House prices to keep falling for years

[Indie]

J
Does anyone here think a house will be worth less in say 20 years than it costs today????

I think you are right. Houses will be worth more, in dollars, 20 years from now. But I think you know this fact alone doesn't make RE a good investment choice since there are many other factors that come into play.

Beej, I know from experience what a great inflationary hedge property is. How do you think RE will perform in a deflationary environment?

 

[wipz]

Indeed.

My CBA Cash Management interest rate seems to have dropped to around 5% if my monthly interest payment is to be believed. Only 2 months ago it was still around 6.5%!!

At this rate, I may as well pull my cash reserves out and stash it under the mattress by the end of Jan 2009! Where is this all heading? There's no point in having money in a bank if it pays you less than the fees and inflation take out. Will the Rudd GuvMint guarantee the cash I hide under my mattress?

For the burgeoning numbers of self-funded retirees and pensioners who rely heavily on more conservative cash accounts etc (especially in hard-hit super), the plunge in bank interest rates will be all bad and the negative flow on effect to the economy (less money earned through interest=less money spent by pensioners/retirees) will be huge - probably easily off-setting any gains made by home mortgage holders (who will be more likely to try and pay more off their mortgages with any further interest rate cuts, rather than spending it on consumables). All this at a time when DEFLATION is starting to stalk the planet.

IMO of course.

It's not too late - buy gold now

 

[Beej]

I think you are right. Houses will be worth more, in dollars, 20 years from now. But I think you know this fact alone doesn't make RE a good investment choice since there are many other factors that come into play.

Indie - sure, don't disagree that from an investment perspective you need to look more closely at the after inflation returns. My comments above were more about the PPOR/OO point of view.

Beej, I know from experience what a great inflationary hedge property is. How do you think RE will perform in a deflationary environment?

That's a good question - my view is that due to the demand side pressures on rental accommodation, that rental returns/growth will remain solid into the future, even through a possibly deflationary environment (which I think would only be short term anyway, and at this stage is only a possibility, no where near a certainty). At the moment, some residential property investment is starting to stack up quite well on a pure cash flow basis, so given this, I think this paints a good picture into the future, as long as you have an eye on the long term.

Cheers,

Beej

 

[Temjin]

Crunch your numbers if it works for you (eg, it would be cheaper to buy than to rent into the future), then go for it. Remember even if house prices only just out-pace inflation, you will still have made a solid investment (due to the leverage).

Yes, definitely CRUNCH the numbers to work out. For house prices to be solid investment even if it only "just" out-pace / track inflation while UNDER leverage, you need to have long term interest rate to be sustained BELOW inflation.

You must be dreaming if this will happen for a long long time. Everyone must have enjoyed the credit boom so much that it seem to be the economic norm!

Does anyone here think a house will be worth less in say 20 years than it costs today????

No, because house prices (or rather, LAND PRICES) have historically rose along with wage/inflation growth.

If inflation is so good for house prices, maybe we should all head off to Zimbabwe and we will all be billionares and our houses would worth quadrillions.

Don't be overly influenced by all the BS and negativity in forums like this one and the internet in general. Do your own research on the ground. Remember many people here have a vested interest in a property crash (eg how many posters here are also active on the Global Housing Price Crash forum?), although of course many are quick to label any with differing opinions on the outlook "property spruikers!".

lol And be influenced by those who have a "vested interest" in properties and be extreme optimistic about everything and deny all realities and facts?

Perhaps he should visit internet forums like http://www.somersoft.com.au/forum.htm because almost everyone own an IP there and hardly anybody think house prices will fall?

And it's funny how you generalise that alot of us are active in that GHPC whatever forums and that we label anyone else with different opinions. Isn't the same for you who label anyone else who has a different opinion from you as doom and gloomer and being unrealistic about how different Australia is?

This is a share investment forum after all. And I agree with Van Tharp on his psycological teaching. Everyone have their own perception of reality and will viciously deny / reject beliefs/opinions that do not matches their own. Only a major PHYSICAL incident (like a massive drawdown / trade losses) would change their thinking.

