Home prices are falling in Sydney? To fall across the country?

[Fisher]

Hi,

Seen someone mentioning this on a forum. Did a search in google and found a lot of articles. Those dated by begining of April were saying: "the prices will fall". Those dates by begining of May were saying: "prices did fall in Sydney and may fall across the country"
E.g.: http://www.theaustralian.news.com.au/story/0,25197,23646777-20142,00.html

Read residex report and they say if labor would cut immigration by 30-35% this will nearly remove all the rental shortages in the next two years. I think Labor is very capable of doing things like this.

In addition to rates and immigration there are well known plans to make housing affordable: cheaps renting schemas, recent planning changes (e.g. Lane Cove council had been asked to find place for additional 2900 appts) and all other Labor proposals.


What do you think about it? Time to put off the next IP? End of the property investment era?

Thanks.

 

[oracle]

Hi,

What do you think about it? Time to put off the next IP? End of the property investment era?

I don't think so. There are more reasons property value will grow in the medium to long run then the other way around. You always get years where property remains flat, or only slightly increasing in value or even decreasing in value. I believe we are either in that phase or will be in that phase shortly. It is unwise to expect 20%+ growth in property values year after year.

Cheers,
Oracle.

 

[Fisher]

I don't think so. There are more reasons property value will grow in the medium to long run then the other way around. You always get years where property remains flat, or only slightly increasing in value or even decreasing in value. I believe we are either in that phase or will be in that phase shortly. It is unwise to expect 20%+ growth in property values year after year.

Cheers,
Oracle.

But we just had 2004 and 2005 being flat or even negative, 2006 slightly positive, 2007 good growth. 2008 doom and gloom again!?! Nothing to do with interest rates, world credit crunch, Labor plans etc?

 

[Ausprop]

Read residex report and they say if labor would cut immigration by 30-35% this will nearly remove all the rental shortages in the next two years. I think Labor is very capable of doing things like this.

would certainly be one way to stuff the economy completely, in the middle of extreme labour and material shortages to go cut off the supply tap... watch inflation really swing into gear then! is a really interesting point tho and the sort of thing labor govts do. Still, collectively we voted for this new feel good world of less materialism, more tree hugging etc. so here it is presenting itself

 

[stumunro]

with a labour goverment in power .. yes.. sillier things have happened.. all makes for interesting convo but the more time goes by the bigger the demand for purchasing increases. there is still a shortage of housing, even if they stopped importing people. a bit of a shake up in the economy will bring the interest rate decreases quicker, but im not sure what you are waiting for. Without a crystal ball its hard to know when the market in sydney will recover, but would you rather accumulate before the growth starts happening or try and time it until perhaps it's too late..

hmm...

p.s id never buy with a less than 10 year plan in place.

 

[Fisher]

You always get years where property remains flat, or only slightly increasing in value or even decreasing in value. I believe we are either in that phase or will be in that phase shortly.

So there is no argument about the prices going down in Sydney? What about "Sydney - Strong Buy recommendation" topic in "Where to buy" forum than? Would it be wiser to wait till the interest rates reach their maximum and start bringing prices down? There is always a period of time from the interest rate increase to the effect it brings to fully develop. May be the time when we see the first rate cut would be better for buying?

 

[jaycee]

A bigger picture view was what first came to mind to me, too short a timeframe to judge propety investment as a whole against.

Stumunro, obviusly a 10 year plan like that is perfect. Do you it's practical / necessary for newbies to think this way from the beginning ?

 

[Strannik]

would certainly be one way to stuff the economy completely, in the middle of extreme labour and material shortages to go cut off the supply tap...

I don't agree that it will cut off supply tap. There are different kind of migrants. Australia is in shortage of highly skilled workers. There are plenty of people to do the jobs which require no skills. I think you'll find that government will limit the migration of second category of migrants, but encourage more of the first ones.

 

[Fisher]

A bigger picture view was what first came to mind to me, too short a timeframe to judge propety investment as a whole against.

Stumunro, obviusly a 10 year plan like that is perfect. Do you it's practical / necessary for newbies to think this way from the beginning ?

