Logic Police Thread - the really DIFFICULT questions ...
- Thread starter yieldmatters
- Start date
Personally I think this is true.
However, I don't think that stagnant or dropping property prices are the only possible outcomes. Its quite possible that people will be satisfied with more modest homes (building costs and / or land content). Land (and to a lesser extent replacement cost) may well underpin the value of current housing stock. This stock may continue to rise (even if not at todays speed).
I also think this is true.
Investors will still be able to make a profit, but the profit may come more through yield (if CG slows and rents continue to rise). Quality of selection, risk minimisation, ability to hold through turbulent times, knowledge (what to do, when to do it, and why its done) will still seperate the wheat from the chaff.
If it was not sustainable, then why has it managed to go on since pretty much the birth of the country? If it was unsustainable, it should have stopped years ago.
Its all about supply and demand. I know this has been mentioned several times. Demand is increasing with a growing population. Supply is limited because, well, there ain't any more land. More and more people wanting the same limited supply = price increase. Its basic economics. Not sure why you dont get it.
And BTW - it isnt debt junkies who are driving house prices, its people buying their own home. They're the vast majority of the market, and they're the ones paying high prices because of emotion.
Its all about supply and demand. I know this has been mentioned several times. Demand is increasing with a growing population. Supply is limited because, well, there ain't any more land. More and more people wanting the same limited supply = price increase. Its basic economics. Not sure why you dont get it.
And BTW - it isnt debt junkies who are driving house prices, its people buying their own home. They're the vast majority of the market, and they're the ones paying high prices because of emotion.
the reason ym's question hasn't been answered in a "full and thoroughly discussed manner" is because there is no macro market in australia - or the world, for that matter.
you only have to look at the timing difference between east and west coast, the timing difference between sydney and brisbane, the timing difference between merewether and cardiff, the timing difference of ocean views in merewether and those on the flats ... the property market is made up of millions of micro markets - there is no macro market, only generalisations which have not a lot of effect on those micro markets.
to make macro statements about an emotive market such as property is like saying all muslims are terrorists, or all aussies are lazy beach bums, or all people in (insert expensive suburb) are anal snobs and all people in (insert poorer suburb) are dole bludgers, or all refugees are gang members. it is irrelevant and illogical and damaging to believe.
as to when the market "crashes and burns" - yes some will get hurt, but those who keep themselves conservative, and not greedy, should get thru okay without terminal damage. if the market crashes then newer investors probably won't be entering the market, new property won't be built, new land won't be developed - so the old adage of supply and demand rolls into effect in a different sector - yields. no new supply means demand for existing supply increases, yields increase in line with demand, better returns for investors ... it is time for yield ... and we know that cg will have it's time in the sun again so we will be taking our positively geared yields and buying more property from the d&g-ers, just to be ready.
you only have to look at the timing difference between east and west coast, the timing difference between sydney and brisbane, the timing difference between merewether and cardiff, the timing difference of ocean views in merewether and those on the flats ... the property market is made up of millions of micro markets - there is no macro market, only generalisations which have not a lot of effect on those micro markets.
to make macro statements about an emotive market such as property is like saying all muslims are terrorists, or all aussies are lazy beach bums, or all people in (insert expensive suburb) are anal snobs and all people in (insert poorer suburb) are dole bludgers, or all refugees are gang members. it is irrelevant and illogical and damaging to believe.
as to when the market "crashes and burns" - yes some will get hurt, but those who keep themselves conservative, and not greedy, should get thru okay without terminal damage. if the market crashes then newer investors probably won't be entering the market, new property won't be built, new land won't be developed - so the old adage of supply and demand rolls into effect in a different sector - yields. no new supply means demand for existing supply increases, yields increase in line with demand, better returns for investors ... it is time for yield ... and we know that cg will have it's time in the sun again so we will be taking our positively geared yields and buying more property from the d&g-ers, just to be ready.
Last edited:
Are the tough questions making you uncomfortable?
oh god ... happy to buy your realestate in 2 years time ...
hahaha - i don't think so ... interesting to be quoted out of context tho ... i hope you took note of the rest of the very long post
note - i am talking about the "market".
No, just the merry-go-round of answers given to you that you sake no notice of, but come back with a psycho-babble theory about why we should all not invest in property.
We all realise that you are here only for a brainiac discussion, and not to learn anything about how to become a successful property investor, and we have all grown tired of you. Just look back over the last 2 days and see how many different people have given you the same answers. I can believe we are still doing it.
You are an annoying cracked record with no practical experience; just a computer full of stats.
Here's a challenge for you; come up with just ONE piece of useful advice for someone who asks for help in the next 24 hours.
Don't pose a stupid argument, don't start one of your academic nerd debates; just offer some advice that is pertinent and accurate to today's investing climate.
If you can do that, without simply re-gurgitating what someone else posts ahead of you, then I'll give you a break.
Until then; you will never have my respect.
Professor Frink: Ah, here we have the Investatron 2000, mnhey! It will accurately explain why property prices have been doing what they have been doing for many years and what they will do in the future. <pulls lever on Investatron 2000>
Investatron 2000: Whiz, bang, whirl, pop... after evaluating millions of pieces of data in the blink of an eye... the answer is...?!?! argh! Cannot compute!!! <machine explodes>
Professor Frink: Wayhey! Who's been fooling with the Investatron 2000!!
I think the points I am making are very compelling and make the medium term outlook for property look shaky - as a result I make you uncomfortable and I get the hostile posts like the one I've quoted above. If you don't like what I'm saying then don't engage with me - that is fine by me.
