housing crash

Just a question.

What has to happen for Crash in the housing market?

Economicall what are the signs? Rising interest rates? high unemployment?

just a question?

CPI have to become 0 or a negative?

in theory what would cause house prices to drop 20%?
 
Hi Keneth,

There are many factors which determine what happens in the housing market. Current factors include the availability of land, infrastructure, the availability and affordability of credit, government intervention (taxes, rebates, decrees...), media perception, security of employment, interest rates, wages, political unrest, investment, baby boom, other factors which impact demand....

A change in any of these conditions can impact the market positively or negatively, and it is near on impossible to say which will be the trigger.

At present we are seeing that despite all the signs that the market should be up (low interest rates, high employment, positive economic outlook) the market as a whole has slowed. There are still areas bucking this trend because of their desirability.

The main reason for this slowing is that the market became over heated. The price of houses grew quickly and then the bubble burst. The same happens in financial markets, if a stock is over valued it will eventually lose steam and plummet.

If you see property dropping by 20% it is more likely that it is a market correction rather than a true drop. There is no proof so far that the historical growth of the property market is changing.

So what are the signs that the market is about to take a nose dive. When everyone is saying you've gotta get in or you will miss out.

Regards

Andrew
 
By a property ‘crash’ I assume you are talking about a substantial and prolonged fall in property prices.

As always property values are controlled by supply and demand. If there is plentiful supply and reduced demand property values fall

When we had the last big "crash" - in the early 90's a few things happened at the same time.

1. An oversupply of properties following a substantial property boom in the late 1980’s – one that made our last property growth spurt look small in comparison.

2. Unaffordability - due to high prices following the boom plus historically high interest rates -

3. A recession - very difficult economic times throughout most of Australia and particularly in Victoria.

4. High unemployment caused by he recession- people just couldn’t afford to keep their homes and sold up, but there was no one who wanted to buy them.

4. Very negative market sentiment - the media kept talking everything down. During the mass exodus to Queensland, there were jokes like would the last person leaving Victoria please turn the lights out

Remember - the property markets are basically controlled by owner occupiers - not investors. At present there is really only one segment that is having difficulty with affordability - the first home owner. In general affordability is not an issue otherwise property values wouldn't keep rising.

The factors that could cause a property crash are just not there.
 
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Keneth

You had some very good responses so far.

Another trigger for a crash could be Very high interest rates.

However, I personally don't see this happening.
Our interest rates have increased significantly and so far
we have seen corrections but not an actual crash.
With property as long as people can meet their repayments
they don't have to sell and the bank won't bother them.
(It's not like stocks where if their value drops the banks pull the plug on them).

Additionally, unemployment is low, so people have jobs and can afford to pay
the already high interests we have today.
But even if we had high unemployment the RBA would lower interest rates
to stimulate the economy and loans and houses would become more affordable.
Cheers
 
If a housing market is very dependant on a few major employers and the major employers pull out then the effect can be drastic. Like Canberra a few years ago. However, things appear new federalism means to sort out problems and not to blame states and local govt. This means more public servants to intervene in the communities and more housing in ACT.

Shameless plug for ACT? :D
 
Michael yardney
When property crashed in the early 90s, what % drops did we see from the peak in '89?
I'll see you at the seminar this Saturday(Sydney).
Rob
 
One major contributor is perception, if the general population believes houses will increase in price in the short term then everyone wants their cut - if the media plugs that houses are cheaper and falling then it is difficult to sell.

I have been through a few of these cycles and have picked up some absolute bargains. Its really having the courage to go against the trend :D

Chris
 
If a housing market is very dependant on a few major employers and the major employers pull out then the effect can be drastic. Like Canberra a few years ago.
Cuts in the public service in past governments have meant some long flat periods in the Canberra service. However, cuts have not had as much of a severe effect in more recent years, as the local economy has expanded, and the community is less dependant on that single employer.
 
