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Same, but I am going to take the fall..
The future of Australian property prices
- Thread starter Joe Blow
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Same, but I am going to take the fall..
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Okay, so as someone who is looking to buy a first home sometime this year here in SA... are there any words of advice?
been looking in the 400k mark as don't want to over extend to begin with...
do you think it is worth waiting as late as possible in the year?
been looking in the 400k mark as don't want to over extend to begin with...
do you think it is worth waiting as late as possible in the year?
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The best time to buy a house was yesterday.
The best time to buy a house before that was the day before yesterday.
Etc. etc.
If this is your first property i'd look into ensuring you can purchase it with an adequate margin of safety. We have historically low interest rates - average for Australia is about 10% over the last 20 years. Do the sums on your purchase and work out whether you can service the debt at or above normal interest rate levels.
Ensure that the rental return and all deductions will make the property viable - best if you can achieve positive cash flow to serve as a buffer when times are lean or interest rates rise. (note if you don't fully understand the difference between positive vs negative gearing coupled with negative vs positive cash flow then I suggest you learn this before jumping into any expensive investment)
There will be times over the course of owning the property that you may be out of tenants, or prices may stagnate, or interest rates may sky-rocket - you can't be immune to these effects but you can minimise the damage significantly with a bit of pre-planning before the purchase.
You say you are looking at the 400k mark but don't want to over extend - whether the price of the property is 400k, 500k, 800k, etc is not important as you could be buying a 800k property with a 500k deposit (unlikely i know but that's just to illustrate a point). What's important when determining if you're overextending yourself is your capacity to service the loan coupled with an appropriate buffer to mitigate the risks in purchasing an investment property. It might mean you have to start with a smaller place and that's ok - getting your foot in the door is the hardest step.
I think it was Trainspotter who wrote a list of ways to mitigate risk when purchasing property. The list start started with Location Location Location and was back a few pages. Have a search, well worth a read.
The best time to buy a house before that was the day before yesterday.
Etc. etc.
If this is your first property i'd look into ensuring you can purchase it with an adequate margin of safety. We have historically low interest rates - average for Australia is about 10% over the last 20 years. Do the sums on your purchase and work out whether you can service the debt at or above normal interest rate levels.
Ensure that the rental return and all deductions will make the property viable - best if you can achieve positive cash flow to serve as a buffer when times are lean or interest rates rise. (note if you don't fully understand the difference between positive vs negative gearing coupled with negative vs positive cash flow then I suggest you learn this before jumping into any expensive investment)
There will be times over the course of owning the property that you may be out of tenants, or prices may stagnate, or interest rates may sky-rocket - you can't be immune to these effects but you can minimise the damage significantly with a bit of pre-planning before the purchase.
You say you are looking at the 400k mark but don't want to over extend - whether the price of the property is 400k, 500k, 800k, etc is not important as you could be buying a 800k property with a 500k deposit (unlikely i know but that's just to illustrate a point). What's important when determining if you're overextending yourself is your capacity to service the loan coupled with an appropriate buffer to mitigate the risks in purchasing an investment property. It might mean you have to start with a smaller place and that's ok - getting your foot in the door is the hardest step.
I think it was Trainspotter who wrote a list of ways to mitigate risk when purchasing property. The list start started with Location Location Location and was back a few pages. Have a search, well worth a read.
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and a crash will come sometime in the future.
All you have to do is wiegh up the fundamentals and decide how much RISK you want to take, and what contingency plans you have in place.
white_goodman
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i think you missed my point, ive never stated the US and Australia are the same..
the source being ANZ was what I was pointing at... its basically asking a property developer where he thinks the market is going "up of course"
interesting I read how they debunked price to income ratios by arguing interest rates, does that mean we are all fcuked if they go back up??
As for Australia not being the US. Well I'll put it to you this way; the conditions here are far worse than in the US, on a per capita basis. The US has better and more reliable statistics on their economy overall. They come-out more frequently too. Their data is as close to independent as you can get.
At least they (the US) were honest about what was occurring and the stats were out there for all to see. What we have here is 'sales reps' masquerading as 'independent' advisors/authorities, and they succeeded for well over a decade to continually inflate the property market overall. It was a sound practice for a while, as all investments need to inflate to some extent, but it has been overdone.
The mining boom and the push for higher wages, directly and indirectly, in this industry has contributed to the distortions to market valuations and expectations. But they don't represent the pressures felt by the masses.
