The future of Australian property prices

[Tysonboss1]

. I am not frightened by a drop in price I just don't think it will happen but if it does it only makes it a more compelling investment.

I'm with you on that one brother.

I am a low debt model property investor myself. I look at property as a place to store capital longterm where it is protected from inflation and produces a return similar to bond yields ( but inflation hedged), It's like owning gold that pays weekly interest.

Offcourse it is entirely possible for prices to fluctuate, Even Gold which seems to be held on a pedistall as the best protection from inflation will flucuate in price and it produces no income.

I do believe property in some areas (brisbane for example) is at the upper limits of it's trading range and that why I have not bought any for years. But property tends to stagnate rather than crash.

But I am not at all worried, as I said I look at property as being a longterm store of value so I don't trade it trying to time the market.

When I see a good opportunity I will move some cash into property and maybe use some debt ( less than 50% lvr), when it's poor value I will refrain from buying and focus on building my other investments and clearing the small debt I have.

 

[c-unit]

also anyone that relies on negative gearing and the tax benefit of it seriously needs to help themselves to a calculator... its obvious many sections of society have been spruiked to in 'millionaire creation seminars' lol

Which makes you wonder, how many of the sheep speculators have realised that in a flat market like the last 6 months, they are making losses?

And completely agree with your statement on the chances of a recession. It really looks like we are following the same route to recession as America. High inflation > Interest rates rising > less money spent on retail/consumer goods > job losses > FHB/low-doc/sub prime defaults...you know the story. The scary thing is that all debt statistics suggest that we are more indebted than the Americans were, and we have thousands and thousands of overgeared FHBs who were sucked in by record low interest rates and government grands in 08/09.

 

[c-unit]

I'm with you on that one brother.

I am a low debt model property investor myself. I look at property as a place to store capital longterm where it is protected from inflation and produces a return similar to bond yields ( but inflation hedged), It's like owning gold that pays weekly interest.

Offcourse it is entirely possible for prices to fluctuate, Even Gold which seems to be held on a pedistall as the best protection from inflation will flucuate in price and it produces no income.

I do believe property in some areas (brisbane for example) is at the upper limits of it's trading range and that why I have not bought any for years. But property tends to stagnate rather than crash.

But I am not at all worried, as I said I look at property as being a longterm store of value so I don't trade it trying to time the market.

When I see a good opportunity I will move some cash into property and maybe use some debt ( less than 50% lvr), when it's poor value I will refrain from buying and focus on building my other investments and clearing the small debt I have.

If only there were more property investors with your attitude. You are lucky in that you are clearly in a good position to wait and snap up any forthcoming bargains. However to most, property is no longer an investment vehicle. It is a vehicle for speculation. They will be the ones in trouble, and in a few years I think there will be a big wealth redistribution in this country from the overgeared speccies to longer term, safer investors like yourself and to those sitting on a pile of cash waiting for bargains.

 

[robots]

If only there were more property investors with your attitude. You are lucky in that you are clearly in a good position to wait and snap up any forthcoming bargains. However to most, property is no longer an investment vehicle. It is a vehicle for speculation. They will be the ones in trouble, and in a few years I think there will be a big wealth redistribution in this country from the overgeared speccies to longer term, safer investors like yourself and to those sitting on a pile of cash waiting for bargains.

hello,

gotta wait a few more years now apparently, oh well

you reckon the crash will ever get here? Tech's been waiting since 1969, most here since 2004, i dunno

thankyou
professor robots

 

[white_goodman]

There is a shortage of supply on the Northern Beaches of Sydney (I don't know about any other areas of OZ). Any unit that is priced fairly is sold very quickly. My unit is only 80 sqm and was rented for $420 a week, several renters came through looking and it was snapped up on the first day of it being shown. I have have had 2 renters in 20 Months, it has never been empty. I do not have any mortgage on it. Once again I ask the question, if you think prices are going to fall then take guess and tell by how many % as I would like to blog the comment for further reference. If it drops as I said well in excess of 20% I may move quickly to buy another. I am not frightened by a drop in price I just don't think it will happen but if it does it only makes it a more compelling investment.

forecasting is a mugs game, if i put a number on it most likely ill get it wrong, if i get it right its no more than an educated lucky guess... plus its hard to forecast what intervention the govt will do.

