Homeowners feeling rate pain

[mbl]

Melbourne, Sydney etc are not Paris or London......don't even dare compare the 2. No matter what our big ego as Australians say.....we are not even close.

Your other point about interest rates being lowered to 0% (see Japan) is a good point.......but, it will not have the desired affect because people are already up to debt to their eyeballs. Japan is still going through a decade long deflation, and it's rates are VERY LOW. It has come to a point that people just cannot take on anymore debt.

Another thing that I don't think you realize is that how deflation affects consumer psychology. If deflation happens, we will start seeing job losses (primarily, firstly in the retail sector, and most certainly in the housing sector), which means people will be 'tighter' with their money, which leads to a vicious circle of low consumption, lower empliyment, and lower velocity of money. People might have money in the bank, but they will think twice in going to the Whitsundays for a holiday.....opting for a caravan park in Lorne........you get my drift ?

So it's as easy as easing interest rates.

In my opinion we are up for a wake up call.....we cannot go on consuming without producing the equal amount..........it is basically gonna be a hangover.

 

[mbl]

if house prices went back to 2001 figures, wouldn't that also increase yields assuming rents didn't decrease proportionately? Or do you also think that rents will decrease?

Yes of course yields would be better if we were to see a major drop in prices.

I don't think rents will decrease that much, mainly because they haven't really increased that much since 2001 (basically in step with cpi). However I can see a slight decrease happening in rents.....but nothing too drastic.

regards, mbl.

 

[Bill.L]

Hi all,

mbl...

Melbourne, Sydney etc are not Paris or London......don't even dare compare the 2. No matter what our big ego as Australians say.....we are not even close.

Close to what???

Sorry you're wrong, we CAN compare!

Why not look at Luton 45km from London, horribly dingy working class, small properties hardly any land content, small poky rooms..... yet you would pay 140,000-160,000 POUNDS for such, for working class people, on low wages. You would get a bigger better property in Deer Park (outer suburb of Melbourne) for $190,000. This is less than half price and only 15k? from the CBD!!!

And you think that the Deer Park properties will fall 50%!! There are going to be a lot of investors on this forum lining up to pick up the bargins a long time before that type of property falls 50%, and I'm one of them.

bye

 

[Ausprop]

what's Paris got to do with anything? or are you comparing the price of a $20 coffee to an over heated property market?

 

[mbl]

You cannot compare Melbourne to London. London is the center of finance in Europe....and Melbourne is ?????? Don't forget that London has had a lot of Russian money come into it. All the Russian oligarchs have payed astronomical amounts for London houses....which has an effect in the grteater London region which includes Luton.

BTW It has been a while since I have seen a 190,000$ house in Deer Park. A unit maybe.....but certainly not a house.

regards, MBL

Hi all,

mbl...

Close to what???

Sorry you're wrong, we CAN compare!

Why not look at Luton 45km from London, horribly dingy working class, small properties hardly any land content, small poky rooms..... yet you would pay 140,000-160,000 POUNDS for such, for working class people, on low wages. You would get a bigger better property in Deer Park (outer suburb of Melbourne) for $190,000. This is less than half price and only 15k? from the CBD!!!

And you think that the Deer Park properties will fall 50%!! There are going to be a lot of investors on this forum lining up to pick up the bargins a long time before that type of property falls 50%, and I'm one of them.

bye

 

[Bill.L]

Hi all,

Ahh those russians, oiy oiy.

Actually I was talking about people who were earning ~18,000 pounds a year who could afford to buy in Luton (usually with partner earning the same and taking on a boarder), not rich centre of the universe type of stuff. I know a bit about this town as I have recently spent a week there with relatives.

mbl, just look on realestate.com there are quite a few $190,000 houses in Deer Park.

Let's look at how silly the 50% reduction in house prices for Deer Park would be in a time when interest rates have fallen to say even 5%. Currently you can get 5% yield in Deer Park.
Prices halve and the yield doubles. You now have 10% yields or higher(because the growing population coupled with the crash in housing developments would make rents rise not fall). You make 5% positive cash (after interest before costs), when the government is cranking the printing presses to create inflation.

Sounds like utopia for all investors.

Shame we wont get there.

Your 8% yields that you think are viable, occured in the '80's for (very)average property, however interest rates were at 13-15% and inflation at 9%+.

