Just passed the 1 year mark a few weeks ago.
just bought second IP-60 minutes FREAKED me out!!
- Thread starter neaka
- Start date
Just passed the 1 year mark a few weeks ago.
Urchin
As per your below quote, won't the 5% inflation do as much damage to the loan as well as the house? i.e. a $400K house with a $400K loan in a flat year will break even irrespective on inflation?
Your quote:
If prices remain stable, you are effectively losing 3-5% a year on your investment as a result of inflation. you need to gain 5% a year just to avoid falling behind. this kind of undercuts his central point.
As per your below quote, won't the 5% inflation do as much damage to the loan as well as the house? i.e. a $400K house with a $400K loan in a flat year will break even irrespective on inflation?
Your quote:
If prices remain stable, you are effectively losing 3-5% a year on your investment as a result of inflation. you need to gain 5% a year just to avoid falling behind. this kind of undercuts his central point.
@jojo - no, i type pretty fast 
@ perth - to the extent that your income grows in line with inflation, yes. however if your income (such as rent) does not keep up with inflation then no, not really... but on the whole, for a PPOR, yes this is a somewhat good thing--a lot better than deflation anyway.
however, there is also the matter of opportunity cost. what other investments could you have put your money into? (if you see the property as an investment rather than a home).
If this is a bubble--and only time will tell us that for sure--then do not look for house prices to rise in real terms for a very long time. bubbles tend to drag on and on and on and on.
i am not saying everyone should run for the exits--if you have a portfolio that you are happy with, good on you. but i do think it unwise to buy into the market as it is today.
@ perth - to the extent that your income grows in line with inflation, yes. however if your income (such as rent) does not keep up with inflation then no, not really... but on the whole, for a PPOR, yes this is a somewhat good thing--a lot better than deflation anyway.
however, there is also the matter of opportunity cost. what other investments could you have put your money into? (if you see the property as an investment rather than a home).
If this is a bubble--and only time will tell us that for sure--then do not look for house prices to rise in real terms for a very long time. bubbles tend to drag on and on and on and on.
i am not saying everyone should run for the exits--if you have a portfolio that you are happy with, good on you. but i do think it unwise to buy into the market as it is today.
Y-man
Good point.
Don't worry, mulltinationals are making a lot of money, only our automotive industry is hurting atm.
Cheers
People seem to think that in the USA housing is going down across the entire country - ie no county, town or city has been spared.
This is very much not the case.
Same as whilst house prices will inevitably go down here, it will be in pockets rather than in uniform formation across the country - definitely a few places over inflated, but the same could be said any time within the last 10 years, difference is they'll probably fall faster and deeper given current unforgiving conditions.
Personally - haven't been investing long in own direct property, however have kept an eye on my fathers property here and property in the US for last 8 years (view to if I inherit it, great want to know about it, if he sells and blows the lot - want him to have the most fun possible (maximum value) for his properties).
Gosh I hate mass media, although it's going to create some lovely buying opportunities in the next year or so.
This is very much not the case.
Same as whilst house prices will inevitably go down here, it will be in pockets rather than in uniform formation across the country - definitely a few places over inflated, but the same could be said any time within the last 10 years, difference is they'll probably fall faster and deeper given current unforgiving conditions.
Personally - haven't been investing long in own direct property, however have kept an eye on my fathers property here and property in the US for last 8 years (view to if I inherit it, great want to know about it, if he sells and blows the lot - want him to have the most fun possible (maximum value) for his properties).
Gosh I hate mass media, although it's going to create some lovely buying opportunities in the next year or so.
I work in the communications industry, and the cash from our global parent to our subsidiary dried up 10 years ago (when the head office hit a major recession and stagflation).
We've survived on a few big contracts, but we're struggling. The big boys overseas are looking at the 1,000+ workers we have here and their intentions are becoming very clear....
Cheers,
The Y-man
Hi BV,
I am genuinely surprised at the number of posters on this site who seem to be in denial about a major financial catastrophy on our door step - actually right inside the hall way now, about to enter the living room........
