The future of Australian property prices

[FxTrader]

The reality is that EVERY investment vehicle will suffer from similar issues. Supply, demand, economics, leverage, etc.

Well no, sounds like you need a bit more education on different investment vehicles, their risks, limits and potential rewards. Know anyone creating a market for put options or stop loss mortgages on property, I don't. As adequately demostrated elsewhere, there is no easy way to protect yourself from a sharp decline in the property market, the liquidity just isn't there, no stop loss and no hedge trade.

The key is to devise a plan to minimise your risk in the event that things go against you. Instead of attacking every damn post that goes against your own fearful nature, stick a sock in it and listen to the people that have "been there, done that" and learn from them.

Sure, who should we listen to then, the eternally optimistic property spruikers here who roll out their wins (they don't talk about losses) who ignore evidence that property prices are severely over extended and assume the past will always be the future? Just take the plunge and jump in the deep end (by that IP no matter what the market conditions) and don't mind the white pointers swimming around you, only the doomsayers worry about them.

As for fearful nature, you have no idea. Try trading Options or Fx and see how far fear will get you, if you are fearful you should stop trading. Investing in property is for the fearful though since many see this as a conservative and safe investment, quite naively in my view.

 

[KurwaJegoMac]

Errrr are you serious? That is exactly the point?

Property is not different to any other market of supply and demand yet people act as if the rules are different? If you recognise that the property market is the same, how on earth can you believe it will continue to go up providing these absurd returns ad infinitum?

I never said it's any different. In my post I even go so far as to say it's the same. Take a breath and read the post before going on the offensive.

Are you serious *2? No **** I need a plan? No **** I want to minimise my risk?

No need for that. If you agree with me fine, but why the profanity? Doesn't help your case very much if you're rambling and attacking somebody regarding a point you agree with.

But why on earth wouldn't I want to seek out and discuss perceived market imbalances with other people interested in the same market and meanwhile not be interested in the opinions of those who say nothing but "going up"? You honestly think I am looking at the huge drops in house sales volume across pretty much the entire country over the last 12 months and not curious as to the future of that?

By all means, discuss it. But people like you attack anybody who has views apart from your own (and in your case even people who have the same views (see my comment above))

Guess what, long only systems fail in the stock market during a bear, and long only systems fail in a property market during a bear. Therefore the only argument certain people seem to be claiming here is that there will never be a property bear market again. At worst, we range, apparently.

No one has said there will never be a property bear market again. It could definitely happen. But is that reason to be paralysed by fear? Are you like that every time you enter the stock market? No - you make sure you can enter a position at appropriate risk and ensure you're not over leveraged. Same as every other type of investment.

As some have pointed out, they're at 40% LVR and under - bear market or not they don't care. Why not learn from these people and see how they did it?

How about we discuss strategies for buying in the current climate? Instead of attacking everyone hmm?

 

[awg]

You're not checking hard enough, banks are bending over backwards to keep the bubble inflated and loan origination turning over by now effectively allowing up to 97% LVRs.

Trading options and FX I have made 50% to over 100% on my account in a month in some months but I am not going to publish my trades here or declare how much coin I'm making so as to suggest everyone here should do what I do. Your profit figures don't impress me at all as a speculator.

I cant agree with yr 1st para, especially IP, banks are demanding much higher deposit according to my information.

I do agree that FX trading is an excellent trading vehicle, as liquidity and long/short profit opportunity is much better, IF you can become proficient prior to blowing yr account unlike the "97%" who cant

 

[KurwaJegoMac]

Well no, sounds like you need a bit more education on different investment vehicles, their risks, limits and potential rewards. Know anyone creating a market for put options or stop loss mortgages on property, I don't. As adequately demostrated elsewhere, there is no easy way to protect yourself from a sharp decline in the property market, the liquidity just isn't there, no stop loss and no hedge trade.

No i'm quite well educated in the risks, limits and potential rewards of investment vehicles, thank you very much. Congratulations on observing that residential property doesn't allow for put options or stop losses due to it being an illiquid investment. I'm fresh out of gold stars though sorry.

Ever considered that you can buy an investment property at a low leverage? Such as Tech's examples? Wonder how that would affect your risk...

...but then again if you can't put a stop loss on it then it's not worth investing in right? I mean - there's only one way to minimise or mitigate risk apparently. Perhaps you should re-educate yourself on risks, limits and potential rewards.