Speculative practices and 'independent' valuations can easily be confused; I think that some people's definition of 'independent' differs from mine. I don't see anyone with an indirect or direct interest in inflating the property market as independent, even if this is to ensure inflated property prices in their own area.
At least they (the US) were honest about what was occurring and the stats were out there for all to see. What we have here is 'sales reps' masquerading as 'independent' advisors/authorities, and they succeeded for well over a decade to continually inflate the property market overall. It was a sound practice for a while, as all investments need to inflate to some extent, but it has been overdone.
The mining boom and the push for higher wages, directly and indirectly, in this industry has contributed to the distortions to market valuations and expectations. But they don't represent the pressures felt by the masses.
Speculative practices and 'independent' valuations can easily be confused; I think that some people's definition of 'independent' differs from mine. I don't see anyone with an indirect or direct interest in inflating the property market as independent, even if this is to ensure inflated property prices in their own area.
My thoughts exactly. Basing purchase price affordability on something that can bite your leg off years down the track is dodgy at best.
For those interested - here's a presentation Steve Keen gave to the Mortgage finance association of Australia. . It Explains his take on the situation very well. It's hard to go past the logic of his arguments. 'He's been wrong before' is not really a valid objection - there's clear evidence in the data as to exactly why we was 'wrong'. I think that he just got the timing wrong ...... due to unforseen circumstances.
The basic premise is that purchasing power = income + borrowings. As the personal borrowings of australians are through the roof, they can't borrow more. After that it's pretty much simple supply and demand. No growable purchasing power = no growable housing prices -> fall.
Alex.
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Heard of Market forces? Supply and Demand. Why are miners wages high - there is a shortage, why are house prices high - there is (was?)a shortage. Both will go down or stagnate when there is a glut. People will pay the price if they want it, if you dont see value, wait, hope and buy later.
" at least the US were honest about what was occurring..." Your kidding right? I have spent a little time reading about sub prime mortgages, cant see much honesty there, "...and the stats were out there for all to see.", but they really didnt see it, did they.
Always answer this to high price of housing in Australia, ..where else would you want to live?
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IF IF IF IF IF IF ......... that's all I read on here. Financiers factor in a +3% margin when assessing an application. Only a small part of a loan contract to look at when seeking funding.
Has anyone here tried lately to get a home loan? Actually walked into a bank/financier/hole in the ground and actually put black marks on white paper? Do you even know the criteria required to get approved??
I am involved with the property market and have over 20 years experience in developments. I have 40% deposit and a proven track record of success. The banks are not exactly falling over themselves to give me money. I bank at Westpac, ANZ and NAB by the way. They also ask for up to 50% PRESALES ......... DERRRRRRRRRR ! If I had 50% presales I would not need them to fund it now would I ?????
If they were worried about interest rates going up then they would not be putting out a 10 year rate at 8.17% now would they? ANZ rates listed below. So if you are so worried about interest rates going up go and get a 10 year fixed rate !!!!!!!!!! FFS ....... do the research.
1 year 6.99% p.a. 7.77% p.a.
2 years 7.19% p.a. 7.75% p.a.
3 years 7.34% p.a. 7.74% p.a.
4 years 7.69% p.a. 7.84% p.a.
5 years 7.74% p.a. 7.86% p.a.
7 years 8.19% p.a. 8.14% p.a.
10 years 8.14% p.a. 8.17% p.a.
Everyone keeps rabbiting on about Steven Keen "Merchant of Gloom" ....... WRONG His timing was wrong, it hasn't happened yet, the data says so, the stars and the moons are all lining up blah blah blah. on a per capita basis compared to the USA, hand waving bullsh!t, walk to Mt Kosciusko, yadda yadda yadda. Gee I am glad I listened to him and sold all my property when he said to !!!!!!! Great ....... I would be worth a lot less now and not have any property. You know the stuff banks like to lend against ?? Haha hah ha hha hah ahah aaaaaaaa.
In response to konkon - the real estate agents "list" a house on a price they think the market can achieve. The people pay the price. If the people require finance they go to a bank. The bank employs a VALUER who is registered with the Australian Valuers Generals Office. The VALUER reports as to whether or not the property is worth what the purchaser is paying for it. If the VALUER does not find comparable sales evidence in the area then he advises the bank via a valuation report. If there is any discrepancy towards the negative then the loan is DECLINED. Period.
Let's say for comedy purposes only the whole system fails and the people buy their overpriced piece of real estate and interest rates go through the roof and China stops buying our coal/exports and everyone loses their jobs.
