House prices to keep rising for years

[Lancelot]

Tech, with all due respect, some of those questions are completely loaded and complete BS.

For #1, going into debt at the start of a cycle of high interest rates in my mind is not smart. That is a question that needs to be asked of the people already in. As we can't fix for long terms here.
.

10 years long enough?

Rams 10 year at 6.79% puts about $1800/week in my pocket after ALL expenses on todays rentals price

http://www.rams.com.au/default.asp?page=/home+loans/interest+rates+\+fees

1 Year Fixed 2 Year Fixed 3 Year Fixed 4 Year Fixed 5 Year Fixed 10 Year Fixed
Full Doc Rates: 5.79% 5.59% 5.99% 6.29% 6.29% 6.79%
Low Doc Rates: 6.54% 6.34% 6.74% 7.04% 7.04% 7.54%
SE Pro Pack Rates: 5.79% 5.59% 5.99% 6.29% 6.29% 6.79%

Westpac offer similar after discounts

http://www.westpac.com.au/internet/publish.nsf/Content/PBHLHCPI+Interest+Rates

 

[wayneL]

Serously, these inflation fears are farcical. 2009 will be a year of deflation, don't be surprised to see the RBA cash rate with a 2 handle on it. There is no urgency to rush out and buy property in the next 12 months.

Agreed

There are some economists that believe under the unique conditions at present, even so called "printing money" will have the opposite effect to what intended. ie more capital destruction and cementing in a period of serious asset deflation.

The fact is that in a deleveraging environment, historic vectors of value must return to the housing market. Sans very high wage inflation, there is only one direction for house prices in the intermediate future.

I'd suggest folks keep a very close eye on these things, but I'd put the period at even longer, several years.

But repeat, be prepared to jump in if CB's efforts to re-inflate start to get out of control.

 

[theasxgorilla]

Serously, these inflation fears are farcical. 2009 will be a year of deflation, don't be surprised to see the RBA cash rate with a 2 handle on it. There is no urgency to rush out and buy property in the next 12 months.

I agree. Besides, why not treat it like a trend following exercise instead of trying to pick bottoms or investing into what could in all likelihood get a whole lot worse before it gets better??

Unless you must buy for lifestyle reasons, in which case you've hedged your investment right there IMO.

 

[cuttlefish]

Wow this thread is a busy one isn't it!

What I want to know is what tf were people doing debating property prices half an hour away from NYE- thats bluddy sad imo!


Tech - if you're doing some kind of off-the-plan style development right now I certainly hope you've got an 'I can pull the pin if I don't like it' clause - the risks of property development right now would have to be extreme.

On the deflation vs inflation argument - well it will be interesting to see how it pans out but if there's hyperinflation you'd want to be set with a hedge - the right unencumbered property(s) (location, yield, land value, accom demand etc.) would seem to be a valid choice.

Property is highly dependant on rule of law though ... so no invasions, no govt overthrows, civil wars. Even in a more benign environment property value can be affected by legislation (e.g. rent control, tax legislation (cap gains, land tax, income tax etc.) - something to consider.

 

[gav]

Gav

I think your being wise in investigating opportunity.

Those sitting on the fence seriously need to ask these questions and have some sort of answer.

(1) How long are interest rates going to be at 30 yr lows?
(2) How low will house prices in the area I want to live actually going to fall?
(3) How long will rents stay below the norm?
(4) How long will inflation be capped?

Sure there are "Better" times than others to buy for some.
Those who believe there are better times---for them---need to be able to identify exactly what these better times are and see them when they are in their face.

Tech/A,

Thank-you for your concern, obviously its not a decision I will take lightly.

The places I have been looking at are above the quality of the average house in those suburbs, yet the prices are 20-30% below the median price. I have set myself a limit for how much I am willing to borrow, and the figure is very conservative (ie. I could still meet repayments if interest rates were 11-12% myself, and thats not including my g/f's future income). If I borrowed right now, my deposit would be around 18-25% (depending on which property), and I am putting a little more away each fortnight.

Apart from one hobby, I dont have any other expenses and I would be putting almost every spare dollar towards the loan each fortnight to pay it off as quickly as possible.

