House bubble bursts, but whose fault is it?

[komstak]

"The Sydney housing market is in a bind - we have a shortage of housing and huge demand but that isn't going to stop prices declining further. I think we'll see prices fall by another 10 per cent this year - and that's without another interest-rate rise."

http://www.news.com.au/business/story/0,23636,23681230-37037,00.html

 

[evand]

If inflation is 4% - 5% this year then that will mean an effective 15% drop in one year.

Not exactly a price collapse but a fall nonetheless. I think we are in a similar situation to the early to mid/late 90s where prices stagnated. Yields kept rising till they couldn't be ignored anymore and investors bought like there was no tomorrow up to about 03. Ahh...great times...

This is a worry;

"One property in Bankstown, in the city's southwest, bought for $500,000 in August 2005 sold in February for $215,000. Several other properties in Sydney's west have recently been sold for losses of more than 30 per cent"

 

[jingo]

I think we are in a similar situation to the early to mid/late 90s where prices stagnated. Yields kept rising till they couldn't be ignored anymore and investors bought like there was no tomorrow up to about 03. Ahh...great times...

]

Rising yields are fantastic!

 

[MichaelW]

If inflation is 4% - 5% this year then that will mean an effective 15% drop in one year.

Not exactly a price collapse but a fall nonetheless. I think we are in a similar situation to the early to mid/late 90s where prices stagnated. Yields kept rising till they couldn't be ignored anymore and investors bought like there was no tomorrow up to about 03. Ahh...great times...

Hi evand,

I agree, the market seems to be at about the same point. So, putting my balanced hat on for a second, this suggests that if you're not in at the moment then you should use the coming few years to selectively buy properties at depressed prices but there's no rush. If you are in, then just ride the stagnation and the real, inflation adjusted, depreciation and await the upturn. Its too late to try and trade out and in due to switching costs. But don't expect real returns for a couple of years yet.

I'm in and staying in. I like my location and the potential of my properties. But I'm now sitting on that site and not developing it until we ride the stagnation out. Sit tight is a good strategy for this stage of the cycle if you're already invested, and sort out those cash flows.

Cheers,
Michael

 

[buzzlightyear]

I think this is one of the most interesting times for property. Falls in prices, finance availability issues, general economic outlook spooking the public and some investors, BUT substantially increasing yields.

Fortune favours the brave and smart purchaser.

 

[alexlee]

I know I'm not going to sell. I'm going to be more active in the market in terms of going out there and inspecting. Loans are harder to get, though.

Isn't this precisely the market we've always been dreaming about? People paying over the top prices and the the market comes back down. As usual with things involving humans, it'll overshoot to the downside as well. That's OPPORTUNITY! We always talk about how 'if you'd bought a couple of properties in the dark days of the first half of the 90s you'd be laughing your head off now'. Well, this is it! Dangerous, to be sure. If you overstretch too early in the downturn you're toast. But you know, I'm really excited about this. Fearful, too, but excited.
Alex

 

[evand]

Yes its getting very interesting. I would be out there looking to buy myself except for one thing. And thats low yields. They are still too low for me to buy.

In a year or two, yields will be up and prices flat or down. Now thats exciting.

If you bought one property a year from 2009 - 2010 for a 5/7 years you would be set up for the future big time.

BTW: A friend of mine started buying properties in the Hills district in the mid 90s when IP investing was on the nose. Didn't explain to anyone why he was doing it (most people thought he was crazy), just bought one a year when a bargain came up. He bought a couple small commercial units as well.

Some with very high yields in the late 90s. He was using his business to fund it all.

In 2003, he sold his business and a few properties, bought a big ranch around Dural/Kenthurst and he's set for life. Millionaire many times over.

If thats not a great story, i havn't heard one. And its not too hard to emulate. I just dont think we are there quite yet to start. But close.

I know I'm not going to sell. I'm going to be more active in the market in terms of going out there and inspecting. Loans are harder to get, though.

