The future of Australian property prices

trainspotter said:

1) Crystal ball gazing is not my thing. I prefer the glass is half full approach myself. Banks could also go the other way and increase lending to prop up their profit making core business of lending money and paying divvys to shareholders. DOH !

2) You would not rent them out to some fledgling business in the first place. Read my earlier post about multi national companies ......... manufacturing companies are full steam ahead or what about mining companies and the peripheral business's that tool up to service this industry? Investment at 173 billion eh? http://www.theaustralian.com.au/bus...nt-hitting-173bn/story-e6frg8zx-1226063716021

3) Capital growth due to solid leases in place for 5 x 5 terms which makes it attractive for investors looking for income. But they don't exist in your world so that's OK with me.

"You cannot cross a chasm in two jumps" and why the hell are you quoting Gross Perfomance statements?? If you have no historical data how do you forecast future profit? What do you base your assumptions on then? A goats entrails?

PS. Funnily enough the subdivision doubled in price and the house price stayed the same in a 12 month period thereafter. It wasnt until 1994 that building costs started to escalate as it turned around again.

PPS. Retail is floundering ... manufacturing and engineering is still doing well.

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I am quoting it because there is no GUARANTEE.

Over long periods, of course averages work out (hence why property is destined to underperform), but along with this, we have an economy which is not all peaches and cream, and cities are starting to hurt.

Let us revisit this in 6 months.

I wonder if you would have sold out by that time . Most people miraculously do just before the fall don't they.

You also assume that investors can get funding. I guess in the insulated world that is Australia, it is inconceivable that this could happen. Let us look to europe and the US and think about whether our banks will have access to unlimited funding in the medium term. Methinks not.

medicowallet said:

I am quoting it because there is no GUARANTEE.

Over long periods, of course averages work out (hence why property is destined to underperform), but along with this, we have an economy which is not all peaches and cream, and cities are starting to hurt.

Let us revisit this in 6 months.

I wonder if you would have sold out by that time . Most people miraculously do just before the fall don't they.

You also assume that investors can get funding. I guess in the insulated world that is Australia, it is inconceivable that this could happen. Let us look to europe and the US and think about whether our banks will have access to unlimited funding in the medium term. Methinks not.

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The only thing that is GUARANTEED is death and taxes. If we all took the view of real estate underperforming over a period of time then why would anyone bother to invest? Real estate is not a get rich quick scheme you know ! Unles you are flipping on a rising market that is.

I have previously posted that I have divested myself of a commercial property in a champagne location and have pulled back on construction of spec homes. Sign of the times really. Steady as she goes approach for me ATM.

"ANZ Bank, Commonwealth Bank, Westpac and National Australia Bank were cut one level to New York-based Moody's third-highest grade amid concern about their “relatively high levels of wholesale funding.”

Mr Smith said the cut in his bank's rating had been “well anticipated” and still left it with one of the highest ratings in the world.

“They've adjusted all the Australian banks so it's the system that they're looking at,” Smith said in the interview. “The irony is, I guess, that we've never had stronger balance sheets in our history.”

Read more: http://www.smh.com.au/business/anz-...nding-costs-20110523-1ezji.html#ixzz1NcsHUyrS

PS. Banks make money by lending money so therefore I am pretty confident that in the medium to long term us "Investors" will still be able to get our grubby little mitts on the moolah albeit at a higher price possibly. ANZ is still offering a 10 year rate at 8.17% .... maybe they know something we don't eh? Otherwise why would they offer such a CHEAP rate for such a looooooooooooong period of time?

trainspotter said:

I have previously posted that I have divested myself of a commercial property in a champagne location and have pulled back on construction of spec homes. Sign of the times really. Steady as she goes approach for me ATM.

PS. Banks make money by lending money so therefore I am pretty confident that in the medium to long term us "Investors" will still be able to get our grubby little mitts on the moolah albeit at a higher price possibly. ANZ is still offering a 10 year rate at 8.17% .... maybe they know something we don't eh? Otherwise why would they offer such a CHEAP rate for such a looooooooooooong period of time?

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Well why then the post about how easy it is to purchase a block of land and plonk 2 sheds on it and make $30ish thou a year and insta $80k capital gain.

I said it isn't easy to do, and that there is no guarantee that it will continue to be so.


By the way, I think you have done well to limit exposure (and this is why I think smaller developers tend to ride out poor times quite well as opposed to larger ones).

How much pain do you think we will be in for over the next 5 years?
Some of us have been courageous enough to make a prediction..

medicowallet said:

Well why then the post about how easy it is to purchase a block of land and plonk 2 sheds on it and make $30ish thou a year and insta $80k capital gain.

I said it isn't easy to do, and that there is no guarantee that it will continue to be so.