Even after the major declines and manic volatility on our sharemarket, irrational fluctuations in the Australian dollar, bank and major company collapses overseas some people choose to burry their head in the sand.
How can anyone in Australia still think that we are immune and that our real estate prices will remain at the current high levels without some negative impact from this turmoil??? A 40% drop from current levels - not impossible. It may not happen all at once, but could happen slowly over time. Many shares have dropped by 40% since last year and the market overall is down by close to this percentage. I'd like to see some tangible reasons as to why this financial crisis won't translate to Australian realestate.....
It doesn't make sense.
There are many redundancies occuring daily now. The finance industry was one of the first hit - with Australian jobs slashed and replaced by cheaper labour in India.
Qantas has moved maintenance overseas.
The car industry is in turmoil with job losses being announced daily.
Private Schools are looking at their bottom lines closely, stacking enrolments for next year's intake because they know that many families won't be able to afford to return due to job losses, major losses on the share market etc. Teacher numbers are being monitered closely in some private schools and some schools are cutting staff.
BV, I fear that this is only the beginning. YMan gives some good illustrations on companies down sizing as well.
Whats more, there are more and more posters appearing daily who are attempting to sell off real estate - depressing the market even more. If those people cannot sell they will be forced to reduce their price until they can find a buyer. Naturally prices will keep falling. Some people can hang on, others need to liquidate because they have had margin loans on their shares etc. Others will be less fortunate and be forced to have the banks foreclose on their properties.......
Regards Jason.
Oh and my contribution:
My mother-in-law cooks for a mining community where ships come in to load up on various minerals and stuff, and not suprisingly gets news very fast.
She said the day after our stock market began to sh$t itself the number of ships coming into the harbour IMMEDIATELY halved. I mean within 24 hours.
Numerous mining proposals have been cancelled and intake of new staff beyond current levels has almost ground to a halt.
My sister in law is also an accountant - she was doing a return 2 weeks ago for an engineer on $188k/year. He was going on about signing up 3 new contracts. Then the sh$t hit the fan. He came in to collect his paperwork a few days later and said he was now looking for a new job. Amazing - one minute he is all brovado - and next he is jobless and that 188k/year meant nothing since he lost $500k on the stock market.
Interesting huh? There will 100% for sure be big job losses in the next 18 months - to think otherwise is naive....just think of the flow on effects from a shrinkage of the mining industry alone.
My advice - if you have a nice secure job dont bother getting your CV out anytime soon.
<KS>
My mother-in-law cooks for a mining community where ships come in to load up on various minerals and stuff, and not suprisingly gets news very fast.
She said the day after our stock market began to sh$t itself the number of ships coming into the harbour IMMEDIATELY halved. I mean within 24 hours.
Numerous mining proposals have been cancelled and intake of new staff beyond current levels has almost ground to a halt.
My sister in law is also an accountant - she was doing a return 2 weeks ago for an engineer on $188k/year. He was going on about signing up 3 new contracts. Then the sh$t hit the fan. He came in to collect his paperwork a few days later and said he was now looking for a new job. Amazing - one minute he is all brovado - and next he is jobless and that 188k/year meant nothing since he lost $500k on the stock market.
Interesting huh? There will 100% for sure be big job losses in the next 18 months - to think otherwise is naive....just think of the flow on effects from a shrinkage of the mining industry alone.
My advice - if you have a nice secure job dont bother getting your CV out anytime soon.
<KS>
I will admit up front I did not read all thos posts, as it's late and I need to go to bed........but I will say this.
Neaka, you have two properties, now is the time to sit down and work out exactly how much these cost you. You need to model how the effect of eith you, or your partner losing your job / jobs. Once you know the worst case scenario you need to decide what to do next.
