House prices to keep rising for years

[ROE]

I don't mind property keep going up and up and let people leverage up and keep their dream alive that property is always goes up and never down.

Same goes with stock price in the Bull Market...you cannot lose money in a Bull market.

I just don't buy when I think something is over price. I just drink my coffee
and go on Sunday drive, then one day when I wake up and check my daily news and found damn this stuff is reasonable cheap but no one is buying, damn people must scare, what has change?

I think I better get some of this stuff to bring down the cash in the bank.

Then the asset I bought sits there for a while and not moving anywhere, capital gain is not crash hot, but then again I am a lay back fellow go slow sort of guy so maybe this is my thing and happy just to collect 4-5% rental and dividends.

5-10 years pass, employment start to pickup, interest rate drop everyone is out buying their latest toys and real estate and shares seem to be going through 20% return a year....everyone is talking about how good the property and the market is..taxi drivers...people at the BBQ everyone seem to be doing pretty damn good .... and I look at my asset, wow it has gone up a fair bit but hang on what the hell is going on my rental yield is now lower based on my asset value and stock PE looking pretty damn high at 18-20 when I got them it was on a PE 10-12. Interest start to pickup to cool down inflation, cash in the bank starts pay 6%-7% look damn tempting compared to my 3% yield on rental and shares.

Too much excitement for me to bear and thing look very expensive to me. My Uncle Warren once told me

"Be fearful when others are greedy and be greedy when people are fearful"
which I sometimes shorten it to "Sell on Greed and buy on Fear".

I'm fearful and I sold 80% of my shares portfolio that has PE of 20 and Higher and all my investment property except my PPOR.

I put most of my cash in my shares trading account that pay 7% then watch the world goes by and drink coffee and keep doing the Sunday drive.

The market continue to roar and property continue to go up for the next 12 months, then on the fourteen months when I woke up stock drop 20% and continue a down trend, no one is buying everyone is selling...what has change since 12 months ago? my cash in the bank doesnt seem to look that good any more when I can buy stocks on PE of 12 and dividend yield of 4-5%
and the journey start once again.

 

[debaron]

I'm an immigrant who just moved to Oz not long ago. Been looking around at housing price around SE Qld and found the price to be unreasonably expensive for the property they are selling. The fact that i'm a professional on a decent wage and cant even afford to buy a house that i want says alot about the property market over here. ( I can, but that will mean an end to the weekend dine and wine sessions and seriously, who would wanna lead a life without the occasional indulgences anyway?). So cut my story short, after reading several articles and doing my own research i have decided to keep renting the modest apartment that i have, and invest in somewhere else that is not overpriced. Until i find the prices to be reasonable again, i wont be stepping into the property market anytime soon.
happy investing y'all.

 

[ROE]

I'm an immigrant who just moved to Oz not long ago. Been looking around at housing price around SE Qld and found the price to be unreasonably expensive for the property they are selling. The fact that i'm a professional on a decent wage and cant even afford to buy a house that i want says alot about the property market over here. ( I can, but that will mean an end to the weekend dine and wine sessions and seriously, who would wanna lead a life without the occasional indulgences anyway?). So cut my story short, after reading several articles and doing my own research i have decided to keep renting the modest apartment that i have, and invest in somewhere else that is not overpriced. Until i find the prices to be reasonable again, i wont be stepping into the property market anytime soon.
happy investing y'all.

I believe in the market, when something is selling above what it's worth(share, property,cars) due to irrational exuberance ..sooner or later the market will come to correct it....The only thing we cant figure out is when
and that the same philosophy I apply to investing... Buy all my investments under value, sooner or later Mr Market will come to the party and give it the correct price tag.