 

[Beej]

But Temjin at least you are trying to make sensible arguments (even if I don't agree with your premise or outlook), unlike ROE and Numbercruncher who for the last couple of pages have just been complete idiots.

Beej

 

[numbercruncher]

You dont agree with us Beej ?

Its different in Australia !!

Becareful of the drop bears though

 

[gfresh]

They are being silly, but many of the comments put out by the (now very precious it seems!) property bulls over the years have been equally silly, so I think fair is fair for some comeuppance.

It's funny how people get so defensive about the property asset class, and that is what is entertaining to read the human condition so obviously on display - greed, fear, jealousy, anger, frustration, relief. Dismiss shares, and most shareholders will just agree, yeah, whatever, shares sometimes crash. It's not so hard

Here goes another market down the tube, Dubai this time.. :xmaswave

http://www.businessspectator.com.au...-stretched-emirate-LWQD5?OpenDocument&src=sph

 

[ROE]

But Temjin at least you are trying to make sensible arguments (even if I don't agree with your premise or outlook), unlike ROE and Numbercruncher who for the last couple of pages have just been complete idiots.

Beej

it's bad out there..I cant afford to go out any more..this is fun and cheap entertainment

 

[Indie]

Yes, definitely CRUNCH the numbers to work out. For house prices to be solid investment even if it only "just" out-pace / track inflation while UNDER leverage, you need to have long term interest rate to be sustained BELOW inflation.

It certainly looks a very different picture going forward for the next few years. Negative real interest rates underpinned the credit boom and the RE boom. Even if mortgage rates are cut to 4% they will still be higher than inflation. That's bad news for anyone with substantial leverage. Demand for highly leveraged investments will fall as investors deleverage debt positions in order to preserve equity and protect purchasing power. The resulting diminishing demand for credit will put further downward pressure on asset prices until yields turn positive or inflation exceeds interest rates once again.

It takes a while for the reality to set into the market because the generational credit boom has skewed investors expectations. Conversely, things are likely to overshoot on the downside once deflationary pressures set in and large numbers of investors sustain losses. Hence these cycles take years to complete and one simply can't expect the whole thing to be over and done with in one or two years. It may still be possible to make a good dollar under certain conditions investing in RE, but the odds are now stacked against you, particularly if you are highly leveraged - IMO. Then again, you have to spend your cash on something so if you find a house you really want, then I guess you can determine the value for yourself. I'm just speaking from a pure investment point of view with an eye on the bottom line.

 

[Glen48]

USA has owes about $8-9 Trillion so when the USD dies won't USA have to put up I R's and how high will they go if the rest of the World in trying to get money in as well?
10 15% is not out of the question.???

 

[Mofra]

USA has owes about $8-9 Trillion so when the USD dies won't USA have to put up I R's and how high will they go if the rest of the World in trying to get money in as well?
10 15% is not out of the question.???

RBA sets monetary policy primarily as a measure to keep inflation in check, not to influence currency speculation.

*queue property speculation response*

 

[numbercruncher]

100 points off for clients of the RBA ... how much will banks pass onto the money renting public?

House prices to boom !?

 

[Beej]

100 points off for clients of the RBA ... how much will banks pass onto the money renting public?

House prices to boom !?

No not boom, but these lower interest rates are likely to put a floor under the market and allow it to bottom/stabalise from here for 2 main reasons:

1) Vanilla "mortgage" stress much reduced = less (if any) forced sales. Prices can only "crash" if sellers are desperate and must sell at any price.

2) Rent vs buy equation starts to look more and more tempting to FHBs sitting on the sidelines. As seen elsewhere on this thread FHBs as a proportion of buyers has been steadily ramping up for the past 3 months. These cuts will see that trend continue.

You can already see the frustration of cash savers here in other threads who have got used to high cash returns! Soon many in this situation will start to look for somewhere else to invest their money. Saving on rent and the prospect of owning your own home always looks attractive to many, especially with the stock market still looking shakey. Cash flow positive from day 1 property investments are also kind of cool to some (even if many here scoff!).