At current interest rates of 7-8% I would expect yields to be around 4% for the same type of property.

bye

 

[mbl]

A 4% yield will leave a big hole in your pocket at the end of the year.

As I have said in another post of mine. If you cannot pay off your investment with 120-140 monthly rental payments, then it wasn't worth the hassle. An IP should take you NO MORE than 12-13 to pay off itself.

If wages have not risen at the same amount, then you can expect a 50% haircut.

Another question to you because you do seem like a smart guy. It's a quick question but I think one that get's to the point. Why should I buy an IP in todays market ? Let's say I had 300,000 lying around, should I put that amount in my super or some mutual funds, or CD's, or bonds....or should I go and by a 400,000 dollar shcak that would bring me in 1000$ per month gross ? Assume no future capital growth.

mbl.

Hi all,

Ahh those russians, oiy oiy.

Actually I was talking about people who were earning ~18,000 pounds a year who could afford to buy in Luton (usually with partner earning the same and taking on a boarder), not rich centre of the universe type of stuff. I know a bit about this town as I have recently spent a week there with relatives.

mbl, just look on realestate.com there are quite a few $190,000 houses in Deer Park.

Let's look at how silly the 50% reduction in house prices for Deer Park would be in a time when interest rates have fallen to say even 5%. Currently you can get 5% yield in Deer Park.
Prices halve and the yield doubles. You now have 10% yields or higher(because the growing population coupled with the crash in housing developments would make rents rise not fall). You make 5% positive cash (after interest before costs), when the government is cranking the printing presses to create inflation.

Sounds like utopia for all investors.

Shame we wont get there.

Your 8% yields that you think are viable, occured in the '80's for (very)average property, however interest rates were at 13-15% and inflation at 9%+.

At current interest rates of 7-8% I would expect yields to be around 4% for the same type of property.

bye

 

[see_change]

So it would seem that mbl's worse case senario is a 30 - 50 % drop from current price. ( that's going on the bits that people are quoting from him )

That would cause a lot of pain, but the reality is that the people who would be hurt the most DON'T READ THIS FORUM. He's preaching to wrong audience.

Although it would cause pain, personally I would do very well if prices fell that much , because I would be able to go out and but when there are very few people in the market.

In fact I know that in the last two cycles people have been able to buy individual properties at 50 % of what someone pain in the preceeding peak . THIS IS NOTHING NEW !!!!


If people over extend and don't have the cash flow they will be hurt , BUT this has been said on the forum before and is STANDARD PROPERTY INVESTING ADVICE

If mbl had been reading this forum over the last few years , he wouldn't have to be running around looking for recent quotes to confirm this . He'd already know.


Cliff

 

[alexlee]

I know. I don't really see what all the fuss is about. Maybe to non-investors a drop of 30-50% seems like a big deal. Seriously, if you're not prepared for interest rate rises, long vacancies and a recession, you're not an investor.

I for one still do not believe there will be widespread 'calling' of loans where the borrower is still making payments even if the place goes into negative equity. Maybe if you have large loans with one bank (hence why you should spread them around), but there will NOT be widespread calling of loans just because negative equity creeps in because of a market slump.

Can you imagine the firestorm that would happen if banks started calling in Howards' Battlers' loans even if they were current with their payments? It didn't happen in the early 90s.

BTW I have a certain person on ignore, so I can't see his posts. I've decided it makes more sense to post this way.

If I'm a true investor and the market fell by 50%, I would have the resources to buy. If not, I'll SAVE enough money to buy it. If I blow up in a recession because the bank calls in my loan, that's my own misjudgement. I'll come back up again, and with all the knowledge I have now I'll do it faster than the first time. Most successful people fail first. Buffett bought Berkshire Hatheway originally for its textiles business. That didn't work out, he closed it, and used the money for investing instead.

People, recessions (even bad ones) happen. Have a plan and prepare for them. True investors take advantage of them, just as they take advantage of booms instead of just complaining about them. I like to think anyone who makes it onto this forum (a few exceptions) are true investors or at least want to become one.
Alex

 

[Monopoly]

He'd already know.

Seech, methinks you flatter the boy WAYYYYYYY too much. Ignorance comes in many forms and in some instances, as in this character's (vain attempt to appear knowledgeable) a heralding of yesterdays paper!!! But more humourous are few than he who foolishly thinks the educated need enlightening!!! Pay him no heed it is clearly...empty vessels...

