House prices to keep falling for years

[Knobby22]

They all work for me.

 

[cuttlefish]

I've got no idea why my attachment keeps disappearing and reappearing.

too much information thanks!


The spreadsheets pretty cool though.

 

[cuttlefish]

The spreadsheets pretty cool though.

and its telling me that in my suburb houses are expensive and studio apartments are cheap ...

Which I think is pretty much right on those numbers, but its difficult to assess land value which is quite relevant for underdeveloped land in an inner Sydney area constantly increasing in density.

 

[Mofra]

Excellent work Pommiegranite. I actually did a few similar calculations years ago when I was being prompted to buy my own home, and found I was much better off buying an investment property & continuing to rent.

 

[Spek]

http://business.smh.com.au/business/pleasure-at-the-pain-of-others-20081112-5nyi.html

Michael Evans knows where to find the real heart of Sydney.

IT'S tough out there on Main Street. Particularly Main Street, Palm Beach. Not to mention Main Street, Mosman.

Ask those well-known social demographers otherwise known as the trading desk at Goldman Sachs JBWere.

Musing on the impact of the meltdown in, ahem, "the real world", Goldies operative Preston Hamersley called in a few "anecdotes from Main Street".

Such as how prices have been slashed at the Opera House car park, to $12 from $16.

And how private wine sellers are flooding the market at the "higher-end demographic".

Don't forget the well-known car dealer flogging 250 BMWs and Minis by the end of the year.

Our man in the street even had some thoughts on the Main Street property market.

"Some amazing stock available. In Mosman, prices are down 20 per cent and looks like half of Mosman is for sale."

And at Palm Beach? "Seventy properties for sale! How many on the 'Hill' - 300?"

We suspect that's trader talk for the real, real world, aka, Bellevue Hill.

 

[gfresh]

I have something similar, although done slightly differently.

Couple of things in yours though:

a) In the amortisation sheet, you seem to referencing an empty cell in the "capital value" area? Was that meant to reference anything?

b) you haven't accounted for any rental increases as far as I can see over that 30 years?

c) IMO I would definitely be indexing the savings from the deposit. A few $10k compounding yearly over 30 years will give you significant extras. If you have the deposit to buy, you have it to set aside to invest as well.

d) What is the "rental assistance". Is that some NSW thing? Or a partner on lower income receiving Commonwealth rent assistance? Makes no sense to me here in QLD

e) You should probably index the rates with the capital gain, as councils will always sting you for higher rates until you die, it's probably more a fixed proportion of the value.

 

[Beej]

Third time lucky?


Oh well, here goes again with the new and improved version:

Not bad - Thanks for sharing Pommie! I've had a bit of a look. A few comments:

* No more mortgage duty - abolished in all states when the GST came in.
* Legal fees - purchaser conveyancing can be done for $900
* Lenders Fees - you should be paying zilch here
* Inspection fees - should only be paying $400 or so
* Stamp Duty - I'm guessing the spreadsheet uses the QLD rate?
* I also thought the council rates and insurance rates were too high. Council rates in NSW would typically be around $600-$1500/year tops (I currently pay $180/qtr), so I adjusted that. Building insurance would typically be about $400pa in most cases.

Making the above adjustments, and using an interest rate of 7% (which is what I have on my equity manager account currently), and using my current PPOR as the example (based on current appraised value + current rental expectation), plus I guess most controversially a 3.5% capital gain rate (which is inflation essentially only, no doubling in 7 years etc etc - more like 20! SO very conservative long term) - the spreadsheet says that after 3 years, it is more cost effective to rent by $10k after 3 years, but that after 10 years you are $90k in front for buying. Of course this example is a little moot as I currently own my PPOR outright already anyway

Interestingly, I also used the numbers for a house that I am considering purchasing (which is better and more expensive than my current PPOR), and it comes out after 3 years as being better to BUY than to rent after the first 3 years to the tune of $10k-$50k depending on the rental value I use. After 10 years, I am $180k -> $350k in front for buying that house rather than renting it.

So both cases look like no brainers to me!

PS: I do not wish to divulge the specifics (values, rents etc) of my examples as they reveal to much detail of my personal financial situation!

PPS: I also had the question already asked about whether rents are indexed/increased over time in the calcs?

