Australian (ASX) Stock Market Forum

House prices to stagnate for 'years'

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G, Ty,

So you don't think it has anything to do with risk premium?
 
wayneL said:
G, Ty,

So you don't think it has anything to do with risk premium?
Click to expand...

Yes, totally. That's the exact terminology to sum it up. Can you cast a blanket across these areas with such terminology? Declare them unfit for useful investment? No, I don't think so. Do you take a greater risk if you step into these markets as an investor? Yeah, probably, but no-one has been hurt yet. The boom kicked on long enough for everyone to become mini-moguls, and did I mention, nobody has been hurt (yet)? :D
 
theasxgorilla said:
Yes, totally. That's the exact terminology to sum it up. Can you cast a blanket across these areas with such terminology? Declare them unfit for useful investment? No, I don't think so. Do you take a greater risk if you step into these markets as an investor? Yeah, probably, but no-one has been hurt yet. The boom kicked on long enough for everyone to become mini-moguls, and did I mention, nobody has been hurt (yet)? :D
Click to expand...

I don't think the properties I am talking about are any riskier than other residential property.

How could they be,...

I have always found them easier to tenant than my properties in more expensive areas, you achieve a higher return, And I don't feel that they are any less likly to experiance capital growth,
 
Tysonboss1 said:
I don't think the properties I am talking about are any riskier than other residential property.

How could they be,...

I have always found them easier to tenant than my properties in more expensive areas, you achieve a higher return, And I don't feel that they are any less likly to experiance capital growth,
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These are the properties that suffer more rent defaults. Maybe not atm, but on a down cycle, lower end properties most certainly do.

Hence the risk premium.

Now no non sequiturs please. You may never experience this, but the risk is higher.
 
wayneL said:
These are the properties that suffer more rent defaults. Maybe not atm, but on a down cycle, lower end properties most certainly do.

Hence the risk premium.

Now no non sequiturs please. You may never experience this, but the risk is higher.
Click to expand...

Sorry to say but this is not the case,...

The most risky property in a down turn is the topend of the market,

During a down turn luxary apartments and houses will suffer the highest vacancy rates and have the rent the can charge slashed just to maintain tenants,.... do owners of luxary apartments get an increased rent for this risk,... No luxary apartsment and house run on some of the lowest rental yeilds.

Secondly lower income housing would be far more sort after during a recession so vacancy rates would decrease in this sector, and it is easily affordable even if you were on welfare so I can't see why rent defaults would increase.

Thirdly because of people down sizing and high vacancy rates the top end is at the highest risk of price drops during a down turn, so the % drop will be more extreme in the top end.

So no I don't believe lower income housing is riskier.
 
Top end might be more risky, but the low end suffers more rent defaults, only commone sense, there is a ton more low end properties than top end. And Wayne has clearly said rent defaults, didnt mention anything about vacancy rates.


Rate rise will spark debt carnage: economist

While almost every economist was betting that the Reserve Bank will hike interest rates for the 11th consecutive time today, there have been a few voices warning it could be a disastrous error of judgement.

One of those voices is economist Steve Keen from the University of Western Sydney, who believes Australia's growing household debt burden vastly outweighs the threat posed by inflation.

He also warns it is now only a matter of time before the widespread mortgage defaults seen in the United States are reflected in Australia's debt-laden mortgage belt.

"The downturn of the American housing market has hit much faster and much more savagely than here but the same dynamics are there and the same level of debt is there," Dr Keen said.

"If you talk to people in the industry, in their opinion the same level of subprime lending occurs in Australia as it did in America.

"It's only a matter of time before we see the same phenomena here."
Click to expand...

http://www.abc.net.au/news/stories/2008/02/05/2154919.htm
 
numbercruncher said:
Top end might be more risky, but the low end suffers more rent defaults, only commone sense, there is a ton more low end properties than top end. And Wayne has clearly said rent defaults, didnt mention anything about vacancy rates.




http://www.abc.net.au/news/stories/2008/02/05/2154919.htm
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How is it common sense that the lower end will suffer rent defaults,...

Lower end property is the most affordable housing why would people default,.. even if they are on welfare they can still pay there rent.

the article you quoted was talking about mortgates by the way,.... completely different subject to people renting lower income housing.
 
robots said:
hello,

not much happening in US, no wonder its 3x average income and ours is 7x average income,

http://www.news.com.au/heraldsun/story/0,21985,23180388-663,00.html

next week will be no surprise over there

thankyou

robots
Click to expand...


