Once in a Hundred Year Property Slump

can you link the graph please? sounds interesting.

but rents are rising, my place will yield 7% gross so 5% nett which is pretty much right, who are buying this 3% yielding properties?

the thing with property vs equity as you don't need BHP shares to live, people don;t buy them as a neccessity, whereas a house is. plus they are emotional buys.

i dont think the two are that comparable unless you could split out investment houses and OO's.
 
leapfrog economics

I was trying to hold myself back from typing my views on this topic because I think my comments are pointless when the drums of D&G are beating so hard and I hate when I have to argue against what I like to call leapfrog economics. But... my annoyance on this topic got the better of me so here goes..

Its like getting the sniffles and claiming you have pneumonia. You can argue it, even argue that no one can be 100% sure its not pneumonia but any good doctor would atleast tell you to wait for a few more concrete signs before jumping over getting a cold, fever and going straight to claims of pneumonia.

One of the previous posts claimed we are heading for a "mild depression". Oh please! we have already jumped over recession and entered into depression???? I'm starting to get a tumor oh i mean headache..

And for these so called analysts being quoted in the Bloomberg article (notice 90% is simply made up of a collection of sound bites by various people??) I wouldn't pay them 2 cents for their advice. They work for the same institutions that didn't see the credit crisis coming? And they were the ones lending? and should have been the first to see? And now they want to claim they can foresee the state of an entire market and economy... please.

Its like the philosopher Bertrand Russell analogy of the celestial teapot which was intended to refute the idea that the burden of proof lies upon the sceptic to disprove unfalsifiable claims of religions. The same applies to illogical economic claims. (for those that don't know the analogy read it up but it short explanation is if i was to claim there was a teapot circling the sun which was too small to see from earth then how can a sceptic claim it to be untrue and hence it can be argued theres a chance that it is true) - much the same as the sniffles MAYBE is pneumonia or just as 0-2% falls in all capital cities in property MAYBE "Once-in-100-Year' Housing Slump".

The drums of D&G beat hard and the problem is that in the media comments by people that have no real understanding of the economy or have vested interests and make sensationalists comments which the media are only too happy to give them prime time. Think about it whens the last time you have heard a mild mannered economist without saying a "catch phrase" or "word bite" every to seconds and instead gave a dry "boring" analysis of the economy? NEVER or at best rarely and definitely not on prime time. Hell the guys they trawl out are young, slim, well dressed and all wearing funky city slicker ties? they are even selected for their "on tv" appearance... whens the last time we saw Ross Gittins on tv? or the countless other economists that look worse to wear? (sorry Ross).

The vested interests of those making these claims are clear as-well. Why on earth would any ceo of a bank claim that everything is rosy? They prefer a situation where "abnormal", "interesting times", "rare and difficult" situations is the reason for their woes and subsequently the reason they cannot pass on cuts or the reason why they lost money. Heaven forbid we blame it on greed or poor risk management.

The RBA only a few months ago raised rates, I am sure they also analyzed all the data, made interpretations, forecasts etc and still raised rates in the middle of the "credit crisis". Why? because they are masochists? no because they entrench themselves of the reality of the day and the foreseeable future and not the "celestial teapot" claims of "Once-in-100-Year' Housing Slump" or a "debt tsunami" or a "recession" or a "depression" or whatever catch phrase you might like to think of.

The reality is this today there is NO recession (no where near), there is NO depression (no where near), there is no property crash (no where near), there is no jump in unemployment (haven't seen a rise yet - surely it must soon), there is no locally based major collapses in the financial industry (don't tell me the ones that have play a combined roll of anything more than 0.1% of the entire market).

So from this backdrop we have deducted we are heading for oblivion? please this is all making my head hurt a little... must be a tumor or an aneurysm.
 
I'm going to make some important points here and I want people to understand these:

We have no subprime problem in Australia. Why? Because the finance practices were not as bad here as in USA. In USA, if they can't pay the mortgage they simply leave because their is no recourse on the borrower. In Oz, there is recourse - you are declared bankrupt. Most people would rather eat their fingernails than lose their homes in Oz.