Michael yardney
When property crashed in the early 90s, what % drops did we see from the peak in '89?
I'll see you at the seminar this Saturday(Sydney).
Rob

Rob It depended where. Victoria bore the brunt of that proeprty downturn and in particular the upper end of the market.

There were many properties taken over by the banks as mortgagees and some upper end properties fell by over 20% in value - I know my house did, but as I didn't have to sell it I rode through the downturn. It took 5 - 6 years for some proeprties to regain the value they lost.

By the way - please come up and say hello on Saturday
 
In general, a combination of the following:
1) recession
2) high unemployment
3) loss of consumer confidence
4) high interest rates
5) lower govt spending
6) tightening credit
etc.
Alex
 
Rob It depended where. Victoria bore the brunt of that proeprty downturn and in particular the upper end of the market.

There were many properties taken over by the banks as mortgagees and some upper end properties fell by over 20% in value - I know my house did, but as I didn't have to sell it I rode through the downturn. It took 5 - 6 years for some proeprties to regain the value they lost.

By the way - please come up and say hello on Saturday


Michael
Will do
Rob
 
1) recession
3) loss of consumer confidence
4) high interest rates
6) tightening credit

Ausprop said:
many of which are looming now i.e. 1,3,4 and particularly 6

Ausprop,

Be interested to hear why you think these things are looming. Other than 4 which is evident (though I wouldn't call 7.4% high). What is your reasoning behind 1, 3 and 6.

I hear a lot about 1 and how we're overdue but I see no real sign of it actually happening. Seems to be a gut feel thing for many?

Just curious as there seems to be a very split view on the current state of things. I notice also that you're in WA and wonder if the state of the market of the market there has led you to the above statement.

Cheers,

Arkay.
 
The factors that could cause a property crash are just not there.

Hi Michael,

I'd be interested if you could share your views on whether you believe we will see a large market correction or a recession in the short to medium term (say next 10 years).

I can understand the rationale behind the expectation of a recession and some of the comments being made. Problems in the US. Potential for a change of Government. Potential for credit tightening. The so called Housing Crisis. The level of the stock market considering that stocks vs property are generally counter cyclical etc.

Seems there are a myriad of reasons that can be given as to why now is a bad time to invest in property yet to me seeing what *IS* happening coupled with the supply vs demand statistics we really are just in the upturn phase and there is some way to go yet before we get to boom times.

Is their any potential that recession, unemployment, credit squeeze etc could happen at a rate fast enough to stop the current cycle in it's tracks?

Do you believe their could be a huge crash after this next boom? Given the run property has seen over the past ten years and that we're also seeing it start to run again now, I can see how some could be convinced that "this just can't last"?

I agree that at present there don't seem to be any signs pointing toward a property crash other than an "it seems to be overdue" sentiment.

Cheers,

Arkay.
 
Ausprop,

Be interested to hear why you think these things are looming. Other than 4 which is evident (though I wouldn't call 7.4% high). What is your reasoning behind 1, 3 and 6.

I hear a lot about 1 and how we're overdue but I see no real sign of it actually happening. Seems to be a gut feel thing for many?

Just curious as there seems to be a very split view on the current state of things. I notice also that you're in WA and wonder if the state of the market of the market there has led you to the above statement.

Cheers,

Arkay.


Well if this US housing thing rolls on and damages consumer sentiment, then demand on China will fall, then demand for resources will fall. Simplistic. Just depends on how bad the US gets. Also there is so much money sloshing around (everyone is a millionaire now) that without anyone doing any work it seems obvious inflation is on the rise.

Otherwise and over-ridingly important is that I have a horrible hunch that we are in for a federal Labor Government - the rest is fait accompli.

having said that I invest on regardless, in for apenny in for a pound!
 
Hi Michael,

I'd be interested if you could share your views on whether you believe we will see a large market correction or a recession in the short to medium term (say next 10 years).

I can understand the rationale behind the expectation of a recession and some of the comments being made. Problems in the US. Potential for a change of Government. Potential for credit tightening. The so called Housing Crisis. The level of the stock market considering that stocks vs property are generally counter cyclical etc.