 

[xoa]

American houses have lost another $13k in the past quarter. Median house price stands at $206k, less than half our price level.

http://money.cnn.com/2008/02/14/real_estate/home_prices_fall_for_year/?postversion=2008021411

 

[WaySolid]

Property will remain a gilt edged asset class in this country, smart people will continue to make great money in good times and bad, just as they always have. I have a few places bookmarked for a cheeky offer when the tide turns (recessions do tend to always happen so forecasting one is not really a bold move) as presently the prices are too high for me.

The real message for me from the first thread about stagnating prices was 'beware of toxic info', you can read such stuff and be put off any type of investing, I have both sold and bought property and made money doing both since that thread started and so have plenty of others.

There almost seems to be an emotional element wanting property to crash, so the schadenfreude (sp?) can flow, I interpret that mainly as Gen Y angst as they encounter the first road block in their lives though that could just be my bias. I have done well out of property but would be selling everything as fast as possible if I thought there was going to be some serious tankage on the way and I could profitably time such an operation, I don't think I can so I'm staying put and watching my LVR closely. The huge chunks of depreciating paper you have borrowed and secured with your inflation resistant vehicle (prop) becomes just a smaller pile of depreciating paper once you sell, so there is a cost in not being exposed to property and 0% invested in property for a tax paying resident in this country is a very aggressive position to be taking.

You can confuse process and outcome at the moment as there is no doubt a degree of greater fool in some capital gains, but I like to think I'm a much better property and suburb picker than a stock picker. You can also ratchet down your risk level with property by such things as buying well, seeking out special situations, value adding by renovating and various means and so on and on.

If you have a look at a log scale of median prices for Brisbane over the last 40 years then you can remove the emotion you feel looking at the bubble chart I saw posted earlier, that line is a pretty smooth trend. It's true the last boom was in the order of 2+ standard deviations away from norm but it's still nothing compared to what happened in the 1890's, now that was a genuine bubble for those who aren't aware of what a real once actually looks like. That party was accompanied by a classic over supply situation in stock and something that is just not happening to any similar extent presently.

I have dug down into the records and researched my suburbs back to the original grants of land in the late 1800's (you could be more thorough if you were a Sydney investor), I remain cautiously long residential property in my areas and will look to add to holdings if there is a recession, the deeper the better as I see it as that's when you can get great bargains. The people willing a crash need to have a plan to take advantage of it when it happens and not find out they aren't any better as they were passive bystanders. A peak oil/global warming end of rules as we know it scenario doesn't really scare me as I have this idea that you make your money betting on the continuation of the Roman empire and not it's demise.

 

[WaySolid]

American houses have lost another $13k in the past quarter. Median house price stands at $206k, less than half our price level.

http://money.cnn.com/2008/02/14/real_estate/home_prices_fall_for_year/?postversion=2008021411

http://www.zillow.com/quarterlies/QuarterlyReports.htm

I follow one guy who invests in appartment blocks who describes the present time as having the best buying in a generation, a case of buying when others are fearful perhaps.

 

[Tom Ronalds]

American houses have lost another $13k in the past quarter. Median house price stands at $206k, less than half our price level.

http://money.cnn.com/2008/02/14/real_estate/home_prices_fall_for_year/?postversion=2008021411

And it'll get worse. They laughed at Schiller back in 2005, when he said:

"He predicts that prices could fall 40 percent in inflation-adjusted terms over the next generation and that the end of the bubble will probably cause a recession at some point."

Source: http://tinyurl.com/dee5s

And here are some prescient words about our own bubble, from 2004:

"The slight decline in housing prices doesn’t mean the bubble has now disappeared. It may be largely quiescent at the moment, but given any encouragement it can easily re-ignite. The catalyst for the price boom has been the sharply rising investment in rental housing, with negatively geared investors now accounting for one-third of banks’ outstanding housing loans. This compares with an investor proportion of only 15 per cent in the early 1990s."
....
"Given that nearly 17 per cent of Australian taxpayers are estimated to have rental income, compared with only 6.5 per cent of taxpayers in the US and 2 per cent in the UK (Productivity Commission report p.22), you can see the speculative element at work, a product mainly of the tax advantage in Australia."

