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House prices to keep falling for years

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pepperoni said:
North shore is dead sales wise but you wont get anything for 6 figures.
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For the unimaginative, or with fertile bull imaginations, "auction clearance rates" from RP data:

North shore houses last week 46% from 39 auctions avg price $847k :banghead:

North shore units this week "20%".

Quick quick buy buy buy before renting gives you brain cancer. :rolleyes:

As for rentals ... Im looking at moving to mcmahons point .... 2 waterfront 2 bedders in a waterfront block one for $550 ... sound like a nice place to wait out another few months.
 
One of biggest problems for real estate, is that in a fractional reserve banking system, banks lend out 10-15 times (sometimes more) than what they have in deposits.

That means a $1b loss (which banks are taking left right and centre) means $10b-15b less available to lend out.

Even if buyers wanted to buy, most won't be able to get a mortgage.

My parents just managed to sell a house in Qld, they had 3 signed contracts which fell through because of finance, in the last 6 months.
 
gfresh said:
Excellent read on the way it will play out.

http://www.businessspectator.com.au/bs.nsf/Article/Property-will-suffer-JXV9B?OpenDocument&src=mp

Sorry to property bulls, it involves economics .. you've probably tuned out already.
Click to expand...

I'm no ecomomist but it's quite interesting reading... plain, easy to understand english too which may help some people understand the implications of the bigger picture - something a lot of people are quite obviously oblivious to...


refined silver said:
Even if buyers wanted to buy, most won't be able to get a mortgage.
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Sorry, can't say I 100% agree with this. I'm pretty sure that if you already have a good relationship with the bank (ie: solid deposit and demonstrated history of regular savings) you should be able to breeze through the application. I do realise that not everybody will be in this ideal situation but even so, I'd suggest that a large proportion of new applicants will have been saving hard for a few years now getting themselves into position to purchase.... as long as they're not trying to punch above their weight however!

I can't justify with numbers but the "water-cooler" chit-chat in my workplace would suggest that prospective first time homeowners are making hay whilst the sun is shining and banging as much cash as possible into high interest savings accounts.
 
MrBurns said:
Stiff cheese, your property is now worth $340,000 also.

Who would pay $400,000 ? no one.
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It's a hypothetical. The point is that in this instance people are trading money for time and it's due to reasons other than pure market forces.

MrBurns said:
If the bank decided to value youyr property it would come in at $340,000 because that's what similar peoperties in your street sold for and if you happen to owe $350,000 the bank are within their rights to ask you to tip in $50,000 or so otherwise they may sell you up as you are in breach of your mortgage conditions.
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You reckon banks will do this and create unnecessary defaults? Not to mention the PR impact. I reckon you're living in fairyland.

MrBurns said:
The market has already supported the lower prices what it wont support is $400,000 for a house thats worth $340,000.
Click to expand...

I managed to really get the point right past you didn't I.

"Hey I have a 400k apartment and I need to sell it in a hurry, will anyone give me 340k for it this weekend?". All other apartments in the block are now 340k right? All the best with that philosophy.
 
pepperoni said:
The "market has turned and is turning"? Turning up from falls? Not sure I get this.

Inner west has always been undervalued and I dont think it has recently fallen much.

If you are thinking places are going for too much now you *could* have a chronic low balling problem. Inner west has top notch amenity and has always been cheap as chips for what you get.

Ask the agent for a price guide ... they are obliged to be accurate and nowadays its almost always + or - 5%. If you are hoping it will go lower you are wasting your weekends.

Id tell you to look elsewhere if you think its running hot but you wont get any other central suburban area for anywhere near the money.

North shore is dead sales wise but you wont get anything for 6 figures.
Click to expand...

Well we are not hopping they are going lower..We are spot on now having a number of properties in the lower north show and inner west already we know the market very well... we are looking in the 950k to 1.2 million... all the places have gone over 15% - 20% what the agent or the market has placed them..... I believe this is due to the shortage of houses on the market..

Now for the lower north shore...Well I have seen a lot of old unrenovated 3 bedroom places go around the $780k on 250sqm and parking around the crows nest area. And with 60k - 100k to fix it up I can tell you it will be a little rocket once completed.

