House bubble to burst - 40%? SERIOUSLY

[Aulyna]

Any one watched Chanel 7's Today Tonight last night?

It said it is time for House bubble to burst - 40%? It seems very SERIOUSLY.

I know most of us here do not want to agree with it, as we love ips. But to be honest, I start to concern if we are too optimise on it, or we are just willing to be optimise?

If the house bubble to burst like usa, what will you do?

Fingers crossed.

 

[virgo]

Houses Burst

Hiya

Let's see: i just bought a 4 bedder house in Penrith 300K; and i am also trying to build a granny flat (1 bedder); approximate costs (2 quotes) 80K + GST (and that is building cost only; no land)...

So that means if my Penrith house drops 40%; it will be worth 180K...minus build cost say 150K for a 4 bedder (really conservative); that means the land of 600 sqm is worth 30K

I scratch my head....is that logical??

UNLESS builders everywhere are willing to take a big pay cut and material costs are much lower...but in this resource boom times, can this happen?

 

[Rolf Latham]

Hi

I tend not to spend much time on fear mongering or sales journalism such as that.

If a bunch of credible folk come up with some sound reasons as to why and how, one can have a serious discussion.

Just because ONE or TWO folks say so, doesnt make it so.

ta
rolf

 

[jonesy427]

biggest heads up would have been that it was on 'today tonight'. there is a new thing every night to be scared of or not to eat.

 

[Wake]

I'm not sure whether it was Today Tonight but I did watch an obviously very credible segment last night somwhere between 6pm-7pm (was passing through the room), with this same theme.

Of course they had the obligatory couple of examples of investors who had bought high rise OTP in Qld for well over a million dollars and now the units were worth significantly less (I feel sorry for them, but two words - due diligence!). No mention of when they had entered a contract to buy these units of course. They also panned past what was apparently waterfront/canal front larger/newer properties on the Sunshine Coast while the story continued.

There were some quotes from John Edwards from Residex, along with Terry Ryder - of course all quotes would have been taken in context and provided more than enough information for viewers to form a clear picture

I'm not saying that all is smooth sailing in the property market ATM or in the near future, and I have no doubt that some markets in some areas will be more adversely affected than others, but for pete's sake - if you want intelligent viewpoints on the property market, a 2 minute segment on current affairs shows or prime time news aint the place to get it!!

 

[Ed Barton]

Any one watched Chanel 7's Today Tonight last night?

It said it is time for House bubble to burst - 40%? It seems very SERIOUSLY.

I know most of us here do not want to agree with it, as we love ips. But to be honest, I start to concern if we are to optimised on it, or we are just willing to be optimised?

If the house bubble to burst like usa, what will you do?

Finger crossed.

http://www.youtube.com/watch?v=oE20DWnsEpo

it's been going to burst now for years. guess what? Prices just keep going up. some small drops in a few cities is not surprising after such strong growth.

if it does pop it will over correct as crashes always do and i'll buy up big.

 

[Propertunity]

Any one watched Chanel 7's Today Tonight last night? It said it is time for House bubble to burst - 40%? It seems very SERIOUSLY.

You SERIOUSLY should stop watching this cr@p!

This stuff is mind control for the masses. If you want to wind up broke and living on the old-age pension, just keep feeding your mind with this stuff.

If the house bubble to burst like usa, what will you do?

It is not a matter of what we would do. What would the banks do - many would be sitting on negative equity.

But further to this point, there is no bubble.

Finger crossed.

That is not an option either.

You must do all your due dilligence when buying. Part of this is making sure you can hold on through tougher times - so that you can see a whole cycle through and make good CG.

 

[IFBB]

I saw something similar the other night where they spoke about the tv show The Block.

Mentioned how they paid $3.8m for the 4 places in Richmond in absolutely unliveable conditions, and how now one of the finished places was put on the market for $800k.

They focussed a lot on how the reserve cannot be any higher than $880, and if it is, the agent is in big trouble. But seriously, whats to say this place doesnt get bidded up to $1m, regardless of the reserve?

I think they also overpaid a little when the market was still going gangbusters in Melb 12-18 months ago.

 

[evand]

There was a sale a few weeks back in Hawksview Rd Merrylands (Sydney western suburbs) that sold for circa 25%-30% less than its last sale in 20005.

Maybe prop with his internet research abilities can find this one.

 

[eXc]

There was a sale a few weeks back in Hawksview Rd Merrylands (Sydney western suburbs) that sold for circa 25%-30% less than its last sale in 20005.

Disclaimer: Tongue in cheek - don't take offence.

20,005? Gosh, there must be a bubble if 18,000 years in the future it's gone down in price

 

[evand]

No offence taken. But, 6 years on with inflation at roughly 3% per year and it drops 30%, well that's a 40%+ fall in 6 years right there.

Property needs to go up 3% per year just to keep its head above water.