By the way, I think you have done well to limit exposure (and this is why I think smaller developers tend to ride out poor times quite well as opposed to larger ones).

How much pain do you think we will be in for over the next 5 years?
Some of us have been courageous enough to make a prediction..

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It is actually quite easy to perform this equation. The trick is to get the leases in place first or know of firms that are expanding and require larger premises to lease. The post was in regards to that there is more to Australian property then residential homes and mortgage stress which we have covered over 5000 posts on and it is becoming repetitve. The post also eludes to the fact that there are still opportunities out there to make money out of RE in Australia ..... it is not all a warm bath with a packet of razorblades and a bottle of Gin you know !!!!!!!! Warehouse and commercial is also a good investment as maintenance issues (not a lot can go wrong with a tin shed by the way) are the responsibility of the lessee as well as all outgoings are covered by the lessee.

I asked why you were quoting Gross Perfomance statements? You said that there is no GUARANTEE ...... wtf do you want ?? A gold covered, gilt edged, money 5 years in advance investment? It is a calculated RISK. You have to look at historical data to analyse performance. The shed equation is creating income streams or POSITIVE GEARING if you will. Granted I am not expecting scintillating capital gains over a short period but then I never claimed this equation to perform this. I also finished my post with a DYOR (Hey it might work for me in my area ATM but could be down the creek in a barbed wire canoe in your area) I also think 18.9% RoR on 185k is not a bad investment myself. BWTFWIK ?

How much pain do I think we will be in over the next 5 years? For some they will be in a world of pain and cry the system is at fault and they did not know what they were getting into and bleat like the sheep that they are. Booo Hooo ..... Harden the F@CK up ..... No different to when interest rates went to 17% and we had to have the recession we had to have to make us stronger (according to Keating)

I can easily see CERTAIN areas dropping 20% in RESIDENTAIL housing ...... no wait .... parts of NOOSA and the GOLD COAST has already done that. Also parts of my area have done the same and Mandurah has dropped 40% on apartments. Hmmmm ...... I can see mortgage defaults increasing to 0.9% and retail figures dropping quicker than a wh0res drawers ........ no wait ........ this has already happened.

Interest rates increasing and unemployment following suit will certainly drive the nail in the coffin of RE in Australiallalaa land. FHB will be the first to go and mortgagee repos will be the new black for the remaining investors picking up a bargain. No wait ..... this is already happening in CERTAIN areas.

I can easily see 10% OVERALL reduction of the WEIGHTED AVERAGE OF CAPITAL CITIES in a 5 year timespan.

For house prices to fall substantially in nominal terms, income would have to be hit, or put another way, a substantial jump in unemployment.

Real terms is more difficult to judge, but a longer term decline is likely if inflation gradually rises.

"For the fifth weekend in a row demand remained subdued at auctions in Melbourne with a clearance rate in the 50's being recorded.

The clearance rate is 59 per cent from the 775 auctions reported this weekend. This weekend last year saw 990 auctions held and a clearance rate of 72 per cent achieved.

There was a total of 455 homes sold at auction with 320 passed in, 220 of those on a vendors bid.

Next weekend the REIV expects around 785 auctions."

For the purists....


Any professors out there who can analyse this stuff for me?

I think Steve Keen doesn't have time taking extra shifts as debtwatch gets more hits.

Any other professors needing to do extra shifts to make ends meet?

PS the only thing I can say is it pleases me that
59% of 775 = 457
72% of 990 = 712

means that commissions for ripoff R/E agents have decreased well beyond 35% as this doesn't take into account faling values and decreased % commissions..... LOVING IT!!!

I am surprised anything is selling at all really, seeing how the banks wont lend money and the whole thing is a massive Ponzi scheme (according to some) waiting to take a bigger hit than a bug on a windscreen. :

Wonder how many sold after the auction in a private treaty?

Given that clearance rates have weakened so substantially, it does seem counter intuitive that auction volumes have remained quite strong. This must be weighed against the fact that it currently takes an average of 59 days to sell a home and vendors on average have to drop their asking price by -6.5%. Although 35.6% of all dwellings in Melbourne were taken to auction during 2009/10, ultimately only 26.1% of all dwellings sold at, before or during the week after the auction. The result indicates that even in our most prevalent capital city market for auctions (Melbourne) only one in every four properties actually sells at auction.

Thanks to RP DATA for the heads up on the auction conversion rate. Meaningless really.

trainspotter said:

I am surprised anything is selling at all really, seeing how the banks wont lend money and the whole thing is a massive Ponzi scheme (according to some) waiting to take a bigger hit than a bug on a windscreen. :

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Ok, I take your point that you are unaware that banks have tightened lending standards.

I also like how you misrepresent the fact that there are real risks to future lending.

Then again, these do not support your position.