Watch the price action in lower and mid priced suburbs of Sydney this 1/4 and next 1/4 so see what is likely to pan out across other markets nationally through next year IMO.

Cheers,

Beej

 

[numbercruncher]

Yes the prospect of Japanese style economy is looking rather real now

 

[Mofra]

100 points off for clients of the RBA ... how much will banks pass onto the money renting public?

House prices to boom !?

CBA & NAB 100 points, Westpac 80 points so far.

Have to say I am pleased with result

 

[ROE]

No not boom, but these lower interest rates are likely to put a floor under the market and allow it to bottom/stabalise from here for 2 main reasons:

1) Vanilla "mortgage" stress much reduced = less (if any) forced sales. Prices can only "crash" if sellers are desperate and must sell at any price.

2) Rent vs buy equation starts to look more and more tempting to FHBs sitting on the sidelines. As seen elsewhere on this thread FHBs as a proportion of buyers has been steadily ramping up for the past 3 months. These cuts will see that trend continue.

You can already see the frustration of cash savers here in other threads who have got used to high cash returns! Soon many in this situation will start to look for somewhere else to invest their money. Saving on rent and the prospect of owning your own home always looks attractive to many, especially with the stock market still looking shakey. Cash flow positive from day 1 property investments are also kind of cool to some (even if many here scoff!).

Watch the price action in lower and mid priced suburbs of Sydney this 1/4 and next 1/4 so see what is likely to pan out across other markets nationally through next year IMO.

Cheers,

Beej

Yeah stock is pretty dangerous don't buy it, it's only a peice of paper
and thing can go belly up real quick.

Put your money any where but property

funny isnt it 80% of property investors earns $80,000 or less so the rich must be very wrong putting it all in business and stock market and still they are very rich... the world is a cruel place, and wondering what a property investor doing on a stock market forum if he doesn't buy stock...

kinda define logic

 

[Beej]

funny isnt it 80% of property investors earns $80,000 or less so the rich must be very wrong putting it all in business and stock market and still they are very rich... the world is a cruel place, and wondering what a property investor doing on a stock market forum if he doesn't buy stock...

kinda define logic

Sorry are you referring to me here? Couldn't be more wrong on all counts if you are! Regardless, there are a lot of rich long term property investors anyway.

But you do actually raise an interesting point, which is that the majority of people (ie all those "ordinary" folk) DO in fact invest far larger amounts of money in property than shares, businesses etc. That's because the majority of people at least own a PPOR, and many more invest in R/E as well because they believe it is a stable long term vehicle to provide income in retirement, with lot's of help/encouragement from the tax system and the monetary policy makers along the way .

Your rantings here will will not change these facts! And these are the facts that underpin the long term prospects of the property market in Australia.

Personally, I think you are mad to not at least aspire to own your own home ASAP before embarking on further aggressive wealth building activities. You get such a solid financial base early in life from which to start! And even if you do choose to do it the other way around, one of the greatest lifestyle factors you can gain from wealth is the area/home you live in for your PPOR, so again you are mad to not own your own! But, to each their own.....

Beej

 

[robots]

hello,

hey hey brothers, getting tough to hang your hat on something these days brothers?

what happened to 10+% interest rates

oh yeah we so Japanese, we going to get geisha girls, 0.3% IR's and when that fails we will go like US, crack heads galore and 9mm's sold at Bunnies, hang on its going to take a few more years though! hahahahaha

this is fantastic, MASSIVE rent reduction for the money renting crew today with CBA cutting full 1% straight off the cuff,

utopia

thankyou
robots

 

[gfresh]

Who says savers are not happy with our.... 4.5% minus tax cash returns

It seems home owners/investors/speculators/whoever has the full weight of the RBA on their side, so a little hard to fight against that right now. They're practically throwing their money at potential owners to buy buy buy

Think I will be breaking my lease next year ...

 

[numbercruncher]

4.5% minus tax fully guaranteed by the dodgy Australian Government in a deflationary enviroment is really truly awful hey commsec only give 5.75% ....

There wil be no renters left if you all buy houses ?


Utopia