We have economies that are going gangbusters - WA & Qld.

We have no jobs problems.

We have more demand than supply for housing. Migration into Australia from Asia, NZ, students and expats is booming.

Banks here are not going broke - they are making record profits.

Basically the worst of the credit crunch is over, interest rates are coming down, and things are now on the improve.

Housing is not going to bust. I hope everybody can understand this simple explanation.
 
Hi all,

please this is all making my head hurt a little... must be a tumor or an aneurysm.

Don't love it at all. This is a little too close to home. For our family last year, it was a brain tumor.

bye
 
with that 2.3% cost - it uses depreciation which i think should be taken out as it is a funny money cost and is actually a saving on tax.

plus who is buying at 2.5% gross yields? i hope no-one here! probably the mcmansions in the 'burbs.
 
Hi all,



Don't love it at all. This is a little too close to home. For our family last year, it was a brain tumor.

bye

Bill
My apologies for any hurt or offence my comment may have caused. I was unaware of your family's situation and no personal attack was intended by the comment.

kind regards

Shane
 
Hi,

No worries Shane, I know what you were showing. We're :cool:

YM,

That 'research' from Morgan Stanley, sure does contain some garbage that is not true in the real world. Putting 2 graphs together that generally start at the bottom left corner of the paper and wind there way up to the top right always looks impressive, especially if you adjust the scales on each side to show what you want them to show. The scales have no correlation, therefore the graphs have no correlation, apart from starting low and ending high.

Basically garbage in garbage out.

I also love the mis-use of Equity vs Houses theory. It is easy to show what you want with hindsight bias if you use particular companies. If using an index it is a bigger lie. The composition of equity indexes changes over time, no allowance is made for the extra funds needed to purchase the new entrants in the correct ratios. It is not possible to mimic the indexes by just purchasing the constituent stocks and holding them for the long term.

Again garbage theory, sold to the masses. Most people, who are not prepared to do their own work, fall for it.

bye
 
I'm going to make some important points here and I want people to understand these:

We have no subprime problem in Australia. Why? Because the finance practices were not as bad here as in USA. In USA, if they can't pay the mortgage they simply leave because their is no recourse on the borrower. In Oz, there is recourse - you are declared bankrupt. Most people would rather eat their fingernails than lose their homes in Oz.

We have economies that are going gangbusters - WA & Qld.

We have no jobs problems.

We have more demand than supply for housing. Migration into Australia from Asia, NZ, students and expats is booming.

Banks here are not going broke - they are making record profits.

Basically the worst of the credit crunch is over, interest rates are coming down, and things are now on the improve.

Housing is not going to bust. I hope everybody can understand this simple explanation.

i agree - except for the migration side of things.

where are these migrants living? would they not be snapping up houses left right and centre? i think the figures a little misleading - say theres 15,000 immigrants pa and only 10,000 homes being built, then people think a deficit of 5,000 homes - hence underlying demand.

but homes have - wait for it - BEDROOMS! normally 3 or 4. so there are 30-40,000 ROOMS available, for 15,000 migrants. i know plenty of FIFO workers in shared accomodation, i know of a brother and sister who bought a house together and live at opposite ends of it. i also have a cousin who bought a huge 4bed home in a great area by going quarters with 3 of his oldest mates.

and there's our discrepancy as to why - if the migrant numbers are increasing - we're not seeing an increase in the value of homes.
 
That 'research' from Morgan Stanley, sure does contain some garbage that is not true in the real world. Putting 2 graphs together that generally start at the bottom left corner of the paper and wind there way up to the top right always looks impressive, especially if you adjust the scales on each side to show what you want them to show. The scales have no correlation, therefore the graphs have no correlation, apart from starting low and ending high.
Technically they aren't correlated - true - but it has nothing to do with the scales (scales can't have a correlation). The percentage of people who wear seatbelts (%) and car accident injuries (thousands) are 2 completely different scales but the 2 statistics are still highly correlated.

