How to tell property cycles?

[TMNT]

Hi everyone

Was wondering what sort of techniques people use to determine cycle,

For example I'm having a quick look at Cardiff in outer Newcastle

http://www.rs.realestate.com.au/cgi-bin/rsearch?a=sp&s=nsw&u=cardiff

Now in my opinion , this area has been plodding along per the typical economy without any major booms, or crashes

Eg, it's pretty obvious that say Gladstone etc, is either near its peak or at its peak,
But how would you tell with this suburb?

Although median prices aren't the perfect indicator, the above shows that there was basically Zero growth 05 to 07, 4% growth pa for 08 to 10, and then 1 yr of zero with 1 yr of 6%
I just don't want to buy at the peak or even half wAy

I see the fundamentals of the area as very sound, but I don't want to buy to see it fall by 5% pa for a few years.

I know nobody has a crystal ball, but I would like to know how smart investors see this

Thanks everyone

 

[TMNT]

I mean there are plenty of suburbs who have simply gone up year after year in for 20 years consecutively, youd be pretty annoyed if you didnt get in based on the fact you thought it was the peak of the cycle,

how do people asses these areas,

even in the hunter, things are slowing down in the mining areas or partially dependant mining areas, im sure things will pick up, but I feel that most of the gains have already been made

 

[HotRod]

Two quick things I consider:

• In a five year period there will typically be one boom year, one bust year and three years where it just goes sideways.
  
• If a suburb is going gangbusters, look at the surrounding similar ones. If they aren't (and they haven't busted in the previous year or two) it might be next to take off.

But that's just pretty basic, 30s analysis stuff, to do a quick parse.

 

[TMNT]

Two quick things I consider:

• In a five year period there will typically be one boom year, one bust year and three years where it just goes sideways.
  
• If a suburb is going gangbusters, look at the surrounding similar ones. If they aren't (and they haven't busted in the previous year or two) it might be next to take off.

But that's just pretty basic, 30s analysis stuff, to do a quick parse.

agree, some suburbs in the hunter valley,sort of went gang busters to a small extent, and niow have retreated, with teh spill over suburbs not really having the time to catch up

 

[mrmonopoly]

Obviously its pretty difficult to time property cycles, but there are a few things I like to look at to get a feel for the upside potential for an area.

Personally I always invest for the long term so if I get in a year too early, I'm not too concerned as long as the long term projections are good during the time frame I intend to hold it for.

Firstly look at the macro economics of the country and state, for example its quite clear to me through depressed yields and a sharp rise over 9/10 that most metro VIC is unlikely to grow in the short term. There will be suburbs which clearly outperform the general state but your increasing your risk.

Conversely Perth has not done alot since 06/07 and Sydney only about 20-25% on the whole since the peak at the end of '03, so the downside risk is mitigated to an extent.

Next I look at third party research from the likes of datahouses i.e Residex and RP data and see if I can establish any historical trends in suburb ripple effects as well as recent performance.

Valuer, developer and educated agent feedback can also be useful on occasion albeit anecdotal. So check out the likes of Heron Todd White monthly and annual market updates. They even give their opinion on the state of each markets cycle at the bottom of the report as do the investor mags like API.

Check out the demographics of an area, is there a visible change? What are the big time developers catering to. Is income growth on the rise, are there infrastructure projects in the pipeline and how far along are they? What is supply and demand like. For example Cardiff currently has higher demand to supply but this has not been the case over the past 12 months, so is there any real momentum of demand to garner from the stats... not really.

Look at the rental yields for the area, are they much higher than neighbouring suburbs? Often CG will follow yields, although make sure you maintain perspective with regards to the proximity to major CBD's etc and you are not looking too niche.

More importantly remember just like there is no one property cycle for australia, there are micro cycles within suburbs too and whilst units maybe in strong demand, houses may not or vice versa. Certain price brackets may considerably outperform others which again relates back to the macro economy.

This in my opinion is by far from an exhaustive list, but my point really is that whilst no one indicator on its own is proof of guaranteed CG, together you are able to build a picture of whether it will fit your objectives and risk profile.

As an extra tip to gain clarity and perspective, choose a random suburb no where near this and ask the same questions.

All the best

 

[Noodle]

Hi everyone

Was wondering what sort of techniques people use to determine cycle,

For example I'm having a quick look at Cardiff in outer Newcastle

http://www.rs.realestate.com.au/cgi-bin/rsearch?a=sp&s=nsw&u=cardiff

Now in my opinion , this area has been plodding along per the typical economy without any major booms, or crashes

Eg, it's pretty obvious that say Gladstone etc, is either near its peak or at its peak,
But how would you tell with this suburb?

Although median prices aren't the perfect indicator, the above shows that there was basically Zero growth 05 to 07, 4% growth pa for 08 to 10, and then 1 yr of zero with 1 yr of 6%
I just don't want to buy at the peak or even half wAy

I see the fundamentals of the area as very sound, but I don't want to buy to see it fall by 5% pa for a few years.

