House prices to keep falling for years

[Beej]

This will completely remove first home buyers from the equation, with disastrous effects cascading up the chain.

What a load of alarmist rubbish! Look at the stats a few posts back that show a CLEAR uptrend in the number of FHBs as a proportion of property purchases - especially in the last quarter, and especially in Sydney. This proportion will be even higher this quarter.

Beej

 

[numbercruncher]

What a load of alarmist rubbish! Look at the stats a few posts back that show a CLEAR uptrend in the number of FHBs as a proportion of property purchases - especially in the last quarter, and especially in Sydney. This proportion will be even higher this quarter.

Beej

But there was tons less sales - so the number of FHBs didnt increase just the proportion as a percentage !

I suggest you run with the low interest rate thing rather than manipulate other statistics.

 

[Nyden]

What I fail to understand; is as to whether or not low interest rates are entirely a good thing for house prices? Granted, it means that the people that manage to hold onto their jobs will be in a far better position, but surely low rates are an indication of the economy?

If unemployment skyrockets, and folk who are losing their jobs simply cannot afford to service their loans ... and are forced to sell, and/or declare bankruptcy (should the sale price be inadequate for mortgage) - surely this will have a hugely detrimental affect on house prices?

You surely must ask yourself why there are forecasts for such low rates ... there must be some truly dire predictions for the Australian economy.

 

[finnsk]

If house prices fall say 20% will that be the value of the house or the dirt?
If it is the dirt that falls, will that mean to goverment taxes on land will fall as well?
Surely a newly built house to the value of $100.000 cant devalue to $0.00 over a few mounts?

 

[Indie]

What I fail to understand; is as to whether or not low interest rates are entirely a good thing for house prices? Granted, it means that the people that manage to hold onto their jobs will be in a far better position, but surely low rates are an indication of the economy?

If unemployment skyrockets, and folk who are losing their jobs simply cannot afford to service their loans ... and are forced to sell, and/or declare bankruptcy (should the sale price be inadequate for mortgage) - surely this will have a hugely detrimental affect on house prices?

You surely must ask yourself why there are forecasts for such low rates ... there must be some truly dire predictions for the Australian economy.

Interest rates are just a side show. But I think you're right. There are warning signs everywhere.

Higher unemployment and tighter credit has put an end to the bull market in real estate. First at the top of the market, then the middle, then the bottom. The idea that cashed up buyers will continue coming in and bidding up prices to higher highs is pure delusion. There will always be buyers, just as there are in the stock market. But they're turning up in fewer numbers with less cash.

Lots of people on this forum have made a good dollar out of RE over the years. Some still talk it up as if the bull has only paused for breath. How many of those are looking to buy into the market now and put their money where their mouth is? I'm guessing not many.

 

[Beej]

But there was tons less sales - so the number of FHBs didnt increase just the proportion as a percentage !

I suggest you run with the low interest rate thing rather than manipulate other statistics.

And your point is?? Exactly the same as mine I think! I never asserted higher FHB in absolute numbers, just as a proportion of active sales, therefore debunking the myth being put out here that all first home buyers are desserting the market and therefore setting the market up for some great mythical crash many here are dreaming of and waiting for.

FYI - lower sales volumes and higher FHB proportional sales are actually very significant stats that indicate the market is very close to the bottom right now..... if there was some sort of great crash occurring then sales volumes would be increasing, not decreasing.

EDIT: PS; Thanks for reminding us about the rapidly falling interest rates - more on this later....

Beej

 

[Kipp]

What I fail to understand; is as to whether or not low interest rates are entirely a good thing for house prices? Granted, it means that the people that manage to hold onto their jobs will be in a far better position, but surely low rates are an indication of the economy?

If unemployment skyrockets, and folk who are losing their jobs simply cannot afford to service their loans ... and are forced to sell, and/or declare bankruptcy (should the sale price be inadequate for mortgage) - surely this will have a hugely detrimental affect on house prices?

I fail to see how low interest rates can be anything but a positive for house prices. You are assuming that low interest rates will trigger higher unemployment? Granted, that the RBA is lowering interest rates to try and avoid a recession, but I can't see how lowering them causes unemployment to increase?

To my mind, low interest rates will (partially) save real estate from collapsing too much for 2 reasons: firstly, less people will be at risk at default for mortgages. A drop of 8% to 6% would mean a drop of $2000mth to $1500mth repayments- big difference. And of course, it makes it more attractive for potential buyers- especially those renting. I have not noticed my landlord passing on the saving of his mortgage on to me?!

Mind you, rental yields in Australia are still pretty pathetic compared to the UK- where it is not so hard to be positive or neutrally geared. (well, a year ago anyway...)

