Bulls vs Bears

[Blair007]

Hi all

So I'm fairly new to this forum and to property investing.

One thing I see as a common debate is the Bull vs Bear argument.

I tend to have Bullish views on property myself.

I mean if you look at the last 100 years of history for property prices they have always gone up.

What I want to know is that how is it even possible for someone with a Bearish viewpoint to have an argument against this when such compelling evidence is stacked against them.

 

[starter]

Because you can't take what has happened as a guarantee of what will happen in the future.

 

[Blair007]

Yeh but with 100+ years of data for proof it's pretty good evidence to suggest that the same trends will continue.

So what if in a 500 years if property prices keeping trending up is there still cause for debate?

 

[alexlee]

If you're convinced it works, go buy some and sit on it for a couple of decades.

Why do you care whether other people are convinced or not?

 

[Blair007]

If you're convinced it works, go buy some and sit on it for a couple of decades.

Why do you care whether other people are convinced or not?

I have and I will. Just interested to here people's thoughts and reason. what's wrong with that?

 

[Propertunity]

I mean if you look at the last 100 years of history for property prices they have always gone up.

The trend is always up, yes.

What I want to know is that how is it even possible for someone with a Bearish viewpoint to have an argument against this when such compelling evidence is stacked against them.

Because:
1. They don't always go up in a linear fashion. See CG for Tamarama houses last 15 years attached. There are a number of years where prices fell. (However, you will notice that over a 15yr period the median started at $1M and is now $2M - so the long term trend is up.
2. They have vested interests - perhaps of the belief that shares are better than property? (which they can be if you have a stomach for the volatility of the share market).
3. They are just seeking attention - easy to get defensive views from PI's on a property forum.
4. They are jealous that some have made good, while they themselves haven't................and so on

 

[BayView]

Hi all

So I'm fairly new to this forum and to property investing.

One thing I see as a common debate is the Bull vs Bear argument.

I tend to have Bullish views on property myself.

I mean if you look at the last 100 years of history for property prices they have always gone up.

What I want to know is that how is it even possible for someone with a Bearish viewpoint to have an argument against this when such compelling evidence is stacked against them.

Most of the Bear discussion I've seen here relates to what they think will happen in the near/medium future.

Many of them are without any property; and have never had any, so I discount their views totally.

Why? Because if you've been around a long time (as I have), you would know that it fluctuates depending on lots of factors, and not just right now.

Many of the armchair Bears forget that aspect of it.

They like to throw in "Oh, yes but it was easy for you......." and so forth.

I am a Bull, but I have also been a Bear.

How?

Like you; I see a trend of always going up over time; based on history. I have the benefit of seeing a lot of water under the bridge - a lot of it bad, and yet the prices still go up over time.

BUT: there have been a number of windows where property has done nothing for a few years; hence the Bear option - but it relates strictly to that particular window of time, in my case.

 

[Deltaberry]

The biggest bears in recent Australian history were Steve Keen (uh oh) and billionaire Jeremy Grantham (he's lucky he didn't bet against the Australian property index).

 

[joeExpat]

Yeh but with 100+ years of data for proof it's pretty good evidence to suggest that the same trends will continue.

Over a 100 year time frame pretty much every asset class goes up, most people focus on much shorter time frames. Property can easily lose 20-30% over a 5-10 year period and has already done so in many areas of Australia, not just overseas. But if you're prepared to hang on for 20 years yeah you'll probably be ahead, although maybe not (e.g. Japan).

 

[pieman]

If we had Japan's growth up until the late 80's, I'd be happy with 30 years of no growth

 

[VYBerlinaV8]

If we had Japan's growth up until the late 80's, I'd be happy with 30 years of no growth

Exactly. This is the bit people forget.

The main probelm with the bear argument is it assumes we buy today, and care about the price tomorrow.

 

[Graemsay]

If I wanted to put a bear case forward then it would be that property prices have risen sharply relative to wages or rents since sometime in the late nineties. As a result they're looking extremely expensive on pretty much every metric you care to name.

