Crikey even the Aust Fin Review believes the house bubble is popping

[Marketing Mogul]

Heck, even The Australian Financial Review appears to have taken an entirely somber view about the Australian residential property sector.

Robert Harley, writing the influential Chanticleer column (Tony Boyd is on leave), yesterday stated “nearly every housing indicator in the country is pointing down. New housing finance is 30% below the first home frenzy of 2009. Housing sales have dropped, with leading Ray White Real Estate recording a 16% decline in the value of houses last month…at the same time, the number of houses and apartments for sale has soared.”

Boyd then pointed out the first link in the vicious cycle of a bursting bubble: “Price growth has evaporated. In Brisbane and Perth, prices are in decline. On the Gold Coast, the Sunshine Coast and Cairns, the decline has turned into a rout.”

Today, Ben Hurley in the AFR noted “Australia’s wealthiest investors have lost interest in residential property, speaking a sell-down that could keep property markets weak for years to come”.

Currently, the net return (after all expenses) on residential property is around 2%

That may be a good return if the “risk free” rate (a good proxy of which is government bonds) is zero. Currently, the risk-free rate is around 5% — more than double net rental yields. Property returns are even worse when you consider the substantial entry and exit fees (often around 10% of the price).

That means, a risky asset like property (which can go down in price as well as rise) is yielding less than an asset which is guaranteed by all taxpayers.


Is there any substance to this story?

cheers

Here's the story in full http://www.crikey.com.au/2011/04/14/the-house-bubble-is-popping-even-the-afr-agrees/

 

[BuildingBlocks]

That means, a risky asset like property (which can go down in price as well as rise) is yielding less than an asset which is guaranteed by all taxpayers.

If all that you were focussing on was rental yield, rather than CG, and leverage was not taken into account.

 

[Ausprop]

and leverage was not taken into account.

doesn't that make it even worse?

 

[BuildingBlocks]

doesn't that make it even worse?

Yes, in the short term. But we are all (well most of us) speculators.

It is fine to look at the latest historical data and note that "you would have done better over the last 3 months if you had your money in a term deposit", but when the market eventually recovers and you have the leverage there is no comparison.

$30,000 earning 5% compounded interest will see you with $50,000 after 10 years.

$30,000 also gets you into a $250-300k CF neutral property at 95% LVR, with an increasing yield each year.

Some months you win, some you don't. But we aren't day trading here.

 

[Sunfish]

Yes, in the short term. But we are all (well most of us) speculators.

Oh boy! This is gunna be a fun thread. But apart from restating what Ausprop said

Originally Posted by Ausprop
doesn't that make it even worse?

I'll stay outta this one.

 

[Aaron Sice]

hahahaha i think i'll pass too, Mr Fish.

i'd like to know when the finrev has ever been a source of "information" rather than "infomercials".

 

[Marketing Mogul]

i'd like to know when the finrev has ever been a source of "information" rather than "infomercials".

Not infomercials, I would probably say advertorial.
Mmmm AFR advertising government bonds in a news story?

The media is in the business of selling eye catching news
It's just news with a bit of a spin on it.

Remember it is opinion laced with opinion designed to influence opinion

Never let the truth (facts) get in the way of a good story

cheers

 

[Ocean Architect]

Popping present particle of pop (verb)

1. the act of popping up the collar of a polo shirt, so it covers the neck
That's the mental image I get of Nathan everytime he buys something and takes a thumbs up photo next to his numberplate

2. to push, put, or thrust suddenly and often deftly <pops a grape into her mouth>
describes the movement of my hand in a well known chopping motion towards the groinal area in a well known Greek gesture. May also be coupled with definition 1.

3. to shoot with a firearm
a good option to be applied to the writer

4. To take (pills) habitually or frequently
would explain much, O article writer

 

[Marketing Mogul]

Popping present particle of pop (verb)

Do members on this forum consider different points of view and consider risks in the market place? Does a rational investor ignore risks?

The Crikey article went on to say

" Ruth Liew, also in yesterday’s especially bearish AFR, noted “one in 10 mortgage holders say they will not be able to make their repayments if interest rates rise by as little as a quarter of a percentage point”. Even worse, according to QBE LMI, the body that is most at risk should house prices fall dramatically, “if rates were to rise half a percentage points, nearly one in four Australians say they would be unable to pay their mortgages”."

Aaaagh there could be some risk here..

This is a question guys

What might happen when interest rates go up?
Inflation is rising and rates are signalled to go up.


That might be enough to make anybody feel a bit " pooped " (fatigued)


http://www.crikey.com.au/2011/04/14/the-house-bubble-is-popping-even-the-afr-agrees/

 

[Ausprop]

Popping present particle of pop (verb)

" Ruth Liew, also in yesterday’s especially bearish AFR, noted “one in 10 mortgage holders say they will not be able to make their repayments if interest rates rise by as little as a quarter of a percentage point”.

what a load of baloney! this would be about $15/wk. if you are you going to lose you house for the sake of $15/wk then there is somehtign seriously wrong. to suggest this applies to 10% of mortgage holders is bearish spruik

 

[Peter 14.7]

$30,000 earning 5% compounded interest will see you with $50,000 after 10 years.].

Less 30% tax paid.

Where for property there is no tax on CG until after you sell (and up to 18 months later) and then at the level of your income in that year.

AND

You can let the CG grow and then in 20 years draw down on the CG via a reverse mortgage and pay no tax on that living income until you die.

