House prices to stagnate for 'years'

[Freeballinginawetsuit]

This is such an important distinction.

Most people when speaking of RE investment are speaking of buying a pile of bricks, renting it out so somebody and look to create positive cashflow and/or capital gain. In other words a fairly passive "investment".

...and we've seen this all before.

...and we've seen the results before.

IMO real estate investment for passive/capital gains by value investors, have been and gone from a value perspective .

Whatever the mix of Capital exposure vs leverage on a relative basis, certainly no longer stacks up to R/R.

Recently that property of mine at Carine sold over the asking price by 30k ( appreciated 60 percent last 18 months), to a South African engineer and his family..........representative dynamic of at least 4 of potential purchasers.

So Wayno, like you, value in real estate/stocks is probably way past the mean from our perspective. Not too sure though if those picking up the slack are indeed investment muppets........... from a retrospective analysis!

Could be that those exiting stocks ATM & realising profits/protecting capital, are the muppets.
Can't stick all that capital/leverage under the mattress indefinately hoping history repeats itself, maybe thats the logical punt but could be the wrong one!

 

[Smurf1976]

This is such an important distinction.

Most people when speaking of RE investment are speaking of buying a pile of bricks, renting it out so somebody and look to create positive cashflow and/or capital gain. In other words a fairly passive "investment".

What you're talking about Tech is not really relevant to the topic at hand which is more about the passive investment in RE. Valuable information though it is and certainly an option if folks are inclined towards that sort of thing.

You've hit the nail on the head there IMO.

It's funny how tech and I seem to be disagreeing with each other so much on this thread.

In actual fact I strongly agree with what tech is saying about there being an opportunity in property. HOWEVER we're on this thread to talk about what is essentially "buy and hold" or passive investing rather than property development or any other way of running a business with property other than being a conservative buy, hold and collect the rent landlord. The opportunity that tech seems to be pointing out, whilst perfectly valid, is very different to that.

It's like having a thread on oil prices - most will want to know whether the price is headed up, down or sideways and will invest (or not invest) according to their conclusions on the direction of price alone. Suggesting that acquiring some prospecitve land and a drilling rig is the way to go and then posting about geology is, whilst a perfectly valid idea, a somewhat different subject as far as most are concerned.

It comes down to speculating on the price of something versus going into the business of producing it. Both legitimate but somewhat different subjects.

I think we really need two separate threads here:

1. The direction of house prices in the context of buy and hold conservative investing and

2. Property development, renovation etc as a business.

At the moment, I and others are arguing that 1 hasn't been the best place to invest due to market cycles whilst others are saying that 2 is a good way to profit. Both would seem to have been right based on what's actually happened (in some areas at least) to date.

 

[wayneL]

We probably need a separate thread on general economic issues, but this from The Daily Reckoning:

...Meanwhile, according to an article at news.com.au, “A survey conducted by career networking site Linkme.com.au shows that 34.3 per cent of Australians live ‘pocket-to-mouth’. And while 82 per cent would like to plan their finances better, 43.5 per cent say they did not make enough money to be able to budget any differently. And for 29.6 per cent in the survey of more than 800 respondents, they say unexpected expenses always get in the way of getting ahead financially.”

Hmm. Unexpected expenses are unavoidable. Sometimes you break your arm and need a cast. Sometimes your car needs work. And if there’s a hole in your roof, you can’t afford not to fix it.

But how is it possible that things are so bad you can’t afford to budget differently? If things are that bad, can you afford to keep making the same mistakes? It’s an absurd statement, that you can’t afford to do things differently. People are finding out the hard way that you can’t get something for nothing. Only they refuse to believe it. Too bad.

Dan Denning
The Daily Reckoning Australia

Prices are set at the margins and that margin is getting bigger and more precarious.

 

[robots]

hello,

doesnt the thread clearly have a title, "house prices to stagnate for years"

and that hasnt happened, good property where people really want to live has done well and if as an investor you could AFFORD the holding costs you would have done nicely

another big weekend

thankyou

robots

 

[Kimosabi]

Well let me think for a moment...