In fact, I think I'll give that "cool button" a press myself, the boy is borrrrrrrrring me senseless!! There is only sooooo much rubbish one can read.........

 

[Shadow]

Hi MBL,

Three questions... please answer them this time.

All these people you say will have to sell up... where do you think they are going to live?

There is a massive demand for housing today... where are these people going to live?

What normally happens, in a situation such as we are in now, when demand exceeds supply?

Cheers, Shadow.

 

[see_change]

What normally happens, in a situation such as we are in now, when demand exceeds supply?

Cheers, Shadow.

Shadow

I know the answer to the last one ....!!!!!

Opportunity !!!!!!!!

Cliff

 

[see_change]

But more humourous are few than he who foolishly thinks the educated need enlightening!!!

Mono


I like that quote. Fits the situation to perfection . Is it a mono original . Sound a little bit old , but then again ....

Cliff

 

[BoatBoy]

Just finished reading here and note that at the start of mbl's reign of terror he was saying a 20% drop in equity.

Now it is 30% to 50 %.

What next 70% to 100% ???

BB

 

[Twitch]

His position has also changed from "it's a myth that property doubles every 7-10 years" to "property has gone up too much and is now a bubble".

 

[see_change]

One could almost says he's assuming the missionary position

Cliff

 

[alexlee]

Just finished reading here and note that at the start of mbl's reign of terror he was saying a 20% drop in equity.

Now it is 30% to 50 %.

What next 70% to 100% ???

BB

He originally thought a 20% drop in equity would scare us, I suppose. Actually if it happened I'd be drooling all over the floor and would be on the phone to my mortgage broker ASAP.

Unlike ordinary readers of the Daily Telegraph, we don't panic in a downturn.
Alex

 

[BoatBoy]

I also notice that mbl goes on and on about owning ip's outright or at least 50% of the original loan yet admit's to only owning 0.3423 properties here.........

http://www.somersoft.com/forums/showpost.php?p=304728&postcount=10

Quote:
Originally Posted by Tim
MBL,

how many properties do you have? I am just wondering because if you have more than say 0 then I think some of your posts have some potential credibility. Although you do seem to be very conservative and non-speculative which is alarming.

Tim

mbl
We own 0.3423 properties.........that's over zero......

He also never answered my question about it when asked about it here.

http://www.somersoft.com/forums/showpost.php?p=305932&postcount=28

So as mbl know's about us, i'll ask him again to answer our question's.


BB

 

[mbl]

I also notice that mbl goes on and on about owning ip's outright or at least 50% of the original loan yet admit's to only owning 0.3423 properties here.........

http://www.somersoft.com/forums/showpost.php?p=304728&postcount=10

Quote:
Originally Posted by Tim
MBL,

how many properties do you have? I am just wondering because if you have more than say 0 then I think some of your posts have some potential credibility. Although you do seem to be very conservative and non-speculative which is alarming.

Tim

mbl
We own 0.3423 properties.........that's over zero......

He also never answered my question about it when asked about it here.

http://www.somersoft.com/forums/showpost.php?p=305932&postcount=28

So as mbl know's about us, i'll ask him again to answer our question's.


BB

That's called sarcasm BB........

 

[mbl]

Hi MBL,

Three questions... please answer them this time.

All these people you say will have to sell up... where do you think they are going to live?

There is a massive demand for housing today... where are these people going to live?

What normally happens, in a situation such as we are in now, when demand exceeds supply?

Cheers, Shadow.

I have already answers these questions, but anyway.

These people will live in houses. However don't expect rents to rise all that much and here is why.......money supply.....there won't be the same amount of money in the market, so even though demand for rental property will rise, the moneysimply won't be there.

If a recession was to happen.....or a deep recession that a lot of people are predicting, unemployment rises.......people have less money. You can't expect people to pay the rent that YOU want them too if they don't have a job.

Also if properties are foreclosed upon by the banks.....you will find that a lot of banks will allow the previous owners to rent the place out for a low rent. It happened in 1991, and it will happen again.

Also, so that I kill 2 birds with one stone.......I have said numerous times that prices will go down 30-50% depending on the area.

regards, mbl.