Inviting comments on article

[JumJones]

Interesting perspective on the state of the market ...

Boom, Gloom or Doom?

I'm interested to see peoples reactions to the summary - which of the three possibilities do you think will eventuate, and what in your strategy are you doing to keep yourself afloat?

T.

 

[agent007]

I'd be inclined to choose point 2:

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"2. Property prices will flatten out and then hold steady for a number of years while the long-term average and income levels catch up (represented by points 5 to 6 on the graph) This is a likely situation if interest rates rise slightly but do not stay above the 8.5% level for an extended period. There would also need to be low home loan defaults and the continuance of easy money so that the market psychology does not change forcing more people to sell and prices to drop."
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In regard to the strategy:

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"Keeping our loan terms as principal and interest rather than interest only and as such ensuring that when interest rates rise the impact will be mitigated since we owe less money. "
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I think this strategy is silly. I'd keep all loans I/O. In that way if the interest rise, I'd have to pay less than if it was I/P. On the other hand, if I have extra money I don't see why I must have an I/P loan to put it in. I still can put that money into the loan even if it's I/O. For me, the different betwen I/O and I/P is that in both cases, Bank tells you what's the minimum repayment they will accept however, I/O is the lowest. For the max repayment the sky is the limit!. Beside that money can be put into an LOC or offset account.

Regards,

James.

 

[Garry K]

Thanks Jum.
It is a worthwhile article, more balanced than some I have read.
It seems most people are in the Property camp or the Shares camp, and never the twaine shall meet.
I am generally in the number 2 category, flat growth. There are some markets that should run for a bit yet eg Brisbane as there cycle generrally lags Melb & Sydney.

For the time being I am not buying any more property as I don't want any more debt. I have however been buying (with cash) a few shares.

With the Aussie $ as high as it is, I don't see rates going up just yet, more likely down in the short term. Particularly with recent reports showing exports declining.

As the article says, the long term trend is always up, and that is why I invest in property, I am investing for the long term. As well as the fact it is easier to gear up and not worry about margin calls. It is a perception that property is a more passive investment.

Geekay

 

[Aceyducey]

None of the above

The two articles are very much 'in the box'....they assume that as statistics describe the past the same statistics will describe the future, regardless of changes in demographics, populations, technologies and social systems.

Take a look at the world of 100 years ago (roaring 20s, post-Great War, pre-depression, stagflation, and nuclear politics) - their predictions of the future were dramatically off the mark, equally because they were based on the expectation that the future would follow the past.

Why are our expectations any more accurate?

What is so special about long-term averages? It's only a statistic artificially generated by people.

I believe this is a case of if the rules don't fit - the rules may be wrong.


My feeling is that there will be a slow-down in property price growth & decline in prices in certain areas. But serious investors will continue to be able to capitalise on the market just as good brokers continue to make money whether the share market is going up or down

But regardless of what I feel, I will act on what is, not what may be.

Investors must be pragmatic, gamblers are predictive

Cheers,

Aceyducey