I had a house on 1313 SQM on the beach paid $72 10 yr late it was worth $100
The best thing is to live in the barest housing and invest your money in items which pay a better return.... which is hard to pick now ...DVD shops because every one will be at home waiting for their Dole chq.

Hah! Live in the "barest" housing possible! No thanks! I like my well located home with ALL the luxuries, thanks all the same - as do my family. Life is for living, so live as well as you can afford to (without excessive or any non tax deductible debt of course) I say! What else is your money good for?? You can't take it with you! But you CAN live in your house when you retire and leave it to your kids after that!

Cheers,

Beej

Beej · 23 November 2008

spooly74 said:
Hi Beej,
A link or source to the above, particularly the highlighted?
Cheers

It's often quoted all over the place - a quick Google gave me a few hits that refer to this stat as follows:

http://mrmortgage.com.au/mortgage-rates.htm
http://www.rebatehomeloans.com.au/introductory-honeymoon-interest-rates.htm
http://www.news.com.au/business/money/story/0,25479,23026800-5013951,00.html

They all refer to this, and the fact that the AAPR rate must be quoted based on a 7 year period for this reason as well.

Cheers,

Beej

Beej · 23 November 2008

hotbmw said:
i just got a market appraisal for my newcastle beach apartment from a well respected agent who specialises in apartments in the city centre. 2 yrs ago next door sold for 650k. i just got told id get between 490k to 550k (best case). I purchased it for 433k - 5.5 rs ago.

PPS: You may not have "lost" as much as you think - there just may be reasons why the neighboring property was worth more than yours - is it identical? Eg, Same views? Same aspect? Exact same size/layout? Or are there differences?

Beej

cuttlefish · 23 November 2008

hotbmw said:
the agent said the commission fees are 2.6% gst inclusive.

do u think on over 500k that 2% can be negotiated? does anyone have any experience advice on this?

Thanks
Rob

Rob - I've sold a few properties over the years. First and foremost make sure you are happy with the agent that you choose - once you've signed the agency agreement its pretty much their show from then on and its largely out of your hands - so pick one that you trust and has a proven record of selling similar properties in the area.

Once thats out of the way the commission is always negotiable - but good agents tend to negotiate less than ones desperate for work. I've tended to only knock a few points off the commission on the sales I've done - at the end of the day what you want is an agent that can and will extract that extra $5, $10 or $20k from a genuine buyer - and that will more than make up for a few points of commission. (e.g. 0.5% of $500k = $2500). Also an agent thats getting close to full commission may be more likely to focus their attention on your property rather than other ones - i.e. you want a happy and committed agent and if you're too stingy on the commission you pay them it may be counter productive.

When it comes to selling, particularly in a flat market, to a fair extent the market will determine the price - but a good agent will win the trust of the buyers and work to both close a sale and also to obtain the best price they can.

Some things to consider are:
* shorten the standard period on the agency agreement - they typically run for 3 months - get it down to 2 months - that way if you are unhappy with the agent you can move to a new one more quickly.
* you could try a two part commission structure - though I'm not sure how effective it is - for example pay 2% for up to $490k sale price and then increase it by 0.1% for every $10k over the $490k sale price up to a maximum of 2.6% - that incents the agent to get a better price - but good agents tend to be motivated to get a good price anyway.

Commissions do vary a lot - there are agents out there that will work for 1.8% or less - but you want a good agent that you are confident to do the job well.

House prices to keep falling for years

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