I could potentially borrow almost double this amount, but I am not willing to take that risk.

And taking current rent prices into consideration, if I only met the minimum payments per week for the loan (as I said before I'd pay more) then the minimum loan repayment is only $40 per week more expensive than renting in the same area. I'd be crazy to continue renting...

The only question is: Will the prices in the area I'm look at continue to fall?

Obviously I do not know. They could, but I doubt the ones I have my eye on would fall much further. If I can afford it now, is it worth taking the risk hoping they fall even further?

 

[Passive]

I for one and plenty of others thought they could fall that much and have voiced opinions here to that effect. But that is not the point of my post. The point is, that whilst 30 years of investing experience is no doubt of value, relying too much on the past as a guide for investment decisions can lead to mistakes such as buying CBA at $50. Thus when thinking about future property prices, the last 30 years of history should be taken with a grain of salt.

The analogy to the share market with property fits in how?

That has been our point all along - this is not a cheap shot - the nature of this asset class is such that it primarily is a dwelling and therefore not susceptible to the gyrations of the stockmarket. The property holder owns a house as a home. In reality a second house is an investment and that is shielded by the attitude of the owner of PPOR in Australia - sorry can't see the connection.

 

[wayneL]

The analogy to the share market with property fits in how?

That has been our point all along - this is not a cheap shot - the nature of this asset class is such that it primarily is a dwelling and therefore not susceptible to the gyrations of the stockmarket. The property holder owns a house as a home. In reality a second house is an investment and that is shielded by the attitude of the owner of PPOR in Australia - sorry can't see the connection.

But you'r not looking at the lesson of the UK. The British have an identical attitude to PPOR, the proportions of OOs and renters being nearly identical... An Englishman's home is his castle blah blah.

As a matter of fact, I would says the Poms are even more property obsessed than Aussies; but let's just say it's the same.

I posted an article only a few posts back that show UK house Prices down 16.2% for 2008. This disguises individual falls. To be sure some areas have not fallen that much, but some ares are down greater than 30% already, with individual examples greater than 50%.

This is not that different to experiences in the sharemarket.

Australia has been shielded somewhat by the resource boom and the China growth caused by the Beijing Olympics. As predicted by myself and others, the conclusion of the Olympics would be the conclusion of the resource boom.

That was only 4 short month ago and things are turning to shyte in line with that prediction. This puts Oz probably a good year behind the rest of the west in the economic cycle.

So attitudes to PPOR are no shield from calamitous mark downs in price, particularly in the resource based states.

 

[Bill M]

Thus when thinking about future property prices, the last 30 years of history should be taken with a grain of salt.

I totally disagree with this statement, history is still the best guide, we will see again.

 

[Bill M]

There was some discussion earlier about rents. Today I went to a friends room in Manly Sydney. For a small bedsitter with bathroom he was paying $360 per week. I asked him why he was paying so much and his reply was "if you want to live in manly that is the going rate". If he moved out tomorrow there will be dozens of people queuing up to get in. The landlord owns this massive big old style brick home and sublets several rooms to people at these rates. Nice little money spinner and no shortage of takers.

 

[wayneL]

Thus when thinking about future property prices, the last 30 years of history should be taken with a grain of salt.

I totally disagree with this statement, history is still the best guide, we will see again.

But we will be looking back a lot further than a boomer bubbled 30 years though.

 

[theasxgorilla]

I totally disagree with this statement, history is still the best guide, we will see again.

But market conditions and cycles aren't like rolling a die with an equal probability of turning up a 1 or a 6, are they?

The present and therefore the future is inextricably linked to the past.

 

[Stormin_Norman]

There was some discussion earlier about rents. Today I went to a friends room in Manly Sydney. For a small bedsitter with bathroom he was paying $360 per week. I asked him why he was paying so much and his reply was "if you want to live in manly that is the going rate". If he moved out tomorrow there will be dozens of people queuing up to get in. The landlord owns this massive big old style brick home and sublets several rooms to people at these rates. Nice little money spinner and no shortage of takers.

that story is why our housing prices will sustain better then the USA's. we do not have the oversupply of housing that the US created over the past 10 years.

