Glenn Stephen's comments this week

[SYDB]

That's understandable too. I hope you can find something suitable soon. I'm not sure about Sydney, but I notice in the inner areas of Melbourne that many people start off in flats when they have their first child. They seem to sell them and move to a larger dwelling once the second child comes along. That may or may not be an option for you? It could serve two purposes - gets you into the market, giving you a couple of years (or more) to build some equity and may allow you to buy closer to your place of work, thereby cutting down travel time?




It's an emotive issue for those like yourself who are trying to break into the market, and want to live in a decent place at a reasonable distance from your place of work. Your frustration is entirely understandable.


Regards Jason.

Thanks Jason. Actually, we are much like those people you mention in Melbourne. We started of looking at houses/terraces/semis but it is simply not likely to happen given our budget and the recent price spike (12% price rise makes a big difference to a highly leveraged FHB, and that is what Sydney has done this year, and then some more in the areas we are looking). So we are now looking at townhouses/apartments, it's just being realistic given the state of the market.

I am on a sound income in a steady job. I really feel for those FHB's who are on less than average or average incomes or who rely on both their incomes to pay the mortgage and support the family. If I'm finding it tight, then the vast majority of FHB's would simply not even have the option of owning anything (without family support), unless they want to live in the boondocks. I guess renting and buying an investment property is best if that is your situation. I feel very lucky to even be in the ownership conversation.

 

[pickle pickle]

I think in Melbourne FHB can still afford a house. They just can't be too choosy.

I've notice that in Endevour Hills prices are starting to drop (while many parts of Melbourne are going gang busters).

In reality I believe interest rate rises will have little effect in top Melbourne suburbs. In North Balwyn where I live and attend some auctions most of the houses are bought by the Chinese. At the moment they seem to be able to pay anything to get a piece of land in areas where they desire. They probablyy don't need a loan or can get a loan from other sources that aren't effected by Australia's interest rate rises.

I don't have any hard evidence, but I believe like many others what is driving the Melbourne boom is the relaxation of overseas people buying Australian property. I think until someone threatens to change the law on this (which was changed recently and there will be political support to change it back to what it was) the property boom in well desirred areas will continue.

You can read Stevens comments as being interest rates will rise, so you need to factor this into the equation when buying property. However if you can afford a 2-3% increase in interest rates, then property prices in australia should generally continue to rise.

What will reduce property prices in Australia is the change in the foreign investment laws. As Brumby said, there may be no hard facts that the change in the foreign investment for real estate has caused this boom, however most people that attend auctions believe it and from what most people can see, it seems to be the cause of the boom. Rents haven't seemed to be growing as fast as prices. Take out some buyers from property see prices fall. Can't see interest rate rises effecting the bubble too much.

I know I can afford interest rates at 20%. If they go higher than that, I have family support that can afford it that will support me.

 

[Intrinsic_Value]

Hi Bill,

In that case he'd need a huge fall to get to the same affordability as this time last year...... IRs have already risen by 40% (from 5% to 7%) in the last 6 months, and are expected to rise to 8% by end of 2010.... that's a total increase of 60% (from 5% to 8%).

Prices in Syd have risen by 12% in the last 12 months.

So by waiting till the end of 2010, affordability will be ~70% worse than in early/mid 2009.

For affordability to be better than 2009, Syd house prices will have to fall by ~40% .

Cheers Keith

Keith, i find this interesting.
Is that an indication of just how overvalued property could be???
Only time will tell.

 

[Bill.L]

Hi all,

SYDB,

alot of hostility here from PI's against people looking for their first home for their family within a reasonable commute from work.

I had to travel 90 minutes each way when I first started fulltime work 30 years ago, so what do you consider as "reasonable" ??

It's not an entitlement at all.

Housing should be for shelter first and foremost, not for investment

These statements are a little contradictory. I don't know of any investors in Res property who don't have it on the market for shelter.

Are you saying that people should not be allowed to purchase for investment if someone wants to buy it to live in??