Cheers,

Beej

 

[Junior]

Jonathon Pain of HFA estimates that AUS house prices will drop by a minimum of 20-25% in the short-medium term.

 

[Beej]

Jonathon Pain of HFA estimates that AUS house prices will drop by a minimum of 20-25% in the short-medium term.

Fine - if you believe that then rent away!

PS: Don't expect to be buying MY house off me for a 25% discount to it's current value!

Cheers,

Beej

 

[Temjin]

Third time lucky?


Oh well, here goes again with the new and improved version:

Intersting Pommiegranite. I'm working on a similar spreadsheet too except it only looks at the "investment return" of owning a house. That return can be compared by the person's opportunity cost (cash rate or equity return over the long term) taking his/her marginal tax rate into account.

I have not worked on the "return comparsion" yet, only on the return of a home investment. Will post when i have made some final adjustments at it.

I can't get around my head with your method at the moment.

I use a simple net present value (basic financial modelling) in my method, using fairly same assumptions as what you have. Like stamp duty, insurance cost, also included home maintainence cost (I'm sure someone need to fix their home over 10 years period!), fixed interest rate for term, etc, etc.

Will post when I have more time to fix some minor mistakes. (note i have post a similar spreadsheet in this whole thread before, but I changed my method to be more academic)

 

[CamKawa]

PS: Don't expect to be buying MY house off me for a 25% discount to it's current value!

I will expect to do so.

 

[Pommiegranite]

Intersting Pommiegranite. I'm working on a similar spreadsheet too except it only looks at the "investment return" of owning a house. That return can be compared by the person's opportunity cost (cash rate or equity return over the long term) taking his/her marginal tax rate into account.

I have not worked on the "return comparsion" yet, only on the return of a home investment. Will post when i have made some final adjustments at it.

I can't get around my head with your method at the moment.

I use a simple net present value (basic financial modelling) in my method, using fairly same assumptions as what you have. Like stamp duty, insurance cost, also included home maintainence cost (I'm sure someone need to fix their home over 10 years period!), fixed interest rate for term, etc, etc.

Will post when I have more time to fix some minor mistakes. (note i have post a similar spreadsheet in this whole thread before, but I changed my method to be more academic)

Thanks for all of the replies guys. It's exactly what I was looking for! G and Beej, you've made some key points which I hadn't considered

I'm going to try and get something together which incorporates your points and other amendments and get it posted next week (although getting it under 293k will be the biggest challenge!). Temjin, it would be good to see what you have also.

One thing that this spreadsheet shows me is that the overriding financial benefit from renting over buying (and vice versa) is capital gains/losses. All of the rest (including payment of principal on a mortgage) is window dressing.

So timing the market (moreso than time in the market) really does go a long way to determining one's financial future.

 

[Pommiegranite]

Not bad - Thanks for sharing Pommie! I've had a bit of a look. A few comments:

* No more mortgage duty - abolished in all states when the GST came in.
* Legal fees - purchaser conveyancing can be done for $900
* Lenders Fees - you should be paying zilch here
* Inspection fees - should only be paying $400 or so
* Stamp Duty - I'm guessing the spreadsheet uses the QLD rate?
* I also thought the council rates and insurance rates were too high. Council rates in NSW would typically be around $600-$1500/year tops (I currently pay $180/qtr), so I adjusted that. Building insurance would typically be about $400pa in most cases.

Making the above adjustments, and using an interest rate of 7% (which is what I have on my equity manager account currently), and using my current PPOR as the example (based on current appraised value + current rental expectation), plus I guess most controversially a 3.5% capital gain rate (which is inflation essentially only, no doubling in 7 years etc etc - more like 20! SO very conservative long term) - the spreadsheet says that after 3 years, it is more cost effective to rent by $10k after 3 years, but that after 10 years you are $90k in front for buying. Of course this example is a little moot as I currently own my PPOR outright already anyway

Interestingly, I also used the numbers for a house that I am considering purchasing (which is better and more expensive than my current PPOR), and it comes out after 3 years as being better to BUY than to rent after the first 3 years to the tune of $10k-$50k depending on the rental value I use. After 10 years, I am $180k -> $350k in front for buying that house rather than renting it.

So both cases look like no brainers to me!

PS: I do not wish to divulge the specifics (values, rents etc) of my examples as they reveal to much detail of my personal financial situation!

PPS: I also had the question already asked about whether rents are indexed/increased over time in the calcs?