So I think we are spot on about the market.. I think there are to many people just talking it down without being on the ground...

Also I'm not talking it up I'm just saying there is a turn in the wind..

As for getting finance I get all my finance through the NAB and have not had a problem buying or selling places. If you have a the equity and right income u will never have a problem...
 
motion, with those loans what is your LVR (loan to valuation ratio for the newbies)?

Again for the newbies:
In other words how much of your own equity are you having to stump up to keep the bank happy as a function of the total loan?

Second question: are your places positively geared (ie. more rent coming in than interest and outgoings) or negatively geared (ie. rent does not cover interest and outgoings)?

Third question: what level of yield / loss are your getting with your new properties?

Fourth question: If you are negatively geared, what is the source of your funding (other properties, job, business, own equity)?

These are the sort of questions you need to ask in order to understand how other (hopefully) successful people make a success of their investments.

Sorry to pry so much motion, but thought your answers might help those who are still learning the investment ropes.
 
motion said:
........
Click to expand...

Interesting posts motion! I'm glad that I am not the only one that has noticed this same level of activity in the same/similar area's and price ranges.

Maybe more people reading this thread would be prepared to post their own experiences, even if they go against the tide of negative opinion here?

Cheers,

Beej
 
gfresh said:
Excellent read on the way it will play out.

http://www.businessspectator.com.au/bs.nsf/Article/Property-will-suffer-JXV9B?OpenDocument&src=mp

Sorry to property bulls, it involves economics .. you've probably tuned out already.
Click to expand...

This guys is wrong - he states:

"The property market is governed by two forces – the availability of borrowings to buy property and the cost of buildings".
Click to expand...

He is MISSING a 3rd and perhaps most important factor - the willingness of owners of existing property to sell. The cost of building pales into insignificance compared to this factor in established area's where few new houses can not be built. If the **** drops out of the market for a while, only the most distressed owners will sell - when those are all gone (by definition you can't create any more distressed owners in this situation!), there is nothing left to buy - a price "crash" isn't much good if no-one is offering to sell the thing you want at the "crashed" price now is it?? Pepperoni - this is YOUR situation right now where you are looking. Most owners of prestige property are not forced to sell at low prices, so if buyers aren't buying, the volume simply dries right up. The odd distressed sale (divorce, financial problems) can result in some real bargains - if you get one of those you will do very well in the longer term, but those sales will not be representative of the market "opportunity" as a whole for the masses due to anemic volumes.

This is why house prices tend to stagnate/stay flat for a while rather than crash during downturns.

Cheers,

Beej
 
Beej, you are looking at this from the wrong way around.
Beej said:
He is MISSING a 3rd and perhaps most important factor - the willingness of owners of existing property to sell.
Click to expand...
How about the willingness of buyers to buy? It's now near impossible for vendors to find a bigger fools than themselves to pay more than what they did.
Beej said:
If the **** drops out of the market for a while, only the most distressed owners will sell
Click to expand...
Only the dumbest of buyers will buy.
Beej said:
This is why house prices tend to stagnate/stay flat for a while rather than crash during downturns.
Click to expand...
I think we many continue to see house prices fall in Australia in the years ahead.
 
hello,

yeah lets keep the truth and honesty from the masses

thankyou
robots
 
hello,

wow, interest rate cut coming up fantastic news

anyone got a letter from the landlord with a reduction in rent?

and with Mark Bouris taking the title as the new "we'll save you" you can be sure to be sure its going down,

life keeps getting rosier and rosier

thankyou thankyou
robots
 
banks are not stupid (well mostly :rolleyes: )
the old 20% loan to valuation ratio here in Aus still is valid.

basically the banks know from (lots of) experience that house prices rarely drop more than 20% (that's why they will normally give you a mortgage with 80% LVR - keeps them safe).

It can be used (along with auction clearance rates) as a BUY marker in a given area when prices have dropped by 20%. Even better if you can find an area with a 30% drop.
 
motion said:
all the places have gone over 15% - 20% what the agent or the market has placed them
Click to expand...

The agents are treating you like a fool to get some buzz at their auction. Id be offended and if you are seriously that into real estate you should know this is an offence for them to underquote that is easily and often reported.

I have never seen any quote even 10% out in recent years ... its not rocket science for them to get within 10%.

