The future of Australian property prices

zzaaxxss3401 · 26 February 2011

Tysonboss1 said:
I can't see how I took it out of context, You said you are better off having your money in the bank rather than buying blue chips,

I personally think buying a range of good businesses at sensible prices would be much more rewarding.

Secondly every body always mentions TLS, But what about BHP,CBA,WOW,ANZ, woodside, etc.etc there are heaps of blue chips that have had high rates of return.

It depends entirely on your reason for investing. If it's for a dividend return, then the banks, WOW and TLS might be good investments. But looking at the capital growth of WOW and TLS, then you might be better off having your money in the bank or investing in Government (guaranteed) bonds. I say might because you may not have bought at a (as you put it) "sensible price". Obviously WOW at nearly $35 at the end of 2007 was not a sensible price based on where it is now. So if you had waited, until it was a sensible price in mid-2008 ($23.40), where did you put your money? Timing, opportunity, ability and analysis are all critical with any type of investment.

Back to my original point - I don't see property prices bursting by any great amount, while we have low unemployment, an increasing population, reasonable interest rates and a reasonably low inflation level. Bargains will continue to exist (do-ups / deceased estates, etc) and over-priced properties will also be bought because buyers "want" the property at any cost.

FxTrader · 26 February 2011

Tysonboss1 said:
Offcourse there is going to be ups and downs in the property market, just as there is in the stockmarket. ( however volitility is alot less in property and the property market moves much slower)

There are not just mild, low volatility "ups and downs" in the property market, it can have savage reversals just as in equities (just ask the Americans, Japanese, Irish etc.) There is a key difference however in comparison with equities and it's called shorting. I go short and long constantly, the returns are far greater than going long only (bear with me for those who know this already.)

Now except for some exotic instruments that few people know about or can invest in, there is no way to short property or insure your equity stake in property. The leverage available to property investors and potential investment return is anemic in comparison with instuments such as stock options, CFDs, warrants, futures, options on futures etc.

Let's take options for instance. You can sell call options to earn extra income on an existing share holding (ETOs are only available on certain equities), something rarely considered in discussion of investment returns on shares. You can also protect your capital investment in shares by buying put options.

But you can guarantee that over time, all else being equal even excluding population growth. property will rise with the rate of inflation.

This is plainly a silly assertion, again just ask the Americans, Irish and Japanese.

Again with shares regarding inflation, If the share price is backed by solid longterm assets and the assets value and cashflow rise along with inflation then yes over time there would be growth in the shareprice purely from inflationary pressure outside any business growth.

"Long term assets"??? What the? As you should know, the "value" of a company's assets is less important that ROA, ROE and how much debt is being used to fund the assets. There is absolutely no guarantee that the share price of any company will respond to inflation.

BigAl · 26 February 2011

greebly24 said:
Thanks for comments/opinions on my earlier post. Found out that median house price is ten times median household wage in my suburb. Ridiculous! Think I'll just keep having fun investing in other asset classes until the bull/bear market direction becomes clearer around here.

Good article in Aust Financial Review today, "Sparkling one day, gloomy the next. The property market in once-popular Noosa Heads is all but dead..."

House prices down 17%, units down 24%. Wow!!! Some people bought units for $750k now worth $570k. $180k gone. Bugger.

Does anyone here think it would be good to leverage up and buy one in Noosa now? Or not? Just interested, that's all.

But But But

House Prices always go up
If you don't get in now, you'll never get in
Guaranteed Inflation Hedge
Don't worry about the timing just jump in and you'll never look back

So_Cynical · 27 February 2011

zzaaxxss3401 said:
(In future, please use the correct spelling for "brought / bought", "there / their / they're" and "to / too / two" in future. It detracts from the meaning of a sentence.)

I know my spelling and punctuation are hopeless and thanks so much for pointing that out, my excuse is i don't give a f*#k, the fact is i was "asked' to leave school at the age of 14 due to my insistence on involving the police in a incident at school involving an assault by a group of teachers on a student that i witnessed.

This was just not the done thing in WA in the late 70's so the situation saw resolved by removing me and the assaulted student....easy fixed.

zzaaxxss3401 said:
As you suggested: "...Worth serious consideration at these prices IMO...". Investors may have considered it, and then seen it decline further to a low of $2.56 in mid-November. That's a great return.