YM,education is intended to make us more resourcefull and judicious in
solving problems,i read everyones opinions is this site but with your
repetition and the repeated doom/gloom themes and as i see you are in
Brisbane you must be blind in investment terms in some area's in Brisbane
property has not gone backwards in 20 years once the longterm facts come
into play,i still trying to understand want you want to know, maybe you don't even know yourself..willair..
This is what I want to know. How can the last 20 years repeat itself over the next 20 years? My argument is it can't because we will run out of capacity to take on debt. I don't know why this is so controversial.
I like to ask the last question first,june 1987 the avge price in Brisbane
was 73k, fast track the timeframe to today we both know the entry
price in Brisbane,in 20 years time what people live in will be very different
from todays R/E markets,but bring the simple facts and the relationships
between sales volumes and prices into play over a 20 year period, BTW
why 20 years ,just look for yourself what has happened in SEQ this year
alone, the only item i think that will slow property down is if the repayments
are beyond the capacity of the average income earner ,and the emotional
effect that will have all the way down the line to the normal person in the street..
How can anyone answer your 20 year timeframe ?,but if history is any guide
and if the next Government keep the taxation benefits for investors in
place then you will se the same over the next 20 years..willair..
History is no guide because debt levels weren't stable over the period. As I often say - each to their own - I won't knock anybody for having an alternative point of view - but the point of this thread was to try and put some logic around these big questions. The money must come from somewhere for it to happen again over the next 20 years.
Last edited:
Comments on RBA info
The key graph is the debt servicing ratio. At about 22% in 2006. This is higher than 1996 at about 18%. In 1996 home loan interest rates were around 10%. The extra $770B since 1996 has made us much more sensitive to interest rate movements so if we saw 10% again then the debt servicing ratio would blow out fairly heavily.
The RBA isn't worried about this for 2 reasons. 1) They think the debt is being taken on by those who can afford it. and 2) They are comforted by the asset side of the ledger rising as well.
They may have a point regarding their first reason - the higher debt levels may be servicable due to more discretionary income so no need to worry. But for their second reason I think they are complete fools. The asset side of the ledger is more or less the same houses and the value is in the land - we have not actually built a lot of new houses. It is just the value of existing houses assumed to be higher by sales of other houses during the period.
OK - so WHAT ARE THE LIMITS? I don't know for sure. The RBA acknowledges there is a limit but also doesn't know when - although they are more confident it is into the future at some point. Mathematically it is when the debt servicing ratio is 100% !!! Can't go beyond that. Of course it will kick in earlier.
I think we are hitting it now. Last months mortgage figures were an indicator (20% decline month on month - normally about 8.5% for September) but just one month so not conclusive (could just jump back to normal next month). It will play out through banks pulling back on loans to higher risk individuals.
If debt growth levels off I think house prices will go back to the 2003 median price. While this is only a few years ago it would be a 40% nominal decline (hard to believe but that is how fast they have rocketed up). Why not 2000 prices or 1996 prices? Well I think there are some fundamentals there - limited land release, cultural preference for convenient housing, population growth etc. Why not just levelling off at 2007 prices? Because once the CG stops (or drops back to inflation) and investors begin to believe this then they will have no reason to hold properties that have a poor market yield.
The key graph is the debt servicing ratio. At about 22% in 2006. This is higher than 1996 at about 18%. In 1996 home loan interest rates were around 10%. The extra $770B since 1996 has made us much more sensitive to interest rate movements so if we saw 10% again then the debt servicing ratio would blow out fairly heavily.
The RBA isn't worried about this for 2 reasons. 1) They think the debt is being taken on by those who can afford it. and 2) They are comforted by the asset side of the ledger rising as well.
They may have a point regarding their first reason - the higher debt levels may be servicable due to more discretionary income so no need to worry. But for their second reason I think they are complete fools. The asset side of the ledger is more or less the same houses and the value is in the land - we have not actually built a lot of new houses. It is just the value of existing houses assumed to be higher by sales of other houses during the period.
OK - so WHAT ARE THE LIMITS? I don't know for sure. The RBA acknowledges there is a limit but also doesn't know when - although they are more confident it is into the future at some point. Mathematically it is when the debt servicing ratio is 100% !!! Can't go beyond that. Of course it will kick in earlier.
I think we are hitting it now. Last months mortgage figures were an indicator (20% decline month on month - normally about 8.5% for September) but just one month so not conclusive (could just jump back to normal next month). It will play out through banks pulling back on loans to higher risk individuals.
If debt growth levels off I think house prices will go back to the 2003 median price. While this is only a few years ago it would be a 40% nominal decline (hard to believe but that is how fast they have rocketed up). Why not 2000 prices or 1996 prices? Well I think there are some fundamentals there - limited land release, cultural preference for convenient housing, population growth etc. Why not just levelling off at 2007 prices? Because once the CG stops (or drops back to inflation) and investors begin to believe this then they will have no reason to hold properties that have a poor market yield.
Last edited:
Debt servicing at 100% of income is the simple maths! Not there yet though - read my previous post for my view on it.
Two things:
1. This is not your argument. Your original 'argument' is that 'property investing = crap'. In fact, it kinda changes often.
2. Property does not NEED to repeat the last 20 years for it to be an great investment and to become amazing rich from it. Yes, we may run out of capacity but:
- this does not mean we will have a massive crash/correction necessarily, it could be a soft landing or just stagnation.
- this could be 10 years away still. Or 5. Or 1. Or 15.
Similar threads
