House prices to keep rising for years

[Tysonboss1]

The house 3 doors down from me sold on the weekend for just shy of $1.8 million. If you include the $85k stamp duty thats close to $1.9 million down.
(the house is a well renovated 3 bedroom brick bungalow on approx 400 sqm block).

Rents in the area have risen as far as I know and a reasonable rent would be around the $900-$1000k/week mark, possibly up to $1200/wk but that would have to be about the upper end.

So if looking at it from an investment perspective thats a yield under 3.5% at a time when loan rates are over 8% and cash rates are 5% plus.

Its true that rentals have risen quite considerably and I guess continued rental growth could contribute to improved yields - though even at the wages being paid today $1200/week seems like a fair bit to pay to rent a house. Free standing houses in tightly held area's are also a land investment which could possibly justify a lower yield than say for an investment property in an area where land isn't scarce, or in a strata unit.

But if sentiment towards property changed we'd be looking at a very different price scenario I suspect. In a flat market with a lot of negativity, lack of confidence and fear its not unusual for investment yields to get close to parity with bank interest rates even in tightly held 'blue chip' suburbs.

High end properties always have lower yeilds, but generally as surronding areas have infill developments and increase density then these areas that remain low density become very sot after for life style reasons so can be traded on very high P/e ratio's.

Investing in property is like investing in shares,... you have to decide wheather you are chasing growth or cashflow.

If you want to chase income then you are best to stick to lower end properties,.... the average home is probally combination of the two, and a high end property is mostly a growth asset.


I know that most people say that property yeilds are to low because they can ge better in cash, bt this is really flawed thinking.

say you put $200,000 a high interest account, you may get 8% but you are fully taxed on that 8% every year and your capital is eaten by inflation

If you put $200,000 into a lower end property after outgoing you may get 4.5% rental income ( which has a good chance of increaseing year by year,.. atleast with inflation),.... your capital will most likely be protected because the value of the home should increase by atleast inflation,.... and you have a good chance of getting some capital growth in he demand for that style of property or land content increases.

So in the first year or two, a cash investment may do better than property, but every year you hold your property the benefits are compounded.

Investing in property is alot like shares,... you can't just buy any property in any suburb and expect in to met your needs.

you have to match the style of property and investment stratergy with your needs.

 

[Mofra]

In the easy credit market unfortunately this is what happens and when the bad loans start blowing up it rolls onto affecting the main market.

Watched four corners last night pretty sobering but not unexpected........

It isn't household debt in isolation which is the problem - despite what the (uneducated) majority believe, there is at least 2% fat in the assessment rate above the highest standard rate offered by banks & lenders, and we do have some of the highest secured credit standards in the world.

The problem is that unsecured credit is so easy to obtain - I haven't seen a default yet in which the mortgagor hasn't had multiple cards, car loan, personal loans etc. Many of the people defaulting on mortgages pay far more in unsecured credit every month than they do in mortgage repayments.

 

[Tysonboss1]

It isn't household debt in isolation which is the problem - despite what the (uneducated) majority believe, there is at least 2% fat in the assessment rate above the highest standard rate offered by banks & lenders, and we do have some of the highest secured credit standards in the world.

The problem is that unsecured credit is so easy to obtain - I haven't seen a default yet in which the mortgagor hasn't had multiple cards, car loan, personal loans etc. Many of the people defaulting on mortgages pay far more in unsecured credit every month than they do in mortgage repayments.

Toatally aggree,

I think that there needs to be more education at High school level on cashflow and debt management and maintaining family budget.

I can't believe that a school subject called "Home economics" puts the focus on teaching people how to bake a cake, but there is no subject that teaches people about the basic principles of investing or the pros and cons common debt structures.

I putfull blame of peoples but finiancel situation on them selves,.... but I guess atthe end of the day, more education would help people.

 

[gfresh]

Education would definitely help. Even some government sponsored ads I reckon would help the country a lot. They have them for gambling, smoking, drink driving, domestic violence, etc.

I think credit card (or any other) form of household debt needs to be addressed in a similar fashion, as it can be equally devastating. It can lead to severe depression, alcoholism, drugs, even suicide for some where their life is ruined by debt.

While often the end effects are addressed, credit debt can be a root cause (or at least in part) for many of them! It's definitely in the public interest that this is addressed, as we've seen in the US, it can actually almost destroy a whole economy if it gets out of control.