Sure, who should we listen to then, the eternally optimistic property spruikers here who roll out their wins (they don't talk about losses) who ignore evidence that property prices are severely over extended and assume the past will always be the future?

Tech/a has many times, on many threads spoken about his losses. Both in his trades and in property. Might wanna do your research first before attacking someone. Personally i'd rather listen to those that have 'been there and done that', than the people who haven't even tried yet. Do you listen to newbies when you first started trading? I bet you didn't. And I bet every one of them talked about their successes.

As for fearful nature, you have no idea. Try trading Options or Fx and see how far fear will get you, if you are fearful you should stop trading. Investing in property is for the fearful though since many see this as a conservative and safe investment, quite naively in my view.

I know all about fearful nature. I just don't let it paralyse my decisions. I realise that there are economic cycles and that certain assets will fall into and out of favour. It allows me to see with clarity rather than shrink away for fear of losing.

I would argue that regarding property investment as investment for the fearful is naive and extremely arrogant. Plenty of people have gone bust from property and while you may see the fx or options market as appealing to your risk threshold, it doesnt mean everyone with a smaller risk threshold is fearful. Based on that all our banks must be incredibly stupid and fearful right? After all, they are the countries biggest investor in property since they provide most of the funds?

 

[schnootle]

I paid $30k for my first home.
Now 30 yrs later now 10-15 times that.
In 30 yrs time I can see wages at $5k a week and housing priced accordingly.
My father retired "wealthy" 30 yrs ago and he didnt see that in 30 yrs time he'd be a struggling pensioner.

Most people here think $500K would give you a comfortable retirement!!!
It will for 5 yrs then your Knackered!

Carry on though---just keep renting--no problems!!

When your 65 and paying $2500/week with no income your $500K nest egg wont be going far. Let alone medical bills living expenses---blah blah.

According to those figures you are saying that property will rise at 5.5% exactly in line with wage growth, for me that means I am better off staying renting.

 

[againsthegrain]

What is interesting is everybody keeps bringing up how much they paid 10 years ago and what a excellent purchase it was, yea sure if I could of bought a house when I was in highschool at those prices I would of too.

The lightglobe guy said he used to earn 25k and bought a house for 110k, so now if his wages were double and house prices were double he would be earning 50k and he could buy a house for 220k, yet right now he will have to pay around 400k for something not decent.

Whats the point of bragging of what you did 10 years ago, and now that you are established you can buy property at current inflated prices because the people you were 10 years ago starting from nothing now in 2011 you would probably not buy anything in the current situation and remain renting and saving.

Having that 500k golden egg id rather collect interest on it and have my rent paid in full with something left on the side, im happy collecting interest on my 90k covering 1/3 of my rent and the savings seem to be getting bigger and quicker the more I have, higher interest rates excite me, bring them on every .25% increase on my savings does make a difference on my monthly interest paid, alot more then my rent will be raised yearly.

Oh by the way I just had my rental contract renewed for another year, only raised by $20 per month, this is great the balcony was leaking, some seals around the windows and tiles in the toilet needed re-grouting, probably cost the owner 5k, 1/3 of the yearly rent I pay - not to mention council rates. Oh well im happy saving and sitting on my golden egg just waiting for any opportunities while im cashed up

Oh yea great example, some of my highschool mates rushed in and bought houses around 4 years ago when it was so wise to do, keysborough 300k, worth about 400k now. Funnily enough most of them have only paid 10 - 15k off the loan while just struggling to pay off interest. 4 years paying the bank, no savings, lots of over time. If they sell now after fees to agents, tax, repairs they might make a profit of 50k but then what? back to renting or living with parents. I managed to save nearly double that always renting and taking months of work at times to slow down the pace of my life.

I plan to buy a house, nobody wants to rent at 60 but being in my late 20s I give myself till mid 30s who knows what the prices will be then? definately not double what they are now unless there is some mega inflation and all our wages go up 30 - 50%

The point of my post, its a different playing field now then to when the baby boomers bought low, buy low and always risk less, buy high and risk all. The only people that can afford to buy high now are the overseas investors and cyborg with his monopoly money

 

[schnootle]

What is interesting is everybody keeps bringing up how much they paid 10 years ago and what a excellent purchase it was, yea sure if I could of bought a house when I was in highschool at those prices I would of too.