What happens when there is a default ??? Oh glad you asked this one ...... see below.
An interesting disclosure made by the Australian Prudential Regulation Authority
(2005) (APRA) in Survey Results – Residential valuation practices by ADI’s and
LMI’s of May 2005, shows that of the eight lending mortgage insurers (LMI’s) six
are owned by authorised deposit taking institutions (ADI’s). In effect, lending
institutions, who are badged as authorised deposit taking institutions in this survey are
also in the mortgage insurance business. The fact is that the valuer’s insurance acts as filters in the reinsurance process of spreading the risks through their insurance.
So the banks wont get hurt but the insurance companies at the bottom of the pile would cop it big time through the VALUERS insurance company. Oh oh ???
Please oh please people go and do some research before the arm waving arguments and "opinions" creep through into the thread. Better yet ....... go and buy some real estate and leave Steven Keen out of it.
Actually if you check the Steve Keen presentation in my previous post - he explains that the numbers used to calculate the 'shortage' include homeless people and marginal residents of caravan parks......
As he points out - This is an indicator of NEED for additional housing NOT DEMAND for additional housing. Which helps explain all those empty apartments...
Alex.
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And then there's the case of the bumblebee. According to the greatest minds of science, it cannot fly. Its wings aren't big enough. Aerodynamics says it is impossible. The biggest computers in the world all come to the same conclusion, it can't fly. But what does the bumblebee do? It ignores the great minds, the skeptics, the computers... and it just goes ahead and flies.
Sound familiar?
Sound familiar?
That's a fair point.
And the general argument is that the level of personal debt is reaching saturation point so therefore this growing level of finance is not sustainable.
I had some experience with a valuer recently. He asked my real estate agent what he thought the property was worth (I'm renting it out and needed to get it valued for possible future CGT). The valuer told me he would value it as 'high as he could without being silly' as this maximises your future tax benefit. So those valuations are skewed and subjective (in my limited experience).
go and buy some real estate and leave Steven Keen out of it.
Hmm I think I'll wait 6 months. I can see signs off cooling off all around me (in two separate parts of the country) and yet to find one that gives me a decent rental return especially when the startup costs are covered off.
Still - I'm open to suggestions of good places to buy if you reckon you can supply some and the numbers stack up
But do you honestly believe the growth rate of the last ten years will continue for the next 10 years?Alex.
And then there's the case of the bumblebee. According to the greatest minds of science, it cannot fly. Its wings aren't big enough. Aerodynamics says it is impossible. The biggest computers in the world all come to the same conclusion, it can't fly. But what does the bumblebee do? It ignores the great minds, the skeptics, the computers... and it just goes ahead and flies.
Sound familiar?
And then there's the self-interested establishment who insisted that the earth was the centre of the solar system and branded Gallileo a heretic.
Sound familiar?
And then there's the case of the bumblebee. According to the greatest minds of science, it cannot fly. Its wings aren't big enough. Aerodynamics says it is impossible. The biggest computers in the world all come to the same conclusion, it can't fly. But what does the bumblebee do? It ignores the great minds, the skeptics, the computers... and it just goes ahead and flies.
Sound familiar?
And just for good measure - go check out the big bold heading MYTHS
on this page
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"As high as he could without being silly" means that there is sales evidence in the area to support the figures he would be supplying. He does not want to risk losing his insurance either. No insurance means no livelihood. Most valuers I know will always value at the LOWEST they can get away with to protect their income streams. I have had valuations fall over on many a deal in a rising market. Think about it.
The growth rate will not continue the same over the next 10 years. I have never written that it would. I have repeatedly written that property is currently trancing sideways and that in several areas that drops of 40% have already occured.
The problem is looking at 8 capital cities as an average/median home price in Australia is FLAWED. Yes yes yes they have jumped 20% in certain areas and in some cases more. In some areas they have also dropped this amount as well. The sales of the property in the sought after areas is propping up the areas in decline where sales evidence is slim on the ground. DOH !!
This takes into no relationship of how well the people are doing in paying their mortgage. Ipswich had massive mortgage stress prior to the floods and a bargain was to be had whereby the vendor would rent back the same house they jsut sold to you? Go figure HUH? Can't afford a mortgage but can afford to pay the rent for the same amount?? WTF ??
Yes yes yes GDP percentile of take home pay to Gross National Debt to Credit Card repayments and homeless people for housing shortages are important for data. And so is a roof over their heads.