As long as you can squeeze a buck out of your fellow man

Where else do you squeeze bucks from, women and children??

your balance sheet that matters more than people

whilst closing your mind

I'm afraid I just stated the reality of the situation, sure the truth hurts, but I don't think it is me that has the closed mind here. Your whole argument about property is along the lines of an entitlement mentality, not seeing the world as it is.
The facts are that our cities populations are growing faster than the accommodation in desirable areas, and that people are prepared to pay outlandish amounts of money for it. Good property has never been cheap, nor should one expect it to be.
When we first bought 29 years ago, the interest payments at 13.5% cost us 47.5% of one of our gross wages (we were both working at about average wages). Without both of us working we could not have afforded to buy, yet the house was considered in the 'boondocks'. Today if you spent 47.5% of average wage on interest payments you could purchase a property for ~$400,000.

bye

 

[Intrinsic_Value]

Wow, alot of hostility here from PI's against people looking for their first home for their family within a reasonable commute from work. It's not an entitlement at all.

hey buddy they you are typing it sounds like you very much want that entitlement. Either you buy in at current prices or you rent and wait.

I'm sure you'd like to see 12 hour days with 2 hour commutes on either end, leaving ZERO time for family. As long as you can squeeze a buck out of your fellow man......then what does it matter

.

Spot on buddy uve got it in a single guess. I'm here to make money, my returns must stack up. I don't guilt consiousness or anything else, my investment decisions are made purely on investment criteria. You dont like it, tough t**ties as someone infamous once said. You are quite welcome to save your money and give it to charity, or work for free helping a third world country ( i know i know you would if you could, but then WHY DONT YOU)

Because in your world it's your balance sheet that matters more than people.nGood luck with that. Greed is a powerful motivator I guess, always will be.

Wow you are a mind reader, my balance sheet means everything to me. Why because i need it to convince my boss: the bank.

Housing should be for shelter first and foremost, not for investment. But I think I'm fighting a losing battle with that line, I mean what a ridiculous concept right?

Cheeze you are a thoughful person. You can start right now, start donating your income to the homeless, ooh i know, you just make enough to support yourself. Well how about comparing your income to a third world income.
You can make a difference right now. Get 5 of your good friends, rent a one bedroom flat, live together, save the difference in rent and send that money off to a third world country.

Good luck with your rising interest burdens, I hope you can continue to grow your "portfolio" whilst closing your mind. You can't take it with you when you go. Happy Easter to you.

Nope i plan on enjoying it much before i go. In fact the best news, after doing the hard yards since my 20's i'm starting to enjoy it NOW, and hopefully ive still got another 40 odds years left.

tatt ah, happy easter.

 

[Intrinsic_Value]

I'm not here to argue about the merits of the system, it is what it is, just really p*sses me off when those with alot want to trod down young people just trying to work, put a roof over their heads, and raise a family/spend time with them.
SYDB

If you are genuinely looking for guidance there are a number of people on this forum who will give their honest opinions as to how to achieve it.

But just remember that most of the people on this forum are just like you.
Except they have done the hard yards. It's a sought of 'pride' on this forum to boast about going without, so that a property portfolio could be built.
Very few people on this forum have hit the property game with money from their parents, inheritence etc.

And for many on this forum, they are still sacrificing, why? because the actual income return from residential property is very low. So they have to continue to sacrifice in order to meet the repayments. But they make the sacrifices TODAY so that hopefully they will have an easier TOMORROW.

For myself, when i started work, i was determined to only spend 30% of my income. Try to imagine how hard this was, and the 'jokes' i suffered trying to support my consumption habbits on such a small left over income. But i did it, and am now starting to reap the rewards.

So again i appologise for my above comment if you are serious, but as another poster mentioned, you are on a property board (but for which most members have been doing, are doing and will continue to do) the hards yards.

