Do you believe property prices are going to fall significantly?
- Thread starter GoAnna!
- Start date
More than one market (long post)
My crystal ball is in for repairs as it doesn't seem to be working...but I am always surprised by the doomsayers pointing to building approvals as an indicator of the health of the property market.
To be sure the building sector is a substantial part of the greater economy, but it is my view (and it's one that has been raised by a few people here in the past) is that there is MORE THAN ONE MARKET.
There's a new home in the ever more distant suburbs market
An inner city highrise unit market
An inner suburbs house market
An inner suburbs unit market
A middle ring suburbs house market
etc...
A waterfront market
A beach market
A holiday apartment market...
yes they are interconnected but a drop in house building (which is predominantly in suburban fringes) doesn't necessarily mean there are less people looking to buy in other areas and price ranges and dwelling categories. In fact it could have the opposite effect...
supply and demand will always drive prices. Demand is impacted by a whole variety of factors, including the price of money ie interest rates, the perceived or actual performance (or lack thereof) of other investment mediums and social factors.
Of course, if anyone knew the exact interrelationships of how all this fits together they'd be worth billions as they could effectively predict the future
What I always think is that statistics, whilst relevant, must take a back seat to the actual deal in front of you. I'm going to make a shocking admission here.......I don't look at the stats very often!
The reason I don't is that I think the factors which go into making a suburb an historically good one for growth are more easily discernable by practical observation. All those things like proximity to city or water, good schools, shops, transport, and more intangible things like the look and feel of the place...is it the kind of area that people (not necessarily me though) would like to live. What I've found, time and time again is that when I do check the stats against this "gut feel" approach, is that the suburbs have good historical growth and reasonable historical yields.
The point to remember is that you don't buy a median priced property. You buy 54 Smith Street, Xville. The particular details of the deal are everything. How cheaply can you buy it? What will it rent for today? What can you do to immediately increase its value and rental yield? What is the extra something that makes this a deal worth doing?
My personal view is that it is better to spend more time combing the suburbs and real estate listings for likely properties, talking to agents, and thinking how you can improve a property to increase your net worth and immediate cash flow than to stuff around with stats about how some hypothetical middle range house has performed in the past. There is no such thing as the median house - every property is different. This sort of statistical analysis might be appropriate with shares and other financial products but I don't think it gives the same level of benefit to residential property investors.
So...when do I use stats? When I'm trying to convince a valuer that my property is worth much more than I paid for it. But again, the valuer is always, in my experience, far more likely to be swayed by ACTUAL recent sales in the vicinity which were similar types of properties than me just quoting that in Xville the median price has risen 3.4% since I bought the place...
polemic ended...
Cheers
N.
My crystal ball is in for repairs as it doesn't seem to be working...but I am always surprised by the doomsayers pointing to building approvals as an indicator of the health of the property market.
To be sure the building sector is a substantial part of the greater economy, but it is my view (and it's one that has been raised by a few people here in the past) is that there is MORE THAN ONE MARKET.
There's a new home in the ever more distant suburbs market
An inner city highrise unit market
An inner suburbs house market
An inner suburbs unit market
A middle ring suburbs house market
etc...
A waterfront market
A beach market
A holiday apartment market...
yes they are interconnected but a drop in house building (which is predominantly in suburban fringes) doesn't necessarily mean there are less people looking to buy in other areas and price ranges and dwelling categories. In fact it could have the opposite effect...
supply and demand will always drive prices. Demand is impacted by a whole variety of factors, including the price of money ie interest rates, the perceived or actual performance (or lack thereof) of other investment mediums and social factors.
Of course, if anyone knew the exact interrelationships of how all this fits together they'd be worth billions as they could effectively predict the future
What I always think is that statistics, whilst relevant, must take a back seat to the actual deal in front of you. I'm going to make a shocking admission here.......I don't look at the stats very often!
The reason I don't is that I think the factors which go into making a suburb an historically good one for growth are more easily discernable by practical observation. All those things like proximity to city or water, good schools, shops, transport, and more intangible things like the look and feel of the place...is it the kind of area that people (not necessarily me though) would like to live. What I've found, time and time again is that when I do check the stats against this "gut feel" approach, is that the suburbs have good historical growth and reasonable historical yields.