They've had expensive campaigns on other public issues which I would say are of lesser importance, I remember the non-stop advertising by the previous government pushing "workchoices" non-stop for 2 months. How useful that was... !

Maybe there is too many toes to stand on, that being the banks, which contribute hundreds of millions, if not more to Government coffers each year in taxes and charges. If that is the case, it's a sad state of affairs..

 

[IFocus]

It isn't household debt in isolation which is the problem - despite what the (uneducated) majority believe, there is at least 2% fat in the assessment rate above the highest standard rate offered by banks & lenders, and we do have some of the highest secured credit standards in the world.

The problem is that unsecured credit is so easy to obtain - I haven't seen a default yet in which the mortgagor hasn't had multiple cards, car loan, personal loans etc. Many of the people defaulting on mortgages pay far more in unsecured credit every month than they do in mortgage repayments.

Agree Mofra you have hit the nail on the head which was one area that the 4 corners program looked at, the concern was how the dept accumulated via credit cards and other would roll back into affecting house mortgages etc.

 

[Tysonboss1]

Agree Mofra you have hit the nail on the head which was one area that the 4 corners program looked at, the concern was how the dept accumulated via credit cards and other would roll back into affecting house mortgages etc.

One problem s alot of the time these credit cards, Lease hire aggreements and consumer loans don't exist when the person first applies for the home loan,

People do really bring it on them selves,...

 

[xoa]

Credit card debt is a molehill compared with the mountain of mortgage debt.

 

[kyme]

On news, that CBA just increased its Home loan rates again. Isn't that the third in roughly a month?. Home loan owners must think its a bad joke, ignore last weeks letter and one before that, this is your new repayment !

 

[gfresh]

Banks can do what they like.. Raise it to 50% if they wanted to ... I doubt the Government could do much. Remember it is the bank that owns your home until you pay it off.

At the moment I'll admit it is a little hard for credit card companies to see the real story when it comes to an applicant. In most cases they can only see that you have either taken out, paid off, or defaulted on a payment from another co - they cannot see how much credit you actually have taken out. Some moves to change this could help stop financials lending people beyond their means, although most will scream over privacy concerns.

 

[Mofra]

Credit card debt is a molehill compared with the mountain of mortgage debt.

In total debt level yes, but in effect on society no: Joe Average can't walk in off the street and obtain a secured loan/mortgage without proof of income, adequate security, confirmation of stability of employment etc. etc.

For a credit card all you need is a pulse and the ability to sign your name, regardless of how many credit cards you already have. I haven't seen a single default case of someone who has no unsecured/consumer credit.

 

[wayneL]

Uh Oh!

The fear in the housing market here is now palpable. Instead of the topic around dinner tables being how much their stinking pile of bricks is now worth, that topic is now verboten!

Discussion now centers around employment, recession and whether their money is safe in the banks.

The Austrians were right again.

http://business.timesonline.co.uk/tol/business/economics/article3704088.ece

 

[Kauri]

and the BOE is on the balls...

BoE is expected to announce at 10:00GMT that it will provide at least GBP 10bln in its three-month repurchase operation next week. The BoE could also use GBP 5bln in additional reserves for longer term funding, possibly against a wider range of collateral... a la BB??

no link.... yet
Cheers
............Kauri

 

[Tom Ronalds]

Uh Oh!

The fear in the housing market here is now palpable. Instead of the topic around dinner tables being how much their stinking pile of bricks is now worth, that topic is now verboten!

Discussion now centers around employment, recession and whether their money is safe in the banks.

The Austrians were right again.

And that's not the end of it. Spain's bubble is now well and truly burst, too:

http://tinyurl.com/4j9umc

But of course it can never happen in Australia, because prices only ever go up in this country.

Meanwhile, outside of cuckoo land, business confidence has gone off the cliff and so has consumer spending. Even the dreaded "R" word is now being whispered around the professional financial circles.

Those with high level of debt, which can't be quickly offloaded - i.e. many property investors - are likely to be taught a pretty harsh lesson over the next 12-18 months.

Tom R.

 

[theasxgorilla]

And that's not the end of it. Spain's bubble is now well and truly burst, too:

http://tinyurl.com/4j9umc

But of course it can never happen in Australia, because prices only ever go up in this country.

It's nice to see that the Spanish gov is going to go all Keynesian and up spending on infrastructure (among other things) to help "cushion the downturn".

 

[theasxgorilla]

It should be pointed out that a lot of the time when we see these extreme numbers published, its in reference to debt that is connected to properties that are, for want of a better word, 'sub-prime'. The big question that should be asked is, WTF are people doing buying sub-prime property in the first place?