I know nobody has a crystal ball, but I would like to know how smart investors see this

Thanks everyone

I have a tendency to look at some well know property commentators top picks i.e. Margaret Lomas, Michael Matusik and Terry Ryder and then look for adjoining suburbs with similar fundamentals which might get swept up in the ripple of growth. I know Terry Ryder is a big fan of the general Newcastle and Lower Hunter area, so Cardiff could be a winner.

I'd always recommend negotiating a bit of a buffer in during the buying phase anyway to both create immediate equity but also provide a buffer for any short term falls.

Let us know you get on

 

[mrmonopoly]

I have a tendency to look at some well know property commentators top picks i.e. Margaret Lomas, Michael Matusik and Terry Ryder and then look for adjoining suburbs with similar fundamentals which might get swept up in the ripple of growth. I know Terry Ryder is a big fan of the general Newcastle and Lower Hunter area, so Cardiff could be a winner.

I'd always recommend negotiating a bit of a buffer in during the buying phase anyway to both create immediate equity but also provide a buffer for any short term falls.

Let us know you get on

Hmmm if ML has it on her radar then I'd suggest its probably a couple of years into the boom already imho. Too much accountability to her Destiny business to go out on a limb for risky public hotspots.

 

[TMNT]

Hmmm if ML has it on her radar then I'd suggest its probably a couple of years into the boom already imho. Too much accountability to her Destiny business to go out on a limb for risky public hotspots.

I agree

That being said, lomas has recommended Latrobe Valley,

Unfortunately since she has recommended it has gone backwards, and now she has reevaluated it to a hot spot in 2 to 3 years

Ryder also recommended moree, this has done nothing

That being said, I respect 90% of their recommendations but there will always view with a bit of cynicism

 

[TMNT]

I have a tendency to look at some well know property commentators top picks i.e. Margaret Lomas, Michael Matusik and Terry Ryder and then look for adjoining suburbs with similar fundamentals which might get swept up in the ripple of growth. I know Terry Ryder is a big fan of the general Newcastle and Lower Hunter area, so Cardiff could be a winner.

I'd always recommend negotiating a bit of a buffer in during the buying phase anyway to both create immediate equity but also provide a buffer for any short term falls.
Let us know you get on

Agree, it's quite hard to determine whether it will be part off a 5 year cycle or a 20 year cycle,

Eg 2770 seems to have being going really well recently with gentrification, but it may boom again in say 7 years time once it catches up and be seen as a normal Sydney suburb and not the dumps of Sydney!

So would you buy in a suburb like mussel brook which has gone up heaps in 2 years but has slowed down due to the slow down in mining in the area , however, once the mining picks up again, it should go up further, by this time, surely all the growth would have occurred by then before it encounters a fall as per the property cycle unless something unique and spectacular occurs

What does everyone else think,

I'm just a bit confused by the median prices and cycles?

Would the property experts be buying say 10% below the current prices? Or would they asses that the majority of growth has been done and move on

 

[MIW]

Leading Indicators (sales trends from previous 12 months, etc)

Hi everyone
Was wondering what sort of techniques people use to determine cycle,
For example I'm having a quick look at Cardiff in outer Newcastle
http://www.rs.realestate.com.au/cgi-bin/rsearch?a=sp&s=nsw&u=cardiff

But how would you tell with this suburb?

Thanks everyone

See my previous post:
An interesting read is, "Mastering the Australian Housing Market" by John Lindeman. I attended one of his presentations and he was great!
He explains how the housing market works (since 1901 to 2012 present). He mentions Housing markets theories (the generalization of property market cycle, the long term 8% growth). Example, of ABS data was for around 100 years representing around 8% growth but (30 years 3%, 10 years -3%, 10 years 12%, 43 years 9%, 4 years 2%). So some luck has to play on our part when the growth occurred. Gave example of Aguarelle North Sydney suburb sale in 2003 at $1.45K, sold in 2012 at $1.25K. This is 14% loss, real loss 50% if we add inflation.
I do not wish to scare you here, but just to make you realize property is trading to no growth so being picky/selective/knowledgeable is the key.
Example since 2007 to 2012: Kurrajong fell in value, Homebush rose 40%, Sydney not changed since 2007, so you see there are suburbs that may perform while others don't. IMO, times have changed where we no longer can generalize about drivers of property but we need to rather specialize.
He mentioned lagging indicators (looking at median price), and misleading indicators (time on market, vendor discounting, rental yields - e.g. yields could be rising due to property prices falling not just new jobs being created - so we need to look at the cause and effect, different cause produces different effect on rental yield).
Leading indicators (Sales trends, for potential buyers and Listing trends). Quickstats and YIP or API magazines he used to predict distressed sales in suburbs and compared 1 years listings of sellers to buyers to see if they were coming down.
It was quite analytical and fast paced but it was really informative...
Perhaps the book above will help?
I haven't bought it yet, but I plan to!

Basically, just by comparing Leading Indicators from those magazines he illustrated how the suburb would grow in terms of predictions.....