Under those circumstances, I wouldn't want to take a punt on capital appreciation of a negatively geared asset.

Will it burst?

I don't know. My suspicion is that prices will fall relative to earnings, but whether that happens gradually (rapid wage increases against a flat property market) or catastrophically (e.g. Ireland) is a different matter. That would put the downside risk above the upside. There's always the possibility that foreign investors will prop up the market, but that means pricing the younger population out of the market.

 

[pieman]

Will it burst?

I don't know. My suspicion is that prices will fall relative to earnings, but whether that happens gradually (rapid wage increases against a flat property market) or catastrophically (e.g. Ireland) is a different matter. That would put the downside risk above the upside. There's always the possibility that foreign investors will prop up the market, but that means pricing the younger population out of the market.

It's always been expensive. When I purchased my first **** house in sth Melbourne in the mid 1990's I borrowed 7 times my gross salary. At work at the time peeps were crying "you're mad borrowing that much money on your salary, at the end of the decade there is a certain big depression!!!"

Sound familiar?

There will always be doom and gloomers. You know the guy getting coffee in the morning with the long face and the negative view on everything.

Melbourne has many different markets and you can still buy a house on 600sqm in franga nth for 350k or a little single front in sth Melbourne for 800k

 

[hobo-jo]

I'm only a bear over the short to medium term (prob next 3-5 years). Long term bull providing prices come back to a more reasonable ratio versus rents and incomes in the meantime. Some are prepared to buy now and look past the short term risks, but not everyone is comfortable with a strategy like this.

 

[pieman]

I'm only a bear over the short to medium term (prob next 3-5 years).

Is that when mum and dad finally kick you out?

 

[hobo-jo]

Is that when mum and dad finally kick you out?

I haven't lived at home since I was 18, I've rented several places since and owned my own home for a few years also (now sold).

But well done making broad assumptions based on my opinion for prices over the short term.

"He thinks prices are heading lower, so he must be Gen Y living at home mooching off his parents and blowing his wage on gadgets"

 

[Blair007]

If I wanted to put a bear case forward then it would be that property prices have risen sharply relative to wages or rents since sometime in the late nineties. As a result they're looking extremely expensive on pretty much every metric you care to name.

i would have thought that gap between property prices and wages are going to always increase until it becomes almost unaffordable to buy property with family wealth, successful business etc...

 

[jackbak]

I mean if you look at the last 100 years of history for property prices they have always gone up.

What I want to know is that how is it even possible for someone with a Bearish viewpoint to have an argument against this when such compelling evidence is stacked against them.

It's safe to say property prices will always 'go up' over the long term, but that doesn't mean they will go up every year or even every decade.

Who knows what the next decade will bring, we live in uncertain times.

 

[Blair007]

It's safe to say property prices will always 'go up' over the long term, but that doesn't mean they will go up every year or even every decade.

Who knows what the next decade will bring, we live in uncertain times.

Yip of course but what i was getting at was the average house hold income compared to median house price and the ratio between, I'm saying as time goes on i would think that the gap would become greater

 

[Graemsay]

If you want a more rational argument for being Bearish, take this property for sale in London at £550,000:

http://www.rightmove.co.uk/property-for-sale/property-25365798.html

It's also up for rent at £350 per week:

http://www.rightmove.co.uk/property-to-rent/property-41913746.html

That's a gross yield of 3.3%.

Historically the Bank of England's base rate has been 2% above the rate of inflation (currently around 3%), and mortgages have been another 2% above that. So for the yield to match borrowing costs, the price would have to be around £260,000.

I'd consider it to be a reasonable assumption that buying something should be cheaper than renting it. A 25 year repayment mortgage at 7% would cost around £1400 for a £200,000 loan.

Similarly, I've heard that old-school landlords would look for a 10% yield on a property. In that case the predicted price around £180,000.

Given the figures I'd argue that the asking price is two to three times what the rent can justify. I suspect that at some point the London market will fall sharply, and I really wouldn't want to be holding a leveraged investment that loses the majority of its value.