Your options as I see them are as follows
i. Get a LOC in place for a rainy day, if you dont have a large cash buffer. This will hopefully let you hold it all together. Sure you will be going backwards, but you'll still be able to keep the ship afloat in the long term
ii. Listen to what people on this forum have to say, but please please please apply it to your own situation. Many on here are well informed but do make sweeping generalisations that whilst correct, may not have such a bad effect on you personally.
iii. Try not to get too caught up in the negativity, it's crushing at the moment, but if you have adequate buffers in place you'll be fine.
iv. RISK MANAGEMENT is crucial......see step one. Best piece of advice after "be nice to the secretaries" I ever got was "hope for the best, plan for the worst"
Hopefully that puts your fears at rest and at least gives you a course of action to follow.
The sun will rise tomorrow and the economy will get back on track. Just make sure your around when that happens and if your still in the game, you'll do well.
Neaka, you have two properties, now is the time to sit down and work out exactly how much these cost you. You need to model how the effect of eith you, or your partner losing your job / jobs. Once you know the worst case scenario you need to decide what to do next.
Your options as I see them are as follows
i. Get a LOC in place for a rainy day, if you dont have a large cash buffer. This will hopefully let you hold it all together. Sure you will be going backwards, but you'll still be able to keep the ship afloat in the long term
ii. Listen to what people on this forum have to say, but please please please apply it to your own situation. Many on here are well informed but do make sweeping generalisations that whilst correct, may not have such a bad effect on you personally.
iii. Try not to get too caught up in the negativity, it's crushing at the moment, but if you have adequate buffers in place you'll be fine.
iv. RISK MANAGEMENT is crucial......see step one. Best piece of advice after "be nice to the secretaries" I ever got was "hope for the best, plan for the worst"
Hopefully that puts your fears at rest and at least gives you a course of action to follow.
The sun will rise tomorrow and the economy will get back on track. Just make sure your around when that happens and if your still in the game, you'll do well.
Jason,
It pays to be careful these days but.
I am not one of those who burry his head in the sand and I won't accept to be a sheep either.
The mining industry until now was not able to fill up many positions
Now they find themselves with less orders so they don't need to look for more people or to work double shifts.
They are getting paid in US$ and our $ has dropped in value by 30%
so their profits suddenly got a 30% margin.
Also, consider this.
Many who work in the mining industry are professionals and are not easily replaceable. Companies are not going to fire their staff because when production picks up in a month or 2 they will need them again.
Other than that, private schools are essential to a lot of people, I'd rather eat bread and spaghetti every day than not to send my kids to school.
Finally, everyone knows that all properties CAN'T fall by 40% because for many the yields are high so the falls in interest rates will soon make them cash flow positive.
You do the sums.
Cheers
Bill,
That is all very astute.
I work in the mining industry. I think we're the third biggest exporter of iron ore after BHP and RIO. Our CEO has said that we are in really good shape to weather this storm. He rightly points out that our domestic market is about to become a lot less competitive as the flow of cheap imports dries up (we're predominately steel manufacturers and this is the segment he is referring to). He said, we should maintain price through to Q3 (Jan) despite tough conditions as then the reduced competitiveness allows that price to be sustained. He also said our very strong cash book means we will probably look to grow by acquisition in 2009. All good news.
I am also in the Supply Chain function which is 2 years into a 5 year massive corporate transformation. Supply Chain professionals are in tight supply and I know that they'll be holding onto their key staff for fear of losing them when the markets recover.
I think you'll find the companies with strong cash flow such as BHP, RIO, us and others will weather this storm quite nicely. Its the juniors with stretched balance sheets that might be in trouble. I can't believe how much the stock market has punished our share price lately as we are in awesome shape. I think the same could be said of BHP and Santos (STO?) etc.
Anyway, just like not all property segments will perform the same in the ensuing crunch, not all companies will perform the same either. Its the law of the jungle, the strong eat the weak (as we're already witnessing in the US).
Cheers,
Michael
Jingo,
I agree....I too am surprised by the denial of some whilst the facts of job cuts and GDP numbers being reduced by some member of this forum.