Cheers,

Beej

Beej,

I heard that inspection fees depend on age/size of property. I look at a few figures from the net and took a %

The Stamp duty rates are from NSW

The Council rates are from Baulkham Hills Shire, and are actual rates for the cheapest option ie a 90litre bin (no organics)

 

[Pommiegranite]

d) What is the "rental assistance". Is that some NSW thing? Or a partner on lower income receiving Commonwealth rent assistance? Makes no sense to me here in QLD

G,

In NSW and Victoria if you are entitled to Family Tax Benefit A or dolebludger allowance, the you are entitled to rental assistance (not sure about other state). These figures are for NSW.

This shows that this spreadsheet really needs to have some income parameters in it. I've got a feeling that there is no end to how much I can tweak this!

 

[Spek]

PS: Don't expect to be buying MY house off me for a 25% discount to it's current value!

**


** Small print: This assertion assumes current value is already 12.7% less than last year. Source http://www.smh.com.au/news/national/...165481817.html

 

[robots]

hello,

wallop, bang, oh another high 5% smashed from the shonky exchange in one day, one day

about time CBA is getting pulled down with the rest,

what a day, paradise on the streets down Chapel St again, 30+ degrees sipping lattes watching the world go around, awesome

anybody know how's property going? awesome time as a money renter

thankyou
robots

 

[cuttlefish]

I'm by no means a property bull at the moment, but I do have to say that doing some sums on studio apartments currently for sale local to me they are looking like fair value at the moment. I'm not about to buy another investment property right now, but 'grossly overvalued' doesn't seem like a fair description.

I also note that I could buy back an equivalent unit to one I sold 5 years ago for the same price today as I sold it for back then (possibly even get it slightly cheaper than I sold it for). Hardly evidence of an irrational speculative bubble in this area at least imo.

Some sums based on net rental yield (agents fees, rates and levees taken out) and based on current rental market rates has it costing an investor $50/week out of pocket to hold (after adding in the negative gearing benefits at top tax rate.). Thus only requires a 1% capital gain to break even. (this is based on 7.4% 10 year fixed term interest rate).

If interest rates fall another 1%, a 5% discount was achieved off the asking price, and the rent raised by10%, the property would be neutrally geared at 100% borrowing.

Hardly comparable to tulip bulbs and dot com stocks is it?

 

[MrBurns]

I'm by no means a property bull at the moment, but I do have to say that doing some sums on studio apartments currently for sale local to me they are looking like fair value at the moment. I'm not about to buy another investment property right now, but 'grossly overvalued' doesn't seem like a fair description.

I also note that I could buy back an equivalent unit to one I sold 5 years ago for the same price today as I sold it for back then (possibly even get it slightly cheaper than I sold it for). Hardly evidence of an irrational speculative bubble in this area at least imo.

Some sums based on net rental yield (agents fees, rates and levees taken out) and based on current rental market rates has it costing an investor $50/week out of pocket to hold (after adding in the negative gearing benefits at top tax rate.). Thus only requires a 1% capital gain to break even. (this is based on 7.4% 10 year fixed term interest rate).

If interest rates fall another 1%, a 5% discount can be gotten off the asking price and you could manage a 10% increase on the rent the properties would be neutrally geared at 100% borrowing.

Hardly comparable to tulip bulbs and dot com stocks is it?

When property has fallen below replacement value, that's a reasonable time to start thinking about buying again.

 

[Glen48]

Wait a few more minutes before you buy as George Soros has some thing to tell us all:

SHOCKER: George Soros just announced that up to two-thirds of the $1.9 trillion hedge fund industry is about to go belly-up 6,600”” an event that would force one of the greatest stock market fire sales of all time. In his report below, Mike Larson gives you the details and shows you how to use this latest bombshell to go for double-your money gains.

 

[robots]

Wait a few more minutes before you buy as George Soros has some thing to tell us all:

SHOCKER: George Soros just announced that up to two-thirds of the $1.9 trillion hedge fund industry is about to go belly-up 6,600”” an event that would force one of the greatest stock market fire sales of all time. In his report below, Mike Larson gives you the details and shows you how to use this latest bombshell to go for double-your money gains.

hello,

wait before you buy,

they forgot my tomato in my salad roll today and its going to wipeout the world

thankyou
robots