declining property prices?

Hi everyone, what do people feel the impact of a stock market correction or crash will have on property prices? I have heard they work in reverse, when stocks are out of favour, property is in. However, the root cause of the current market correction is easy credit, primarily to housing. That in my mind is very worrying. I wonder if we have seen the worst of the property market correction, at least in overpriced areas, such as Sydney or Perth.
What do you think?
 
Momo
I don't know why people think that credit won't as easy to get in the near future.
Our interest rates are very high compared to US, EU etc and I am sure investor funds would be queing up to put their money into our market where the returns are higher.
It's not that they are lending with no security.
Cheers
 
I keep looking at the basic 3-bed house and 2-bed unit in Cairns and prices still seem to be going up. Then I keep finding these little daggy reno gems on good sized blocks of land...really cheap. Go figure!
 
I think there could be a crash in property prices

next few days will determine the extent.

Basically the hit to superannuation funds and therefore the cash positions of baby boomers will effect their ability to help out their kids to buy into the market. Not to mention sub prime lenders going under etc etc. This could be ugly. Stock market has dropped 3 pct today making the last week or so totally eclipse the aftermath of 9/11.

Mark my words - this weekends auction results (in melbourne) will be back down to 60 pct pass in rates. Sellers will take time to adjust and buyers might just shut up shop. Too much risk to buy in this weekend.

Anyone agree?
 
Mark my words - this weekends auction results (in melbourne) will be back down to 60 pct pass in rates. Sellers will take time to adjust and buyers might just shut up shop. Too much risk to buy in this weekend.

Anyone agree?

Nope... Clearance rates this weekend will be as high as the weekend before and every other weekend for the past 6 months unless it's -15 degrees and snowing.

Too much risk for who? 70% of properties are owned by owner occupiers and they don't really consider risk when purchasing a PPOR.

From what I've heard nothing has changed since the last rate rise and a 3% drop in the sharemarket to mum and dad investors would be seen as a tiny glitch in an otherwise endless bull market.. If they even noticed it happening.

It will take a lot more than that to curb the demand enthusiasm in Melbourne I feel.

Cheers,

Arkay
 
To be honest, for the first time in a very long time, I'm starting to worry just a little. Was planning on buying two IP's with a mate to lower the risk of buying 1 property in one area, but now I'm not as keen. I don't regard myself a negative person, but something just doesn't feel right at the moment. Is it just me or do other people feel this as well?
 
Dear Aussierogue,

1. I believe that present "booming" market in Melbourne may pause for a while as the buyers over there, would turn "cautious" in the meantime. They are likely to await to see which way this property market will tilt towards to " Greed" vs "Fear" factor, given a change in the present market momentuem.

2. If there are too many house owners "anxious" to cash out their profits and exit from the market, we can expect to see a sudden "surge"/increase house listings and lower house asking prices and eventually a slower market in time to come.

3. However, if the underlying demand for the Melbourne property market is indeed as strong as many would want to beleive, is supporting the present booming market, then this booming property market will continue unabated and hotter over time, becoming more widespread across more suburbs in Victoria, despite the last 0.25% interest rate increase in August 2007 as annuounced by RBA.

4. I further believe that the full recovery for the bottoming-out Sydney property market would be "delayed" by another 6-12 months period while the Perth property market will further slow down further with a flat or a one digit growth over the prolonged period, as a result of this latest interest rate increase.

5.For your kind update and further comments/discussion, please.

6. Thank you.

regards,
Kenneth KOH
 
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To be honest, for the first time in a very long time, I'm starting to worry just a little. Was planning on buying two IP's with a mate to lower the risk of buying 1 property in one area, but now I'm not as keen. I don't regard myself a negative person, but something just doesn't feel right at the moment. Is it just me or do other people feel this as well?

It's natural to feel like this (for me anyway) in the face of share market falling, interest rates rising, and disaster stories in US markets and potentially here soon (?RAMS?).

You can also use is as a check to make sure you're happy with your current risk exposure, and possibly explore opportunities for growth.

In my particualr case, I'm not happy with my stocks the last couple weeks (this week especially :eek: ), but longer term, I know they'll bounce back and go higher, so I've taken the opportunity to top up on one of my favourites, and just signed the DRP for my LIC I bought a couple weeks back (if only I waited a little bit longer for the buy in :( ).

