Million ready to brave the housing bubble

[dvelupr]

Originally posted by Aceyducey
Hang on L Bernham, you've confused me again.
You are agreeing with Lilith.
Lilith has said that she believes that the big crash will be in units/apartments but not in houses.
And her prediction for a decline is 15-20% - yours is 35-40% - substantially higher!
So how are you agreeing with her?
Frankly the point about o/s investors is partially true. Novice o/s investors do go for the unit complexes, but largely look for returns via cashflow not CG.
And outside of major metros, o/s investors have limited if any impact on Australian property markets.
Cheers,
Aceyducey

ohh ohh ohh, this gets more and more interesting. Lilith of 3 posts is now LB's benchmark.
I have read the LB bemoaning over the last coupla days, interesting......
You talk of markets within markets, yet fail to realise o/s investors can play a part in some markets,,,,,, maybe not in cold canberra but certainly in some markets in QLD with which you are obviously not familiar.
d.

 

[L Bernham]

Acey I think you need to stop trying to catch me out. its not working.

Lilith has said that she believes that the big crash will be in units/apartments but not in houses.

Where does she say it wont happen in houses???

And her prediction for a decline is 15-20% - yours is 35-40% - substantially higher!

if you read it a bit more carefully you'll see she said 15-20% IN 6 MONTHS. I tend to agree with that. When have I said the 35-40% would be occuring IN 6 MONTHS?? To get to 35-40% it needs to get to -15-20% first. Do I need to explain this to you a little better. It will take longer than 6 months but 15-20% seems very plausible given the current situation.

Even Westpac which only a couple of months ago were advertising "why stop at one investment property" are now suggesting that people not get into any more debt and to stop buying houses.

LB

 

[L Bernham]

this gets more and more interesting. Lilith of 3 posts is now LB's benchmark.

OMG, and dvelupr with 8 posts and I'm taking the bait by replying to his post.
I dont care how many posts a person has. If they describe something in the same way that I see it I dont see anything wrong with telling them this.
Since when does number of posts inidicate how correct or incorrect a person is anyway? Do you only learn anything about the property market by the number of posts you've made on this forum?

I see a lot of straw clutching going on.

LB

 

[Lilith]

Apartment/units tend to have a much higher beta than houses, I am sure all seasoned investors like yourselves are aware of that. I am just drawing from my previous investment experience elsewhere, primarily in North America (US and Canada) so I am quite frankly not familiar with the house situation in Australia.

Also, as someone pointed out earlier, houses in Australia are more shielded from the come-and-go of overseas investors and overseas tenants. Most apartments in inner Brisbane are less than 60% owner-occupied. That has disaster written all over the place. In the end, the ratio of owner-occupation is a key indicator of how crash-resistent a piece of real estate is.

The Reserve Bank just raised an 1/4 rate today and warned of another impending raise next month. That will be fairly enough to put a stop to the influx of investors.

Just a joke to share with you guys. I was in a cab driving towards downtown Birsbane a couple of months ago. The cab driver turned his head at a project, and pointed out to me that there were somewhat 20 units sold at a million-plus per piece. "Who bought them?" I inquired. "Not the Aussies for sure, I don't think you can find that many stupid Aussie millionaires to fill up that place."

 

[L Bernham]

Interesing joke/story Lilith.
I thought it was usually the cab driver whos telling people to buy.

For your interest though (seeing as you admitted not knowing much about the "house" market) - House prices are almost as badly overpriced as units. Their yields are just as low and have been priced in relation to the prices of units
ie some investors see a units price and think I may as well buy a house for that price -thereby driving price of houses up in tandem.
Both houses and units have risen beyond any sane fundamental valuation so I see they are both in for a fall.

Most house investors will deny this. They would rather make apartments the scape goat but it wont happen.

 

[willair]

LB,
When do you think brisbanes inner city house market will correct itself,
like i said 9 weeks ago, go for a walk and open your eyes..
good luck
willair..

 

[L Bernham]

Like I've said many times - no-one can pinpoint exactly when. thats impossible.

I do go for walks, often. But I see these places imagining them with the price tags attached and the amount of income able to be generated from them and I obviously see a different picture than you.


LB

 

[willair]

LB,
Thanks im glad you have started to walk the streets looking for your next investment what ever it may be, some investors learn from thier past mistakes,rather than replaying them while some are actually cooperating in thier own failure.....
good luck ..
willair..