Make that 3x average Income with half the Interest rates we have, so we are like 4 or 5x dearer for average mortgaged housing :eek:

You better hope China is going to Increase domestic consumption to cover USAs shortfall, Average Chinese income is 2pc of average Americans so you better hope they start handing out the pay rises as well :cool:
 
In my bayside suburb of Brisbane, the typical low-end workers cottage (1950s era) costs $300-$350k. A prime example rents for $300pw. Unfortunately, loan interest would be around $520pw. Then there's agent's fees, rates, repairs. Looks like a negative return on investment to me, unless a person's speculating on further asset inflation.
 
xoa said:
In my bayside suburb of Brisbane, the typical low-end workers cottage (1950s era) costs $300-$350k. A prime example rents for $300pw. Unfortunately, loan interest would be around $520pw. Then there's agent's fees, rates, repairs. Looks like a negative return on investment to me, unless a person's speculating on further asset inflation.
Click to expand...

hello,

yes, but what is the return on money put down?

exactly, people should be getting asset inflation for putting up with what goes on,

ruddie wont change a thing, has he started a massive public housing project to help, no

things will roll on

thankyou

robots
 
Tysonboss1 said:
So no I don't believe lower income housing is riskier.
Click to expand...

As I said in my earlier post, I don't think it's possible throw a blanket statement like this across that kind of housing. This is what the banks did up until about the turn of the millenium, and it created a massive opportunity for wrappers. Steve McKnight earned his reputation going into these areas and offering finance where banks would not. And lets not forget the mortgage broker industry, who also made their small fortunes showing mums & dads and budding property investors how to fill in the forms correctly (omitting unimportant information like how many credit cards, how drawdown they were) to qualify for loans by circumventing the bank's lending standards.

In the above example with Steve McKnight, I am talking about lower socio-economic zones within generally depressed areas. Long forgotten country towns. In this boom, these areas seem to have been the last to be affected, and in my opinion the first areas to be hit if things go bad. Alternatively, it's possible that these areas have used this boom to build up their own economies, in which case they might weather softer economic times differently. IMO it can ALWAY be different this time.

Tyson, you might be talking about the outer-rim of suburbs in a capital city. This is quite different IMO. Depending on which capital city, and which set of outer suburbs. Capital cities tend to have affluent sides, and not so affluent sides. And some capital cities seem to struggle more than others during softer economic times. Adelaide and Hobart spring to mind (debate this if you wish, I love Adelaide BTW and would happily live, I'm just stating what I see to be an obvious...maybe things have changed from 10 years ago?? I've never been to Hobart).

If you are on the affluent side of a good capital city then it would be reasonable to expect that any kind of recession would need to be pretty deep for you to knocked out of business by it.

If fact, I would go as far as to say that the outer-rim of suburbs on the affluent side of a 'blue-chip' capital city is probably one of the best long term investment zones, for the reasons you describe. The moderate cost of the house, and the reasonable rent, coupled with tax benefits and depreciation (used to...like a few years ago) make these properties essentially cash-flow neutral for a middle-to-high income earner. You could hold a handful of these in your portfolio for 20 years and when you retire the aged pension and super would be like cream on top.

I say used to because right now is NOT the time to buy-to- let. Prices are too high. Which takes us back to the article which started it all...'House prices to stagnate for YEARS'...ho ho ho, didn't happen, Merry Christmas.

ASX.G
 
numbercruncher said:
Last reading was 3.6 :eek:
Click to expand...

It's an interesting juncture for the Aust economy. By rights the RBA ought to keep winding on the rate rises. They've been far more moderate in this space than the schizo yanks for as long as I can remember. I think they'll have the balls to stare down the big '10'% and go there if they need to.

ASX.G
 
robots said:
hello,

yes, but what is the return on money put down?

exactly, people should be getting asset inflation for putting up with what goes on,
Click to expand...
I'm a bit worried about your maths their 'bots.

Unless you get a sparkling cap gain, your return is negative (presuming the standard 10-20% deposit.

"Things" may roll on, but then again they might not.
 
wayneL said:
I'm a bit worried about your maths their 'bots.

Unless you get a sparkling cap gain, your return is negative (presuming the standard 10-20% deposit.

"Things" may roll on, but then again they might not.
Click to expand...

Is this not possible? The less time you hold, the less exposure you have to the negative cash flow situation.

ASX.G
 
xoa said:
Less than 4% probably, barely above inflation. You can get 8% in a mainstream term deposit.
Click to expand...

hello,

yes sparkling cap growth is where it is at and has occurred in Bris for big Tyson The BOSS,

superb 20% for brissy,

so lets see you get your nice little deposit and put it into a term deposit and get a great 7.2% on the deposit,

Tyson The BOSS gets his deposit and put's it into his prop and gets to control a nice place (350k or whatever) and gets some nice 20% on his ASSET he is controlling

thankyou

robots
 
theasxgorilla said:
Is this not possible?
ASX.G
Click to expand...

Of course it is! That's not the point. In times of huge credit expansion it is almost assured. The point is that we are at the end of the credit expansion cycle.

These properties were obviously fantastic investments at points in the the last decade or so. But as we stare down the barrel of the contraction phase, are these a good investment now? Is the cap gain still available?

Well, if you buy now, it better be, because you are recieving no risk premium from the yield (substantial discount in fact). I wouldn't be a seller if I bought some and holding on to some good gains, ut I definitely wouldn't be a buyer as an investment </generalization>.

PPOR might be a different story, dependinhg on circumstances.
 
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