Just my 2c

 

[Wolfgang]

Glen Stevens and his RBA are a bright bunch. There have been some fantastic speeches made recently (not just by Stevens) which makes me quite hopeful that they are capable despite the shockers of raising interest rates through the roof in 2008, not seeing the GFC coming (not one of them) and then hastily reversing policy again. Now rates are rising again and anybody who thinks rate rises leads to lower housing prices needs their head read. If Stevens thinks raising rates is the only way to control house prices then we are all stuffed. What we need are federal and state governments prepared to build properties in the right places and that means upsetting the good folk of Camberwell and others like them: not in my backyard, but Blacktown and Dandenong is OK.

As for your situation SYDB, do you think waiting say one year or two years will assist your position? By that I mean, do you think prices in areas you can reasonably expect to be able to afford, will have dropped by then? I don't think they will but like everyone here, I don't know. Interest rates may be in your favour again of course, as the RBA will probably be ready to reverse its policy again. I reckon you'll have saved more by then and prices will have risen another 5-10%. You'll likely be in the same position. I'm biased of course, but I'd tell you to buy now where you can afford. Sydney prices are always predicted to rise, but they really haven't done much and the latest figures show they are falling.......but they won't fall enough and Melbourne, well, it's cheaper than Sydney, but it's motoring. How about buying an IP in Melbourne and renting where you wish to live?

 

[Intrinsic_Value]

What we need are federal and state governments prepared to build properties in the right places and that means upsetting the good folk of Camberwell and others like them: not in my backyard, but Blacktown and Dandenong is OK

.

You have no argument from me on this point, i believe in leaving market forces to work themselves out. We cant fix this property supply issue whilst there are so many vested interests.

But its not just owners with vested interests, its also the numerous government and council levies that need to be eliminated.

As for your situation SYDB, do you think waiting say one year or two years will assist your position? By that I mean, do you think prices in areas you can reasonably expect to be able to afford, will have dropped by then? I don't think they will but like everyone here, I don't know.

It depends on where you want to buy. If you are talking about Camberwell, well of course a house will cost, and cost plenty. Its basic demand and supply. I also want to own a house in Camberwell, but i cant afford it.

How about buying an IP in Melbourne and renting where you wish to live?

Actually this i not a bad idea (so long as property prices keep going up???).
I am doing this exact thing myself. I own several properties, but i stay in the smallest and rent the others out. I cant afford to stay in the best one, so i let others rent it from me.

 

[jcwc888]

True.. i believe interest rates will have some impact

Within this last year, i bought 4 (2 yet to settle till late May and June) and sold 2 which leaves me 3 properties (one which i just moved in 1st march).

I going to sell the one i've moved in and move to parent's place in Doncaster East and just wait and see the next few months. Dam Glenn's speech sounds so gloomy. Just renovated and hopefully i can offload this one soon.

The last 3 auctions i have been in my area showed a bit of slowndown being all got passed in. However 2 sold after the auction. Hope to go to a few more to after easter to see the impact and how the market is coping

The last 2 i bought i reckon were good buys - bought before they were even released to the markets - below market price. Both were 2 bed 105 sqm apartments in inner city so there are value added potentials

Some prices are really crazy in december 09 price for 2 bed apartment at one high rise sold 510K - Feb 2010 same config 2 bed apartment sold for 629K. Although the chinese impact is strong in some areas - other areas like say dandenong could be lacking that influence. My friend's landed unit in burwood east had an auction in late march - the driveway to his place was filled with cars - mercs with chinese buyers - sold for 575K which he thought he would only get 510K. Like someone mentioned before, they don't take loans - just cash buyers. My last place - the guy just handed the agent a suitcase of the 10% deposit. Not sure why he couldn't have written a cheque.

higher interest rates could restrict people like myself who do not hold too long and hopef to flip and also investors who bought before the boom

 

[keithj]

Keith, i find this interesting.
Is that an indication of just how overvalued property could be???
Only time will tell.

