melbourne up 25% in 2007!

[Harris]

I think it does, this is the median value not the mean where large values will have a smaller affect on the dollar amount.
pieman

I understand the difference between median and mean and was actually referring to anomalies in higher median values. Median values can also be dramatically skewed in a quarter where say out of 100 prop, 75 of those were very high value properties relative to that suburb.

In the following quarter when 60 of the lower value prop are sold, then the anomaly gets adjusted by averaging the median out.

Harris

 

[sash]

Ditto Harris.

Dis, whilst interest rates are high at the moment...my feeling is that they will be on the downward cycle soon, perhaps as soon as late this year. There are already indication that China is feeling some of the US issues.

I feel that the reserve may hold off on interest rates....any case if they put it up in Feb. 2008 there will be alot of panick....people are already feeling the interest rate rises.

On the issue of prices in the outer suburbs falling ...this is unlikely as Australia is now running about 30,000 houses short of demand. This will put pressure on rents, then yields, and when this happens investors enter the market. Whilst this supply problem will correct naturally, it may take longer than in the past due to the lack of skilled resources in the building industry ( they might be Dubai getting alot more money).

I am seeing this first hand in in my investments where I have raised a minimum of 10% per year in Sydney, Adelaide, and Melbourne where most of my investment properties. Some of places (mostly on the outer sububs) which I have held for 3-4 years now have and effective yield of 8%-10% based on the original purchase price. Now you may say that the yields are high but the property value has not gone up ....far from the truth as yields are also linked to the price of the property...as yields go up the price of property also rises. The banks and valuers use this a a rule thumb when valuing properties.

In any case you can pull me up IF the RBA raises rates next month......

 

[buzzlightyear]

And the increasing yields will become catalyst for attracting investors who are nervous about investing in inner suburbs due to the recent massive growth and lower yields.

For the inner ring to become attractive again to investors, there must be an increase in the rental returns by over 30% from its current levels to be around 5% gross yield.

For the outer ring to become appealing to investors, the yields only need to go up by around 10-15% to be around 6% gross yield or higher. Coupled with an absence of recent growth spurt and you have a classic case of the necessary ingredients for the outer to start its growth cycle in top gear.

Harris

I agree with the comments that growth levels will come back to a more normal level, but rents are still running with the bulls. It is not uncommon to sign tenants to an agreement and within a few months rents have already increased again.

One example doesn't make the case I know, but my property located in St Melbourne is an example of what is happening, over the past 2 years, rental returns have increased by 35%. The latest lease was effective this month, but other similar properties are renting for greater again. It wouldn't surprise over the next 12 months we see rents and yields that have increased somewhere back to normal levels as well.

 

[sash]

Soory to post again in quick succession......but had to get this one out.....

Look back to 1996-1997 where interest rates went from I believe high sixes to 8.5% quickly. Then they fell quickly back to mod sixes which then started the Sydney boom in the late nineties.

I see a similar pattern here, except this time Brisbane, Melbourne and Adelaide are leading the recovery of the property market.

 

[Dis]

For the outer ring to become appealing to investors, the yields only need to go up by around 10-15% to be around 6% gross yield or higher. Coupled with an absence of recent growth spurt and you have a classic case of the necessary ingredients for the outer to start its growth cycle in top gear.

Harris

1) Don't disagree regarding the ingredients combining well. The question is more about the timing. The consensus on this thread seems to be that i will happen in 2008 due to the ripple spreading outwards. I'm inclined to believe that a spurt wont eventuate until interest rates peak and start to decline.

In any case you can pull me up IF the RBA raises rates next month......

2) Added to my "to do list" Reading your last post, it actually seems we are of a similar mind. Its just that we disagree on when interest rates will drop. Timing is always hard and I'm not suggesting people should necessarily wait. I'm just offering my opinion on when the spurt will occur.

 

[ffc1883_1996]

If you believe in the ripple effect, then...
... the time to buy in inner Melbourne's was 12 months ago
... the time to buy in middle Melbourne's was 6 months ago
... the time to buy in outer Melbourne is NOW!

 

[myla]

hello,

just a quick note on wages and I why I believe there is a race on to secure existing property,

these are the EBA rates for workers (2006), check out a labourer (basic):

$23.31/hr x 36hr week =839
$25.50/day Travel Allowance =127
$3.00/hr Site Allowance =108

Total =1074/wk

So for the year, 52 x 1074=$55,848

now, also get 4 weeks paid leave (included in above), 10% super, portable sick leave, and I think it is $70/wk redundancy

that was 06 so I would imagine increases may of occurred,

this as a collective (many trades) has to re-price existing property

thankyou

robots

 

[Soren Lorenson]

Huge jump in melbourne Dec 07 quarter

http://www.reiv.com.au/news/details.asp?NewsID=616

wonder what march quarter 08 will bring....

