housing crash

[Sailesh Channan]

I agree with the sentiment here. The market is strongly supported by owner occupiers (approximately 70%) and while the economy is strong they will hold on to their homes at all cost. However there are areas that have a high proportion of investors which can be of concern.

Therefore, my main concern is not with the overall market but segments of the market that may be vulnerable. The high risk areas are:

Apartment type dwellings due to the higher than usual investor ownership.
Cheap housing in outlying parts of large cities as these areas are generally cheap due to the overabundance of land. Investors tend to buy up in these areas causing a reduction in appeal.

The reason why this segment of the market is vulnerable is because investors tend to flee at the first signs of stress and if the property is not attractive to the owner occupier market then prices may fall.

Another factor that may effect the urban sprawl areas is the impact caused by government legislation on housing afford ability. If they heavily subsidize new land costs then those who just purchased higher priced lots will be adversely effected. A similar effect will be felt by the release of more land in areas where supply was tight.

Overall, I feel confident of the market however certain areas do worry me.

My concern is also for those trying to get into the market on the back of massive house price rises on large mortgages as these people are most vulnerable to swings in the economy.

 

[Peter Parker]

Cheap housing in outlying parts of large cities as these areas are generally cheap due to the overabundance of land. Investors tend to buy up in these areas causing a reduction in appeal.

Is this supported by the statistics? I would have thought that it's mostly young families/first homebuyers in the fringe suburbs.

It is true that there are outer suburbs with high rental populations and cheap houses but they're often ex-1960s housing commission areas 5 - 15km from today's urban fringe.

Peter

 

[ILoveProperty]

Wonder what may happen with a change of federal government in conjunction with a jittery stock market...

 

[Christie Lee]

If house prices do drop by say 20%, what affect will that have on rental prices? They couldn't possibly drop? Would they just stay the same for a while? If the interest rate keeps going up and property prices are dropping, can we still increase rents each year?

 

[BV]

Cheap housing A:in outlying parts of large cities as these areas are generally cheap due to the overabundance of land. Investors tend to buy up in these areas causing a reduction in appeal.

B: The reason why this segment of the market is vulnerable is because investors tend to flee at the first signs of stress and if the property is not attractive to the owner occupier market then prices may fall.
.

Sailesh,
I generally agree with point A although this is incorrect for Sydney
where land is limited due to it's geographical boundaries.
I also believe that your Point B does not apply to all Australian cities.

It is mostly areas of SE QLD with high percentage of investors
but even those are spread among several QLD cities and not necessarily
limited to properties on the outskirts of Brisbane.

This point certainly does not apply to Sydney for example where
the majority of property owners on the outskirts are young families with kids.
You can verify the percentage by doing a search on each suburb's profile.

So yes areas with high investor participation could suffer in theory
but in practice I would expect to see the rest of Australia in deep pain
for this to happen. My 2 c.
Cheers

 

[skater]

If the interest rate keeps going up and property prices are dropping, can we still increase rents each year?

Rents aren't governed by the ecconomy. They are governed by supply & demand. So if there is a high demand for your type of property in the area it is in, then the rents will increase. On the other hand, if few people want to rent in your area, then rents will increase to entice the people back.

 

[alexlee]

If house prices do drop by say 20%, what affect will that have on rental prices? They couldn't possibly drop? Would they just stay the same for a while? If the interest rate keeps going up and property prices are dropping, can we still increase rents each year?

If anything, a fall in home prices would probably mean HIGHER rents. As Skater said, rent is determined by supply and demand. Falling prices will most likely lower investor demand for investment properties. There is this spurious argument that if you transfer rental properties to owner occupiers (i.e. more people buy PPORs and therefore no longer rent) it's a zero sum game, but it's not. The key is FUTURE demand for IPs, and lower prices will decrease that. So the rental market will likely get tighter in a falling price scenario. During the boom we saw very low rents (as late as 2003 I remember seeing 4 weeks rent free ads in Sydney).
Alex

 

[VYBerlinaV8]

My personal thought is that a drop of up to 20% wouldn't really concern me, as it represents an opportunity to continue buying into the market. That said, I am fortunate to have a large working income which makes many of the other problems associated with getting finance go away.

 

[Twitch]

During the "recession we had to have", Melb median prices dropped 8.5% from their peak. It took 2 years (Mar '90 -> Jan '92).

Sydney dropped 4.5% (Apr '90 -> Sep '90)

Brisbane did not drop at all.

Doesn't mean individual properties didn't drop more, but as a whole they were the drops for the cities.

IMHO to drop 20% across the board there would have to be a massive meltdown, ala '30s depression.

 

[alexlee]

Median prices are misleading, of course. I think median prices lag actual prices during a boom, and in a bust they would also lag actual prices in the other direction. We've seen actual examples in the paper of properties that have dropped 20%. It's just not totally widespread.
Alex

 

[Sailesh Channan]

Is this supported by the statistics? I would have thought that it's mostly young families/first homebuyers in the fringe suburbs.

It is true that there are outer suburbs with high rental populations and cheap houses but they're often ex-1960s housing commission areas 5 - 15km from today's urban fringe.

Peter

I am sorry no statistics however, as I am constantly looking for land to satisfy the demands of our growing number of clients I am in regular contact with agents selling land in new estates as well as regular agents.

The report I get from these agents is there is a strong investor demand for new housing and in most instances over 50% of the land is sold to investors. In one instance only one owner occupier in a 60 lot subdivision in Narangba. According to agent reports this resurgence from investors is a recent activity so the new estates have been heavily targeted. This resurgence has led many developers to stop selling to investors.

There are a lot of marketing companies that are promoting Queensland properties which increases our investor percentages.

I can imagine that the high Sydney prices may be a deterrent for investors therefore, it may be a Queensland thing.

As I said earlier I believe the economy and market should remain strong due to the solid fundamentals however, for long term growth it is important that you buy quality well located properties.