Crash Imminent?

[willister]

With articles like this

http://www.smh.com.au/business/aust...-chinese-property-bubble-20141111-11kkdz.html

and this

http://www.smh.com.au/business/prop...use-price-tops-1-million-20141112-11l0pm.html

I've had a 5 year running friendly discussion/argument with a colleague/ex colleague now of mine who is an arm chair

We both agree Australia will crash and burn property price wise, but we disagree on the amount or percentage. Being a bean counter - he has lived through crashes of the USA and Ireland. He reckons Australia's houses in (especially Sydney/Melbourne) are 80% overpriced.

He reckons taking a simplified approach, the base worth of a house is $X rental per year x 14 then add factors such as proximity to CBD, good schools etc to get a net worth. Very arbitrary numbers, however....e.g. +$50K for being near a good school, +$100K for being within 10km of CBD etc.

I reckon it's within the vicinity of say 20-30% depending on how much Chinese investment there is on that suburb. I recall back in 2010, there was a $100K - $200K or so decrease in certain suburbs.

Just curious on what your personal thoughts are on this?

 

[Television]

With articles like this

http://www.smh.com.au/business/aust...-chinese-property-bubble-20141111-11kkdz.html

and this

http://www.smh.com.au/business/prop...use-price-tops-1-million-20141112-11l0pm.html

I've had a 5 year running friendly discussion/argument with a colleague/ex colleague now of mine who is an arm chair

We both agree Australia will crash and burn property price wise, but we disagree on the amount or percentage. Being a bean counter - he has lived through crashes of the USA and Ireland. He reckons Australia's houses in (especially Sydney/Melbourne) are 80% overpriced.

He reckons taking a simplified approach, the base worth of a house is $X rental per year x 14 then add factors such as proximity to CBD, good schools etc to get a net worth. Very arbitrary numbers, however....e.g. +$50K for being near a good school, +$100K for being within 10km of CBD etc.

I reckon it's within the vicinity of say 20-30% depending on how much Chinese investment there is on that suburb. I recall back in 2010, there was a $100K - $200K or so decrease in certain suburbs.

Just curious on what your personal thoughts are on this?

Which suburbs dropped $200k in 2010?

 

[boeman]

If I use that formula I get to within 5% of what I paid for my PPOR in October 2013...

I think housing a whole will have a minor correction, or just stagnate if around the $500k mark (blue chip highest hit).

If it does correct by 80% and a house costs me one years wage, well then hoorah for me.

 

[greedy2000]

I'd agree that property prices are overvalued and they are due for a pull back.

However this won't occur unless the one or a combination of following things happen:

1 - Significant increase in Unemployment Rate
2 - Significant Increase in Interest Rates
3 - Significant drop in real incomes
4 - Significant structural change to lending practices (abolishing NG, LVR changes etc)


1. This doesn't look like happening anytime soon
2. Unlikely in the next 10 years
3. Happening now, but not significant
4. Unlikely to change

I'd love to pick up a bargain, but my money would be on an extended period on 0% growth rather than a large drop

 

[Propertunity]

...He reckons Australia's houses in (especially Sydney/Melbourne) are 80% overpriced.

Your friend is ......what's a nice way of saying "idiot" without offending people?

He reckons taking a simplified approach, the base worth of a house is $X rental per year x .......

Australian house prices disconnected from rental yield calculations many years ago.....

 

[Propertunity]

I reckon it's within the vicinity of say 20-30% depending on how much Chinese investment there is on that suburb. I recall back in 2010, there was a $100K - $200K or so decrease in certain suburbs.
Just curious on what your personal thoughts are on this?

The stats do not support your argument. Have a look at the last 15yrs CG of a Sydney suburb I picked at random, Paddington.

The cycle is up, flat/fall, up flat/fall - tending up long term (see blue line on chart). Same ole, same ole. It's not any different this time around IMO.

 

[Francesco]

...
I've had a 5 year running friendly discussion/argument with a colleague/ex colleague now of mine who is an arm chair

...

Like preppers D&G aficionados are attached to an ideal, fixed and inflexible in terms of advancing one's financial position - as much use for the purpose as an arm chair. I have progressed over 30 years in my investment journey - good thing I have viewed that ideal wearily.

 

[willister]

Which suburbs dropped $200k in 2010?

Had a mate who over purchased in Mount Waverley for $870K for a 700m2 block within 600m of the train station. Fellas around him were flogging property for around the $700K mark.

Not sure of the exact property averages around his area or whether he really way over purchased his property in the first place...

 

[The Falcon]

80% overvalued eh, tell him he's right and to let you know when a buying opportunity presents

 

[DaveM]

If houses are 80% overpriced, then a $1m house is only "worth" 200k... which is less than the cost to build it.

 

[skater]

He reckons Australia's houses in (especially Sydney/Melbourne) are 80% overpriced.

LOL! If that ever happened I'd be buying a stack of them.

 

[D.T.]

It's all because of Holden closing

 

[Jacque]

I've had a 5 year running friendly discussion/argument with a colleague/ex colleague now of mine who is an arm chair

...He reckons Australia's houses in (especially Sydney/Melbourne) are 80% overpriced.

Hmm sounds like your colleague definitely has the commonsense equivalent to an inanimate object such as an armchair

I also recall another longtime poster from many years ago who had a similar type of "rental reality" theory.... and look where it got him. Most of the properties he bought and subsequently sold resulted in losses...

 

[Peter_Tersteeg]

He reckons taking a simplified approach, the base worth of a house is $X rental per year x 14 then add factors such as proximity to CBD, good schools etc to get a net worth. Very arbitrary numbers, however....e.g. +$50K for being near a good school, +$100K for being within 10km of CBD etc.

I reckon it's within the vicinity of say 20-30% depending on how much Chinese investment there is on that suburb. I recall back in 2010, there was a $100K - $200K or so decrease in certain suburbs.

Interesting that supply and demand hasn't been considered.

I think there's a good chance that property prices might correct by 5-10% at some near point in some areas. Prices might also stagnate for an extended period of time. I won't hold my breath waiting for a crash though and 80% is simply ridiculous.

 

[datto]

BRING IT ON! I want to buy a $1m house for 200K ( that's 80% drop?)

 

[Arnoldus]

If houses are 80% overpriced, then a $1m house is only "worth" 200k... which is less than the cost to build it.

Not sure about the OP's sentiment, but my understanding of 80% over-valued means something with a fair value of say $500k would be selling at market for $900k

 

[ZOMG]

I hope your buddy has his zombie apocalypse gear ready, that will be the scenario when prices crash 80%

 

[Lord Shanghai]

Most US large cities are well and truly over the GFC and house prices have again soared to new heights. The only difference is that this time around,more than half of real estate deals are done with cold hard cash (because borrowing is much tighter). A good sign for sure. Hoses that are paid for with cash never get foreclosed.

 

[DaveM]

Not sure about the OP's sentiment, but my understanding of 80% over-valued means something with a fair value of say $500k would be selling at market for $900k

Yep which is my interpretation too - but as with all D&G'ers, its an 40-80% price crash just around the corner and thats typically how they express it

 

[willister]

We did agree it was a bubble, just an interesting perspective from an Irish bloke who has lived through the US/Irish bubbles.

He kept sticking to that x14 rent p/a rule + extras. He kept saying if the Chinese pulled the pin and negative gearing was abolished, it would

IMHO and based on a amateur's POV, areas affected by high Chinese speculation and/or demand will fall within 20%-30% is my guess or $100-$250K, e.g. Areas like Glen Waverley, Mount Waverley, Box Hill.