 

[windsor]

http://www.reiv.com.au/news/details.asp?NewsID=616

wonder what march quarter 08 will bring....

What do you think will happen with Essendon and Moonee Ponds prices? "Essendon tops the list of Melbourne suburbs with the highest demand in the quarter with a 22 per cent increase, from $709,000 to $865,500.

Do you think Essendon will see even greater Capital Growth as in 2007 or will it stagnat and prices level out in 2008 or will Essendon and Moonee Ponds which has seen Great Capital Growth in 2007 stop in 2008 and prices to remain the same. As there are alot of houses that have been passed in at Auction in those areas and most houses over 1mill usually you see now on the Market for months and for Private Sale and I see that people arent willing to pay last year prices.

 

[buzzlightyear]

What do you think will happen with Essendon and Moonee Ponds prices? "Essendon tops the list of Melbourne suburbs with the highest demand in the quarter with a 22 per cent increase, from $709,000 to $865,500.

Do you think Essendon will see even greater Capital Growth as in 2007 or will it stagnat and prices level out in 2008 or will Essendon and Moonee Ponds which has seen Great Capital Growth in 2007 stop in 2008 and prices to remain the same. As there are alot of houses that have been passed in at Auction in those areas and most houses over 1mill usually you see now on the Market for months and for Private Sale and I see that people arent willing to pay last year prices.

Well, the auction season for 08 starts again this weekend, and will have plenty of auctions until the end of March to gauge whether the heat is still in the market.

As for property's still being on the market after going to auction, then either the vendor is being pigheaded about their price, not serious in selling or the agent has totally overpriced it from the beginning. Not sure if you can really say prices have started to fall back yet. In anycase, the market never lies!

A friend of mine has made a decision to sell his home and thought he could get at least $1m, but agent says $900-950k. Next door sold for $893k in September. The property is located in Richmond, and is one of these new 3 level terraces. Not for everyone. It will be a good test of the market though.

 

[Twitch]

http://www.reiv.com.au/news/details.asp?NewsID=616

wonder what march quarter 08 will bring....

Every year for at least the past 5 or 6 years has seen the March quarter median price being lower than the previous December quarter. This is even during the boom years of 2002/3 & 2007. I would expect then for the same to happen this year.

 

[GoAnna!]

Every year for at least the past 5 or 6 years has seen the March quarter median price being lower than the previous December quarter. This is even during the boom years of 2002/3 & 2007. I would expect then for the same to happen this year.

Yes because of the delayed factor - this includes the properties that are still hanging around at the end of the busy spring season - the ones that desperate sellers may sell at a discount because they need the money to settle on their purchase.

 

[DavidMc]

I bet my bottom dollar that Melbourne will perform well in 2008 (excluding inner) and the increase in values for most middle and some outer suburbs will be as steep as it was for inner in 2007.

This has happened historically when I compared the inner vs outer price growth over the last 25 odd years in Melbourne.

There is a big anomaly in values and history shows it must go down the path of self correction, especially with the rental shortage being uniform across most of Melbourne.

I agree with what you're saying. The question is at what speed does this occur? I think the periods of stagnation could be longer than we might think. That is to say, the 'ripple' is slower, which makes sense from a physical POV as it dissapates outwards it exponetially slows down.

I've mentioned before on this forum our family home in Cranbourne grew at around 0% for a period of at least 8-9 years in the 90's, as did the house I purchased in Carrum Downs for the 8-9 years prior to purchase in 2001. Was this represented in the 25 years of data you looked at?

Now, I'm not saying we're up for another 8-9 years of stagnation in the outer burbs, however I don't think it's going to boom within the next 2.

That's my stab in the dark. I could be wrong. In fact, I don't mind if I do, considering 60% of my portfolio is in the outer burbs.

If you believe in the ripple effect, then...
... the time to buy in inner Melbourne's was 12 months ago
... the time to buy in middle Melbourne's was 6 months ago
... the time to buy in outer Melbourne is NOW!

What were the time frames for the last boom? Didn't each 'ring' take around 2 years?

 

[sash]

David Mc

The boom maybe around you without you realising it......

The outer suburbs have started moving and will move solidly for the next 18 months as the inner suburbs have done. Once the median hits 500K in Melbourne then things will slow down. Since the outer suburbs of Melbourne are now among the cheapest around the country this gap has to close.

In anycase all the best on your outer portfolio......Carrum Downs is about to go....have a look at what is happening to Franston North!

 

[Harris]

I've mentioned before on this forum our family home in Cranbourne grew at around 0% for a period of at least 8-9 years in the 90's, as did the house I purchased in Carrum Downs for the 8-9 years prior to purchase in 2001. Was this represented in the 25 years of data you looked at?

Now, I'm not saying we're up for another 8-9 years of stagnation in the outer burbs, however I don't think it's going to boom within the next 2.