I also note how you have said that you are taking a smaller footprint and have offloaded some debt. To me this seems conflicting, and either you are intentionally trying to drum up an argument or there is something else which is weirder going on up there.

trainspotter said:

I am surprised anything is selling at all really, seeing how the banks wont lend money and the whole thing is a massive Ponzi scheme (according to some) waiting to take a bigger hit than a bug on a windscreen. :

Wonder how many sold after the auction in a private treaty?

Given that clearance rates have weakened so substantially, it does seem counter intuitive that auction volumes have remained quite strong. This must be weighed against the fact that it currently takes an average of 59 days to sell a home and vendors on average have to drop their asking price by -6.5%. Although 35.6% of all dwellings in Melbourne were taken to auction during 2009/10, ultimately only 26.1% of all dwellings sold at, before or during the week after the auction. The result indicates that even in our most prevalent capital city market for auctions (Melbourne) only one in every four properties actually sells at auction.

Thanks to RP DATA for the heads up on the auction conversion rate. Meaningless really.

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Great post champ. How do you do it?

medicowallet said:

Ok, I take your point that you are unaware that banks have tightened lending standards.

I also like how you misrepresent the fact that there are real risks to future lending.

Then again, these do not support your position.

I also note how you have said that you are taking a smaller footprint and have offloaded some debt. To me this seems conflicting, and either you are intentionally trying to drum up an argument or there is something else which is weirder going on up there.

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Obviously your failure to read or comprehend my previous posts (which you actually responded to) about my concern that the banks have tightened their lending practices have escaped you in this instance.

Once again you have misrepresented my position as I have explained to you and all of ASF my intent in regards to the commercial equation. But I will just once more for comedy purposes only, THERE IS MORE TO REAL ESTATE THAN RESIDENTIAL HOUSING AND STOOOOPID MELBOURNE AUCTIONS ....... there I have said it again.

Yes, I have wound back my exposure and also committed to a prediction of a 10% downfall over the average weighted price of the 8 capital cities over a 5 year period. I hardly see how this is a conflicting position? If the market or a particular stock was showing signs of retreating backwards or suddenly stop paying dividends would you pour more money into it?

I have repeatedly written that the market is trancing sideways and that CERTAIN areas will drop considerably. I even named them before they happened about a year ago and some 2000 posts as well. My prediction is that the RE market is not going to do a Steven Keene (legend in his own lunchbox) style plummet of 40% and panicked everyone to sell their property. Didn't he walk to Kosciusko?? ROFL. What a goose.

As for something weirder going on up there ........ well ............ you are the Doctor.

PS. Only a couple of posts (#5483) you were praising me for limiting my footprint and now you are denigrating it? And you think I have something weird going on up there? *GOSH*

trainspotter said:

Obviously your failure to read or comprehend my previous posts (which you actually responded to) about my concern that the banks have tightened their lending practices have escaped you in this instance.

Once again you have misrepresented my position as I have explained to you and all of ASF my intent in regards to the commercial equation. But I will just once more for comedy purposes only, THERE IS MORE TO REAL ESTATE THAN RESIDENTIAL HOUSING AND STOOOOPID MELBOURNE AUCTIONS ....... there I have said it again.

Yes, I have wound back my exposure and also committed to a prediction of a 10% downfall over the average weighted price of the 8 capital cities over a 5 year period. I hardly see how this is a conflicting position? If the market or a particular stock was showing signs of retreating backwards or suddenly stop paying dividends would you pour more money into it?

I have repeatedly written that the market is trancing sideways and that CERTAIN areas will drop considerably. I even named them before they happened about a year ago and some 2000 posts as well. My prediction is that the RE market is not going to do a Steven Keene (legend in his own lunchbox) style plummet of 40% and panicked everyone to sell their property. Didn't he walk to Kosciusko?? ROFL. What a goose.

As for something weirder going on up there ........ well ............ you are the Doctor.

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1. I did comprehend, hence why I made the point that it was an assumption to get funding. So are we actually agreeing that it is an assumption that a bank will lend money?

2. Your prior post inferred that making money in commercial property was a given, then you say that it is not so, which is it? Even getting tennants is very difficult as you say. What I said is it is an assumption to get and keep a tennant, what is wrong with this (and I do own commercial properties too)

3. I LOVE the fact that the professor walked up the mountain. It shows enormous character.

4. Where is our resident professor? I wonder if he is walking around melbourne now as he cannot afford train tickets. We used to get daily and weekly updates, now he has gone silent, why do you think?