 

[Passive]

Any astute investor is not buying at the moment but is actively doing their research - increasingly as the bears lambast this investment vehicle, shares keep plunging and plunging - 50% off the highs is monstruous in comparison to the 10% drop in Perth for example of the same time frame- when rates are low, interest lost in real estate, banks looking to lend and an economy VERY FAR from being in trouble except from the negative carping of the press and easily intimidated inexperienced punters we are looking at some real potential developing.

Time to look is there and there are people looking to buy. The moment there is an uptick in sentiment watch the floodgates open in favour of real estate, when that comes is anyones guess but the sky has not fallen in when I last looked!

 

[Nyden]

I fail to see how low interest rates can be anything but a positive for house prices. You are assuming that low interest rates will trigger higher unemployment? Granted, that the RBA is lowering interest rates to try and avoid a recession, but I can't see how lowering them causes unemployment to increase?

To my mind, low interest rates will (partially) save real estate from collapsing too much for 2 reasons: firstly, less people will be at risk at default for mortgages. A drop of 8% to 6% would mean a drop of $2000mth to $1500mth repayments- big difference. And of course, it makes it more attractive for potential buyers- especially those renting. I have not noticed my landlord passing on the saving of his mortgage on to me?!

Mind you, rental yields in Australia are still pretty pathetic compared to the UK- where it is not so hard to be positive or neutrally geared. (well, a year ago anyway...)

No. What I'm suggesting is that since the RBA are most likely going to drop the rates so much - this is reflective of the forecasts for our economy. If unemployment was not to rise, they wouldn't be dropping rates The RBA drops rates when they economy is in the toilet, and at the rate they're dropping them ... something is very seriously wrong with Australia, but few know it.

 

[Passive]

Low rates in this economy are a preemptive strike from the govt based on the international hiatus. With property stimulus in place plus the active programmes to kickstart a supposedly at risk economy - the basis for the next boom is being laid - Rudd is encouraging the FHB to get in, rates will be down dramatically and once the serious time of the credit squeeze eases rates will HEAVILY favour real estate for a time to come as the RBA will need a hell of a long time to push rates up again. Baby boomers will put their money there well before trusting the ASX. We are in for a pro property time in the next 5 years as we have never seen before.

 

[Beej]

Thanks Kipp and Passive for some insightful comments. Passive - the point you make about astute buyers researching the market carefully right now is very true. I've tried to hint at this to the guys here before by reminding them that you actually have to get out and about "on the ground" to understand what is actually going on in a particular R/E market, and find opportunities you might be interested in, not just surf the net reading GHPC forums and looking at median house price stats. But it mostly falls on deaf ears!

Cheers,

Beej

 

[numbercruncher]

Rentals are yielding like 4 to 5pc at current prices , hardly awesome stuff ....

our good for nothing banks exceed 10 pc .....

We are in for a pro property time in the next 5 years as we have never seen before.

Thats just spruiker bollocks. amusing though.

 

[Passive]

No. What I'm suggesting is that since the RBA are most likely going to drop the rates so much - this is reflective of the forecasts for our economy. If unemployment was not to rise, they wouldn't be dropping rates The RBA drops rates when they economy is in the toilet, and at the rate they're dropping them ... something is very seriously wrong with Australia, but few know it.

What ? You have some special insight? All the real experts - RBA - and more dispute this - all the action is being taken to counter this sort of mindless self fulfilling negativity - papers sell with this sort of bs. Alll the facts show we are not in recession. Have to love this line of reasoning. Leave rates where they are - we will pay because we have high rates
Drop rates - aaahhh a conspiracy must be afoot because rates are dropping. Like a driver trying to avert an accident - do we assume the driver is drunk or using his initiative.

 

[Beej]

Rentals are yielding like 4 to 5pc at current prices , hardly awesome stuff ....

our good for nothing banks exceed 10 pc .....

You'd rather buy bank shares? I thought the great housing price crash is going to send them all bust????

PS - nothing wrong with locked in, starting, 4-5% rental yields that will only INCREASE over time.

Beej

 

[Pommiegranite]

Low rates in this economy are a preemptive strike from the govt based on the international hiatus.

Nope. Low interest rates would have been a 'preemptive strike' had they been cut 12 months ago.

The RBA were caught with their pants down, and this effort of pulling them up is only going to end up with getting caught in the zipper. It is going to be very painful.

 

[Pommiegranite]

You'd rather buy bank shares? I thought the great housing price crash is going to send them all bust????

PS - nothing wrong with locked in, starting, 4-5% rental yields that will only INCREASE over time.