The point to remember is that you don't buy a median priced property. You buy 54 Smith Street, Xville. The particular details of the deal are everything. How cheaply can you buy it? What will it rent for today? What can you do to immediately increase its value and rental yield? What is the extra something that makes this a deal worth doing?
My personal view is that it is better to spend more time combing the suburbs and real estate listings for likely properties, talking to agents, and thinking how you can improve a property to increase your net worth and immediate cash flow than to stuff around with stats about how some hypothetical middle range house has performed in the past. There is no such thing as the median house - every property is different. This sort of statistical analysis might be appropriate with shares and other financial products but I don't think it gives the same level of benefit to residential property investors.
So...when do I use stats? When I'm trying to convince a valuer that my property is worth much more than I paid for it.
But again, the valuer is always, in my experience, far more likely to be swayed by ACTUAL recent sales in the vicinity which were similar types of properties than me just quoting that in Xville the median price has risen 3.4% since I bought the place...polemic ended...
Cheers
N.
As has been pointed out there is not one market. Sydney tends to lead the rest up , and will probably lead them down.
I think there will be an immediate small drop in prices of 5-10 % simply because the " heat" has gone out of the market and buyers are no longer prepared to pay "top dollar" and are only prepared to pay a reasonable market price.
.
Buyers are no longer under any pressure to buy "today"because there are several other "interested parties".
For prices to drop further than that there has to be more significant changes to the enonomy in terms of interest rate, job losses etc. Because of the transactions costs involved , the vast majority of the community don't sell a property unless they have to.
The only area where I see the possibilty of more significant drop , would be investor dominated areas , where there are vacancy issues or problems with settlements on OTP's. Even then vacany rates seem to be at 5 % at the worst in inner city apartments ( correct me if that's wrong ) and unless rents drop significantly few people will be in the position where they Have to sell.
I think that there is a likelihood of further drops in prices , but unless there are major unforseen shifts in the economy , I don't think that will happen for another year or two. There are still too many "investors " out there who will be looking for " bargains " to allow an immediate significant drop. It will take a couple of years of no good news for the current crop to loose their enthusiasm and to leave the market to the longer term investors.
I'm starting to see this in the share market , with the last of the "investors " who started investing in the share market during the tech boom falling by the way side , and some of the longer term players starting to buy in at what they perceive to be the bottom .
see change
I think there will be an immediate small drop in prices of 5-10 % simply because the " heat" has gone out of the market and buyers are no longer prepared to pay "top dollar" and are only prepared to pay a reasonable market price.
.
Buyers are no longer under any pressure to buy "today"because there are several other "interested parties".
For prices to drop further than that there has to be more significant changes to the enonomy in terms of interest rate, job losses etc. Because of the transactions costs involved , the vast majority of the community don't sell a property unless they have to.
The only area where I see the possibilty of more significant drop , would be investor dominated areas , where there are vacancy issues or problems with settlements on OTP's. Even then vacany rates seem to be at 5 % at the worst in inner city apartments ( correct me if that's wrong ) and unless rents drop significantly few people will be in the position where they Have to sell.
I think that there is a likelihood of further drops in prices , but unless there are major unforseen shifts in the economy , I don't think that will happen for another year or two. There are still too many "investors " out there who will be looking for " bargains " to allow an immediate significant drop. It will take a couple of years of no good news for the current crop to loose their enthusiasm and to leave the market to the longer term investors.
I'm starting to see this in the share market , with the last of the "investors " who started investing in the share market during the tech boom falling by the way side , and some of the longer term players starting to buy in at what they perceive to be the bottom .
see change
I think that there may be some better buying opportunities around in the short term, however with low interest rates the market should still continue to grow, perhaps not at the same rate that it has over the past few years(which is a good thing).
If investing for the long term say 10 years you cannot lose providing providing you are selective with your purchase.
I am sure we all remember the late 80s, if you had purchased a property at the height of the boom and you still owned that property today, then it would have doubled or tripled in value.
If you buy property on the basis that it will go up in the next 12 months then you are speculating and that is risky.
Nigel Kibel
The Investment Institute
If investing for the long term say 10 years you cannot lose providing providing you are selective with your purchase.
I am sure we all remember the late 80s, if you had purchased a property at the height of the boom and you still owned that property today, then it would have doubled or tripled in value.
If you buy property on the basis that it will go up in the next 12 months then you are speculating and that is risky.
Nigel Kibel
The Investment Institute