We currently have record low Unemployment, low Interest Rates and low Lending Standards.

Now has anyone thought what happens when either Unemployment goes up, Interest Rates go up, or if Lending Standards are tightened, or if all of the above variables are tightened at once?

 

[tech/a]

Well let me think for a moment...

We currently have record low Unemployment, low Interest Rates and low Lending Standards.

Now has anyone thought what happens when either Unemployment goes up, Interest Rates go up, or if Lending Standards are tightened, or if all of the above variables are tightened at once?

All are likely to happen come October/November. After elections.

If we have a labour government then I'll be joining the ranks of Kris on the topic.
There will still be opportunities though.

 

[slooi1]

hello,

great post slooi1

i think your example of house 1 & 2 is spot on, and remember 1 doesnt have to be some primo multi million dollar house, house type 1 is over all price brackets

houses are so individual and I doubt if any here go out and do the hard yards looking at what things are going for, i have and people think you make things up

i dont know what is going to happen to property, all I am saying is things are definitely not flat, yet people assume from that your campaigning property never goes down

please go out and have a look around, have a great day

thankyou

robots

Robots,
What I don't understand is why the "bears" persist in standing on the side and saying that the price isn't rising. The evidence from doing the hard yards says so.

Also I think a lot of people don't factor in externalities. It's said that housing should be going up the same rate as inflation, ceteris paribus (all other things being equal). But the reality is that it's not! Our economic climate right now has these factors:
1) Taxation policy favouring investment and negative gearing
2) Supply side constraints due to state governments not releasing more land (I know of Melbourne and Sydney as being in this category)
3) Net migration into certain cities like Melbourne (meaning more demand)

People have to consider these factors as well instead of just saying "It's gone up so high, so it has to crash!".

Having said all that, note that I'm not a housing bull. I have a house, interested in the housing market, but there are better returns to be had from less effort in the share market. It's just that the housing market is rising at a slower rate than shares.

slooi1

P.S. Did the original poster end up buying his home or not?

 

[Kimosabi]

Robots,
What I don't understand is why the "bears" persist in standing on the side and saying that the price isn't rising. The evidence from doing the hard yards says so.

Also I think a lot of people don't factor in externalities. It's said that housing should be going up the same rate as inflation, ceteris paribus (all other things being equal). But the reality is that it's not! Our economic climate right now has these factors:
1) Taxation policy favouring investment and negative gearing
2) Supply side constraints due to state governments not releasing more land (I know of Melbourne and Sydney as being in this category)
3) Net migration into certain cities like Melbourne (meaning more demand)

People have to consider these factors as well instead of just saying "It's gone up so high, so it has to crash!".

Having said all that, note that I'm not a housing bull. I have a house, interested in the housing market, but there are better returns to be had from less effort in the share market. It's just that the housing market is rising at a slower rate than shares.

slooi1

P.S. Did the original poster end up buying his home or not?

What you've got to understand slooi1, is current housing prices are a reflection of a DEBT bubble, and this DEBT bubble is just starting to deflate.

When you see articles like the one below, this means that the lending institutions are start getting nervous, and are therefore less willing to lend money.

Bad debt blowout drag on GE

IN a clear sign that credit conditions have taken a turn for the worse, a blowout in bad debts has resulted in a profit slump for the local consumer and business finance operations of GE
Loan impairment losses for GE Capital Finance Australasia, which bought AGC from Westpac five years ago, jumped 54 per cent from $185 million to $285 million.

Along with a higher tax bill, this contributed to a 31 per cent slide in net profit from $159 million to $109 million.

The GE division, with total loans and advances of $13 billion, up from $12 billion, represents only part of the fast-growing group in Australia.

Apart from AGC, the unit includes credit-card services, the Custom Fleet leasing and fleet management business purchased from National Australia Bank for $550 million, and general and life insurance activities. It does not include Wizard Home Loans.