I understand the long term idea behind property investment as nobody has crystal ball. However to me it makes sense to wait few months for a chance to get better property for less and not have to support it for those months.

Let's say we still have to have a couple rate increases of .25%. This will bring bank rates to at least .5% up or even more. We don't have yet the two previous rate increases to fully develop. If they caused certain home owner any distress it may take up to 12 months till they will be forced to sell. However we already have a growth trend in Sydney changing into flat. What is going to happen when that .5% hit the market?

I am fully aware that this scenario is not 100% guarantied, however if the probability of prices going down even more in the next half a year let's say 75%, than it makes sense to me to build my strategy around this scenario.

I am a newbie and can't wait to get my first IP. In fact I am secretly hoping you guys will convince me that buying now is a good idea!

 

[jaycee]

Hi Fisher, I do see what you mean. I'm new at this too, bought 1 four yrs ago and held on and that's all I've done, only joined here late last year / early this year and am glad I did - great place to ask questions & read answers from different and experienced perspectives.

 

[stumunro]

A bigger picture view was what first came to mind to me, too short a timeframe to judge propety investment as a whole against.

Stumunro, obviusly a 10 year plan like that is perfect. Do you it's practical / necessary for newbies to think this way from the beginning ?

historically with prices doubling every 10 years then this plan i think is really important. its not uncommon to have years and years of flat growth and the last thing you want is to find yourself having to sell during this time because you didn't plan well. of course unexpected things may pop up, but you need to plan everything you can, right down to how you will afford the shortfalls each year and what to expect as a worst case scenario. any investing is risky, but by playing the game properly you have more chances of success.

 

[Fisher]

I don't agree that it will cut off supply tap. There are different kind of migrants. Australia is in shortage of highly skilled workers. There are plenty of people to do the jobs which require no skills. I think you'll find that government will limit the migration of second category of migrants, but encourage more of the first ones.

Well, may be Liberal government would do this, but with Labor, IMHO, it may be different. You can't effectively limit the number of refugees and those who come into the country via marriages. The only category which can be limited is the working migration. I don't see much benefit of limiting low skilled workers, as guys like plumber and builders earn very discent salaries these days and cutting them would make their services even more expensive with all consiquences for the economy. So what I think Labor would do is to limit skilled migrants and keep the number of refugees.

 

[coastymike]

It is nigh impossible to pick either a high or low in any market. Whether it be property or shares. The main thing when selecting an investment, in particular property, is to determine whether you can reasonably afford to hold the investment over the next 10 years with interest rates at least 3% above the baseline today. I am not suggesting that rates will increase to those levels but investors who run such tight margins are asking for trouble.

If it's your PPOR then get in whenever. There are indeed some good buys around at present and for first home owners I think now is a great time for them to be in the market. Even if they rented out their property for a year and then moved in after 11 months, to get the FHOG they will be doing pretty well. It also gives them a year of great rental returns plus the opportunity to purchase their PPOR.

I agree that at present it is best to play the waiting game. There is truly no harm in waiting. Interest rates rise. Wait and see the effect. They drop wait and see the effect. I have never seen the market increase overnight where a property that was purchased for $500K increased to $550K the day after the interest rate drops. It takes a year to see these increases. So you miss out on $10K. Big deal. Over 10 years it isn't worth worrying about.

Patience is a virtue as my mother would say.

 

[Fisher]

I agree that at present it is best to play the waiting game. There is truly no harm in waiting. Interest rates rise. Wait and see the effect. They drop wait and see the effect. I have never seen the market increase overnight where a property that was purchased for $500K increased to $550K the day after the interest rate drops. It takes a year to see these increases. So you miss out on $10K. Big deal. Over 10 years it isn't worth worrying about.

Patience is a virtue as my mother would say.

Ok, let's try to look at this from a different point of view. Suppose you do good reseach and find a suburb which will likely be resilent to the overall trend and continue to grow. This way by putting the purchase off you lose more than 10k.
The main question probably is: how overall the price flattering or even dropping is in Sydney and is there anything apart from possible future rate cuts which will change the tide inspite of the negative factors and how soon?