I live on nth beaches aswell, but you are too heavily reliant on the short supply, that inelasticity of supply causes the booms and Busts... the lack of supply wont keep the market afloat.. ill link you to this article..

http://www.unconventionaleconomist.com/2011/01/never-trust-bank-economist.html

Now the big difference between you and the majority is that you are cash flow positive with no outstanding loan, thus much less vulnerable to price corrections, so yes ud be best positioned to buy a drop

 

[FxTrader]

... you are too heavily reliant on the short supply, that inelasticity of supply causes the booms and Busts... the lack of supply wont keep the market afloat.

How true. Some other interesting quotes from the Unconventional Economist to consider...

"... property bulls should not necessarily view Australia’s restrictive urban planning structure as a bullish indicator for house prices. As explained previously, unresponsive housing supply merely results in greater house price volatility – both on the way up and the way down. Therefore, when the inevitable correction arrives, say through a contraction of credit or large falls in commodity prices, Australia’s restrictive urban planning structure is just as likely to cause large house price falls, similar to those experienced in the restrictive housing markets of the United States (e.g. California).

"Let’s also not forget that similar housing shortage arguments were used as a reason why prices would not fall in Britain and Japan in the late 1980s / early 1990s. Both regions then experienced large house price slumps, with Japan’s house prices still less than 50% of the peak value reached two decades ago, whilst Britain’s house prices fell to their lowest multiple of income ever record in 1997."

"... a ToT (terms of trade) crash would be devastating for the Australian economy. Not only would unemployment rise, incomes and growth fall, and the Government’s fiscal position worsen significantly, but the Australian banks, which have borrowed heavily offshore to inflate the housing bubble, would once again find it extremely difficult to roll-over their maturing foreign borrowings. Only, unlike in 2008, the Australian Government might not be in the position to guarantee their debt given the significant other drains on the budget from diminishing tax receipts and rising welfare payments. Obviously, any resulting contraction of credit would have a devastating effect on house prices."

"The ANZ also conveniently ignores Australia’s ageing demographics, which are likely to significantly weigh on asset prices going forward (see here for details). They make no mention either of the fact that the availability of credit is likely to tighten significantly as the banks increasingly have to compete with foreign governments in offshore debt markets and the new stricter Basel 3 capital adequacy and liquidity requirements come into effect."

 

[cutz]

you reckon the crash will ever get here?

Hopefully never,

The oz market is too big to fail.

 

[sinner]

forecasting is a mugs game, if i put a number on it most likely ill get it wrong, if i get it right its no more than an educated lucky guess... plus its hard to forecast what intervention the govt will do.

I live on nth beaches aswell, but you are too heavily reliant on the short supply, that inelasticity of supply causes the booms and Busts... the lack of supply wont keep the market afloat.. ill link you to this article..

http://www.unconventionaleconomist.com/2011/01/never-trust-bank-economist.html

Now the big difference between you and the majority is that you are cash flow positive with no outstanding loan, thus much less vulnerable to price corrections, so yes ud be best positioned to buy a drop

Great link, this chart shows it all IMHO:



You can see the ratio between 3-6% is the normal cyclical model, then after Greenspan loosened the reins on global credit post Sept 2011 it didn't take long to work it's way into any interest-rate sensitive market.

I don't need to see a 40% drop to get into the market, I would rather see a return to historical norms in these sort of ratios.

 

[medicowallet]

Hopefully never,

The oz market is too big to fail.

lol I think this might be the final nail in the coffin.

If our foolish PM or treasurer ever say this then I am going to run out of housing as fast as I can!!