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Aaahhhhh grasshopper you have so much to learn.
The analogy placed before you was to evidence what the power of thought can do for you. Everyone thought that the bumblebee could not fly due to aerodynamics and wing size. Thus was the belief for a very long time. No one understood oscillating vortexs nor the power of lift they create. So looking at a bumblebee everyone said it could not fly yet it continued to do so. It wasn't until they understood the dynamics of the lift created before they could prove that it could.
The property market is the same. Everyone else is saying it is going to crash. Yet it continues to fly on like the bumblebee.
Are you picking up what I am putting down now there AlexG1 ???
"As high as he could without being silly" means that there is sales evidence in the area to support the figures he would be supplying. He does not want to risk losing his insurance either. No insurance means no livelihood. Most valuers I know will always value at the LOWEST they can get away with to protect their income streams. I have had valuations fall over on many a deal in a rising market. Think about it.
The growth rate will not continue the same over the next 10 years. I have never written that it would. I have repeatedly written that property is currently trancing sideways and that in several areas that drops of 40% have already occured.
The problem is looking at 8 capital cities as an average/median home price in Australia is FLAWED. Yes yes yes they have jumped 20% in certain areas and in some cases more. In some areas they have also dropped this amount as well. The sales of the property in the sought after areas is propping up the areas in decline where sales evidence is slim on the ground. DOH !!
This takes into no relationship of how well the people are doing in paying their mortgage. Ipswich had massive mortgage stress prior to the floods and a bargain was to be had whereby the vendor would rent back the same house they jsut sold to you? Go figure HUH? Can't afford a mortgage but can afford to pay the rent for the same amount?? WTF ??
Yes yes yes GDP percentile of take home pay to Gross National Debt to Credit Card repayments and homeless people for housing shortages are important for data. And so is a roof over their heads.
Yeah - that's all fair enough. I would note that valuations are done based on current sales, not sales directions - so they are going to be quite misleading in a falling market. Can't really see any other way though.
Yes - I agree that a roof over their head is important too - but to use it as a measure of demand for housing and as an argument to justify why prices are rising and will continue to do so is a bit tricky.
I've been reading lots of your posts and I can see you've been talking about falls as well as gains. But I'm still not personally convinced that there's not worse to come is all.
I appreciate your points of view though
Discussion is one of the best ways to test your thoughts OK I'll let you get away with that one
I read it thusly though
Everyone says a bumbleebee cannot fly - even scientists. But it still does it anyway. This is analagous to Steven Keen (an economist) saying the property market can't fly - but it does anyway.
Everyone can come up with an analogy to suit their viewpoint
I sold my property in Brisbane in September last year and have no intention of buying in my area (gold Coast) any time soon. Just don't see the value in it yet, there will be a time that the numbers stack up but just not yet. In the mean time I have made over 30% returns in the shares that I have targeted after investing the money from the sale of my house. I am targeting Oil/Gas, and Gold/ Silver miners. For me it's all about following the trends. Oil is on the rampage, so is Silver. Property in my area is in decline and not looking like any growth for some time to come due to reasons already mentioned which I'm not going to even bother to go into as they have been discussed to death.
My advise, do your research, don't be one of the sheep and trust your instinct. Also don't fall in love with any one particular asset class, they all have their time in the sun and than they stall. Also watch your debt levels, many a high flyer has been undone by excessive debt.
My advise, do your research, don't be one of the sheep and trust your instinct. Also don't fall in love with any one particular asset class, they all have their time in the sun and than they stall. Also watch your debt levels, many a high flyer has been undone by excessive debt.
Ask a large proportion of talented next generation of Australian's where they are going to live, if housing continues on this inflated path, in let's say ten years from now. You will end up having a considerably large exodus of Australians living and working in more affordable places around the globe, just like Britain experienced. Ones that probably will stay here if the cost of living isn't going to be so high.
The US is a lot more transparent about its economy. I don't know of another country that places so much attention on statistics than the US. How many Australian's are aware of what's going on in cities like Adelaide, for example, in which abnormal volumes of businesses have gone under. You're still seeing speculators trying to sell you the story that the property market here is stable. The statistics and information on housing here is too vague.
The sub prime mess was pretty obvious even four years ago. If the stats and information wasn't available back then, then the US consumer would have gotten itself further in debt. The banks would have kept on lending. We don't have any real official warning signs here. So consumers will get themselves further in debt, just like they would have in the US if the statistics didn't come-out when it did.