Having said that...I can't foresee a 40% drop in real estate across the board. I truly believe that this will be limited to the premium end of the market where prices are set by emotive means....there is evidence that is happening. For example a mansion in leafy Upper North Shore Wahroonga is on the market for $2.5m after the owners were trying to sell it for $3.5 earlier. This represents over a 40% drop.
I can't see the lower end of the market drop much...may 5-10% as it has already dropped about 15-20% over since 2003. Further the FHOG will be targeted in these areas.
My only comments to the people who are leveraged to the hilt and interest rates drops will not substantially drop their negative cash flow...please take action now. It is a lot harder when your income ceases!
Survival is more important than pride at the moment. I made some preparations earlier in the year and am glad I did this. I too was an optimist till about 6 weeks ago.
Cheers
Sash
I agree....I too am surprised by the denial of some whilst the facts of job cuts and GDP numbers being reduced by some member of this forum.
Having said that...I can't foresee a 40% drop in real estate across the board. I truly believe that this will be limited to the premium end of the market where prices are set by emotive means....there is evidence that is happening. For example a mansion in leafy Upper North Shore Wahroonga is on the market for $2.5m after the owners were trying to sell it for $3.5 earlier. This represents over a 40% drop.
I can't see the lower end of the market drop much...may 5-10% as it has already dropped about 15-20% over since 2003. Further the FHOG will be targeted in these areas.
My only comments to the people who are leveraged to the hilt and interest rates drops will not substantially drop their negative cash flow...please take action now. It is a lot harder when your income ceases!
Survival is more important than pride at the moment. I made some preparations earlier in the year and am glad I did this.
I too was an optimist till about 6 weeks ago.Cheers
Sash
Preparing for the worst is certainly the way to go in these uncertain times. When there is panic in the markets logic goes out the window. Who can really predict what will happen.
I'm currently restructing my loans and refinancing to ensure a lower LVR and also pumping as much funds into my offset accounts as possible. This gives me the benefit of added cashflow and yet still allows me to park my surplus cash until the path becomes a little clearer. Reducing debt and increasing cashflow is now my main focus to position myself for whatever happens
I'm currently restructing my loans and refinancing to ensure a lower LVR and also pumping as much funds into my offset accounts as possible. This gives me the benefit of added cashflow and yet still allows me to park my surplus cash until the path becomes a little clearer. Reducing debt and increasing cashflow is now my main focus to position myself for whatever happens
i too can't believe how the stock price got hammered - but it's clawing back.
but - dang - we were hoping hubby (who works in the same company as michael) would get a tasty payout and then we'd head over to the nz sand mining operation! doesn't look like happening as his boss just told him yesterday that's he's been signed up for several h&s training courses next year ... now top management wouldn't do that unless their intention was for him to stay.
i think those already in the mining related industries are probably pretty safe for the time being - just anyone looking to get in might be to late.
While it doesn't serve much purpose to be completely d&g, it does pay to be somewhat cautious. I am a bit worried about other people's levels of debt, especially those on the bottom end of the market. Many have multiple credit cards (with $10's of k on them), expensive car loans, and are living on borrowed time without savings backup to protect themselves.
Many will not even know the true financial position of even their friends and family, until they'll get to that point where they lose a job, and tell you in how much trouble they are now in. There are a lot out there, and it is very hard to determine how widespread this consumer debt is out there until times of stress.
There is a lot of stuff on Lateline (ABC) in the last few weeks that has been quite eye opening, chats with politicians, heads of banks, and economists. I hope some of you are watching that sort of thing rather than the rubbish on commercial TV because they are talking very seriously about this. Not all of it is alarmist, but much of it is realist.
While Steven Keen may be the one coming out with the crazy statements, the language that is coming out of many others seems quite guarded, and is almost sounding a little fearful in itself. They just don't know. They have never seen this before. They don't know what could happen. One common theme is that they do think it will be a difficult couple of years, even the most optimistic.
Many will not even know the true financial position of even their friends and family, until they'll get to that point where they lose a job, and tell you in how much trouble they are now in. There are a lot out there, and it is very hard to determine how widespread this consumer debt is out there until times of stress.