Seems there are a myriad of reasons that can be given as to why now is a bad time to invest in property yet to me seeing what *IS* happening coupled with the supply vs demand statistics we really are just in the upturn phase and there is some way to go yet before we get to boom times.

Is their any potential that recession, unemployment, credit squeeze etc could happen at a rate fast enough to stop the current cycle in it's tracks?

Do you believe their could be a huge crash after this next boom? Given the run property has seen over the past ten years and that we're also seeing it start to run again now, I can see how some could be convinced that "this just can't last"?

I agree that at present there don't seem to be any signs pointing toward a property crash other than an "it seems to be overdue" sentiment.

Cheers,

Arkay.


Who knows what will happen in 7 -10 years or so at the end of this new property cycle :confused:

There are just too many variables to predict, but what I have shown in detail in my book How to grow a Multi Million Dollar Property Portfolio - in your spare time is the explantion why our next boom will be our biggest one.

It really all boils down to supply and demand - ageing population, different demographics, strong immigration, stable economy and government, increasing cost of producing housing and shortage of supply.

So the east coast of Australia is going to have a good time for the next few years. How good a time we have will determine how much we have to pay for it in the inevitable downturn that will occur at the end of this cycle.

If you get in early and take long term view, that downturn shouldn't bother you.

Just like the current situation in Perth - sure the market is flat and some prices will fall. But if you bought 3 or 4 years ago and are holding for the long term - what does a 5- 10% drop in values matter - it only brings you back to property values form 6 - 12 months ago.
 
Thanks Michael. I find it very interesting to hear the views of experienced people, those that have seen a cycle or two. Having a long term view is definitely the best option. The real trick when starting out. When you don't have a large capital base. Is to try and make keep it safe while maximising the benefits. Growing as fast as possible in a portfolios growth stage is the aim for me. Holding long term is the long term goal but I want to build my portfolio as large and as fast as I can through short-medium term gain.

Trying to balance that goal with a risk profile seems to be the hardest part.

Cheers,

Arkay.
 
There are just too many variables to predict, but what I have shown in detail in my book How to grow a Multi Million Dollar Property Portfolio - in your spare time is the explantion why our next boom will be our biggest one.

It really all boils down to supply and demand - ageing population, different demographics, strong immigration, stable economy and government, increasing cost of producing housing and shortage of supply.

Hi Michael,

Which of these factors were not involved in the last boom... i.e. why will the next boom be even bigger... are some of these factors stronger now, or were they absent before?

By the way, I enjoyed your two recent WebCasts, but if you don't mind could I make two suggestions...

1) For some reason, when you spoke, the volume was very low and I found it hard to hear. I had no problems hearing the other speakers - so perhaps this was a problem with your microphone... not sure if other listeners had the same problem, but it happened in both webcasts listening via my computer, and also when I dialled the telephone number.

2) The telephone number shown on the website was in the format xxx-xxx-xxxx which I finally figured out was a US number... it would have been better to have '+1' in front to show it was a US number, or even better have an Australian number to use.

Keep up the good work!

Cheers, Shadow.
 
Personally, I don't think there will be a major housing crash, partly because if it were going to happen in Australia, it would already have occurred. There are instances where some parts of the market have corrected a bit, but this does not amount to a 'crash'. People think property is overpriced because it went for almost 10 years without a much real change in value (in real terms trended lower). Because of the inevitable comparisons with this period, some people feel the price is now too high.

There seems to be a perception that when the stockmarket corrects (or crashes), or we have more difficult economic times, that the wealthy suddenly go broke en masse. This is not the case. Sure, a few people get hit (for whatever reason), but there are plenty of people who simply ride it out.

Given that housing is suffering from under supply in high demand areas, I doubt we are in for a 'crash' in general. If a crash were to happen, there would be too many people willing to buy up the property, thus the price is maintained.

I think prices have a long way to go up over the next 20 - 30 years. I am buying up now in support of this view. There will always be demand for rentals in popular areas. My strategy is simply to take advantage of that going forward.
 
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