The lightglobe guy said he used to earn 25k and bought a house for 110k, so now if his wages were double and house prices were double he would be earning 50k and he could buy a house for 220k, yet right now he will have to pay around 400k for something not decent.

Whats the point of bragging of what you did 10 years ago, and now that you are established you can buy property at current inflated prices because the people you were 10 years ago starting from nothing now in 2011 you would probably not buy anything in the current situation and remain renting and saving.

Having that 500k golden egg id rather collect interest on it and have my rent paid in full with something left on the side, im happy collecting interest on my 90k covering 1/3 of my rent and the savings seem to be getting bigger and quicker the more I have, higher interest rates excite me, bring them on every .25% increase on my savings does make a difference on my monthly interest paid, alot more then my rent will be raised yearly.

Oh by the way I just had my rental contract renewed for another year, only raised by $20 per month, this is great the balcony was leaking, some seals around the windows and tiles in the toilet needed re-grouting, probably cost the owner 5k, 1/3 of the yearly rent I pay - not to mention council rates. Oh well im happy saving and sitting on my golden egg just waiting for any opportunities while im cashed up

Oh yea great example, some of my highschool mates rushed in and bought houses around 4 years ago when it was so wise to do, keysborough 300k, worth about 400k now. Funnily enough most of them have only paid 10 - 15k off the loan while just struggling to pay off interest. 4 years paying the bank, no savings, lots of over time. If they sell now after fees to agents, tax, repairs they might make a profit of 50k but then what? back to renting or living with parents. I managed to save nearly double that always renting and taking months of work at times to slow down the pace of my life.

I plan to buy a house, nobody wants to rent at 60 but being in my late 20s I give myself till mid 30s who knows what the prices will be then? definately not double what they are now unless there is some mega inflation and all our wages go up 30 - 50%

The point of my post, its a different playing field now then to when the baby boomers bought low, buy low and always risk less, buy high and risk all. The only people that can afford to buy high now are the overseas investors and cyborg with his monopoly money

Well said. I am in the same boat, I can't see prices beating other investments over the next decade. I am sitting on similar cash and will buy one day, right now the cash is good for my wellbeing, low financial stress.....

 

[prawn_86]

low financial stress.....

This is another good point.

Personally I am diversified across, cash, shares, hybrids and precious metals all without any debt. If i was to buy property now i would have debt that i personally wouldn't be too comfortable with, especially if it was a PPOR, and would only be in one asset class...

 

[FxTrader]

Ever considered that you can buy an investment property at a low leverage? Such as Tech's examples? Wonder how that would affect your risk...

No really, you can pay cash for a property? No, you must be kidding! I would never have known that unless you mentioned it. No or low leverage, gee that must be the secret to wealth creation that I missed when studying finance.

...but then again if you can't put a stop loss on it then it's not worth investing in right? I mean - there's only one way to minimise or mitigate risk apparently. Perhaps you should re-educate yourself on risks, limits and potential rewards.

If putting words in my mouth and then mocking your straw man creation gives you a thrill then so be it, it says volumes about your maturity. Let's here about your bright ideas for mitigating risk in the property market other than paying cash, I am all ears.

Tech/a has many times, on many threads spoken about his losses. Both in his trades and in property. Might wanna do your research first before attacking someone. Personally i'd rather listen to those that have 'been there and done that', than the people who haven't even tried yet. Do you listen to newbies when you first started trading? I bet you didn't. And I bet every one of them talked about their successes

Actually I have a lot of respect for tech, where he's been and what he has achieved. I am not attacking him at all that's more invention on your part. IP and commercial property are not for everyone in spite of tech's success. The current market conditions require experience and caution, not a leap of faith in the never ending property bubble.

I know all about fearful nature. I just don't let it paralyse my decisions. I realise that there are economic cycles and that certain assets will fall into and out of favour. It allows me to see with clarity rather than shrink away for fear of losing.

Until you've put your money on the line in a highly speculative environment I say again, you don't have a clue about managing fear.

I would argue that regarding property investment as investment for the fearful is naive and extremely arrogant.

Well, this is yet another argument you have failed to make a case for. Most people don't buy into property considering it to be a risky investment. Quite the contrary, but this has escaped your attention while trying your best to be an attack dog on behalf of property investors here.

