linkage between share market and real estate

[tonyc00]

Hi

I wonder whether the rise in property values in 1988/89 had its origins in the big stock market crash in October 1987.

In other words did investors pull their (remaining) funds out of the share market after October 1987 and reinvest in property thereby giving rise to the rise in property in 1988/89.

If anyone doubts that prices increased in 1988/89 then read on:

"Senior property analyst with BIS Shrapnel, Angie Zigomanis, says Sydney house prices almost doubled in two years between 1987-1989.

"In 1988 prices jumped 28 per cent in Sydney and in 1989 they increased another 55 per cent," he says.

"Those extraordinary growth rates were mirrored around the country: Melbourne's prices jumped by 24 per cent and 26 per cent in those two years, and Perth by 19 per cent and 50 per cent."

Figures from the Real Estate Institute of Australia also show prices in Brisbane increased by 50 per cent, and Adelaide, which had just been through a boom, jumped another 20 per cent."

However Zigomanis does'nt say is WHY prices jumped.

My query being, can we expect the same again in the next couple of years following the share market's performance in the past few weeks.

Tony

 

[asdf]

I believe interest rates were fairly low then and it peaked up towards 17% in 1990 hence the market then stalled. We are at a stage where all capital cities remain fully valued and very expensive. NET yields of residential IPs in the capital growth areas are at around 3-4% due to high funding costs and property related expenses. IMO, this doesn't bode well for 50% rises in prices over the next 2 years. The market has truly bolted in all cap cities in the last 18 months.

The money in the share market seems to already be eroded, very quickly. 25% in 2 months and its not by any means over. Mr Margin has been calling frequently on poor mums and dads. Would the smart ones have already gone to cash? Possibly but I doubt it after seeing the Aug bounce, most sharemarket pundits would've just ploughed back in. That is the herd. The ones who may have sold out early would've cashed out for a reason - bidding up prices for PPOR we've all seen in sought after areas throughout Brissy, Melb and Syd.

Interesting to bear in mind too that for most folks in their 40s and 50s, majority of their holdings in the sharemarket would be through the more tax effective structure we all know as a super fund. Trustees of SMSFs have not caught on to buying IPs through their funds yet so if you liquidate out of shares, what else would you buy?

Add to this the tightening of credit underwriting standards by the lenders and continued increase in cost of funds, money would not be easy to come by. We are set for interesting times ahead.

 

[Bill.L]

Hi all,

In the middle of 87 we had the reinstatement of negative gearing. Property had been slow moving in the 2 years that it had been keatinged.

Some of the rise was due to neg gearing, some due to slightly lower interest rates. They were around 15.5% before the crash and down to 14% after, hardly what I would call "low". They then rose to over 17% to kill off property and bring us the recession we had to have.

I think we are about to have another one (recession).

bye

 

[asdf]

Hi all,

In the middle of 87 we had the reinstatement of negative gearing. Property had been slow moving in the 2 years that it had been keatinged.

Some of the rise was due to neg gearing, some due to slightly lower interest rates. They were around 15.5% before the crash and down to 14% after, hardly what I would call "low". They then rose to over 17% to kill off property and bring us the recession we had to have.

I think we are about to have another one (recession).

bye

Sorry thanks for clarifying the rate situation. Forgot about the removal of negative gearing too. I think you may not be wrong about the recession. Spoke to a couple of guys the other day who works for one of the multinational investment banks and some of them reckon we're in for a nice hard landing. Hes suggesting people cash up now, sell the luxury cars, boats, holiday houses while you still can. Credit will be squeezed and you pretty much need a sovereign rating before anyone will lend you any $, asset prices can only go one way then. Of course he was not a Gen Y....

 

[valleymist]

I don't have figures to back it up, but my hunch is that share market booms/busts don't affect the price of "entry level" housing much, but have
a big affect on "up market" properties.

 

[BayView]

I don't have figures to back it up, but my hunch is that share market booms/busts don't affect the price of "entry level" housing much, but have a big affect on "up market" properties.

This would probably be true because the majority of lower-end home owners (not investors) would probably only be focusing on just getting their house at that stage of their lives, and may not have any spare cash to put into other investments like shares.

The more up-market properties are more likely to be owned by people of more wealth, or higher incomes, maybe a bit older and more financially secure, more investing knowledge etc.

 

[Bazza]

Residential property is the only market not dominated by investors. Owner occupiers own 70% of property in Australia so even if all investors were to leave the market at once it would not collapse.

Cheers,

Bazza

 

[LynnH]

Agreed, Bazza. But you certainly wouldn't get that impression from some of the rubbish put about by the media - "greedy investors" indeed!

Cheers
LynnH