The future of Australian property prices

Tysonboss1 · 11 January 2011

Dowdy said:
I highly doubt that last comment

The last 10 years a large chunk of the market were FHB, fulled by easy credit and government grants and with todays FHB spending habits, it's next to impossible that they OWN their home.

What will happen if prices fall is that the so called investors will be in negative equity and together with the already extremely low yield and were only relying on capital growth will sell their property. This will create an oversupply - which i've always said, there was never a shortage anyways but it will be obivious to the market and sprukers

There are so many factors that will contribute to an oversupply scenario - FHB defaulting, overseas investors retreating.

Really the question shouldn't be why it will fall but what factors will contribute to an obvious oversupply that the RE agents can't hide

As I said you appear to be a dooms dayer that has an unrealistic view of the make up of home owners,

Again you seem to think that any fall in value will see the majority of investors and home owner fall into neagtive equity,

What you have to understand is that any one who has owned their property for more than 7 years is already making interest payments smaller than the rent the would other wise have to pay, and they have built up a buffer of equity both from principle payments and capital gains in prior years.

not to mention all the people that own their home debt free, or with very low debt of less than 50% of their original purchase price.

You see the main benefit to home ownership rather than renting is that over time your rent goes up but the interest payments go down.

the pool of property owners is filled with people from all different stages of ownership, from those that have just started paying off there home through to those who have finished.

explod · 11 January 2011

Dowdy said:
I highly doubt that last comment

The last 10 years a large chunk of the market were FHB, fulled by easy credit and government grants and with todays FHB spending habits, it's next to impossible that they OWN their home.

[/I]

Agree

What I have witnessed, because I was involved, many spruiking organisations teaming up people to buy multiple investment properties over the last 10 years. These people have stacked up properties as Allan Bond did in the 80's, its called parachuting.

If property values begin to weaken just a bit you will see a traffic jam of investors all trying to get out at the one time.

Its nice to look on the bright side of life but we also have to look at reality too.

And yes we can say, "do not think it will happen here" or "I dont' think so" But just what if it does, will you be safe in a big crash?

Tysonboss1 · 11 January 2011

Dowdy said:
What will happen if prices fall is that the so called investors will be in negative equity and together with the already extremely low yield and were only relying on capital growth will sell their property. [/I]

You don't have to rely on over the top capital growth to profit from property.

I invest in property with the mind set that is it a safe place to park a larger sum of money and earn 5% on it while my capital is protected from inflation. So the net effect I am looking for is for it to be like an inflation headged bond or term deposit.

Any capital gains higher than the general rate of inflation is a bonus.

Tysonboss1 · 11 January 2011

explod said:
Agree

What I have witnessed, because I was involved, many spruiking organisations teaming up people to buy multiple investment properties over the last 10 years. These people have stacked up properties as Allan Bond did in the 80's, its called parachuting.

If property values begin to weaken just a bit you will see a traffic jam of investors all trying to get out at the one time.

Its nice to look on the bright side of life but we also have to look at reality too.

And yes we can say, "do not think it will happen here" or "I dont' think so" But just what if it does, will you be safe in a big crash?

Well then the are not really investors then, a better term would be speculaters.

Would I be safe in a be crash? yes I would, and I would be looking to buy some property on high yields to add to my portfolio.

I am not saying prices don't or won't fluctuate, Only an idiot would believe that. I am just saying that in the range of possible outcomes the 50% decline is a very very long shot, and if it happened it would not be the end of the world.

We sore the share market have a 50% decline so what, it was the best thing to ever happen to me as far as investments go. And any property price crash would be much less brutal because your porperty won't disappear.

Tysonboss1 · 11 January 2011

If anyone is that worried about a housing price crash of 50% or more let me know and I will get my Lawyer to put together a contract and I will sell you an out of the money put option against you home.

TabJockey · 11 January 2011

Tysonboss1 said:
If anyone is that worried about a housing price crash of 50% or more let me know and I will get my Lawyer to put together a contract and I will sell you an out of the money put option against you home.

Haha thats how the State bank of SA went broke. One out of the money put on a tower in melbourne!

Tysonboss1 · 11 January 2011

TabJockey said:
Haha thats how the State bank of SA went broke. One out of the money put on a tower in melbourne!

What kinda p*ss weak balance sheet did they have,...

But seriously, for $20,000 or more depending on the valuation, I will write you a 5 year european out of the money put, for an amount 25% lower than what Its it's current valuation is.

TabJockey · 11 January 2011

Tysonboss1 said:
What kinda p*ss weak balance sheet did they have,...

But seriously, for $20,000 or more depending on the valuation, I will write you a 5 year european out of the money put, for an amount 25% lower than what Its it's current valuation is.

I ran black scholes quickly:

For a 700,000 house to buy a european protective put for 500,000, 5 years time, 27% volatility (this is high to account for a prospective crash).

About 25k is a fair price.