...while you may see the fx or options market as appealing to your risk threshold, it doesnt mean everyone with a smaller risk threshold is fearful.

I never implied my risk profile meant that others are fearful by comparison. Many of my friends are property investors and they are fearful of any other investment other than property. Get the point yet?

Based on that all our banks must be incredibly stupid and fearful right? After all, they are the countries biggest investor in property since they provide most of the funds?

Nope, just greedy and engaging in reckless risk management by borrowing heavily overseas to keep loan origination going and the property bubble inflated. Their heavy exposure to property makes them extremely vulnerable to that market. Why do you think hundreds of banks have failed in the U.S. and Europe, over exposure to debt inflated assets, primarily property.

 

[white_goodman]

yes property can be the same as any other market but with a few key differences.

- look how highly exposed our banks are to residential property in recent years as a proportion of overall revenue/business
- the amount of ordinary Australians not 'investors' who are exposed to the property market and the % that 'investment' is of their total wealth.
- lots of spruiker myths out there that property cant go down and negative gearing is the way to invest. On the note of spruikers and property industry, its funny that you can make any outlandish claim you want as they arent regulated by ASIC or the same standard as the securities industry.
- what do you think will happen when the banks no matter how high LVR they try to give cant get enough loans through the door? (to this point I input the graph below)

 

[white_goodman]

This is another good point.

Personally I am diversified across, cash, shares, hybrids and precious metals all without any debt. If i was to buy property now i would have debt that i personally wouldn't be too comfortable with, especially if it was a PPOR, and would only be in one asset class...

im doing the same except add foreign property. I too wouldnt be comfortable with a large amount of household debt, with the difference being with a PPOR its bad debt not good debt.

 

[trainspotter]

What is interesting is everybody keeps bringing up how much they paid 10 years ago and what a excellent purchase it was, yea sure if I could of bought a house when I was in highschool at those prices I would of too.

The lightglobe guy said he used to earn 25k and bought a house for 110k, so now if his wages were double and house prices were double he would be earning 50k and he could buy a house for 220k, yet right now he will have to pay around 400k for something not decent.

LOLOLLOL ...... did you even read the post? 1991 was 20 years ago dude/dudette.

So therefore my wages are now 100k and prices are how you say it in your words ... "will have to pay around 400k for something not decent." I also mentioned that the price also extended between 4.4 to 6 times wages. SO using your maths the price for a home could be 600k ....... Can I get something decent for that?

Don't go hating the man ..... hate the system. You will figure it out one day.

Everybody also seems to be missing the analogy. 10 years ago and 20 years ago the same "KIND" of people were against property and circumstances were similar (18% interest rates and the usual cycle of ups and downs) as well. Noooooooooooo don't go putting that great big noose of debt around your neck. You wont afford to be able to live ...... yadda yadda yadda. HO BLOODY HUM. Heard it all before.

Mitigating risk in the property market ...........

1) LOCATION, LOCATION, LOCATION. No point having the best house in the sh1ttiest suburb.
2) Do not over extend your finances.
3) Effective goal setting and STICKING too it.
4) Be properly insured - Make sure the property usage meets the policy.
5) Ensure you have cash reserves to cover unforseen circumstances.
6) Calculate performance on the most conservative usage.
7) Always have an exit strategy. Be prepared to take a hit for the team if necessary.
8) Don't be afraid to take the leap. Remember ...... you can't cross a chasm in 2 jumps.
9) UNDERSTAND what you are getting yourself into.
10) Settle for something that will be good enough FOR NOW. Think apartment or 3 x 1. We all cannot have a friggin McMansion as our first home.

If only I had bought FMG and PDN 10 years ago. (AND HELD ONTO THEM) Oh well .............

 

[white_goodman]

LOLOLLOL ...... did you even read the post? 1991 was 20 years ago dude/dudette.

So therefore my wages are now 100k and prices are how you say it in your words ... "will have to pay around 400k for something not decent." I also mentioned that the price also extended between 4.4 to 6 times wages. SO using your maths the price for a home could be 600k ....... Can I get something decent for that?

rebuttal

 

[KurwaJegoMac]

By posting that you're just asking for trouble trainspotter...

