Melb market certainly hot, I'm not complaining.
Will Melb prices continue to rise, what do you all think?
My feeling is that the market may go sideways or may even drop back 10% due to IR increases and tighter financial policy making it harder for investors to finance deals. But I don't believe the Melb market has peaked and we are some way off yet.
MTR
There's talk about investors entering the market ahead of home owners and they are buying on the back of low yields, around 3%.
So I think one of two things will happen in the medium-term. Perhaps a combination of both.
1. Either prices stagnate and yield catches up. A small place with a bit of land in inner city Melbourne probably rents $500-$550 these days. Hefty component of average post-tax salary (which is around $900 per week). Wouldn't have thought rent will catch up that quickly without seeing a corresponding increase in net income.
2. Momentum continues to erode yields (to say 2%) and investing in property becomes predominantly driven by speculation on capital gains (because why else would you invest in something with 2% yield
). Investment is not driven by numbers but rather by anecdotes about housing shortgage, migration, relaxation of FIRB approval whose impact very few investors can actually quantify. Terms like "stronger for longer", "safe as houses" are coined. Some economic jolt unravels the mystery and the "house of cards" (I coined this one) unfolds.
Market is heated and like all heated things, it needs to cool down. Driving it to go banannas purely on speculative capital gains (without the corresponding numbers to back it) is not good.
Reminds me of the stockmarket, when stocks were driven to heights on valuation multiples (cf low yields in houses). Even worse were those companies that were skyrocketing on the back of resources in the ground (ie not even certified reserves). Did they actually produce? Have they? And having 1 trillion coal in the ground doesn't make you can commercialise all of it...
So my view in general is caution. Ideally a combination of both scenarios unfold, ie prices simply dip back down 10% as in 2007 and there is time for yield to catch back up to justify the prices. Obviously all just in my opinion and being on a property forum, there are spruikers and people with enormous vested interests in this sector, so take it with a grain of pepper