There is a lot of stuff on Lateline (ABC) in the last few weeks that has been quite eye opening, chats with politicians, heads of banks, and economists. I hope some of you are watching that sort of thing rather than the rubbish on commercial TV because they are talking very seriously about this. Not all of it is alarmist, but much of it is realist.
While Steven Keen may be the one coming out with the crazy statements, the language that is coming out of many others seems quite guarded, and is almost sounding a little fearful in itself. They just don't know. They have never seen this before. They don't know what could happen. One common theme is that they do think it will be a difficult couple of years, even the most optimistic.
That is what I watch as they are not to put the pollies and economists under the spotlight. They go ask pointed questions...so none of the crap on the majors.
They also focus on the what is happening internationally which kind of gives us a glimpse of what we can expect in another 6 months.
Yesterday they showed how China is slowing and job are now being lost there. The Chinese will act decisively...as this is the only thing that will cause the Chinese population to revolt. Having said that I have a sneaking suspicion the GDP number for China might even hit 6%. Sounds good by Western standards....but this is an economy which has had only one year of sub 10% growth...believe it was 2002. India is also facing issues and growth is heading towards 7% and Reserver bank there is tightening also...so the slow down as likely to larger.
So, it will be interesting time for Australia.....
Cheers
Sash
They also focus on the what is happening internationally which kind of gives us a glimpse of what we can expect in another 6 months.
Yesterday they showed how China is slowing and job are now being lost there. The Chinese will act decisively...as this is the only thing that will cause the Chinese population to revolt. Having said that I have a sneaking suspicion the GDP number for China might even hit 6%
. Sounds good by Western standards....but this is an economy which has had only one year of sub 10% growth...believe it was 2002. India is also facing issues and growth is heading towards 7% and Reserver bank there is tightening also...so the slow down as likely to larger.So, it will be interesting time for Australia.....
Cheers
Sash
Indeed we are heading for an interesting few years ahead....
I'm not going to pretend to be able to forsee ANYTHING that might happen in the next few years thanks to this crisis - however what I will do is take some action to safely enter the property market.
Instead of buying 3 x IPs as I had planned to to earlier this year... I will now only buy 1 or 2 well selected IPs that have very good cashflow (almost neutral). I will make sure these are bought at a heavily discounted price (IE. at land value or less) so that any future drops in prices will not adversly affect my LVR as risk my debts being called in.
With that sort of conservative strategy - the worst that can happen is rents go DOWN and i have to sell for a smallish (10-20% at MOST) loss. That's assuming i buy at 20% below current values, and that we see this 40% price drop.....
... the more likely scenario is that rents increase a bit more, and values go down at MOST by 20%. In that case, it will cost me almost nothing to keep the IPs, and I will be able to hold out for that glorious sunlight after the storm.
I also work for a company that is showing NO signs of reducing staff levels. We cant get enough staff, and we are still growing at over 12%pa. So my job is pretty safe, very safe in fact.
I think that's pretty reasonable risk management.
I'm not going to pretend to be able to forsee ANYTHING that might happen in the next few years thanks to this crisis - however what I will do is take some action to safely enter the property market.
Instead of buying 3 x IPs as I had planned to to earlier this year... I will now only buy 1 or 2 well selected IPs that have very good cashflow (almost neutral). I will make sure these are bought at a heavily discounted price (IE. at land value or less) so that any future drops in prices will not adversly affect my LVR as risk my debts being called in.
With that sort of conservative strategy - the worst that can happen is rents go DOWN and i have to sell for a smallish (10-20% at MOST) loss. That's assuming i buy at 20% below current values, and that we see this 40% price drop.....
... the more likely scenario is that rents increase a bit more, and values go down at MOST by 20%. In that case, it will cost me almost nothing to keep the IPs, and I will be able to hold out for that glorious sunlight after the storm.
I also work for a company that is showing NO signs of reducing staff levels. We cant get enough staff, and we are still growing at over 12%pa. So my job is pretty safe, very safe in fact.
I think that's pretty reasonable risk management.