"Yer kind ain't welcome 'ere boy"

 

[trainspotter]

By posting that you're just asking for trouble trainspotter...

"Yer kind ain't welcome 'ere boy"

"Yer git tha' right KurwaJegoMac." SHEEESH ........ did they even read my post?

Watch closely the Unions ....... I am sure they will want a wage rise soon to combat this home affordability thingymebob.

All the graphs and all the data still HAS NOT CHANGED the lie of the land. Henny Penny the sky STILL has not fallen. The banks have not gone broke (Commonwealth Bank reported a record first half net profit of A$3.05 billion) and property is still holding it's own DESPITE all the household debt and affordability models. Oh well ...........

"What we've got here is... failure to communicate. Some men you just can't reach. So you get what we had here last week, which is the way he wants it... well, he gets it. I don't like it any more than you men."

 

[white_goodman]

doesnt everyone know, Australian property cant go down, we are different!

 

[medicowallet]

Most people here think $500K would give you a comfortable retirement!!!
It will for 5 yrs then your Knackered!

Well here I go

500k at 6% = 30k, split by 2 = 15k each, minimal tax

living expenses $300 rent, 160 food, 120 utilities, 100 insurance, 250 spending and fuel

So say $50k per year

So earning a declining 30k per year, with $500k capital

spending $50k per year

Please explain to me how this would run out in 5 years.

( not saying $500k is enough, (would probably say 2 mill would give good retirement, but stop exaggerating))

 

[medicowallet]

1) LOCATION, LOCATION, LOCATION. No point having the best house in the sh1ttiest suburb.
2) Do not over extend your finances.
3) Effective goal setting and STICKING too it.
4) Be properly insured - Make sure the property usage meets the policy.
5) Ensure you have cash reserves to cover unforseen circumstances.
6) Calculate performance on the most conservative usage.
7) Always have an exit strategy. Be prepared to take a hit for the team if necessary.
8) Don't be afraid to take the leap. Remember ...... you can't cross a chasm in 2 jumps.
9) UNDERSTAND what you are getting yourself into.
10) Settle for something that will be good enough FOR NOW. Think apartment or 3 x 1. We all cannot have a friggin McMansion as our first home.

Simple, but great principles to work by.

If you put some hours into each point when making an investment, it will no doubt protect you from a lot of potential heartache in the future.

I particularly like points 7 and 10.

Problem is that many "investors" would not even put 1 hour into the whole list upon a $500k purchase, let alone the many hours I would on such a purchase (and heck, these days if I am to purchase businesses worth $500k + I get cashflow projections, financing analysis and true, professional advice)

 

[awg]

im doing the same except add foreign property. I too wouldnt be comfortable with a large amount of household debt, with the difference being with a PPOR its bad debt not good debt.

am confused

wouldnt OS property add extra layers of risk including currency, management, tax and title issues etc ?

Are you saying PPOR debt is all bad?

While I agree it is probably an outmoded model, no CGT on PPOR is the primary method most peeps have based their wealth upon.

Another thing I dont see much mention of here, but I know people who did this:

buy 1st property asap, mum&dad help with deposit, share rent it out..you dont have to tell the taxman everything.

what has become of the young entrepreneur these days ?

ps..if the property market collapses, so would shares, FX traders etc might do ok on volatility, but they probably need to have their armed militia handy.

I am by no means a property bull.

Presently own 1 cheap IP, is neutral-geared after 4 yrs, house on block will last for at least 50yrs with almost no maintenance, could knock it down and put units on it whenever I want. ( have previously had up to 5 IP )

I am bearish on expensive property.

My own PPOR is definitely not over-capitalised

I would not swap my location for anywhere else I have ever been

 

[FxTrader]

doesnt everyone know, Australian property cant go down, we are different!

Now your finally towing the line WG, you must realize by now that modelling, studies, figures, data, cycles, charts, trends, debt funding and foreign experience etc. are meaningless and will never apply to Australia because we are special. As trainspotter says...

All the graphs and all the data still HAS NOT CHANGED the lie of the land. Henny Penny the sky STILL has not fallen. The banks have not gone broke (Commonwealth Bank reported a record first half net profit of A$3.05 billion) and property is still holding it's own DESPITE all the household debt and affordability models

So get out there and buy buy buy. Don't be afraid, it always a good time to buy property in Aus.