declining property prices?

[chilliaa]

I think it is very dangerous to look for short term opportunities. I am a strong believer in the 'it depends' answer. It depends on your income, it depends on your job security, it depends on your current LVR ratio's.

In the long term, 10 years+ most people who buy now will be laughing, so long as they can AFFORD to pay for interest expenses in what could be a changing financial market. If you can afford to wear interest rates that are several points above what you are paying now, if you are not realying on asset revaluations to cover your interest expense, then you should be fine.

Refer to my post: http://www.propertyinvesting.com/forums/getting-technical/finance/4321637

 

[kph]

*********************************

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?

Kenneth KOH

You're ignoring the fundamentals Ken.
This country is essentially under supplied with housing.
The economy is still booming and will continue to do so.

Demand still outstrips supply and the demand side ( demographic movement of ppl) can move much faster than the supply ( long build times to make subdivisions and houses)

Its even more accentuated in regional areas.
The builders I am in touch with who operate away from the CBD areas are flat out and will be for the next 5 to 10 yrs.

The suggestion that property prices might correct by up to 40% is pure stupidity.

One good thing though, all this FEAR and UNCERTAINTY means less players in the market and therefore less competition.

Let the good times roll....

kp

 

[Harris]

You're ignoring the fundamentals Ken.

One good thing though, all this FEAR and UNCERTAINTY means less players in the market and therefore less competition.

kp

less players leads to a slowing in demand which leads to reduced pressure on prop values.... and not that happy times. I would rather see the other way around, however 40% drop I believe isnt on the horizon.

Its amazing to see how the tone has changed overall on SS from one of optimism only a few weeks ago to one of downright doom and gloom.

All of those naysayers who were hibernating in their burrows since the doom n gloom prohecies they propoagated in 2002 (off the back of historical high CG) are back and crowing in the forum.

I have seen half a dozen reincarnations of mbl just in the last few days..!

This will pass too and life will be back to normal for us mere mortals

Harris

 

[alexlee]

I've been a bear for longer than most, but I don't believe Australia is anywhere near as overvalued as Japan was.

We may get a 10%, even 20% correction. I still believe at the >$500k levels Sydney is overvalued. Rents will go up. Prices will come down. We may have a recession. Yields will go back up and the RBA will probably cut rates if we have a recession. Then people will start buying again, and the cycle begins anew.

Old hat, really.
Alex

 

[HiredGoon]

This country is essentially under supplied with housing.

Please read the census.

There is enough housing to support 35 million people at 4 to a house.

The average number of people per house is 2.6 and average bedrooms is 3.

10% of homes are vacant.

The number of new homes built since 2001 is greater than new arrivals / 2.6 thus there is no FUNDAMENTAL undersupply.

The economy is still booming and will continue to do so.

Australia runs a trade deficit and has done so for years.

We borrowed 200 billion to increase GDP by 40 billion last year. If we stopped borrowing over what we earn we'd be not just in recession but see widespread asset price collapse.

It is a given that we must eventually stop borrowing our way out of recessions.

Demand still outstrips supply and the demand side ( demographic movement of ppl) can move much faster than the supply ( long build times to make subdivisions and houses)

Yes demand does outstrip supply (hence price rises) but the demand is not based on a need to house people, but a demand because everyone thinks "house prices always go up" if there really was a shortage, how come rents haven't risen faster than wages over the last 5 years?

The suggestion that property prices might correct by up to 40% is pure stupidity.

The world bank thinks Australian prices are overvalued by this much.

A correction of this magnitude would mean that landlords wouldn't have to subsidise their tenants accomodation, which is a historical and international abberation.

 

[Harris]

The world bank thinks Australian prices are overvalued by this much.
.

can you please paste the link to that WB report..?

harris

 

[HiredGoon]

overvalued by 52% in 2005:

http://www.theage.com.au/news/national/house-prices-world-highest/2005/11/30/1133311106610.html

Economist says overvalued by 50%

http://www.markzwick.com/real_estate/_upload/57355.html

By this measure the USA was overvalued by only 35% and they've already seen declines.

Western Sydney has been in decline for over a year. Darwin and Perth are seeing negative months.

http://www.smh.com.au/news/national/prices-fall-but-no-joy-for-renters/2007/08/16/1186857596981.html

"Sydney's average house prices fell 5.7 per cent in the last quarter"

-though rents were up by 10.3%

To work out whether you'd have been better off renting or owning during this period of houses down rents up, this is how much in weekly rent it cost you:

Sydney rent yields: 2.7%

Price fall : 1.4%, =26 weeks rent (in addition to planned losses)

Rent rise: 10.3% = 5 weeks rent

Effect on interest rates: upward
Effect of rising rates on rents: weakly downward
Effect of rising rates on prices: strongly downward.

(thanks icancount for the maths)

NOTE: Just because they were overvalued then, and have continued to go up doesn't make it better UNLESS the fundamentals have changed. The rises since then exceed wages and rent, and has been funded by an increase in household debt, so if anything it makes it worse.

 

[Mofra]

Decline yes I can agree (in most areas - there are always areas that buck the trend), crash in property? I doubt it. It is simply too illiquid for a crash (generally defined as 20% drop within 12 months for equities markets as was pointed out to me today).