If you want to buy go right ahead nobody it trying to stop you ... but the majority of people in this thread buy and sell on fundamentals "not changes in the wind."

Im out there every week and its a bloodbath for owners ... your view might be tainted by the fact you have put alot into property, just as mine is by the fact that I thank god I dont have money trapped in illiquid investment properties.

Here is my red hot suburb in better times than now ...
Mosman
6 mths to Aug 08
$000 median
% Change
-14%

Here is yours
Leichhardt
6 mths to Aug 08
% Change
-4%

Conditions are way worse now in my fairly well advised area ... no question .... but happy buying all the same.
 
Some more red hotness from the suburb that started the last boom ... the all telling auction clearance rates ;)

6 mths to Feb 08 56%
6 mths to Aug 08 40%
 
Here's some interesting reading.

Bank of Queensland chief executive David Liddy said pressure was on most banks to lift rates because global credit markets were frozen and they were now having to pay more to attract deposits.

"I can only see pricing going up," he said. "Access to international credit markets is closed, and I doubt that banks will be able to pass on the full cash rate reduction."

Source: http://www.news.com.au/business/story/0,27753,24434215-462,00.html
 
From Patrick.net

Prices are still falling. This is due to tighter lending standards and the fact that current salaries still cannot cover current house prices in most places. A safe mortgage is a maximum of 3 times the buyer's yearly income, but mortgages have been 5 to 10 times incomes in the last few years. Anyone who buys now will suffer losses immediately, and for the next several years at least, as prices fall into line with tighter lending and stagnant salaries.

It's still much cheaper to rent than to own the same thing. On the coasts, yearly rents are less than 3% of purchase price and mortgage rates are 6.5%, so it costs more than twice as much to borrow money to buy a house than it does to rent the same kind of house. Worse, total owner costs including taxes, maintenance, and insurance are about 9%, which is three times the cost of renting. Buying a house is still a very bad deal for the buyer on the coasts, but it may make sense to buy in Michigan and some other places where prices have fallen into line with salaries. Check whether you should rent or buy in your own area with this NY Times calculator.

Prices disconnected from Gross Domestic Product. The value of housing in the US depends a lot on the value of what the US actually produces.

Buyers borrowed too much money and cannot pay the interest. Now there are mass foreclosures, and senators want to take $700B your money to pay for Wall Street bonuses for banker friends of Henry Paulson. The Senate's plan is to overpay the banks for bad mortgages, claiming that this will support the housing market. It will not work. Worse, the Senate is trying to keep housing unaffordable.
To prevent a justified foreclosure is also to prevent a deserving family from buying that house at a reasonable price. The housing bailout bill is designed to keep deserving families OUT of houses, and keep undeserving gamblers in houses they cannot really afford!

Should taxes and inflation be forced to rise to cover the debts of irresponsible people, no matter how much they over-borrowed or overpaid for a house? Should we cry and pay the debts of people being forced from "their homes" no matter what price they paid or how far it is beyond their actual financial means? If so, go buy the most expensive house you can right now! Borrow as much as you possibly can, knowing that Congress and Bush will force the real repayment obligation onto others, onto people who are living within their means. All you have to do is look sad when threatened with foreclosure and you can keep a more luxurious house than you can really afford!

Banks happily loaned whatever amount borrowers wanted as long as the banks could then sell the loan, pushing the default risk onto Fannie Mae (taxpayers) or onto buyers of mortgage-backed bonds. Now that it has become clear that a trillion dollars in foolish mortgage loans will not be repaid, Fannie Mae is under pressure not to buy risky loans and investors do not want mortgage-backed bonds. This means that the money available for mortgages is falling, and house prices will keep falling, probably for 5 years or more. This is not just a subprime problem. All mortgages will be harder to get.

A return to traditional lending standards means a return to traditional prices, which are far below current prices.


Interest rates increases. When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate. The housing bust still has a very long way to go.
For example, if interest rates are 5%, then $1000 per month ($12,000 per year) pays for an interest-only loan of $240,000. If interest rates rise to 7%, then that same $1000 per month pays for an interest-only loan of only $171,428.