Source: http://www.henrythornton.com/article.asp?article_id=2809

Of course, it has got a lot worse since then. At that time, the US was only on "bubble watch" (according to The Economist), while Australia was already firmly in bubble territory.

The same site also offers these prescient words:

"Housing booms and busts have happened before. You only have to witness the wild 1980s not only in Australia, but in the UK, USA and Japan as a case in point, which led to a bust in property prices after the peak in 1990. A number of world cities were affected almost at the same time, including Boston, Los Angeles, London, Sydney and Tokyo. Given the current widespread international housing boom, watch out for the eventual bust. Housing cycles, like share market cycles have a habit of repeating themselves in one form or other.

"Given any economic faltering in the US, and the same goes for UK and Australia, watch the default and delinquency rates closely. As they say, housing prices don’t keep rising forever."

In hindsight, this was an understatement.

 

[Tom Ronalds]

@ WaySolid:

What you are saying about your property strategy is no different to certain astute investors being able to make good profits in the most severe bear markets.

This thread was, if I understood correctly, about the general direction of house prices in Australia. It was being proposed these will keep increasing. I think through the several longish posts I made here, I have presented evidence that such thesis does not hold water.

This has nothing to do with "willing to bring a crash on" so as to delight in other people's misery. It's simply an acknowledgement that the prices are way out of line with incomes, debt is out of control and, because of what I get to from various clients at work, this has the potential to be truly the "toxic mix" you mention.

I have no doubt, and from comments here I believe there are others with similar opinions, that many people have forgotten property can indeed crash, crash very badly and it can happen here, just like it has in the past. That does not mean everyone will get wiped out, but it will mean very hard times for many.

The whole debate here reminds me of some of the arguments always heard during bullmarkets of all kinds - long term fundamentals don't matter, ridiculous P/E ratios are unimportant, this is a "new economy", there are always ways to interpret figures to show every thing's just peachy,it'll keep going on forever. It's always the same and it will continue to be the same. I am not a Generation Y, and I do remember very well that all good things come to an end. If you are an astute property investor and you are not up to your eyeballs in debt, you are likely to be fine - even though your properties will drop in values and your rents may do the same. Eventually this will recover, like it always has.

Many others will not be so lucky to see that recovery.

Cheers,

Tom R.

 

[robots]

This thread was, if I understood correctly, about the general direction of house prices in Australia. It was being proposed these will keep increasing. I think through the several longish posts I made here, I have presented evidence that such thesis does not hold water.

This has nothing to do with "willing to bring a crash on" so as to delight in other people's misery. It's simply an acknowledgement that the prices are way out of line with incomes, debt is out of control and, because of what I get to from various clients at work, this has the potential to be truly the "toxic mix" you mention.

hello,

Tom R, this was never the case in the other great thread, the general acceptance was property was going to stagnate

only a few were "commenting" based on their "experience" that property was still solid and providing good returns and that is evident by your acceptance that "X" times earnings is still as high as ever.

unlike most who read the toxic trash (hahaha) many here do go out to auctions, RE offices, State Revenue Offices and research individual prices.

people can easily afford a home,

keep renting if you think it is so cool, but very few "save" the difference between renting or buying and thats why owners are 6x wealthier than renters (Austalian Bureau of Statistics).

thankyou

robots

 

[Tysonboss1]

The fact that i'm a professional on a decent wage and cant even afford to buy a house that i want says alot about the property market over here.

So cut my story short, after reading several articles and doing my own research i have decided to keep renting the modest apartment that i have, and invest in somewhere else that is not overpriced. Until i find the prices to be reasonable again, i wont be stepping into the property market anytime soon.
happy investing y'all.

I don't really understand what you are saying,.... S/E queensland has some of the cheapest property within ear shot of a capital city in Australia,... where are you planning on finding property cheaper that still has the same growth potential....