Its a woeful return if you were stupid enough to sell at a loss..the alternative of holding till now or selling at the top of around $2.95 would of seen a return of around 10% annualised at around 20% smashing any bank return. (see chart)

zzaaxxss3401 said:
A nonsense statement totally without foundation? Huh? TLS was provided as an example and between September and November it performed worse than cash. Someone was obviously selling at the "low", so they were obviously of the opinion that it was going to go lower... unless they were "shorting it". :

Again see the chart, fact is that since late Sept there's only a couple of weeks when selling would of lost an investor money, 75% of the time (late Sept to now) the trade would of been in profit....even the most numb skull, moronic investor could of made money...hell even a under educated high school drop out like me spotted the opportunity and called it correctly.

BTW please feel free to point out any spelling and gramah mistakes ive made...as im sure it makes you feel much more better.
~

nunthewiser · 27 February 2011

robots said:
hello,

yeah proper spelling mate,

thankyou
professor robots

Totally agree

thees thred gone to the dogs with all the uneducated riff raff they let in these days.

Tysonboss1 · 27 February 2011

FxTrader said:
There are not just mild, low volatility "ups and downs" in the property market, it can have savage reversals just as in equities (just ask the Americans, Japanese, Irish etc.) There is a key difference however in comparison with equities and it's called shorting. I go short and long constantly, the returns are far greater than going long only (bear with me for those who know this already.)

Now except for some exotic instruments that few people know about or can invest in, there is no way to short property or insure your equity stake in property. The leverage available to property investors and potential investment return is anemic in comparison with instuments such as stock options, CFDs, warrants, futures, options on futures etc.

Let's take options for instance. You can sell call options to earn extra income on an existing share holding (ETOs are only available on certain equities), something rarely considered in discussion of investment returns on shares. You can also protect your capital investment in shares by buying put options.

This is plainly a silly assertion, again just ask the Americans, Irish and Japanese.

"Long term assets"??? What the? As you should know, the "value" of a company's assets is less important that ROA, ROE and how much debt is being used to fund the assets. There is absolutely no guarantee that the share price of any company will respond to inflation.

I found this post to be of a "waffle on" with not really anything inregards to my post except the first paragraph in which I respond as follows.

Yes, I understand and have repeated many, many times in this thread Property is subject to swings in valuation just as any other asset class is.

My comment was that it is not as volitile and moves much slower, In this regard I refer to the property crash that took place in the US and the UK, it took months to play out, the share market can crash in a day, this doesn't happen in property.

And more often than not, Property corrections take place in the form of stagnation, meaning a 10% over shoot in upward property prices is most likely going to be corrected by 2.5years of stagnation as inflation catches up, ( offcourse this is not how it played out during the GFC for a number of reasons, but under normal circumstances property does not suffer falls larger than 5-10%, )

Tysonboss1 · 27 February 2011

FxTrader said:
This is plainly a silly assertion, again just ask the Americans, Irish and Japanese.

Why is it silly to assume the value of a fixed asset, will not increase with inflation over time,

Please note, I am not saying that you can buy any property at any price and have it rise in value.

What I am saying is that if you purchase a property at a sensible price when compared with a conservative estimate of it's earning power over time (rent), that it is not silly to assume that as the money supply is inflated and rents increase ( along with everything else), that the value of the property will increase.

Offcourse there will still be ups, downs and stagnation with the fear and euphoria, But over time the base intrinsic value will be increasing with inflation.

I mean when the average wage is $1M per year after years of inflation, it would be crazy to assume the median property price would be $350K.

Tysonboss1 · 27 February 2011

FxTrader said:
"Long term assets"??? What the? As you should know, the "value" of a company's assets is less important that ROA, ROE and how much debt is being used to fund the assets. There is absolutely no guarantee that the share price of any company will respond to inflation.

What I was saying here was that if,

Woolworths sold bought 10 cans of baked beans per year for $1 per can and sold at $2 a can and in 2010 made $10 profit, the crowd may value the business at $100, because they want a 10% return.

10years later after hyper inflation woolworth buys the baked beans for $1000 a can and now sell for $2000 a can and they make a profit of $10,000 per year, the crowd will probably value the business at $100,000.

So with nothing changing in the way of sales except inflation, the fair price for the business rose from $100 to $100,000.

GumbyLearner · 27 February 2011

robots said:
hello,

yeah proper spelling mate,

thankyou
professor robots

I derive my inspiration solely on this guys posts. It keeps me alive man. Here's a video that explains it all.

GumbyLearner · 27 February 2011

GumbyLearner said:
I derive my inspiration solely on this guys posts. It keeps me alive man. Here's a video that explains it all.

And don't forget the crooks!

-Bevo- · 27 February 2011

greebly24 said:
Thanks for comments/opinions on my earlier post. Found out that median house price is ten times median household wage in my suburb. Ridiculous! Think I'll just keep having fun investing in other asset classes until the bull/bear market direction becomes clearer around here.