I've also finally worked out a way with my finance guy to have my IP loans fixed which is what I've wanted for a while - so now I'm fixing in for 5yrs as I still believe we have more rate rises to come. In my view it's better the devil you know! ;)
 
Lets see

Im positioned ok either way. Have a fair bit of capital exposure but lots of equity and a nice bit of cash. Lets see what happens with auction results over the next few weeks.
 
Hi Aussierogue
just curious, with lots of equity and cash would you find the sharemarket tempting?? Many talking about bargains to be had.

Cheers, and thanks for the interesting post.
 
Too much risk for who? 70% of properties are owned by owner occupiers and they don't really consider risk when purchasing a PPOR.

It will take a lot more than that to curb the demand enthusiasm in Melbourne I feel.

Cheers,

Arkay
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Dear Arkay,

1. Is the present high housing price in Australia, truly and realistically supportable by its average Australian's wage level over the long term period?

2. If so, does Australia really has an on-going "housing/land affordability" crisis/issue which has been openly acknowledged by all parties concerned including the various political parties?

3. I also believe that the full impact on the global stock/currency/property markets, which is presently being triggered off by the US sub-prime mortgage crisis as well as the USA housing slump has yet to fully un-ravelled itself, together with the un-ravelling of the Japanese yen carrying trade, in the immediate short-mediumj term basis.

4. Consequently, potential house buyers are likely to turn cautious in the mean time, given the RBA's latest warning of more interest rate increase if the local spending is not properly curb to bring down the inflation level.

5. For your kind update and further comments/discussion, please.

6. Thank you.

regards,
Kenneth KOH
 
Are you worried that

a) This is the beining of the end.
The Australian Market has fundamanetally changed. Property will enter reverse gear. Highly geared individuals will loose it all. Etc

b) The steam has been taken out of the market
You may see flat or slightly negative growth for a few months / years. This is one of the downward bumps in the housing cycle. Property is still a good long term investment and will continue to double every 8-10 yrs. Even if you bought just before the fall out from subprime, you are likely to be smiling 10 yrs from now.

My view is (b). I'm taking a long term view and not going to worry overly much about the inevitable ups and downs. They average out anyway. There are good buying oportunities in any market. There is all the stuff about picking the best asset class / oportunity cost, but frankly its alot easier to do after the fact. One expert says up, one expert says down. The one who gets it right has a TV interview in 6 months and the other guy stays a bit quiet. I say I dont really know what will happen in the medium term, but paying 5% too much or buying for 5% under market value probably wont make much difference in 30 yrs.
 
3. I also believe that the full impact on the global stock/currency/property markets, which is presently being triggered off by the US sub-prime mortgage crisis as well as the USA housing slump has yet to fully un-ravelled itself, together with the un-ravelling of the Japanese yen carrying trade, in the immediate short-mediumj term basis.

Kenny, I reckon you are bang on here mate. It will be an interesting couple of weeks/months

Cheers
 
b) The steam has been taken out of the market
You may see flat or slightly negative growth for a few months / years. This is one of the downward bumps in the housing cycle. Property is still a good long term investment and will continue to double every 8-10 yrs. Even if you bought just before the fall out from subprime, you are likely to be smiling 10 yrs from now.

My view is (b). I'm taking a long term view and not going to worry overly much about the inevitable ups and downs. They average out anyway. There are good buying oportunities in any market....paying 5% too much or buying for 5% under market value probably wont make much difference in 30 yrs.
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Dear DIS,

1. I agree with you that so far, the Australian proeprty market is likely or/and seems to be responding in accordance to its long term cyclical trend patterns, as in the past.

2. Playing as a Devil Advocate, how come you are so "assured" that the Australian property markets will not crash down by 40% or more and/or to undergo the same decade prolonged market correction as experienced by the Japanese property market?

3. Looking forward to learning from you, please.

4. Thank you.

regards,
Kenneth KOH
 
Dis and MTR

Everything is tempting at the moment. For me its about being in a position to take advantage of swings in either direction. Im not worried (personally) either way. Its bloody exciting though from a traders perspective - which is my day job. Could be just a blip, but cld e something more. The last 1 hour trading on the market was encouraging. All ords only lost 1.5 pct after dropping a huge 5 pct in the early morning. Next day or so will be very very interesting to see if a blip turns into a trend.
 