Recent lower Fed inter-bank lending rates do not directly affect mortgages rates, nor do extra Fannie or FHA guarantees. The 30-year fixed mortgage rate actually went up after the Fed's rate cut, because rate cuts cause higher inflation.


Extreme use of leverage. Leverage means using debt to amplify gain. Most people forget that losses get amplified as well. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss or an interest rate hike, he's bankrupt in the real world.
It's worse than that. House prices do not even have to fall to cause big losses. The cost of selling a house is 6%. On a $300,000 house, that's $18,000 lost even if prices just stay flat. So a 4% decline in housing prices bankrupts all those with 10% equity or less.


Shortage of first-time buyers. High house prices have been very unfair to new families, especially those with children. It is literally impossible for them to buy at current prices, yet government leaders never talk about how lower house prices are good for pretty much everyone, instead preferring to sacrifice American families to make sure bankers have plenty of debt to earn interest on. If you own a house and ever want to upgrade, you benefit from falling prices because you'll save more on your next house than you'll lose in selling your current house. Every "affordability" program drives prices higher by pushing buyers deeper into debt. To really help Americans, Fannie Mae and Freddie Mac should be completely eliminated, along with the mortgage interest deduction. Canada has no mortgage-interest deduction at all, and has a more affordable housing market because of that.
The government keeps house prices unaffordable through programs that increase buyer debt, and then pretends to be interested in affordable housing. No one in government except Ron Paul ever talks about the obvious solution: less debt and lower house prices. The real result of every "affordability" program is to keep you in debt for the rest of your life so that you have to keep working. Lower house prices would liberate millions of people from decades of labor each.


Surplus of speculators. Nationally, 25% of houses bought the last few years were pure speculation, not houses to live in, and the speculators are going into foreclosure in large numbers now. Even the National Association of House Builders admits that "Investor-driven price appreciation looms over some housing markets."

Fraud. It has become common for speculators take out a loan for up to 50% more than the price of the house he intends to buy. The appraiser goes along with the inflated price, or he does not ever get called back to do another appraisal. The speculator then pays the seller his asking price (much less than the loan amount), and uses the extra money to make mortgage payments on the unreasonably large mortgage until he can find a buyer to take the house off his hands for more than he paid. Worked great during the boom. Now it doesn't work at all, unless the speculator simply skips town with the extra money.

Baby boomers retiring. There are 77 million Americans born between 1946-1964. One-third have zero retirement savings. The oldest are 62. The only money they have is equity in a house, so they must sell.

Huge glut of empty housing. Builders are being forced to drop prices even faster than owners. Builders have huge excess inventory that they cannot sell, and more houses are completed each day, making the housing slump worse.

The best summary explanation, from Business Week: "Today's housing prices are predicated on an impossible combination: the strong growth in income and asset values of a strong economy, plus the ultra-low interest rates of a weak economy. Either the economy's long-term prospects will get worse or rates will rise. In either scenario, housing will weaken."
 
lakemac said:
motion, with those loans what is your LVR (loan to valuation ratio for the newbies)?
Click to expand...

lakemac - Thank you for your questions.. I will write my numbers up and post. sorry I should do this more often.

pepperoni said:
The agents are treating you like a fool to get some buzz at their auction. Id be offended and if you are seriously that into real estate you should know this is an offence for them to underquote that is easily and often reported.

I have never seen any quote even 10% out in recent years ... its not rocket science for them to get within 10%.

.
Click to expand...

pepperoni, here is a example of place we looked at buying which was way out by over 20%. now just so you know we where in the last 3 bidders and 8k - 10k of the final selling price out of 8 bidders from start to finish.

This was marketed for around 550k - 600k, but it sold for 124k over the reserve.
This house still needed about 100k to put this place on the market for rent...This is a good example of how I think the innerwest is still doing well and auctions we have been attending are outperforming what the general market.

http://www.realestate.com.au/cgi-bi...t=&header=&cc=&c=29862901&s=nsw&tm=1222913114

Just to compare this house to another one so you did not think the agent was under pricing it here.

a comparable house a couple of doors up which was liveable great floor boards big rooms and could have been rented the next day for around $600pw went for $670k around 6 months ago...

Now thats a big difference.... so I guess realestate agents are doing this and this is not the only example around...
 
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