Good article in Aust Financial Review today, "Sparkling one day, gloomy the next. The property market in once-popular Noosa Heads is all but dead..."

House prices down 17%, units down 24%. Wow!!! Some people bought units for $750k now worth $570k. $180k gone. Bugger.

Does anyone here think it would be good to leverage up and buy one in Noosa now? Or not? Just interested, that's all.

Interesting I have a family member who made a 400k profit in a fews years from a house sold in perth well was actually more like 250k after interest and improvements are added they purchased 1.1 mil place in Noosa just before GFC its for sale atm, there's no interest in it either there hoping market improves, after interest payments and I believe it will sell at a loss I'm betting they'll wipeout all returns and some from the perth sale Oh Well.

nulla nulla · 27 February 2011

zzaaxxss3401 said:
TLS was provided as an example and between September and November it performed worse than cash. Someone was obviously selling at the "low", so they were obviously of the opinion that it was going to go lower... unless they were "shorting it". :

Any one reading the papers would be aware that the Future Fund has a signifigant overhang in Telstra in the market, which it is reducing on a day to day basis regardless of the price. This has had the effect of holding the price down and in some instances pushing it down.

ginar · 27 February 2011

-Bevo- said:
Interesting I have a family member who made a 400k profit in a fews years from a house sold in perth well was actually more like 250k after interest and improvements are added they purchased 1.1 mil place in Noosa just before GFC its for sale atm, there's no interest in it either there hoping market improves, after interest payments and I believe it will sell at a loss I'm betting they'll wipeout all returns and some from the perth sale Oh Well.

Ive been looking around noosa - eumundi area again after looking there a couple years back and prices certainly have come of a bit . I reckon theres a bit more to come so im being patient and building the account . couple of bank sponsored auctions happening so the signs are good for those willing to wait to buy imo

FxTrader · 27 February 2011

Tysonboss1 said:
I found this post to be of a "waffle on" with not really anything inregards to my post except the first paragraph in which I respond as follows.

What is waffle, and bogus, is your continuing assertion that property is an effective inflation hedge and useless prior comparisons between returns available on cash and property (unleveraged and leveraged assets.)

My comment was that it is not as volitile and moves much slower, In this regard I refer to the property crash that took place in the US and the UK, it took months to play out, the share market can crash in a day, this doesn't happen in property.

Your careless use of terms manifests itself again, Define "crash in a day" please. The U.S. stock market started its GFC led move down in Nov07 (with property speculation in conjunction with reckless lending and borrowing key drivers) and bottomed in Mar09 down just over 50%. Since then it has risen about 60% and because of what, not price inflation in the economy. And what of the property market in the U.S., still in steep decline.

Why is it silly to assume the value of a fixed asset, will not increase with inflation over time,

Because it's plainly wrong and easily proven so. The "price" of a NEW "fixed asset" (existing fixed assets most often depreciate which is why the ATO gives you a depreciation tax break on IP), may increase with inflation or not depending on many factors including the effects of mass production and economies of scale. In the specifc case of property as an asset class, price inflation of goods and services in the rest of the economy does not necessarily filter through to property prices, again there are numerous examples. I won't waste futher time here though giving you a refresher on the basic Economics.

As for the future of prices here, inflation in the economy will not be a buffer against a significant correction to the massive debt fuelled bubble the Australian property market has become.

Beej · 27 February 2011

-Bevo- said:
Interesting I have a family member who made a 400k profit in a fews years from a house sold in perth well was actually more like 250k after interest and improvements are added they purchased 1.1 mil place in Noosa just before GFC its for sale atm, there's no interest in it either there hoping market improves, after interest payments and I believe it will sell at a loss I'm betting they'll wipeout all returns and some from the perth sale Oh Well.

They sound like chronic property flippers! I always aim to hold property for at least 5 years, preferably 10 years or more. If you turn over PPORs more frequently than this then you will often lose money due to market fluctuation plus buying/selling costs. Better off renting in this case.

Cheers,

Beej

Tysonboss1 · 27 February 2011

FxTrader said:
What is waffle, and bogus, is your continuing assertion that property is an effective inflation hedge and useless prior comparisons between returns available on cash and property (unleveraged and leveraged assets.)

Your careless use of terms manifests itself again, Define "crash in a day" please. The U.S. stock market started its GFC led move down in Nov07 (with property speculation in conjunction with reckless lending and borrowing key drivers) and bottomed in Mar09 down just over 50%. Since then it has risen about 60% and because of what, not price inflation in the economy. And what of the property market in the U.S., still in steep decline.