Isn't this precisely the market we've always been dreaming about? People paying over the top prices and the the market comes back down. As usual with things involving humans, it'll overshoot to the downside as well. That's OPPORTUNITY! We always talk about how 'if you'd bought a couple of properties in the dark days of the first half of the 90s you'd be laughing your head off now'. Well, this is it! Dangerous, to be sure. If you overstretch too early in the downturn you're toast. But you know, I'm really excited about this. Fearful, too, but excited.
Alex

 

[nonrecourse]

More falls to come don't want to be a broiler chook

I know I'm not going to sell. I'm going to be more active in the market in terms of going out there and inspecting. Loans are harder to get, though.

Isn't this precisely the market we've always been dreaming about? People paying over the top prices and the the market comes back down. As usual with things involving humans, it'll overshoot to the downside as well. That's OPPORTUNITY! We always talk about how 'if you'd bought a couple of properties in the dark days of the first half of the 90s you'd be laughing your head off now'. Well, this is it! Dangerous, to be sure. If you overstretch too early in the downturn you're toast. But you know, I'm really excited about this. Fearful, too, but excited.
Alex

I'd be keeping my cash in reserve rather than buying more now. There will be plenty of time to take advantage of a property market in free fall with blood/red ink on the streets. If you don't have to sell and your properties are fully leased then you will make money in the depression. The real issue is over the next few years; "it is going to become increasingly difficult to borrow due to the tightening loan criteria". I have seen it with my own properties over the last few months as I have applied for larger redraw facilities which I have then redrawn and placed with another bank where I have no borrowings.

Five or ten percent in gold bullion wouldn't be for everyone but it can be part of your hedge if things go really pear shaped and you find some of your leases fall over due to the tough economic conditions. Getting as many of your tenants on new five year leases at todays yields will also help if you do have some that default at a latter stage

I know you think I'm chicken little but I have no intention of being roasted as this little chook likes Warren Buffet's two golden rules of investing;

Rule #1 Preserve your initial capital
Rule #2 Refer to rule #1

 

[alexlee]

I know you think I'm chicken little

I think we're at different stages. That means we'll have different perspectives on this. You've already made your money and (probably rightly) am more interested in preserving it. I'm still in the accumulation stage.

As Evand said, I also think yields are still low. There will be time. I'm certainly not advocating going out and maxing out buying now. However, I'll definitely be out there looking. I'm not going to say 'there'll be plenty of time, I'll just wait' and really wait and not do anything because I think it's going to get worse. I DO think it's going to get worse, but unless I'm out there on the ground, I won't be able to tell when the mood starts to change.
Alex

 

[fernfurn]

If they were asking $500 for a property who would have the gall to offer $215Do you just offer and dont care if the RE falls off his chair laughing or says, yes we all would like to buy at that price, whats your serious offer? The market has stalled around here 100ks south of Bris. and all the properties on the market as development opportunities, (obviously selling like crazy 1 year ago by the level of building new townhouses) now they cant sell the blocks as the vendors still think they are going to get $5/600 for them. I'd be in like flyn if I thought they'd take $250

 

[coastymike]

Celica,

Legally agents in NSW (not quite sure how it works in other states) are required to submit formal offers to the vendors. Who cares if the agent falls on the floor laughing. The offer I just put in for a property at Leichhardt had the agent saying "there is no way this is going to be accepted". Well guess what the vendor and I are only $10K away from each other. This is for a 3 bedroom, renovated period home with offstreet parking.

Friends kept telling me "no way will anyone accept $700K for a 3 bedroom in inner sydney, they were selling 2 years ago for $800-$900K". Well wake up Sydney it is happening.

Be bold Celica. It is the vendor who has to reject the offer, not the agent. And when the vendor accepts 10-20% less, which is happening all over Sydney, then it is you who will be laughing.

 

[FHB]

If they were asking $500 for a property who would have the gall to offer $215Do you just offer and dont care if the RE falls off his chair laughing or says, yes we all would like to buy at that price, whats your serious offer? The market has stalled around here 100ks south of Bris. and all the properties on the market as development opportunities, (obviously selling like crazy 1 year ago by the level of building new townhouses) now they cant sell the blocks as the vendors still think they are going to get $5/600 for them. I'd be in like flyn if I thought they'd take $250

Depends how desperate they are, or if the bank is liquidating. Watching one advertised as a distressed sale at the moment in inner south Brissie, started at $950k, down to $800k.... looks like plenty of opportunities coming up this year.