The key difference this time compared to the stagnation period you are talking about back then is the following:

- Never before in the history, the inner suburbs have experienced the meteoric rise in value within such a short time frame. The outward spiraling of the ripple must hence be equally reflective of that growth.

- Never before in the last 25 years, we have seen the pressure on housing as acute as it is now. 1,000 people per week being added to Melbourne and the macro economic indicators (for state employment, economy, absence of new land/ infrastructure) look very healthy for that growth to sustain.

- The anomaly between inner and outer values has never been greater than it is now. The difference is so great that you can buy 15 average 3 bedders in Melton/ werribee compared to one median priced house in Toorak. Never before there has been such a wide differential in the highest/ lowest suburb. The differential has not been more than 6-7 times between the most expensive and the cheapest suburb. The sheer difference in the gap is not sustainable – hence middle ring started its upward journey around 6 months ago.

- The difference in yield between inner and outer is dis-proportionately higher. Outer is getting more than double the rental yield than inner and that gap is widening.

- I would also be correct in pointing out that there have not been such a number of massive projects on the go as they are at the moment in Melbourne which will connect most of the outer suburbs directly to the freeways, hence removing another major downside with the outer burbs.

I have an inner blue chip Melbourne portfolio as well, hence I am not overly fussed and equally happy with how the inner has performed (doubling in kew especially in the last 3 years). Its just that fundamentals supporting the outer suburb in Melbourne have never been better.

Harris

 

[sash]

David,

I just picked up the API magazine and there is guy with a similar name and portfolio to you, I am presuming that this is you?

If so well done! Carrum Downs is moving quickly. Berrick and Narre Warren as expected to move quickly due to the lack of land...people are now moving to Packenham and even there is land is getting scarce and expensive. To get a decent block of land you will need to buy off the plan....

 

[redwing]

If you believe in the ripple effect, then...
... the time to buy in inner Melbourne's was 12 months ago
... the time to buy in middle Melbourne's was 6 months ago
... the time to buy in outer Melbourne is NOW!

Have friends who've finally bitten the bullet and got their affairs in order to pick up there first IP after building up a great deal of Equity in their PPoR;they are still "very Cautious about it all" , however, have decided to purchase in Melbourne and would be looking at around $350-400k any ideas/tips from Forum Members on where they should be researching as I know diddly about melbourne?

 

[DavidMc]

- Never before in the history, the inner suburbs have experienced the meteoric rise in value within such a short time frame. The outward spiraling of the ripple must hence be equally reflective of that growth.

- Never before in the last 25 years, we have seen the pressure on housing as acute as it is now. 1,000 people per week being added to Melbourne and the macro economic indicators (for state employment, economy, absence of new land/ infrastructure) look very healthy for that growth to sustain.

- The anomaly between inner and outer values has never been greater than it is now. The difference is so great that you can buy 15 average 3 bedders in Melton/ werribee compared to one median priced house in Toorak. Never before there has been such a wide differential in the highest/ lowest suburb. The differential has not been more than 6-7 times between the most expensive and the cheapest suburb. The sheer difference in the gap is not sustainable – hence middle ring started its upward journey around 6 months ago.

- The difference in yield between inner and outer is dis-proportionately higher. Outer is getting more than double the rental yield than inner and that gap is widening.

- I would also be correct in pointing out that there have not been such a number of massive projects on the go as they are at the moment in Melbourne which will connect most of the outer suburbs directly to the freeways, hence removing another major downside with the outer burbs.

That's very interesting, thanks for sharing. Certainly makes sense to me.

Especially the bit sash wrote "Since the outer suburbs of Melbourne are now among the cheapest around the country this gap has to close."

Interesting times ahead!

 

[DavidMc]

David,

I just picked up the API magazine and there is guy with a similar name and portfolio to you, I am presuming that this is you?

If so well done! Carrum Downs is moving quickly. Berrick and Narre Warren as expected to move quickly due to the lack of land...people are now moving to Packenham and even there is land is getting scarce and expensive. To get a decent block of land you will need to buy off the plan....

Yes, that's me. Thank you. I can't remember saying some of that article (in particular 'there is still good value out there'), however I do remember saying I like to have a bit of a mix.

Once you're in the market and have a bit of variety you can frame any market movement as a win-win. If the outer burbs perform well, great! If the inner burbs perform well, great! If nothing performs well, you buy at a good price. About a year and a half ago a particular BA was implying these areas are hopeless. Let's see what happens in the next 5 years.

 

[sash]

David Mc

Interesting ahead indeed!

Buyers agents tend to work mostly in the more expensive suburbs as they charge 1-2% of the purchase price....thus they naturally focus on net gain!

As someone said on this forum...the best person to work on your behalf is probably yourself. Even if you use a buyers agent ensure that you give them clear direction....this means that there is no easy way out....you still need to do your own due diligence!