 

[Ausprop]

strange this sense of panic and talk of collapsing asset prices at a time when the economy is running so strong and we have never had it better. I guess in summer I sometimes long for a good rainy day.

 

[Patosan]

strange this sense of panic and talk of collapsing asset prices at a time when the economy is running so strong and we have never had it better. I guess in summer I sometimes long for a good rainy day.

Now I'm not living in Oz at the moment so this is really a question.
Is Oz running so hot really ?

I see house prices are talked about as being unaffordable, rents are going up ... just put all mine up 10% in the last 7 months. Wages haven't risen by that much ... or have they ? I'm not sure.

Sure the mining industry has been doing well, the AUD has been doing well ... but do most people really have so much extra income ?
Are things so good ?
We're moving back in a few years so I'm honestly after all the info on this point.

 

[HiredGoon]

Sure the mining industry has been doing well, the AUD has been doing well ... but do most people really have so much extra income ?
Are things so good ?

Yeah - 4% wage rises in a full employment economy? WTF?

Mining profits are 5% of our economy.

The main activity of this country is people borrowing money from overseas to buy plasma TVs and bid up the price of residential property. Surely a ticket to riches that can only end well.

 

[Sunfish]

Now I'm not living in Oz at the moment so this is really a question.
Is Oz running so hot really ?

I'm in Townsville and the boom here is staggering. We're not too far behind Perth. Any Joe in the pub is making over a grand a week.

Don't travel so can't speak for the rest of the country.

 

[Ausprop]

haven't been able to get a tradie to turn up for a few years here. More cash floating around than can find a home... 2 year wait lists for a boat pen, pretty much sums it up.

 

[ggumpshots]

I've been a bear for longer than most, but I don't believe Australia is anywhere near as overvalued as Japan was.

We may get a 10%, even 20% correction. I still believe at the >$500k levels Sydney is overvalued. Rents will go up. Prices will come down. We may have a recession. Yields will go back up and the RBA will probably cut rates if we have a recession. Then people will start buying again, and the cycle begins anew.

Old hat, really.
Alex

yes japanese land values were a tad over valued.
In fact, In 1991 japanese land was valued at 5 times the value of the USA.
The Emporers grounds were estimated to be of the same value as the land in California

http://links.jstor.org/sici?sici=08....0.CO;2-B&size=LARGE&origin=JSTOR-enlargePage
We still have some way to go !
Australia is 22 times bigger than Japan, not sure about the USA

 

[yadreamin]

haven't been able to get a tradie to turn up for a few years here. More cash floating around than can find a home... 2 year wait lists for a boat pen, pretty much sums it up.

Ausprop if you are in need of a boat pen in the Mandurah area l might be able to help you out.
We have had a tradie/chippee booked in for 3 months. Just couldnt get the job done any sooner.
cheers yadreamin

 

[Ausprop]

thanks yadreamin... but after pen hopping for a year I gave up and sold my boat. Selling a boat unpenned is almost impossible atm but I fluked an offer from a guy who had a mate on the canals so I grabbed the cash and ran. After that experience of owning a large boat and seeing how much cash they chew up for the little amount of use I extracted from it I wont be in a hurry to get another one.

 

[yadreamin]

Ausprop so you found out what B O A T stands for then.

Bang On Another Thousand.

 

[Ausprop]

I am half tempted to get another one but as the last repairman said when he came to fix the genset... there are 2 good days when you have a boat - the day you buy it and the day you sell it. Unfortunately for me this was only too true.

 

[VYBerlinaV8]

Property may well be overpriced - I don't really know. If there's going to be a correction, though, it will come the way it always has: for a number of years the price/value will stagnate, drifting sideways, maybe even slightly lower. Inflation will thus correct the price to an appropriate real level.

My approach has been to buy property in high demand locations, with strong rental demand. Even if the property value doesn't change much (or even in real terms trends lower), the ongoing rentals will ensure I can hold the asset. Also, I don't have any IPs with an LVR over 80% (and have P&I loans on ALL my properties).

This is what happened in Canberra during the '90s - for almost 10 years values went nowhere. Then suddenly the day comes (miraculously almost) when everyone realises property is undervalued and decides they'd better buy up - and the next boom begins. Short term changes to the value of the sharemarket, and the fact that some people who shouldn't have borrowed did will do little to change this in the longer term, I think.

I am going to continue buying property, at the rate of about one per year, for the next 9 or 10 years. Then, when the next big boom happens, I'll retire.

Don't believe it? No problem - don't put your money in...

 

[MPmelb]

Apart from western Sydney, Australian house prices have had a soft landing (Melbourne), or a boom (Perth, Brisbane, NT, Tas) the last few years.

I expect the sharemarket will be wiped by 20-30% off it's highs over the next few months and then plateau sideways for the next 2-3 years under a liquidity shortage.

In contrast, house prices will continue to be strong and rise for the next year. Interest rates will go up a few more times at 0.25%, and rents will climb steadily. Then the market property market will crash by 20-30% as well as it becomes well overpriced.

interest rates will then finally start to come down, and allow new buyers into the market again.

expect 2008 & 2009 to be flat gdp in Australia, but no recession.

only my opinion, do your homework.