Peter

 

[Aaron Sice]

Not infomercials, I would probably say advertorial.
Mmmm AFR advertising government bonds in a news story?

The media is in the business of selling eye catching news
It's just news with a bit of a spin on it.

Remember it is opinion laced with opinion designed to influence opinion

Never let the truth (facts) get in the way of a good story

cheers

true true - either way they are a tool.

 

[Ocean Architect]

Popping present particle of pop (verb)

Do members on this forum consider different points of view and consider risks in the market place? Does a rational investor ignore risks?

The Crikey article went on to say

" Ruth Liew, also in yesterday’s especially bearish AFR, noted “one in 10 mortgage holders say they will not be able to make their repayments if interest rates rise by as little as a quarter of a percentage point”. Even worse, according to QBE LMI, the body that is most at risk should house prices fall dramatically, “if rates were to rise half a percentage points, nearly one in four Australians say they would be unable to pay their mortgages”."

Aaaagh there could be some risk here..

This is a question guys

What might happen when interest rates go up?
Inflation is rising and rates are signalled to go up.


That might be enough to make anybody feel a bit " pooped " (fatigued)


http://www.crikey.com.au/2011/04/14/the-house-bubble-is-popping-even-the-afr-agrees/

If interest rates go up, the market stagnates. Prices go down a bit. So what. This isn't a one or 2 year investment. In a few years, inflation will catch up, the nominal value of the houses remain the same or start going up again, and people make paper money again.

I'm getting a bit tired of people freaking out because this ridiculous boom is slowing down. Did you really think that prices would keep going up? Did you really think that those 40 year old crusty tiny houses on crappy blocks of land would keep going up until they hit the million dollar mark, while people are making $40kpa? You'd have to be an idiot. Hate to break it to you ladies and gentlemen, but your nannas house that you inherited that you rent out for $400/wk isn't going to buy you 3 Lamborghini Diablo's "in a few years".

People believed their real estate agents, paid too much for houses, other people saw what the other idiots did and foolishly believed that their house had gone up in value too, and now that they had to - God forbid - accept reality, they're getting frown lines an inch deep because they "lost money" and the "bubble is popping". The market got overheated and it's coming back to where it should be.

Give me a break already. Bunch of dreamers.

 

[Meandering]

Sounds like you're saying the market is running out of "greater fools"?

 

[Ausprop]

Sounds like you're saying the market is running out of "greater fools"?

is a buyer of silver a greater fool? what distinguishes any buyer form a fool or not?

 

[Ocean Architect]

Sounds like you're saying the market is running out of "greater fools"?

Correct. That's what happens when you hit the top of the affordability curve and passive capital appreciation takes a hit. Active capital appreciation through renos etc, no drama. But this "buy a house, any house, keep it for 3 years, flip it and buy a porsche" stuff - over.

 

[Aaron Sice]

Sounds like you're saying the market is running out of "greater fools"?

liken it to a ponzi all you like, but it will fall short and on tired, jaded ears.

the market is bored, almost. it's like waiting for someone to update their facebook status, and then they do, and it's something about their cat.

boring.

while everyone on here is yapping about upsies and downsies, i've identified - today - 19 new deals that if i had a spare $500k i'd own them all outright tomorrow.

 

[annie lumen]

This thread is mischevious and full of panicmongering nonsense. The price of law land in Melb has risen 13% in the last quarter, despite all the gloom. Seems as if people are still interested in buying a block to build on......

 

[Marketing Mogul]

If interest rates go up, the market stagnates. Prices go down a bit. So what. I'm getting a bit tired of people freaking out because this ridiculous boom is slowing down.

Did you really think that prices would keep going up? Did you really think that those 40 year old crusty tiny houses on crappy blocks of land would keep going up until they hit the million dollar mark, while people are making $40kpa? You'd have to be an .....

Yep median prices go up, can be flat and can go down
So what. I agree. So what.

Check out the RP Data 10 year growth charts here.. 2001 to 2002 was a flat period for some cities. If you looked at a 20 year growth charts you could identify periods where growth may have only been 1-3% p.a. or declined over time. So what. That's what history teaches us.

http://www.myrp.com.au/sydney_house_prices.do
http://www.myrp.com.au/melbourne_house_prices.do
http://www.myrp.com.au/brisbane_house_prices.do
http://www.myrp.com.au/hobart_house_prices.do
http://www.myrp.com.au/canberra_house_prices.do
http://www.myrp.com.au/adelaide_house_prices.do
http://www.myrp.com.au/perth_house_prices.do
http://www.myrp.com.au/darwin_house_prices.do

If you are a long term buy and hold investor with low LVR and low DSR you will always be okay, as time will be on your side.

Regardless of your situation there is always a lesson to be learnt. There is always a positive to take away.

What's the lesson to be learnt from the current market situation?

Here's some USA data from the Case Shiller Home Prices Indices 2010 a Year in Review - Nationally, home prices are back to their mid 2003 levels. (there are some good charts for years 1988 to 2011)
http://www.standardandpoors.com/ser...lobwhere=1243833778031&blobheadervalue3=UTF-8

 

[Sunfish]

the market is bored, almost.

Hadn't thought of it that way, you may be right but why the "almost"?

I believe the market can not/will not flat line for long. If it is doing so at the moment it could only because the punters are still in a huddle deciding which side of the boat they should get on.

I think i know what the group decision will be but I'll refrain from comment.