If the debt wasn't packaged in such a way as to obscure the physical property that it was collateralised against, would a sensible investor invest in some of the properties that people have bought in some parts of Spain (the world!) at silly prices?

I think premium property is safe as, hmmm, well, houses. It needs to be a sad state of affairs before premium property takes the kind of tumble that many people seem to wish it would.



My six cents worth.

 

[wayneL]

It should be pointed out that a lot of the time when we see these extreme numbers published, its in reference to debt that is connected to properties that are, for want of a better word, 'sub-prime'. The big question that should be asked is, WTF are people doing buying sub-prime property in the first place?

If the debt wasn't packaged in such a way as to obscure the physical property that it was collateralised against, would a sensible investor invest in some of the properties that people have bought in some parts of Spain at silly prices?

I think premium property is safe as, hmmm, well, houses. It needs to be a sad state of affairs before premium property takes the kind of tumble that many people seem to wish it would.


My six cents worth.

I'll raise you two.

It's not so much that the property is sub-prime, not in this country at least (although that may be a debatable point in some cases ). It's the quality of the debt that is sub-prime.

I.e. that the loan is not able to be serviced going forward (with apologies to those who hate that phrase) and that the security for said loan is evaporating.

It's not just dire terraces in sink estates that are tanking here, it's anything that is overvalued... and that's everything.

 

[Mofra]

It should be pointed out that a lot of the time when we see these extreme numbers published, its in reference to debt that is connected to properties that are, for want of a better word, 'sub-prime'. The big question that should be asked is, WTF are people doing buying sub-prime property in the first place?

Sub-prime doesn't refer to the security, it refers to the lending agreement between the mortgagor & mortgagee (ie Low Doc loans to clients with imparied credit ratings). The problem is the securitisation process in the US involved packaging US sub-prime (arguably a far lower standard than even sub-prime in most other nations) with prime debt, and selling it all off under a single CDO each time with a different credit rating depending on the risk of default (ie AAA were the last to lose in the event of default, AA second last etc.)

In short - the US sneezed, and we know what that means

 

[theasxgorilla]

Sub-prime doesn't refer to the security, it refers to the lending agreement between the mortgagor & mortgagee (ie Low Doc loans to clients with imparied credit ratings). The problem is the securitisation process in the US involved packaging US sub-prime (arguably a far lower standard than even sub-prime in most other nations) with prime debt, and selling it all off under a single CDO each time with a different credit rating depending on the risk of default (ie AAA were the last to lose in the event of default, AA second last etc.)

In short - the US sneezed, and we know what that means

Yeah, I get it...but when things go wrong I think it pays to strip away the layers of 'professional' fluff that have been put in place here.

If you were an average Aussie looking for an investment property, would you buy the property that the sub-prime mortgagee has, and rent it to him/her/them? If the answer is, "no, because they're not a good tenant because...<insert essentially the same reasons why you wouldnt give them a home loan>, and because <insert reasons why it doesn't make sense on a macro-level to invest in said property in said neighbourhood of said suburb of said city>", then why does layering in all this complexity and professionalism suddenly make it okay to invest that way??? Clearly after all the write-downs it wasn't/isn't.

Where did common sense go?

 

[noirua]

The U.K. has reported a fall of 2.5% in property prices during March. The reason is due to lenders liquidity problems. The Bank of England is pushing a further A$35 billion into the market this week. U.S. property prices have fallen 10.7% in the last 12 months, with some areas down 25%.

 

[gfresh]

http://www.guardian.co.uk/business/2008/apr/07/economics.banking

Apparently in the UK, the banks have cut back on 100% mortgage loans almost completely, making it more difficult for many to get into the market.. Even though the BOE has lowering rates three times since December, banks aren't passing them on (we would no doubt see the same here if the RBA at all decided to lower rates). They've also been tightening lending standards significantly, which seems to be driving many out of the market. Any institutions offering any special deals have been so swamped by applications they've had to cease the offer. So none of this can be helping.

Always interesting to take a look on realtor.com to get a bit of an idea of the "depressed" US housing market. Even adding 20% back onto the price of the average property "pre-pop", it's still a heck of a lot cheaper than here. Even a reasonably sized NYC apartment is cheaper than the some of the new apartment blocks going up on the Goldcoast.

A few houses in some smaller towns in the US you could buy a basic house (as in 3 bedrooms), for the price of a new car sold here.