2. Playing as a Devil Advocate, how come you are so "assured" that the Australian property markets will not crash down by 40% or more and/or to undergo the same decade prolonged market correction as experienced by the Japanese property market?

I'm not assured of anything. I can give you a bunch of reasons why the market is robust and this is nothing more than a wobble. I can give you a bunch of reasons why the market looks overvalued and is all going to go to ****, especially if the next unforseen disaster hits early. They are posted on several threads on the forum and phrased more eloquently can I could state.

What I do know is that
a) when both sides have strong arguements and evidence, the truth / outcome is usually somewhere in the middle
b) historically the property market continues to rise long term in Australia despite depressions, recessions, World Wars, Oil Crises, Terrorism, share market crashes, changes in government, experts getting it right, experts getting it wrong, booms, busts, etc.
c) Australia has a low population. Lots of people aspire to live here. Population is rising and they aren't making more land.
d) I cant predict outlier events except that '**** happens' from time to time. I just make sure I'm not over exposed
e) I'm lucky to have a recession proof job and can service my debt even if interest rates double so I'm in the priveleged position of being able to look to the horizon.
 
b) historically the property market continues to rise long term in Australia despite depressions, recessions, World Wars, Oil Crises, Terrorism, share market crashes, changes in government, experts getting it right, experts getting it wrong, booms, busts, etc.

Land prices fell by up to 90% in victoria in the 1890s. Read more about it here:

http://www.dailyreckoning.com/Featured/TheLandBoomers.html

"The boom soared upwards to dizzy new heights. How could such values last? The maximum rentals which tenants were willing to pay often amounted to only 2.5% return"

2.5% return! They should have invented negative gearing ;)

"The second form of mania was the deeply held belief that it was impossible to lose money by investing in land" (doesn't sound like today at all?!)

Here is the inflation adjusted graph of house prices.

averagehouseprice1860todc7.gif


Here is Australia's debt to GDP ratio:

bankcreditgdp1860todateog8.gif


As you can see, the reason house prices have risen so far above wages is entirely due to the debt binge Australia has been on since the 1960s. The only way for this to continue is with MORE and MORE debt.

The 90% fall in property prices is the first peak, great depression is the little one in the middle.

We now have so much debt that if we stopped taking out debt faster than GDP growth we'd be in recession. We are going to eventually have to stop taking on exponentially more debt, the only question is when.

The Chinese think an average Aussie home in the suburbs is worth 400k (300x the average chinese wage) and will keep funding our debt?

c) Australia has a low population.

Yes - and 100 acres per person but the 2nd most expensive housing compared to wages in the world!
 
I believe US subprime is only the triger. I wonder why nobody has thought that the share market has been inflated by the emplty hope. If not the subprime it will be something else.
 
Land prices fell by up to 90% in victoria in the 1890s. Read more about it here:

http://www.dailyreckoning.com/Featured/TheLandBoomers.html

Here is the inflation adjusted graph of house prices.

averagehouseprice1860todc7.gif


Here is Australia's debt to GDP ratio:

bankcreditgdp1860todateog8.gif


As you can see, the reason house prices have risen so far above wages is entirely due to the debt binge Australia has been on since the 1960s. The only way for this to continue is with MORE and MORE debt.

The 90% fall in property prices is the first peak, great depression is the little one in the middle.

We now have so much debt that if we stopped taking out debt faster than GDP growth we'd be in recession. We are going to eventually have to stop taking on exponentially more debt, the only question is when.

The Chinese think an average Aussie home in the suburbs is worth 400k (300x the average chinese wage) and will keep funding our debt?



Yes - and 100 acres per person but the 2nd most expensive housing compared to wages in the world!

HireGoon, does not matte how much info you wrote here or how many charts to support you. You are day dreaming for the drop of 90% on property price.
 
HireGoon, does not matte how much info you wrote here or how many charts to support you. You are day dreaming for the drop of 90% on property price.

I never said there WILL be a drop of 90% - I just said there WAS a drop of 90%.

I would buy a house when it is cheaper to buy than rent, which means I'd buy given a 40-50% discount.
 
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