 

[Aceyducey]

Lilith,

IMHO I suggest you read this forum in depth before considering L Bernham's views too strongly.

He's a novice property investor at best & his views tend to be of the more extreme on the downward side.

There are a lot of experienced long-term property investors on this forum with greater active experience of the market rather than simply theoretical knowledge.

His posts are sometimes worth reading as a theoretical contrarian view, but must be balanced by looking at the actual experience of active property investors.

Cheers,

Aceyducey

 

[Bill.L]

Hi all,

Lilith,
I agree with Acey here as it has taken a long time to get LB to acknowledge any other form of property other than inner apartments. LB now tarnishes ALL houses with the same brush.

While I certainly agree that not all houses or areas are equal, I have some numbers on an average suburban house that may interest you. Especially if yield is so important to you.

In 1981, when we purchased an average 3 bed BV house in Mulgrave(Melb suburb), the gross yield received on this house before costs was equal to 66% of interest payments to hold the house.

In 1985 the figure was 46%.

In 1990 the figure was 33%.

In 1997 the figure was 85%.

In 2003 the figure is 66%.

What the numbers show to me is that the lower the percentage of interest payments, the greater the "bubble" effect. The higher the number the better the investment. Look where we are, around the same level as 1981. That year was followed by a slowdown for the next year or 2, but since 1981 this property has had a cap growth rate of just over 8% PA.

In LBs view the numbers NEED to go to well over 110%, something that has not occurred in the last 22 years. And while he waits and waits and waits for the crash, the world will move on without him.

bye

 

[XBenX]

Originally posted by Lilith
Apartment/units tend to have a much higher beta than houses, I am sure all seasoned investors like yourselves are aware of that. I am just drawing from my previous investment experience elsewhere, primarily in North America (US and Canada) so I am quite frankly not familiar with the house situation in Australia.

Also, as someone pointed out earlier, houses in Australia are more shielded from the come-and-go of overseas investors and overseas tenants. Most apartments in inner Brisbane are less than 60% owner-occupied. That has disaster written all over the place. In the end, the ratio of owner-occupation is a key indicator of how crash-resistent a piece of real estate is.

Ohhh, another corporate finance geek ! Sigh... I dont think too many forumites could stand me posting about corporate finance as well as economics !

I wholeheartedly agree about the beta risk of units vs houses.

But as usual Im just regurgitating stuff Ive learnt.

 

[L Bernham]

Bill wrote
it has taken a long time to get LB to acknowledge any other form of property other than inner apartments. LB now tarnishes ALL houses with the same brush.

youve been saying this for a while now. I've always asked where you get this opinion from, yet not only do you ignore this request but you keep stating this as fact. Maybe if I write it in capitals you'll read and remember -

THERE IS MORE TO THE PROPERTY MARKET THAN INNER CITY APARTMENTS. HOUSES MAKE UP THIS MARKET TOO AND ARE SUBJECT TO SIMILAR MARKET FORCES.

In 1985 the figure was 46%.

In 1990 the figure was 33%.

In 1997 the figure was 85%.

In 2003 the figure is 66%.

Bit of advice - To find statistically relevant trends in a population size of millions you will need more than a sample of 5. Even if you were to compare those 5 you should ensure that other variables are the same (ie inflation rates, average earnings, population size, sentiment, sharrmarket returns... etc) . Otherwise you may as well draw out random numbers and make inferences from those.

LB

 

[Bill.L]

Hi all,

LB,

Your not the only one who does not like my real life example of where we are at. But the problem for your arguments is that this property is very much like the one next door, and the one next to that, and the one next to that etc, etc...

In fact that area of Mulgrave is not dissimilar to Springvale Nth, or the older parts of Waverley Gardens, or Dandenong Nth, etc etc..

But I suppose it is only suburban Melbourne and that is a sample of 1 and therefore doesn't count.

Interesting how you dismiss REAL numbers, when you want us all to wake up to your reality.

Do you have ANY evidence to counter my claim that average suburban houses, in average suburbs cost effectively the same as they did in 1981 to hold??

Here use my numbers,
1981 cost $44000 interest rate 12.5%, rent $70 PW.

1990 cost $110,000 interest rate 17% rent $120 PW.

2003 cost $250,000 interest rate 6.25% rent $200 PW.

Tell me, is this type of property a good investment, or is it likely to fall 35% as your latest guesstimate indicates.

bye

 

[L Bernham]

strip that data down to "real" numbers ie taking out the effects of inflation and get back to me.