 

[coastymike]

Well in that case if you have done sufficient research and identified an area that will continue to grow then you should purchase as negative sentiments or increasing interest rates will have no effect.

Ohh you mean you don't know whether negative sentiments or increasing interest rates will have an effect. Well guess what neither do most economists. If they did they would be billionaires.

Do your homework. Find a price that you are comfortable with. Determine whether you can afford it over the next ten years and then make a decision. Don't just be focussed on resi. Look at commercial as well.

Sometimes people worry far too much about things that they can never project. Determine serviceability and over the next 20 years you will make gains. Maybe not the obscene gains we saw 5 years ago but still reasonable returns.

Or maybe the US will go to war with Iran and World War III will eventuate and one third of the world's population will die from radiation fallout and then property prices will be the least of your worries.

 

[Fisher]

Ok, since noone is trying to argue the opposite point much, I will argue it.

Long term if Mr Rudd introduces any sort of immigration cuts, makes housing more dence, builds 1Mln homes over 6 years and ruins the economy this will affect the number of property investors and homes available for rent which are already scarces. This will make him to build even more homes but in poor economy he will have less taxes and less money to build his 1Mln homes. Inflation will add up making the government to keep the budget tighter. Market will sort itself and Mr Rudd will be remembered the same way as Keating when he trashed negative gearing and then re-introduced it again.
So no end for property investment era.

Short term we may have a small price drop which may not be worth waiting for. Besides I have 60k equity loan approved for my PPOR to use as a deposit for the IP. May be better to use it now until the bank change their mind and the mortgage approvals get even tighter?


Comments?

 

[alexlee]

Obviously the Sydney market isn't homogenous. You SAY 06 and 07 were positive. Not in some areas of Sydney.

As Stu said, think long term. More importantly, think multiple properties. Say you buy one property and the market tanks. So what? You keep buying and average out your costs. For me, it's the SECOND cycle that will make my fortune. Should newbies think long term? It's not like you have much choice. With no experience, how do you expect to benefit in the short term except if you get lucky with timing? Don't buy at all and you never make anything.
Alex

 

[Fisher]

Obviously the Sydney market isn't homogenous. You SAY 06 and 07 were positive. Not in some areas of Sydney.

As Stu said, think long term. More importantly, think multiple properties. Say you buy one property and the market tanks. So what? You keep buying and average out your costs. For me, it's the SECOND cycle that will make my fortune. Should newbies think long term? It's not like you have much choice. With no experience, how do you expect to benefit in the short term except if you get lucky with timing? Don't buy at all and you never make anything.
Alex

I pretty much agree with your idea. However when you are just starting you have to make some good guesses. You can average your costs if buying very often, e.g. every year. If not with the next property you may hit the peak of the cycle. When market goes down it is harder to get a loan and your equity is in short supply. So if you buy an IP and it goes down in price you will not be able to get the next one for a very long time.

 

[jaycee]

When I asked about a plan, I was thinking the meaning was more specific plan for that property and the next move and how specific a road to take.. if newbies should be determining that from the start (of course I know planning is part of the journey and therefore ongoing) or if that was somethign you'd expect to develop. My idea was to get into a good thing and go from there - I could afford the shortfall, just needed to keep spending in check , so I did. Forced to think ahead, as next year my IO loan is up, so refinance time..

 

[Strannik]

Well, may be Liberal government would do this, but with Labor, IMHO, it may be different. You can't effectively limit the number of refugees and those who come into the country via marriages. The only category which can be limited is the working migration. I don't see much benefit of limiting low skilled workers, as guys like plumber and builders earn very discent salaries these days and cutting them would make their services even more expensive with all consiquences for the economy. So what I think Labor would do is to limit skilled migrants and keep the number of refugees.

There is a simple way to limit the intake of refugees - limit a number of refugee visa grants to 1000 as it is for parent visa. Marriages aren't really a problem there are not that many of them.

When i say unskilled i mean people with no education and useful skills, who can only work at McDonalds or other general labour. I think plumbers and builders actually fall under skilled migration category, and in my book they are definitely anything but unskilled.