The best you can do with those 2 graphs is to eyeball them and conclude that from the mid 90's to now both have gone up significantly. In my unscientifc opinion this is no accident - the extra debt taken on (relative to income) has been pushed into the prices of existing housing stock - swirled around for a while - and then popped out the other end as consumption of useless crap.

I also love the mis-use of Equity vs Houses theory. It is easy to show what you want with hindsight bias if you use particular companies. If using an index it is a bigger lie. The composition of equity indexes changes over time, no allowance is made for the extra funds needed to purchase the new entrants in the correct ratios. It is not possible to mimic the indexes by just purchasing the constituent stocks and holding them for the long term.
Agree with you completely here.
 
Hi YM,

One of the graphs showed that rental yields were extremely low in the mid '60's around 3% and rose to over 5% by the mid '80's.

This was fairly much in line with what happened to interest rates, started fairly low and ended up much higher.

This was also a golden period for property investment, as yields rose.

Seeing as we are back near the low point in yields.....

From that graph, you could argue that the next 20 years could do the same thing, yields to rise WITH multiple price booms, therefore a golden period ahead for property investors.

But I will assume you wont actually argue that...;)

bye
 
From that graph, you could argue that the next 20 years could do the same thing, yields to rise WITH multiple price booms, therefore a golden period ahead for property investors.

But I will assume you wont actually argue that...;)

It all depends whether you believe the low yields were / are driven by the denominator or the numerator.

Remember - you can't borrow money to pay rent.
 
In my unscientifc opinion this is no accident - the extra debt taken on (relative to income) has been pushed into the prices of existing housing stock - swirled around for a while - and then popped out the other end as consumption of useless crap.

Add a mining boom that is still insufficient to get our terms of trade into positive territory and you have the last ten yearsof the Oz economy in a nutshell.:eek:
 
I'm going to make some important points here and I want people to understand these:

We have no subprime problem in Australia. Why? Because the finance practices were not as bad here as in USA. In USA, if they can't pay the mortgage they simply leave because their is no recourse on the borrower. In Oz, there is recourse - you are declared bankrupt. Most people would rather eat their fingernails than lose their homes in Oz.

We have economies that are going gangbusters - WA & Qld.

We have no jobs problems.

We have more demand than supply for housing. Migration into Australia from Asia, NZ, students and expats is booming.

Banks here are not going broke - they are making record profits.

Basically the worst of the credit crunch is over, interest rates are coming down, and things are now on the improve.

Housing is not going to bust. I hope everybody can understand this simple explanation.

good points but respectively disagree. i actually take a contraian view and am extremely bearish on aussie economy and housing the basic reason is that the level of debt in australia especially in sydney seems to be at unprecented levels. basically u have bankers earning 1 million plus a year buying swanky pads and basically tied to their high paying jobs in order to service their loans.

sure resources boom in australia but living in HK and hearing the salaries all my friends are earning fresh out of uni seems ridiculous. my ex gf was 1 year out of uni with no experience in finance earning $100k aussie a year base salary with 100% bonus. my parents had to work for 30 years in the public service to earn that kind of money. all seems to be a bubble waiting to burst to me.. other guys doing mining engineering are making similar money as grads.

the key for me is job losses in australia will trigger housing price slump never seen before, if world economy slows so does china's insatiable demand for resources and basically our comoodities boom.

i've always being a believer in property but seeing international property markets and the volatility they can have and the amount of debt in sydney really scares me. i'm actually thinking about selling my 2 units.
 
Dead right. Servicing this massive debt up until recently has been easy. The increase in IR rates recently has caused only a bit of pain.

It is amazing to see how quickly people hurt with a couple percent increase in interest rates. Just goes to show most of society is living close to the edge financially. Wont take much to get closer to the edge, or over.

If the economy falters here the results could be disastrous. If we weren't in the middle of a huge commodities export boom i'd hate to see the state this country would be in. Property prices would tank like never before.

Debt is fine, when it can be serviced comfortably. If anything hinders that serviceability for the community at large.....look out.

i've always being a believer in property but seeing international property markets and the volatility they can have and the amount of debt in sydney really scares me. i'm actually thinking about selling my 2 units.
 