Remember property goes up indefinitely.

Disclaimer: Tongue in cheek - don't take offence.

20,005? Gosh, there must be a bubble if 18,000 years in the future it's gone down in price

 

[Tillie]

If the house bubble to burst like usa, what will you do?

Finger crossed.

Nothing. No need to sell anything now, so it would not have impact on me.

Actually in that case a lot of houses would become cash flow positive investments. Rents would not change, but house prices dive. So I might buy a couple of houses more for generating positive cash flow.

 

[jacbmw]

evand, that is one specific property, I am not sure if you are being sarcastic, but any of use could compile a list of these examples and fashion ourselves a Today Tonight segment.

 

[Ed Barton]

Nothing. No need to sell anything now, so it would not have impact on me.

Actually in that case a lot of houses would become cash flow positive investments. Rents would not change, but house prices dive. So I might buy a couple of houses more for generating positive cash flow.

perhaps not on you personally. you might keep your job, but bubble pops come with high unemployment as an added bonus.

from what I've read the dropping prices also come with dropping rents (US, Ireland) and tightening lending. if you really on equity in other properties as a deposit then you can forget buying up in a bubble pop.

 

[evand]

Yes, its only one example. But why would one house fall so much if its unchanged from its previous purchase. Do you think a house in the next street will sell for 10% higher than its previous purchase? That's why we do comparables.

evand, that is one specific property, I am not sure if you are being sarcastic, but any of use could compile a list of these examples and fashion ourselves a Today Tonight segment.

 

[Propertunity]

Yes, its only one example. But why would one house fall so much if its unchanged from its previous purchase. .....

The definition of a sale at market value is an arms length transaction with a willing, but not anxious buyer, purchasing from a willing, but not anxious vendor.

As soon as you get anxiousness on either side of the transaction, you can get below, in the case of a seller (and above, in the case of a buyer) prices achieved. Anxiousness can be caused for all sorts of reasons including the typical 3 "D"s - death, divorce, de-bank.

As far as comparables go, any valuer worth his salt, will ignore an "out-of-line" sale. However, if you get a number of these (both higher and lower) then this can and does have an impact on comparables.

In the last couple of months we have purchased 3 properties at 10-15% below what vendors had previously paid for them back at the last peak in 2003/4. They were distressed sellers and there were few buyers at the time. For vendors who can afford to wait, they don't have to take a hit like that.

 

[chilliblue]

I personally will be buying if the deal stacks up.

I have just purchased a 2 bedroom unit that needed a really good clean out (3 days actually) and a paint for $185K. It is achieving a 7.3% return and I am happy.

I know that 3 other owners who brought their units at the height of the property cycle 5 years ago for $215, $221 and $230K.

The market hasn't dropped since 2007. In fact, Residex's own figures state prices are increasing 4% each year since the others brought theirs.

What did happen is that the others were owner occupiers who were happy to pay a premium for their particular units.

I got lucky and found a distressed self managed owner with a crap tenant who was refusing inspections and a poor agent who had no idea.

Another unit sold two weeks after I settled for $229K unrenovated with a carspace not a garage.

According to Today Tonight, my sale means that the whole Australian market has dropped nearly 20% in five years and that is simply not true.

Good properties brought at a good price where no more can be built will always do well.

Stop watching those programs and look at the facts.

 

[evand]

You are assuming it wasnt a 'normal' sale. What do you base the assumption on?

The definition of a sale at market value is an arms length transaction with a willing, but not anxious buyer, purchasing from a willing, but not anxious vendor.

As soon as you get anxiousness on either side of the transaction, you can get below, in the case of a seller (and above, in the case of a buyer) prices achieved. Anxiousness can be caused for all sorts of reasons including the typical 3 "D"s - death, divorce, de-bank.

As far as comparables go, any valuer worth his salt, will ignore an "out-of-line" sale. However, if you get a number of these (both higher and lower) then this can and does have an impact on comparables.

In the last couple of months we have purchased 3 properties at 10-15% below what vendors had previously paid for them back at the last peak in 2003/4. They were distressed sellers and there were few buyers at the time. For vendors who can afford to wait, they don't have to take a hit like that.

 

[BV]

There was a sale a few weeks back in Hawksview Rd Merrylands (Sydney western suburbs) that sold for circa 25%-30% less than its last sale in 20005.

And your point is?
Back then it was fully renovated, very appealing and sold to some moron at the peak of the market for more than it was worth.
Fast forward 6 years, the property is now in need of work and is in a suburb which only just got back to 2004/5 price levels so naturally this particular property will sell for a lower price

 

[evand]

nice try, but i dont think so.

And your point is?
Back then it was fully renovated, very appealing and sold to some moron at the peak of the market for more than it was worth.
Fast forward 6 years, the property is now in need of work and is in a suburb which only just got back to 2004/5 price levels so naturally this particular property will sell for a lower price