Yes.. it's v. interesting. I did fudge the figures (ever so slightly) by not allowing for 2% inflation, so in real terms they are probably a little less than 70% less affordable. 80% of that change is due to IRs, and 20% due to the 12% price rise.

Looking back, the last time gross yields in Sydney were close to IRs was a decade ago. They were both at ~5% for a few months in 2009. It was a rare event that indicated good value relative to the normal yield/IR ratio.

Just a few months previous to that IRs were 9%, while yields were still ~5%. A value investor would have viewed that as poor value.

Today we are approx in the middle of that range with 7% IRs and ~4.5%. However, momentum seems to be building (low vacancies, more popln growth, increasing confidence) and consequently Stevens has attempted to forestall a bubble by raising towards neutral quickly, now he's jawboning & soon he'll raising more slowly to get to neutral or even restrictive, so the ratio looks like it's going to get worse before it gets better, even if prices flatline from here.

Are we overvalued now, or were we v. undervalued in mid 2009 ? Dunno.... only time will tell .

 

[HandyAndy888]

Wow..interesting thread. What has got all of you in such a mood?


Interest rates, affordability, Uncle Glen....there are many many emotional, market related and external forces that will influence where things go. We are all speculating, we are all "having an educated guess" and we are all getting out knickers in a knot.

My two cents on affordability...link here.

 

[Bill.L]

Hi all,
This sums up what is happening and the entitlement mentality that some have. It is from todays "Age"....

''Certainly when we go out to rooming houses in the middle ring we see people that would never be homeless before, never lived in a rooming house, but as a single person can't compete in those rental markets.''

Which is precisely where retiree Pat Barron found himself early last year.

Barron spent most of his young adult life living in Melbourne's middle south-eastern suburbs, around Mentone, Moorabbin and Mordialloc, and had developed strong attachments there through his favourite pastimes: lawn bowls and music. He worked as an accountant and a warehouse manager before retiring three years ago.

But when the rent on his two-bedroom Mentone apartment went from $210 to $280 a week, it was too much for the 69-year-old pensioner. He was forced to move, and for a short time was paying $150 a week to rent a room in a Carrum rooming house.

full article..

http://www.theage.com.au/national/the-rental-pressure-cooker-20100402-rjvb.html

There is someone who went the cheap route of renting, yet could have easily afforded to buy in that area 30+ years ago. Now complaining because rents are too expensive where he wants to live. I'll bet prices were always too expensive and as an accountant just knew that prices had to fall after the booms of the '70's, early '80's, late '80's, late '90's, early '00's, late '00's.... He has been waiting for the crash in prices, patiently waiting, waiting, waiting...

As has been stated many times before on this forum, prices are set at the margins. The current boom in prices is happening to probably less than 1-2% of all property that sells in a year, and the desirable areas that are booming would be only a small proportion of this. However the effect is on all the properties in an area price wise. Most people have no intention of selling, they just enjoy life in the area they once bought in.

The affordability argument is irrelevant as people who do have money are buying at higher prices. Homes don't have to be affordable to the masses.

brty

 

[SYDB]

Interesting article in today's SMH, ties in with the subject of my original post:

http://www.smh.com.au/business/safe-as-houses-not-as-an-investment-20100402-rjtd.html

SYDB

 

[profit]

Interesting article in today's SMH, ties in with the subject of my original post:

http://www.smh.com.au/business/safe-as-houses-not-as-an-investment-20100402-rjtd.html

SYDB

I think it's just more of the same, no? I think Stevens has made many think twice about buying investment properties, because really, affordibility will get worse not better. Perhaps it's just one way of trying to take the heat off the market? Sure interest rates will rise, but do you really think enough to make prices fall to pre 2008 prices? It's hard to accept SYDB, but I think you will have to purchase somewhere further out. Trust me, I have a sibling in the EXACT same position. Wanting to purchase in the inner west. Prices have risen so much in the 1.5 years they have waited so far for them to drop.