 

[schnootle]

apropos this article about rising rents
http://www.abc.net.au/news/stories/2011/01/27/3123022.htm?section=business

often on this forum there seems to be a debate between

1. people that believe prices need to remain in reach of the median income, ie prices can't continue to outstrip wage growth

2. People that think there is no reason why we cant have a return to feudalism, ie the average man doesn't even have home ownership as a option

What about rents? Rents pretty much have to remain within reach of the median income, they have to have a definite ceiling or we have will some serious third world style social problems and slums / cardboard boxes etc. Which I hope the government wouldn't ignore. So if rents have a definite ceiling, income to landlords is limited so there must come a point where buying a house to rent out is a stupid idea as the income from such a large amount of capital just isn't worth it.

I personally think that prices will continue a bit higher, landlords will keep passing the costs onto their poor suffering renters until many literally can't pay anymore. When people with decent jobs can't rent a house the whole scheme will fall apart. After a massive upheaval and a re-pricing of places to live, people will spend more of their productive capacity solving things like climate change rather than working 60 hours a week so you have somewhere to sleep.

 

[white_goodman]

I personally think that prices will continue a bit higher, landlords will keep passing the costs onto their poor suffering renters until many literally can't pay anymore. When people with decent jobs can't rent a house the whole scheme will fall apart. After a massive upheaval and a re-pricing of places to live, people will spend more of their productive capacity solving things like climate change rather than working 60 hours a week so you have somewhere to sleep.

and thats where you lost me...

 

[Garpal Gumnut]

I've been flying in and out of the Isa, Townsville and Mackay a fair bit since the Weather, and the numbers of passengers are down, and we know the mines are suffering, so at least here in the North I would expect house prices to fall.

Its a bit more difficult to gauge for South Queensland.

gg

 

[Tysonboss1]

I've been flying in and out of the Isa, Townsville and Mackay a fair bit since the Weather, and the numbers of passengers are down, and we know the mines are suffering, so at least here in the North I would expect house prices to fall.

Its a bit more difficult to gauge for South Queensland.

gg

That comments a joke right,

How can you believe it is going to have a longterm impact.

 

[TabJockey]

The north was fragile to begin with, so you would expect a major disaster to shake **** up some.

 

[nukz]

It's quite possible if we started to see a national housing price decline (>10%) then the government might offer new incentives eg. larger FHOG or some sort of stamp duty reduction but right now the government cant even borrow to fix flood damage... so what hope is there of offering large concessions?

 

[schnootle]

and thats where you lost me...

I was suggesting that spending so much time and money on something so basic as houses benefits no one. I would sooner see money flowing through some new industries that actually benefit the planet than people swapping houses all day.

 

[Tysonboss1]

so you would expect a major disaster to shake **** up some.

No I wouldn't.

 

[Tysonboss1]

I was suggesting that spending so much time and money on something so basic as houses benefits no one. .

You lost me on that one,

Housing as basic as the need is, it is essential to life.

Are you also suggesting we should stop focusing on other basic needs such as Food, water and clothing. so as to free up time and money for climate change.

 

[adds4]

i dont know what is happening around the rest of the country. But i have bought a block of land in adelaide, and mananged to get 20% off the asking price. Go back a few yrs this didnt happen. People are desperate to sell, and there are no buyers anymore. If someone signs up subject to finance usually it falls through. One block i was looking at had been bought 5 times subject to finance, and all fell through, its been on the market for one yr now. Its for sale for $200k, so not big $.

if people dont think its a correction happening now, they are in the land of the fairies. My advice is to bargin hard and some bargins can be bought.

this notion of a land shortage is just crap, australia doesnt have the population growth of 3 yrs ago, its halved now. The only country with land shortage is the vatican.

 

[c-unit]

It's quite possible if we started to see a national housing price decline (>10%) then the government might offer new incentives eg. larger FHOG or some sort of stamp duty reduction but right now the government cant even borrow to fix flood damage... so what hope is there of offering large concessions?

Agreed. But if we saw gov incentives to prop up the market in the face of falling prices, it shows that the governments rhetoric on helping affordability is just rubbish.