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.
In an inflation hedging context, is this assuming the property has been bought with cash or credit-based?
Leverage is a separate topic, again if you want to include leverage then you have to include it in the example of the cash investment, which would also be negatively geared.
I am talking about putting $300K into a property vs $300K into a cash investment.
With leverage the property would win hands down against a cash investment that uses the same leverage.
Property with 7% interest would be funded by - 4% rent cashflow + 3% Inflationary pressure on capital value + 2% growth in demand + cashflow would grow with inflation.
Cash investment with 7% interest being paid and 6% interest being earned would suffer- exponential decay of the capital from negative gearing and then exponential decay of value from inflation.
This statement simply shows that you do not understand what volatility actually is. Tysonboss is 100% correct and it can be proven easily mathematically - Australian residential property is an asset class with far lower historical price volatility than the share market.
Should property be purchased when current implied volatility is high for a given market (e.g. should you have purchased property in Noosa Heads when you saw prices rising sharply in early 2010 or should you purchase now that they have fallen 50% since Oct10?)
Well let's here about your understanding of volatility and how one should react to it then shall we.
Historical volatility over what time frame, 2,5,10,50 years?
Is the fact that median Noosa Heads house prices have fallen 50% in four months indicative of high or low volatility, why or why not?
What is the current implied volatility of the top housing markets in Australia and should we try a time the market based on volatility, or doesn't it matter?
Should property be purchased when current implied volatility is high for a given market (e.g. should you have purchased property in Noosa Heads when you saw prices rising sharply in early 2010 or should you purchase now that they have fallen 50% since Oct10?)
I even told him about robots and his guarantees, still didn't work
Instead of answering my questions about volatility and its application, you instead erect a straw man argument around the misuse of statistics, attack it and infer that I am generalizing about the property market as a whole when I clearly and certainly did not. If you can't or don't want to directly answer the questions put to you then fine, but don't sink to the level of useless banter and frivolous arguments.You cannot take a single suburb monthly median price stats and infer anything about the current value of a particular house in that suburb - the sample volume is just too small as there may only have been a few houses sold in a given month, and they could have been at the really expensive or the really cheap end of the market, resulting in MEDIAN price volatility, which is very different to an individual properties actual price volatility. It's a bit like inferring that your Woolworths shares have dropped in value by 50% because the Westfarmers price fell.
If you look at the price history of property as an asset class (say at a city or national level), and compare that price history to a broad stock market index over ANY period of time (take your pick, 2, 5, 10, 20 years), and look at the price volatility on a monthly or yearly basis, then it is indisputable that property prices in Australia are less volatile than ASX shares.
In an inflation hedging context, is this assuming the property has been bought with cash or credit-based?
I was comparing holding $300K in property rather than say a term deposit.
As mentioned above debt is a separate topic.
Instead of answering my questions about volatility and its application, you instead erect a straw man argument around the misuse of statistics, attack it and infer that I am generalizing about the property market as a whole when I clearly and certainly did not. If you can't or don't want to directly answer the questions put to you then fine, but don't sink to the level of useless banter and frivolous arguments.
I gave you published statistics on the Noosa Heads property market median prices over the last 12 months. These stats have very real meaning to the poor saps who paid over a million dollars for property in Noosa Heads just 4 months ago. To them, there is no comfort that shares have been more volatile over the last 50 years.
Focus only on the Australian stats does not redeem your or Tyson's arguments here. The fact, and point, is that high volatility exists in the property market from time to time, whether or not that volatility has been less than shares over a given time frame is irrelevant. At least with shares you can protect yourself from downside risk.
Interesting question ( to me at least)
Can arise when neutrally geared...whats the pros and cons of pay interest-only and let the debt deflate ?
I am not comparing share price volatility with property price volatility, that is your obsession not mine, and a useless one I might add.When compared to the share market, property can be easily shown mathematically to have lower price volatility over any time period. Full stop. None of your obfuscation changes this fact.
Personally I am not a fan of interest only. I work on a low debt model and prefer to always have my debts exponentially decaying.
Some people use the words "good debt (investment debt)" and "bad debt(personal debt)", I understand the high debt model with all it bells and whitles, you know high growth, tax deductions etc.etc.
But for me personally I think of it as "Bad debt" and "worse debt", Debt can be nessasary and at times extremely rwarding when you can pick things up at for less than they are worth, But it's not somthing I want lingering, I want my cash flows from my Investments growing, clearing debt does this.
Interesting that you refer to the share market as a collective whole, not individual shares whose volatilities vary greatly, a glaring hole in your shallow comparative analysis
This statement simply shows that you do not understand what volatility actually is. Tysonboss is 100% correct and it can be proven easily mathematically - Australian residential property is an asset class with far lower historical price volatility than the share market.
Cheers,
Beej
Year Median House Price House Price % Change (YoY) Median Unit Price Unit Price % Change (YoY)
2002 $375,000 38.9% $430,000 8.2%
2003 $573,750 53.0% $605,000 40.7%
2004 $595,000 3.7% $680,000 12.4%
2005 $660,000 10.9% $680,000 0.0%
2006 $630,000 -4.5% $730,000 7.4%
2007 $727,500 15.5% $690,000 -5.5%
2008 $760,000 4.5% $707,500 2.5%
2009 $675,000 -11.2% $565,000 -20.1%
2010 $650,000 -3.7% $614,500 8.8%
What's more is these figures show that anyone who bought more than a few years ago is still well in front in any case,
'Median' is a good guide but where are the 1000% price increases holding it up?If you bought in 2003 you are better off, any later and you are worse off (units that is)
And also, a "median" house in 2010 does not equal a "median" house in 2003
Well this has nothing to do with the volatility argument but since you bring this up, please do give some examples of where established residential property (the category most IP investors invest in) returned 1000% plus in 10 years.I can detail areas of Australian market which have seen 1000s% return in 10 yrs just like the Stock market individual stocks.
True, depending on how you define experienced.If your experienced in either you'll out perform the market.
Quite incorrect, there are so many examples. Take TLS (a widely held, blue chip mom and pop stock), calculate it's 10 year return and report on those gains for me.If your complete idiot and remain in the market you'll gain long term in both.
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