Vicki · 11 January 2011

Would I be safe in a be crash? yes I would, and I would be looking to buy some property on high yields to add to my portfolio.

The people who are ready, will do very well in the coming years.

But seriously, for $20,000 or more depending on the valuation, I will write you a 5 year european out of the money put, for an amount 25% lower than what Its it's current valuation is.

I think to be fair, you'd have to offer an American style option, to give a person a chance to act on it, rather than wait 5 yrs.
In 5 yrs. the said property may well have recovered from a 25% drop?
Doesn't help much with possible negative equity in the mean time.

Vicki

Tysonboss1 · 11 January 2011

Vicki said:
, to give a person a chance to act on it, rather than wait 5 yrs.
In 5 yrs. the said property may well have recovered from a 25% drop?
Doesn't help much with possible negative equity in the mean time.

Vicki

Thats kind of the point, But If it is such a short term event they don't really need to act on it.

Dangerous · 12 January 2011

finally this thread gets sensible!

Glad i didn't buy in Bulimba three years ago. Had an offer in which they eventually accepted after I got cold feet.

Be pretty hard to sell in those previously plum areas - Norman Park, Bulimba, Hawthorn, East Bris. Prices through there have not moved for two years so there could be negative equity arising through there. But hey, there will always be pockets like that Eg West syd and gold coast

Tysonboss1 · 12 January 2011

Dangerous said:
Prices through there have not moved for two years so there could be negative equity arising through there.

How exactly does steady prices generate negative equity?

Dangerous · 13 January 2011

Tysonboss1 said:
How exactly does steady prices generate negative equity?

call me a bear but i assume buyers will have a long memory when it comes to buying houses that went under in the floods of 2011.

To be exact, but concise - prices there have not moved for two years and now they will be down.

Tysonboss1 · 13 January 2011

Dangerous said:
call me a bear but i assume buyers will have a long memory when it comes to buying houses that went under in the floods of 2011.

To be exact, but concise - prices there have not moved for two years and now they will be down.

The same areas went under in1974, and peoples memories were pretty short then, if you live in these areas it's not a secret, I know people in these areas who will point out markings on the stumps of there house from where the water level was.

And you would think that any down turn in the areas effected by the flood, will be offset by an equal but opposite upturn in the areas not effected.

I mean people have to live some where they are going to leave brisbane and move to mars.

We live in the real world, things happen they don't change anything longterm, look at the recent passed, Bushfires in victoria, earth quake in new castle, cyclone tracy in darwin, you could name hundreads round the world, and they never seen to hav e longterm impact.

FxTrader · 13 January 2011

Tysonboss1 said:
The same areas went under in1974, and peoples memories were pretty short then, if you live in these areas it's not a secret, I know people in these areas who will point out markings on the stumps of there house from where the water level was.

Markings on stumps is one thing, a water line on bricks and mortar (with slab underneath) is another. Memories may fade with time but I suspect many living on the flood plain will be looking for safer ground in the future and hope to sell to those with very short memories.

Tysonboss1 · 13 January 2011

FxTrader said:
Markings on stumps is one thing, a water line on bricks and mortar (with slab underneath) is another..

There plenty of those aswell, the 1974 floods were worse than this most recent flood. That big dam you saw on the news doinmg it's best to control the flows was built after the 74 flood.

In breakfast creek industrial area there is plenty of units with markings high on the block walls.

Dangerous · 13 January 2011

of course people will move back there but for a number of years they'll be able to do so at significantly lower prices than they would have been able to last week.

explod · 17 January 2011

Is there anyone out there.

Hey Botty ?

Anyone have any idea of the latest clearance rate ?

The good Doctor himself educated me on the importance of this guage and its value as an indicator of "The Future of Australian Property Prices"

There has not been a post since the 13th. Several months back there would have been up to 20 posts on a Monday alone. What is going on out there ?

TabJockey · 17 January 2011

explod said:
Is there anyone out there.

Hey Botty ?

Anyone have any idea of the latest clearance rate ?

The good Doctor himself educated me on the importance of this guage and its value as an indicator of "The Future of Australian Property Prices"

There has not been a post since the 13th. Several months back there would have been up to 20 posts on a Monday alone. What is going on out there ?

Nobody knows whats going to happen? are we going to coast or are we doing to drop?

sinner · 17 January 2011

explod said:
Is there anyone out there.

Hey Botty ?

Anyone have any idea of the latest clearance rate ?

The good Doctor himself educated me on the importance of this guage and its value as an indicator of "The Future of Australian Property Prices"

There has not been a post since the 13th. Several months back there would have been up to 20 posts on a Monday alone. What is going on out there ?

Hey explod,

All I saw since Jan started was a massive drop in building approvals from way positive to way negative for the last numbers of 2010.

The usual "free market entrepreneurs" are screaming for the government to once again intervene and save their hineys, especially in Tasmania.

That is all.

The future of Australian property prices

explod

explod

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