Beej

If RE's success is linked with the big 4 bank's success, then why would anyone take a 5% yield in property at the top of a RE boom, when instead you can buy ANZ stock 50% off, with a 15% yield?

 

[Passive]

Thanks Kipp and Passive for some insightful comments. Passive - the point you make about astute buyers researching the market carefully right now is very true. I've tried to hint at this to the guys here before by reminding them that you actually have to get out and about "on the ground" to understand what is actually going on in a particular R/E market, and find opportunities you might be interested in, not just surf the net reading GHPC forums and looking at median house price stats. But it mostly falls on deaf ears!

Cheers,

Beej

Beej

The 90's were substantially worse - rates high, unemployment comfortably double and no one would touch property. Bought heavily and when boom came a while later - the bears responded that any fool could have made money - but any fool did not - long term asset that produces results when you buy well. Kills any other asset class. Spruiker - no way - just benefitted from some vision and will do so again when the time is right.

 

[Nyden]

What ? You have some special insight? All the real experts - RBA - and more dispute this - all the action is being taken to counter this sort of mindless self fulfilling negativity - papers sell with this sort of bs. Alll the facts show we are not in recession. Have to love this line of reasoning. Leave rates where they are - we will pay because we have high rates
Drop rates - aaahhh a conspiracy must be afoot because rates are dropping. Like a driver trying to avert an accident - do we assume the driver is drunk or using his initiative.

No special insight mate, just a brain

The RBA, experts? Where's the smiley for rolling on the floor ... governments world wide got this entire thing wrong! From the start when they proclaimed this mess would be contained, right up to Rudd saying how Robust our economy is ... only to have him spend up the surplus weeks later.

The experts have been telling people not to sell stocks since the losses weren't even half of what they are now. Now they're trying to do the same with housing - the experts call it a dip, the government is trying to stem falls. .. Sigh. De ja vu, anyone?

It's too late to save the economy; the damage is already done - and the self-fulling negativity is here to stay for quite a long time.

Gosh, seems like every month you hear about some facility being closed down in Australia ... thousand jobs here, couple of hundred there, it all adds up.

 

[numbercruncher]

I fail to see how low interest rates can be anything but a positive for house prices. You are assuming that low interest rates will trigger higher unemployment? Granted, that the RBA is lowering interest rates to try and avoid a recession, but I can't see how lowering them causes unemployment to increase?

To my mind, low interest rates will (partially) save real estate from collapsing too much for 2 reasons: firstly, less people will be at risk at default for mortgages. A drop of 8% to 6% would mean a drop of $2000mth to $1500mth repayments- big difference. And of course, it makes it more attractive for potential buyers- especially those renting. I have not noticed my landlord passing on the saving of his mortgage on to me?!

Mind you, rental yields in Australia are still pretty pathetic compared to the UK- where it is not so hard to be positive or neutrally geared. (well, a year ago anyway...)

that drop is on an interest only loan ? dont forget the principle in your repayment figure.

Im reading you UK lot have had a price crash yet you claim neutral or positive gearing as the norm a year ago ? I can see its probable now after the crash but surely not 12 months back ....

And yes rental yields are pathetic here 3 to 5pc - If rates go as low as they predict new entry property investors "might" break even on yield. And its possible home ownership will be cheaper than rent, if rates stay low ....

We might be in for a decade of Japanese style !

Australian RE seems more like gambling to me than investing at this moment ...

 

[Beej]

Nope. Low interest rates would have been a 'preemptive strike' had they been cut 12 months ago.

The RBA were caught with their pants down, and this effort of pulling them up is only going to end up with getting caught in the zipper. It is going to be very painful.

So residing in Manchester is giving you a birds eye view of what's been going on in the economy over here has it Pommie??

Eg - I was out for Yum-Cha on Sunday in Sydney - just a local Chinese place on the lower north shore (not even Chinatown etc). It was PACKED! huge line-up to get in (lucky we had made a booking!). Most restaurants around here are still nearly always full Wed-Sat evenings. I can tell you that although the economy might have slowed, we are NOT yet in recession in Australia (unlike where you are living at the moment - perhaps that is warping your perspective???).

I think the RBA has done the right thing - last year would have been too soon to cut - for a start it would have overheated the housing market further (it was booming last year here remember), plus inflation really was building, wage pressures building - basically full employment still. The miners iron ore and coal contracts etc were being negotiated for ridiculously high prices, and terms of trade were heading rapidly in one direction - up. All of this has only really started to soften over here in the last 6-9 months, so the RBA is actually pretty spot on I would say, and they have acted decisely, and pre-emptively as the real issues have started to emerge.

Cheers,

Beej