 

[SYDB]

It's hard to accept SYDB, but I think you will have to purchase somewhere further out. Trust me, I have a sibling in the EXACT same position. Wanting to purchase in the inner west. Prices have risen so much in the 1.5 years they have waited so far for them to drop.

You haven't read my previous posts. I can afford to live in the inner west, I am just borrowing to my maximum if I want to live in a house. I do not need to move further out. An inner west townhouse/apartment is easily affordable.

 

[want2bewealthy]

If you think prices will drop the answer is made simple: Don't buy. I personally see a boom on it's way in most states within the coming years.

If you can make more profit than is outgoing and have a buffer, weather borrowed or saved then you will make good money.

Simple. Rates go up and rates go down. Always have, always will.

I think it's just more of the same, no? I think Stevens has made many think twice about buying investment properties, because really, affordibility will get worse not better. Perhaps it's just one way of trying to take the heat off the market? Sure interest rates will rise, but do you really think enough to make prices fall to pre 2008 prices? It's hard to accept SYDB, but I think you will have to purchase somewhere further out. Trust me, I have a sibling in the EXACT same position. Wanting to purchase in the inner west. Prices have risen so much in the 1.5 years they have waited so far for them to drop.

 

[natedog]

Hi All,

Whether Stevens' comments are targeted at Investors or Owner Occupiers, if people do sit back and think...maybe i should delay my purchase and both decide to hold fire on purchasing...our population is still growing alot faster than most.

So even if there is a stall on capital growth due to lower "buyer demand" there is more pent up demand being created and more of a strain on the rental market, pushing rents up, so then owner occupiers think maybe we should buy instead of rent, then investors see yeilds improving and think maybe we should buy also...then the pent up demand is unleashed on the market and prices go up again.

This is assuming interest rates or unemployment dont get ridiculously high forcing people to sell, dunno

Cheers,
Nathan

 

[Wolfgang]

''Certainly when we go out to rooming houses in the middle ring we see people that would never be homeless before, never lived in a rooming house, but as a single person can't compete in those rental markets.''

Which is precisely where retiree Pat Barron found himself early last year.

Barron spent most of his young adult life living in Melbourne's middle south-eastern suburbs, around Mentone, Moorabbin and Mordialloc, and had developed strong attachments there through his favourite pastimes: lawn bowls and music. He worked as an accountant and a warehouse manager before retiring three years ago.

But when the rent on his two-bedroom Mentone apartment went from $210 to $280 a week, it was too much for the 69-year-old pensioner. He was forced to move, and for a short time was paying $150 a week to rent a room in a Carrum rooming house.

Gee, I'm glad this guy wasn't my accountant!

 

[el caballo]

Wolfgang,

Delightfully droll ....

 

[Crabnet]

Glenn Stephens comments this week really got me thinking though - I mean if the RBA Governor is telling us we are in a housing bubble (that's what he was driving at) and that rates will continue to rise, should I be concerned of a potential "overheating" in the market and buying at the top.

I know it's NEVER a good idea to try and time the market, but maybe proceeding with caution is best given the RBA Governor's comments. Maybe even holding off.

....Or maybe it's just a matter of weighing up his comments with those of others to come to one's own conclusion, I guess no one really knows where the market is headed.

Any thoughts appreciated.
SYDB

What were his comments on daytime television?

The pertinent part quoted here

Glenn Stevens
"Once the emergency's passed and things gradually look more normal, then it's not wise to leave interest rates down at rock bottom any longer than you need," Mr Stevens said.

"And you shouldn't assume they'll stay that low because that assumption will prove to be unfortunate. I think it would be not doing people any favours to have a prolonged period of very low rates and then hammer them unexpectedly."

"I think it is a mistake to assume that a riskless, easy, guaranteed way to prosperity is to be leveraged up into property," he said.

"It isn't going to be that easy."

How do you come to the conclusion that he is warning that we are in a housing bubble? Recent speeches indicate that the RBA are more concerned about financial conditions in commercial property and small business rather than residential property.