 

[MichaelW]

In a year or two, yields will be up and prices flat or down. Now thats exciting....

I just dont think we are there quite yet to start. But close.

Hi Evand,

I actually think our forward views are starting to correlate. I see the market as starting to represent real opportunity, and only improving in the short term (from an opportunity perspective). When yields improve and rates start to ease, I will develop Mona Vale and it will be neutral upon completion. That, in itself, will set me up nicely. But, I intend to extract that equity as LOC and use it to buy strong yielding quality properties in Sydney at the time, probably in a couple of years from now. So I hope the market stays subdued due to the negative emotional fallout of the impending "CRASH". Subdued long enough for me to build a very substantial portfolio. Its all about cash flow, and post Mona Vale I'll have good cash flow and a really solid equity base.

Cheers,
Michael

 

[evand]

I think you are in the right place at the right time. A great position to be in.

Hi Evand,

So I hope the market stays subdued due to the negative emotional fallout of the impending "CRASH". Subdued long enough for me to build a very substantial portfolio. Its all about cash flow, and post Mona Vale I'll have good cash flow and a really solid equity base.

Cheers,
Michael

 

[Aaron Sice]

There will be plenty of time to take advantage of a property market in free fall with blood/red ink on the streets.

it's called a whipsaw or profit take in the sharemarket, not bloodletting.

"free fall" is a bit of an exaggeration!!!

i see this all stemming from the "sell your properties now before July 1 2007 and put it into super, up to $1mil, tax free" flow on effect.

there'll be a govt stimulus in about 6-9 months. just like the FHOG stamp duty relief bumped prices up.

 

[alexlee]

it's called a whipsaw or profit take in the sharemarket, not bloodletting.

The property market doesn't turn as fast as shares, because it's so much less liquid.

"free fall" is a bit of an exaggeration!!!

More likely, people who don't have to sell won't. So volume goes down. But the people who DO sell will be desperate, so for those properties that ARE sold in a downturn, it LOOKS like a free-fall. That's one criticism of the Case-Schiller index: it exaggerates falls because it leans towards the desperate sales.

i see this all stemming from the "sell your properties now before July 1 2007 and put it into super, up to $1mil, tax free" flow on effect.

there'll be a govt stimulus in about 6-9 months. just like the FHOG stamp duty relief bumped prices up.

The super rule changes, FHOG and stamp duty relief were all sideshows, in my opinion. The underlying trend was up, and these just wobbled the curve slightly. At the moment, the trend is TURNING. Government stimulus will wobble the curve, butI still think we're in for a downturn.
Alex

 

[trendsta]

sweet ...

though not surprising

looking to pickup some bargains

 

[ziggy2214]

"I think we'll see prices fall by another 10 per cent this year - and that's without another interest-rate rise."
]

It's possible that we will see some price corrections in some suburbs
but I don't believe that the RBA will increase rates further.
my 2c

 

[Andrew_A]

Hi Evand,

I actually think our forward views are starting to correlate. I see the market as starting to represent real opportunity, and only improving in the short term (from an opportunity perspective). When yields improve and rates start to ease, I will develop Mona Vale and it will be neutral upon completion. That, in itself, will set me up nicely. But, I intend to extract that equity as LOC and use it to buy strong yielding quality properties in Sydney at the time, probably in a couple of years from now. So I hope the market stays subdued due to the negative emotional fallout of the impending "CRASH". Subdued long enough for me to build a very substantial portfolio. Its all about cash flow, and post Mona Vale I'll have good cash flow and a really solid equity base.

Cheers,
Michael

I'm thinking of the quotes 'When the time comes to buy, you won't want to'..

or... 'The time to buy an asset class is when those who love it the most, trust it the least'..

Might both apply at the moment with property in some parts I guess

I've never been awake as an investor during a recession or heavily depressed market, must be a wonderful time to be investing I would guess.

 

[Strannik]

So would now be a good time to extract some equity from properties and put it into term deposit account before the valuations go down? So when the prices do fall significantly i would still have the equity available to pick up bargains?