5. Sorry, don't deal with mental health issues in my line of work

trainspotter said:

I am surprised anything is selling at all really, seeing how the banks wont lend money

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The banks are lending, in fact they are falling over themselves to lend to people.
They just don't like risk so they've increased lending criteria and will easily knock back
low income and high risk clients

trainspotter said:

the whole thing is a massive Ponzi scheme (according to some) waiting to take a bigger hit than a bug on a windscreen. :

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It is so much like the stock market isn't it?
With the difference being that people actually need a roof over their head.
So it is a useful and needed ponzi scheme

choofer said:

Great post champ. How do you do it?

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The Art of War - So it is said that if you know your enemies and know yourself, you can win a hundred battles without a single loss.
If you only know yourself, but not your opponent, you may win or may lose.
If you know neither yourself nor your enemy, you will always endanger yourself.

In other words ....... "understand the product you are dealing with"

medicowallet said:

1. I did comprehend, hence why I made the point that it was an assumption to get funding. So are we actually agreeing that it is an assumption that a bank will lend money?

2. Your prior post inferred that making money in commercial property was a given, then you say that it is not so, which is it? Even getting tennants is very difficult as you say. What I said is it is an assumption to get and keep a tennant, what is wrong with this (and I do own commercial properties too)

3. I LOVE the fact that the professor walked up the mountain. It shows enormous character.

4. Where is our resident professor? I wonder if he is walking around melbourne now as he cannot afford train tickets. We used to get daily and weekly updates, now he has gone silent, why do you think?

5. Sorry, don't deal with mental health issues in my line of work

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1) You can assume anything you like cause all it does is make an ass out of you and me. If you went into a bank, no job, no assets, no savings then you can ASSUME that you would not get a loan. On the other hand if you went in with 3 years financials, loads of equity, NIL CRAAA, existing history with the bank out the WAZOOOOO etc etc, then I would be pretty confident you would get the loan. No assumptions made on this matter.

2) You missed the whole thing again. The equation was to evidence there is more to RE than resi housing. I also wrote it worked for me buy DYOR. You assume too much methinks.

3) Enormous character my @rse. Predicted 5 of the last 3 downturns. LOL

4) I think the hammering he gets in here due to his positive attitude towards RE has made him gun shy. He is also planting trees on a rural property (doing his bit for the planet)

5) Then why raise it Doc?

USA debt is the equivalent of a stack of $1,000 bill which stacked on top of each other would reach from Brisbane to Townsville it they were $1 bill they would go to the Moon and back ...twice... all this debt has to be cleared but USA is still printing.

What happens in USA happens in OZ it is our crystal ball in full HD.
The OZ banks are given your money to keep the banks afloat and to stop them going under like some almost did in 2008.

The first owners bribe was to get suckers in to keep the ponzi scheme running but like all ponzi scheme's they need more victims coming in to support it and they don't have them...yet the Feds will do any thing to support the banks.

The banks have to get money from the world market and as IR goes up so will OZ banks rates which will put more pressure on the under preforming OZ economy and home victims.

Steve Keen said house prices would tank with in 2 years but didn't realise the feds would give out your money as graft and this money will never be repaid but he was man enough to walk the walk but is correct just his timing was out.

The RE agents should be charged for mis leading the public under the trade practice act claiming, house price double every 7 years and there is not better investment than a house it is proven a house can't keep up with inflation once the true figures are worked out.

However if you want to on a dud keep buying and ignore the facts.

To find out when to buy back in look at USA and wait 5 years but realise renting is a better option.

hello,

oh gidday everybody,

another 3 day weekend medicowallet, check out the cfmeu website for a run down on my schedule as you so interested in it

my apologies to everyone as i dont have a computer at my st kilda residence

which suburbs do you own property in medicowallet?

top posts trainspotter, yeah plenty of trees to plant and birds to watch

thankyou
professor robots

trainspotter said:

PPS. Retail is floundering ... manufacturing and engineering is still doing well.

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Um, maufacturing is not exactly doing well, id suggest.

http://www.aigroup.com.au/portal/bi...omic%20Indicators/PMI/2011/pmi_april_2011.pdf

But engineering is, granted. And dont forget mining! Oz quarries all the way to future prosperity for the entire country! or at least until such time as its not.

stacks said:

Um, maufacturing is not exactly doing well, id suggest.

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Yeah. Off topic but agree manufacturing has been going or is sourced overseas.

billv said:

The banks are lending, in fact they are falling over themselves to lend to people.
They just don't like risk so they've increased lending criteria and will easily knock back
low income and high risk clients


It is so much like the stock market isn't it?
With the difference being that people actually need a roof over their head.
So it is a useful and needed ponzi scheme

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The stock market allows companies and business to raise capital. A pretty important tool in the economy.

People need a roof over their head, but should still be able to achieve this without borrowing half a million $$ from the bank. Property can be overvalued in the same way that shares can be overvalued.

Junior said:

.

People need a roof over their head, but should still be able to achieve this without borrowing half a million $$ from the bank.

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They can, It's called renting.