 

[Les]

Hey, LB,

You've GOT to be joking, yeah????

strip that data down to "real" numbers ie taking out the effects of inflation and get back to me.

Bill.L is using RENTS and VALUES from differing era's - OK, but the rent paid, and properties values are SURELY affected by the SAME inflation rate, aren't they???

We all know that the growth from :-
1981 $44k
to 2003 $250k is subject to inflation (i.e. the place is not worth $250k in 1981 dollars.....)

Doesn't it follow that RENTS would also be affected by inflation? So, if the VALUES are inflated, SO ARE THE RENTS !!!!!

Bill.L seems to be presenting a logical argument to me......

Am I missing something here, or are you?

Regards,

 

[Bill.L]

Hi all,

LB,

I have already given you the real numbers, then I gave you the actual numbers, it is not my fault if you choose to not understand.

Les,

I don't think you are missing anything at all.

bye

 

[L Bernham]

Everyones always saying here that property prices go up more than inflation .
However rents tend to move with inflation and/or wages.

In the last 10-20 years property prices HAVE increased well above the rate of inflation however this proves nothing for the future as it clearly couldnt continue if rents are correlated with inflation (As they are) as this would mean yields would tend closer and closer to nil which cannot and will not happen.
Incidentally, if that was the general trend then it would be difficult to explain why an older country like the UK would have average yields higher than the are in Australia - why wouldnt they be nil?

If anything, this suggests that there must be some correction to bring us back to equilibrium level.

LB

 

[Bill.L]

Hi all,

LB,

So yields are totally independant of interest rates are they??
The cost of money has no bearing on the yield in your perfect world??

Actually some houses in some areas have"increased well
above the rate of inflation "

The median house price may have risen well above inflation, but it is not the same animal as it was 20 years ago.
I think the Mulgrave house has only increased about 1% above the rate of inflation, and this could be explained by the growth in Melbournes population and sprawl.

This could continue for another 20 years. Why does it have too reverse NOW???

bye

 

[L Bernham]

So yields are totally independant of interest rates are they??

Where did I say that??? Do you live on another planet where everything is either perfectly correlated or not at all. no in between.

Certainly there are many things that have a bearing on yield, interest rates being one of those things. But to say they are totally dependant or independant would be erroneous.

HAvent read the rest of your post to comment. I figure they contain the same sort of arguments refuting things I havent actually said anyway.

LB

 

[Les]

G'day LB,

Back to this one. There was an implicit question herein :-

You've GOT to be joking, yeah????

quote:
--------------------------------------------------------------------------------
strip that data down to "real" numbers ie taking out the effects of inflation and get back to me.
--------------------------------------------------------------------------------

Bill.L is using RENTS and VALUES from differing era's - OK, but the rent paid, and properties values are SURELY affected by the SAME inflation rate, aren't they???

My implicit question is "What "stripping" needs to be done, when BOTH values AND rents are affected similarly? Surely we could multiply ALL numbers by a factor of 1000 - nothing changes!!! So, in short, what "stripping" could be done that would have MATERIAL effect?


Re other comments:-

If anything, this suggests that there must be some correction to bring us back to equilibrium level.

Why? Back in the '50's, a single wage earner could bring in enough to cover the rent. Over the next 50 years, the need for TWO people to bring in Income to cover higher rents has become "the norm". Hand-in-hand with that, is the fact that the "average" house is now FAR MORE than what was available in the '50's. So, we are paying more, but are getting more too. No wonder values rise. And, yes, the values have increased by amounts above inflation.

Will it stop? To my mind, it doesn't HAVE to.... And what will likely happen is that the "average" renter will rent LESS of a property to make ends meet. We may even get to the stage (a la Japan) where it used to take THREE GENERATIONS to buy a house !!! Mind you, they HAVE had a correction (and a big one!!)

I don't believe we are at the stage where any correction needs to be hugely negative. I expect (apart from inner-city units) that values will simply NOT grow for the next few years, while the rents continue to tick upward. This will brings yields back toward the norm - but then, the supply/demand curve will kick back in, and up will go prices again.

The RBA could (of course) have a marked effect - if they pick the Cash Rate up too quickly, or too far. But, if not, and they maintain a "steady as she goes" policy, I reckon prices will simply stabilise in most areas, and NOT fall.

Regards,