Because it's plainly wrong and easily proven so. The "price" of a NEW "fixed asset" (existing fixed assets most often depreciate which is why the ATO gives you a depreciation tax break on IP), may increase with inflation or not depending on many factors including the effects of mass production and economies of scale. In the specifc case of property as an asset class, price inflation of goods and services in the rest of the economy does not necessarily filter through to property prices, again there are numerous examples. I won't waste futher time here though giving you a refresher on the basic Economics.

As for the future of prices here, inflation in the economy will not be a buffer against a significant correction to the massive debt fuelled bubble the Australian property market has become.

When I said crash in a day I was refering the fact that sharemarkets routinely fall and rise in value by amounts of up and somrtimes more than 5%, this is a volitile asset class, Property does not do this, it's ups and downs take much longer to play out,

And as I have said many times when I say that property values will rise with inflation I am not saying property will not crash in the short or medium term, what I am saying is that this,

If a property's fair value (outside any bubble conditions) is $100K, That fair value will increase over time with inflation as it's rental yield also increases with inflation. That does not mean you can purchase it at any price at any time and not have it fall in value.

If speculaters push the "market price" of that $100K property well above it's "fair value" of $100K then offcourse you could expect it to suffer declines or atleast a prolonged period of stagnation while population growth and inflation raise it's value back to the market price.

The reverse is also true, if there is a long period of stagnation and inflation pushes the fair value higher than the market price eventually there will be a boom,

FxTrader · 27 February 2011

greebly24 said:
Good article in Aust Financial Review today, "Sparkling one day, gloomy the next. The property market in once-popular Noosa Heads is all but dead..."

House prices down 17%, units down 24%. Wow!!! Some people bought units for $750k now worth $570k. $180k gone. Bugger..

Depending on the chosen time frame it's worse than that...

From: http://www.rs.realestate.com.au/cgi-bin/rsearch?a=sp&s=qld&u=noosa+heads

Date , House Price Unit Price
Feb-10, $650,000, $620,000
Mar-10, $463,000, $590,000
Apr-10, $670,000, $522,500
May-10, $705,000 , $500,000
Jun-10, $580,000, $622,500
Jul-10, $840,000, $712,500
Aug-10, $750,000, $735,000
Sep-10, $640,000, $515,000
Oct-10, $1,032,500, $742,500
Nov-10, $813,500, $412,500
Dec-10, $647,500, $675,000
Jan-11, $482,000, $620,000,

From Oct10 to Jan11 (just 4 months) the median house price in Noosa Heads has fallen over 50%! So house prices are not volatile and don't crash Tyson? LOL

Tysonboss1 · 27 February 2011

Beej said:
. If you turn over PPORs more frequently than this then you will often lose money due to market fluctuation plus buying/selling costs. Better off renting in this case.

Cheers,

Beej

My mate is a real estate agent in brisbane, and he paid off his home in 8 years just by flipping it every 12 months ( the longest he stayed in one was 2 years I think.

But not every one can do that effectively, he had no agent commisions because he was the agent and knows the market very,very well.

medicowallet · 27 February 2011

Tysonboss1 said:
When I said crash in a day I was refering the fact that sharemarkets routinely fall and rise in value by amounts of up and somrtimes more than 5%, this is a volitile asset class, Property does not do this, it's ups and downs take much longer to play out,

And as I have said many times when I say that property values will rise with inflation I am not saying property will not crash in the short or medium term, what I am saying is that this,

If a property's fair value (outside any bubble conditions) is $100K, That fair value will increase over time with inflation as it's rental yield also increases with inflation. That does not mean you can purchase it at any price at any time and not have it fall in value.

If speculaters push the "market price" of that $100K property well above it's "fair value" of $100K then offcourse you could expect it to suffer declines or atleast a prolonged period of stagnation while population growth and inflation raise it's value back to the market price.

The reverse is also true, if there is a long period of stagnation and inflation pushes the fair value higher than the market price eventually there will be a boom,

I acknowledge your changes in position, or at least agree with the many additions to your points.

However, I disagree that property is not as volatile as shares. In my opinion it is just as volatile on a day to day basis, it is just that the owners cannot see it and/or are naive to the concept.

Shares require a much stronger intestinal fortitude as you can see your wins and losses on a minute to minute basis. House volatility is artificially hidden in the fact that you only realise your gains or losses when you come to sell.

mazzatelli · 27 February 2011

Tysonboss1 said:
If a property's fair value (outside any bubble conditions) is $100K, That fair value will increase over time with inflation as it's rental yield also increases with inflation. That does not mean you can purchase it at any price at any time and not have it fall in value.

In an inflation hedging context, is this assuming the property has been bought with cash or credit-based?

The future of Australian property prices

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