Secondly I think it would be a mistake for you to wait to buy into this corner, it ain't going down any time soon,... what area exactly were you planning on buying into.

 

[Tysonboss1]

Every body seems to be saying how property investors are going down because of interest rates,.... but most large property investors would have fixed a large portion months ago and are paying interest at far lower rates than the advertised rate,..

and secondly the interest rate is offset to an extent by inflation,....

Inflation is a property investors friend,.... It over the years reduces the amount owed to the bank,.... while increases cashflow and value of the property.

 

[xoa]

Inflation is a property investors friend,.... It over the years reduces the amount owed to the bank,.... while increases cashflow and value of the property.

???

All things being equal, inflation will erode profits. It erodes real house prices and the real rental returns. What's worse, is banks respond to high inflation by raising interest rates, to protect their margins. Most people hold variable interest rate loans.

I don't know where the "cheap" houses in SEQ are. They're definitely not in Brisbane or the Gold Coast or Sunshine Coast or even Ipswich. You might find the occasional $300k fibro shack, if you're willing to live with asbestos and a $100k renovation bill. International visitors from Europe or North America definitely wouldn't consider that cheap.

 

[robots]

hello,

plenty of cheapo's in canada or US xao,

just get a 303 from walmart

thankyou

robots

 

[numbercruncher]

As of Nov 2007, 28pc of Mortgages where fixed.

 

[Tysonboss1]

As of Nov 2007, 28pc of Mortgages where fixed.

as of nov 2007,.... less than 28pc of the property was probally held by sophisticated property investors,...

By the way I don't consider half the people who own an investment property investors,...

 

[Tysonboss1]

???

All things being equal, inflation will erode profits. It erodes real house prices and the real rental returns. What's worse, is banks respond to high inflation by raising interest rates, to protect their margins. Most people hold variable interest rate loans.

.

Property values and rent on average will rise faster than inflation ( or worst case with inflation) where as the amount on loan from the bank will decrease with inflation.

I am not saying that this is how you should make your money in property,...

I am just saying that this offsets to some extent the interest rate rises in the long run.

 

[Tysonboss1]

???


I don't know where the "cheap" houses in SEQ are. They're definitely not in Brisbane or the Gold Coast or Sunshine Coast or even Ipswich. You might find the occasional $300k fibro shack, if you're willing to live with asbestos and a $100k renovation bill. International visitors from Europe or North America definitely wouldn't consider that cheap.

Pound for pound,.... brisbane is still one of the cheapest capital cities as far as realestate goes,...

 

[xoa]

Property values and rent on average will rise faster than inflation ( or worst case with inflation) where as the amount on loan from the bank will decrease with inflation.

Except when there's a bubble. Property prices in the United States have fallen by more than 20%, relative to inflation. Most investors who bought there after 2004 are grappling with negative equity.

Even though we earn less than Americans, our prices are more than double theirs. I wouldn't even want to become an owner occupier at the moment.

 

[wayneL]

Property values and rent on average will rise faster than inflation ( or worst case with inflation)

Think about this for a little while, open up excel and do some simple modeling, you'll realize the absurdity of this statement. We have dealt with these myths waaaaaaaaay back in the other thread with some very simple extrapolation backwards and forwards.

Rent most certainly does NOT increase faster than inflation. That is ridiculous. I can't believe anyone who has passed year 10 maths could possibly believe this.

I will demonstrate this if I absolutely must, but anyone can prove this for themselves.

 

[Sean K]

House prices go up in the long term, from the stats I've seen, but I'm not sure if the owners really care. It's the security of the space that is most important. Immeasurable.

For 'investors' it's a different situation.

For 'investors' it seems that you'd be better to own art, or race horses, or truffles.......

Anyone who can post up a summary of the last 100 years of 'average' investor returns across all investment opportunities, I dip my hat!

Otherwise, it's just people making the most of opportunities which ebb and flow.