 

[wayneL]

that story is why our housing prices will sustain better then the USA's. we do not have the oversupply of housing that the US created over the past 10 years.

Again we must then look to the UK where there is a putative undersupply. We are now back to 2004 prices on this little island, the most crowded nation in Europe, with rampant immigration, disappearing builders and a stringent green belt policy.

It must also be said that the oversupply in the US only applies to certain areas in the Sun Belt and Rust Belt. New Yawwwk, and the NE doesn't have oversupply, yet has still seen hefty falls.

 

[Stormin_Norman]

Again we must then look to the UK where there is a putative undersupply. We are now back to 2004 prices on this little island, the most crowded nation in Europe, with rampant immigration, disappearing builders and a stringent green belt policy.

It must also be said that the oversupply in the US only applies to certain areas in the Sun Belt and Rust Belt. New Yawwwk, and the NE doesn't have oversupply, yet has still seen hefty falls.

the statistics dont share that view. UK rents were worse:



what's the figures on house price drops in NY compared to the sun/rust belt you talk of?

im not saying there wont be a drop (financial market deflation has to put downward pressure on prices). just it wont drop off a cliff.

 

[wayneL]

the statistics dont share that view. UK rents were worse:



what's the figures on house price drops in NY compared to the sun/rust belt you talk of?

im not saying there wont be a drop (financial market deflation has to put downward pressure on prices). just it wont drop off a cliff.

Apples and oranges.

You've compared US and UK rent/house price ratios. I am comparing UK and Oz levels of putative undersupply and effects of cushioning price falls, with the US NE as an afterthought.

Some rust belt and sunbelt falls have been nothing short of catastrophic (eg Detroit, florida, Arizona, some parts of California). The NE still has had falls in line with London and other major high profile cities.

Oz won't see Detroit type falls. But I see Sydney and Melbourne having NY city/Boston type falls, with Perth being more serious.

Perhaps Detroit type falls in the NW... maybe.

 

[Stormin_Norman]

i was correcting your assumption that there was an undersupply of houses in the UK. judging by rent prices there wasnt.

other then that i generally agree with you. its hard to say how far housing prices will fall in oz. but our demand/supply is much stronger then both the UK and USA. id love a similar graph for oz.

 

[wayneL]

i was correcting your assumption that there was an undersupply of houses in the UK. judging by rent prices there wasnt.

other then that i generally agree with you. its hard to say how far housing prices will fall in oz. but our demand/supply is much stronger then both the UK and USA. id love a similar graph for oz.

Oh

I agree that in reality there is not an undersupply here, but that view is against the prevailing "wisdom". But there is not any particular oversupply either. Their was an illusory undersupply due to the boom however.

On that basis, (without definitive proof) my suspicion is that Ozis in a similar situation. An illusory undersupply, but not in reality. But that will take a few months to reveal itself.

 

[chops_a_must]

There certainly isn't an undersupply in Perth, the most heated market. The southern suburbs have had oodles of land released. A heck of a lot of land available in Cockburn for instance, if you want it. Old Jandakot, new Success for instance has heaps of supply I don't know how they are going to shift.


Not to mention, Canada, Australia's economic sister has had large price falls as well. Despite large homeless rates by their standards, and high rental yields, it hasn't meant squat. Property in Vancouver, is literally sinking.

 

[kransky]

i am a non home owner hoping for big falls in prices... i'd like a house without the lifetime enslavement currently associated with buying one.

ever since they changed the capitals gains law for home value increase every tom dick and harry has become a property investor... at the cost of the younger generation. at current house affordability levels we young people are majorly screwed.

a major correction would be justice for the many who have got rich simply because they were born 20 years before me and possibly took big risks.. yeah well deserved.

sorry.. enough of my venting.

i suspect that prices in oz wont correct so far down as unemployment wont be as big a problem here is is in the us and uk... uk has large immigration so large unemployment when things go bad.

if we start getting much higher unemployment then i expect prices to fall to normal affordability levels.

 

[kransky]

Wow this thread is a busy one isn't it!

What I want to know is what tf were people doing debating property prices half an hour away from NYE- thats bluddy sad imo!

i went back through the thread and it yeah, doesnt skip a beat... right through NYs.. LOL