GE representatives were unavailable for comment on the accounts, lodged yesterday with the Australian Securities and Investments Commission.

However, the GE Capital Finance numbers are consistent with warnings from the nation's big-bank chief executives in the recent interim profit reporting season that the credit cycle had turned, with stresses appearing in unsecured lending and credit-card operations, in particular.

ANZ boss John McFarlane said he expected provisions to be higher in the second half, with the first half unusually low due to recoveries.

NAB chief executive John Stewart said he was most concerned about the consumer space.

"The consumer is getting overextended with debt in certain pockets and that will always come out in danger areas like credit cards and unsecured lending," Mr Stewart said.

JP Morgan banking analyst Brian Johnson said yesterday personal lending loss rates were rising "quite dramatically", as shown by provisions at the GE unit rising to 219 basis points (as a percentage of total loans and advances).

Comparative rates for the big-four banks were far lower, at less than 20 basis points, but this was because of their massive, low-risk home lending books.

Mr Johnson estimated credit-card losses were running at about 260 basis points.

"Westpac's sale of AGC is now shown to be a pretty good decision, despite the short-term dilution in earnings per share at the time," he said.

"The banking industry is now exiting the optimal part of the cycle, and things will get worse from here."

GE's tax bill in 2006 was sharply higher, up from $18 million to $70 million. Unlike 2005, when it took a $39 million benefit from paying too much tax previously, the business had to stump up an extra $6 million.

Total assets at the end of last year came to $17.1 billion, up from $14.5 billion.

Finance income was relatively steady at $1.62 billion, but non-interest income doubled from $387 million to $767 million.

The biggest contributor was operating lease rental income, largely from Custom Fleet, which surged from $74 million to $223 million.

Custom Fleet contributed $167 million in revenue and a net loss of $2 million to the group from August 1 last year.

The total asset base for the GE group in Australia is estimated to be about $40 billion, up from $8 billion five years ago.

GE Capital Finance directors said they expected to grow the business further this year.

http://www.news.com.au/business/story/0,23636,21780273-462,00.html#

This then leads to banks etc start going back to wanting a 20% deposit for a mortgage and will only lend money to people with low debt loadings.

In the meantime, we start seeing a rise in the number of distressed borrowers who have overcommitted themselves.
While asset prices have been rising and money has been easy to get, they have been able extract themselves from their position and maybe even make some money on capital appreciation.

This all ends when the credit supply dries up. We then go into a scenario where we have distressed borrowers, and no buyers for over-priced property's because people can't get the same level of debt anymore and have stricter lending conditions imposed on them by the lending institutions.

So then all of a sudden, we have a situation where people are forced to have to sell or be foreclosed on, and people who who want to buy, but can't get the same levels of debt, this then leads to a housing bust.

Underneath all of this, the CDO's and Bonds that the lending institutions use to fund their lending start getting downgraded and then they can't get the same levels of money to lend out, restricting their capacity to lend anyway.

I think the Aussie housing bust/credit crunch has just begun...

 

[tech/a]

Hmm nothing to do with housing.

with stresses appearing in unsecured lending and credit-card operations, in particular.

"The consumer is getting overextended with debt in certain pockets and that will always come out in danger areas like credit cards and unsecured lending," Mr Stewart said.

JP Morgan banking analyst Brian Johnson said yesterday personal lending loss rates were rising "quite dramatically",

Comparative rates for the big-four banks were far lower, at less than 20 basis points, but this was because of their massive, low-risk home lending books.

 

[wayneL]

Hmm nothing to do with housing.

Comparative rates for the big-four banks were far lower, at less than 20 basis points, but this was because of their massive, low-risk home lending books.

That comment only relates to "the big four" and is most likely true. However there is a ton of lending now from outside the big four and I would suggest the situation is remarkably different.

 

[tech/a]

Even so Wayne they are secured and there will be mortgage insurance with all low doc loans.

 

[Kauri]

Watch out Tech...

