Personally I have had more nervous phone calls from Real Estate Agents in the last couple of weeks than any time in the last 24 months I have been in the market. I also receive a constant barrage of text messages and emails on thursday/friday before auctions, I think the industry can feel their party is over and they will have to work for $$$ soon.
Melbourne expected to lead big residential property price falls
- Thread starter GoingDHfast
- Start date
God this is so simplistic.
LOOK AT THE UNDERLYING INTRISIC USEFULNESS OF THE PROPERTY
You will get an idea where the potential 'sustainable' potential drop in prices occurs.
In otherwords what is the 'usefulness' of the underlying land.
This 'usefulness' must then be correlated with the market price.
The end result will be the 'merger' of the two.
LOOK AT THE UNDERLYING INTRISIC USEFULNESS OF THE PROPERTY
You will get an idea where the potential 'sustainable' potential drop in prices occurs.
In otherwords what is the 'usefulness' of the underlying land.
This 'usefulness' must then be correlated with the market price.
The end result will be the 'merger' of the two.
...Love your workIt's all tumbling down!!!
Yawn! Say it pulls back a bit. So what? That's how the cycle works. Prices go up, they then pull back for a bit, then flatten out for a while longer, then it goes up again. Big deal.
It happens each cycle, yet each cycle we get the D&Gers here screaming "The sky is falling. Sell! Sell! Sell!"
It happens each cycle, yet each cycle we get the D&Gers here screaming "The sky is falling. Sell! Sell! Sell!"
sometimes those cycles will wake you from the slumber tho - i can tell you I am not yawning about some of my 20-40% cap drops in the cycle Perf just went thru. I have learnt that riding resi thru cycles at a LVR higher than 60% is askign for trouble. the conundrum is that the great appeal of resi IP is the ability to leverage highly. to me this is a contradiction... high leverage should be reserved for when the market is on the rise and you are trading aggressively.
if we have problems then recent buyers in melbourne may very easily find themselves in negative equity. this is a big deal despite the argument that owners don't care because they need somewhere to live...some people must sell for various reasons and when they can't the market starts to breakdown very quickly
if we have problems then recent buyers in melbourne may very easily find themselves in negative equity. this is a big deal despite the argument that owners don't care because they need somewhere to live...some people must sell for various reasons and when they can't the market starts to breakdown very quickly
Oh, I'm not saying that sometimes the drop back isn't big, especially if you buy at the peak. I don't know much about the Perth market, but I would expect that there are some areas that pulled back considerably more than others as there are usually markets within markets.
No matter how large the amount is that Melbourne drops from it's peak, it is highly unlikely that it will be below the median before the prices started to rise.
No matter how large the amount is that Melbourne drops from it's peak, it is highly unlikely that it will be below the median before the prices started to rise.
this is the 'true secret'.
Leverage works best to 'capture' that upside, but you dont want it around when the market goes through a down or even stagnant stage.
I am a total believer in the 'timing' of debt if not the timing of the underlying asset class. In otherwords timing of debt is more important than timing the underlying asset class.
When it falls + you buy at the peak thus achieving miniscule yields of 3% with gearing of 80-90%, your IRR easily blows out to some negative 20% per year over a 5-6 year period. Can you afford to lose 20% of what you invested every year? By 5 years your equity is wiped out...
ie buying a $600k place with $120k place your $120k is wiped out pretty quickly.
Most people prop up their returns by "paying down" their mortgage - in affect they're chucking in even more equity into an underperforming asset class to stave off the negative impact gearing has when prices fall and your rents are less than your interest (or in finance talk, your cost of debt > return on asset). What a noob thing to do... it is completely self-delusional and when 6 years later the asset finally achieves some 15% growth in one year they feel it's some great investment, but disregarded all the lost interest and the lower value of the assset, as well as the opportunity cost of just putting it into a 24-month term deposit at 8% IRR pa.
I guess I'm pretty much in agreement with what Intrinsic_Value and AusProp are saying, but just explaining it more numerically. Too bad most people like to delude themselves.
ie buying a $600k place with $120k place your $120k is wiped out pretty quickly.
Most people prop up their returns by "paying down" their mortgage - in affect they're chucking in even more equity into an underperforming asset class to stave off the negative impact gearing has when prices fall and your rents are less than your interest (or in finance talk, your cost of debt > return on asset). What a noob thing to do... it is completely self-delusional and when 6 years later the asset finally achieves some 15% growth in one year they feel it's some great investment, but disregarded all the lost interest and the lower value of the assset, as well as the opportunity cost of just putting it into a 24-month term deposit at 8% IRR pa.
I guess I'm pretty much in agreement with what Intrinsic_Value and AusProp are saying, but just explaining it more numerically. Too bad most people like to delude themselves.
Of course you are correct Deltaberry, but you are not taking into account the human factor....the stuff that can't be crunched on a calculator.
They will say that if they didn't pump their money into an 'asset' like a falling or low yielding house / unit / whatever, then they would have just spent the lot on cars, clothing and electrical doodads....so they are better off ??
Makes no sense whatsoever I know. Everything looks good when it is compared with ****. It's only when their strategy is parked up alongside a good performing asset that their strategy looks third rate.
They are saying a level 30 is fabbo. You're saying compared to a level 70 it is rubbish. They are saying compared to a level 5 is it brillo. This is where the delusion lies.
As with most things in life, it all depends on where you are viewing the subject from.
They will say that if they didn't pump their money into an 'asset' like a falling or low yielding house / unit / whatever, then they would have just spent the lot on cars, clothing and electrical doodads....so they are better off ??
Makes no sense whatsoever I know. Everything looks good when it is compared with ****. It's only when their strategy is parked up alongside a good performing asset that their strategy looks third rate.
They are saying a level 30 is fabbo. You're saying compared to a level 70 it is rubbish. They are saying compared to a level 5 is it brillo. This is where the delusion lies.
As with most things in life, it all depends on where you are viewing the subject from.
Must admit I was surprised to see 80% clearance in my local area on the weekend, but maybe sellers are seeing the steadying of prices and are accepting more reasonable offers rather than passing in wanting unreasonable prices?
Volume was a fair bit higher also at $595m. This is higher volume than the first 3 weeks in July, but still lower than the 3 regular weekends in June when prices were falling. I think prices for Melbourne are likely to still be falling through July according to RPData, waiting to see what Spring brings.
It's not uncommon for specific suburbs to have high clearance rates, because of smaller numbers, the types of property that are going to auction etc.
Given last week's seemingly benign CPI figures and the implication of very steady interest rates for at least the next few months, that gives a degree of certainty for buyers imo.
Given last week's seemingly benign CPI figures and the implication of very steady interest rates for at least the next few months, that gives a degree of certainty for buyers imo.