<H2>Adelaide rental market 'remains tight'

23rd May 2007, 12:03 WST

Adelaide's tight rental market continues with a vacancy rate of 1.01 per cent last month, the Real Estate Institute of South Australia says.

Institute president Mark Sanderson said property investors were the big winners from the rental squeeze.
It is vital that more investors get in on the property scene to help alleviate the shortage of properties, Mr Sanderson said.
If people are considering property investment there is no better time.

</H2>

 

[trading_rookie]

Property prices to stagnate everywhere 'cept in the "oasis". Now I've been thinking about this long b/f the article came out and believe they've taken global warming out of the equation so some of those places they're recommending as an 'oasis change' could infact be underwater

Drought 'to create oasis change'
May 21, 2007 - 12:28PM

The drought will propel the newest property trend with homeowners moving in search of water, a national property researcher says.
The owner of property investment advisory service Hotspotting, Terry Ryder, today said the "sea change" and "tree change" phenomena would be followed by an "oasis change" as water availability became a major influence on property buying patterns.
"The ongoing drought, the subsequent introduction of water restrictions and the increased cost of water use has already propelled the issue up the list of buyers' priorities," Mr Ryder said.
He today released a list of the top six "oasis hotspots", chosen for their high rainfall or secure water supplies from dam or groundwater stores.
Mr Ryder identifies Townsville, in north Queensland; Perth; Maleny, in south-east Queensland; Dubbo, in central NSW; and Hobart.
Other notable locations were Darwin; Atherton Tableland, in north Queensland; and Port Macquarie, Taree and Bathurst, in NSW.
"While hordes of people are not going to move immediately to the wilds of Tasmania or western Queensland purely for water reasons, the 'oasis change' will be a factor among baby boomers looking to find a nice place to retire and working families who just want to plant some cherry tomatoes and keep their car and driveway clean," Mr Ryder said.
He said dwindling water supplies in Sydney, Melbourne, Brisbane, and south-east Queensland mifght affect the property market in the long term in those areas.

 

[Kimosabi]

That comment only relates to "the big four" and is most likely true. However there is a ton of lending now from outside the big four and I would suggest the situation is remarkably different.

The big four are generally a bit smarter than the rest.

How many people do you hear saying that ANZ is quite hard to get a Mortgage with, for example.

 

[tech/a]

kauri.

Opportunity.
One which I take advantage of with developements.

 

[robots]

hello,

the lending standards will get even looser here in AUS, many organisations are starting to offer these discounted loans for 3yrs, the ARM style, it will get looser

yes the un-informed will get involved, yes they will get in trouble, will it bring down the housing market who knows, so far no it hasnt

note in Melb people are jumping in BIGtime and buying properties prior to auction, many in my area selling couple of weeks before auction day, great stuff for all

note one forumite has been staying away from recent discussion, has their view changed?

thankyou

robots

 

[Captain_Chaza]

I doubt it

I think "Property" is a generational thing

In my generation Properties rose because of Supply and Demand and the Baby Boomers Demand was huge

My sons are now in the Property market and You guessed it
"They are the sons of a baby boomer"

Their demand for Property will be as insatiable as it was for us
one generation ago

Here comes the next generation

What ever the interest rate will be? Will be!

You just can't stop progress IMO
Just as you can't tame the seas

Salute and Gods' speed
PS
A generation is roughly defined as 25 years
ie; 4 generations per century
ie; 80 generations since Christ

 

[wayneL]

"I believe the future is only the past again, entered through another gate." Sir Arthur Wing Pinero 1893

Indeed!

 

[Kimosabi]

Here comes the next generation

And, as yet they have never experience economic bad-times, yet...

 

[YChromozome]

I think the Aussie housing bust/credit crunch has just begun...

It's interesting watching the tell tail signs.

One of the early signs in the US was the builders had such a glut of houses they were offering free cars and vacations.

Over here in Australia AUSTRALAND is cutting the price of houses and apartments in its Sydney estates by up to $100,000 during May . .

Houses on sale as mortgages bite - South-West Rural Advertiser, 23rd May 2007.