Hello All

WARNING Rant Ahead

Firstly, it is good to see a good old fashioned debate on the state of the market and not “troll hunting”. Some of us "oldies" at SS would debate all the time back in yonder and it was not D&G versus BULL but simply, another opinion.

I welcome those less pro-property as it gives you another view and let’s face it; we (mostly) are here to learn. Even Peter Spann would say that the value he gains from SS is an opinion of the market from the average investor. This would be invaluable research to him and fun.

Secondly, I don’t see all this talk about” banning this, he a troll, he a property bull, she is plant, etc…” as being anything but ego on both sides. I mean, if you want an absolutely stupid thread or post to die…. then don’t reply. It is really that simple. I am constantly amazed that highly intelligent people get “sucker punched” each time into keeping a thread they hate, alive.

Rant off.

On Topic some very good points on all sides. Especially Tcocaro. Kudos coming.

For my bit, I don’t see a massive slump.

IMO Australia is not connected to the world like in the past and frankly, it could be argued we never were and that only now have the computers and stats to prove it and the courage to ask it.

We survived in my adult life chronological order, 1987 Crash, Great Property Crash of 1990, Skase, Bond, Tricontinental Crash, State Bank VIC sell off, Button Plan for Cars, Asian Crisis, Y2K, DOTCOMM Bubble, Sept 11, SARS, Bird Flu, Drought and now Sub-Prime and Oil Shock 2. Survive means we are not all on the street jobless, homeless, wondering where our next feed is.

The late eighties/early nineties were significantly harder than now. I was retrenched twice and invested in a private Company that went belly up. Prices for cars skyrocketed. Big Companies went belly up. Banks lost deposit savings. Unemployment was 10% plus and rate were as high as 17%. To paraphrase that iconic movie of the era Crocodile Dundee, “you call now a recession then was a recession”!

When there are no jobs for those who want those, rates are on double figures, banks are not loaning money, prices for everything are going …..then we have a claim to pain.

IMO what we have is the hangover from a debt fuelled binge that has given the average Gen Y a false sense of values as to possessions and expectations. Happy to divorce each other but fight tooth and nail to keep the Plasma. Complain about petrol prices but buy a new car every three years ignoring depreciation. Text, MMS, and email via mobile phones how poor they are, oblivious to cost.

Now I know not all GenY are like this and yes even in my day the average punter liked to spend but a good slowdown is what we need to get some perspective into people lives.

As for house prices going down big time, all of the above crises failed to bring it about and as I see it , compared to before, we are yet to see any real pain.

AND today,

the RBA will be start taking the pain away. Why? becaue Plasma sales have slumped.

Regards
Peter 14.7
 
IMO what we have is the hangover from a debt fuelled binge that has given the average Gen Y a false sense of values as to possessions and expectations. Happy to divorce each other but fight tooth and nail to keep the Plasma. Complain about petrol prices but buy a new car every three years ignoring depreciation. Text, MMS, and email via mobile phones how poor they are, oblivious to cost.

Now I know not all GenY are like this and yes even in my day the average punter liked to spend but a good slowdown is what we need to get some perspective into people lives.

As for house prices going down big time, all of the above crises failed to bring it about and as I see it , compared to before, we are yet to see any real pain.

AND today,

the RBA will be start taking the pain away. Why? becaue Plasma sales have slumped.

Regards
Peter 14.7

Excellent post, Peter - kudos following!

I think the RBA will cut by .25% today - but I don't believe they should. It will be interesting to see what happens after the cut - as you said, Peter, 'we are yet to see any real pain'. Have people really 'learned their lesson' yet? Will they continue to curb their spending? I truly hope so - if the RBA has to raise rates again, I think things may well get very messy!

Cheers
LynnH
 
Thanks LynnH

The RBA is so going to cut .25% it is 99.9% sure.

Wizard would not have risked all the free publicity it got by going alone on Monday without being very very very sure.

I disagree with your call that a cut is not necessary as they move ahead of the market and need to think in 12 months now 3. Sadly they didnt do this when they rose then in early 2008 when all the signs were the slowdown was entrenched.

The questions is how much? 0.25% or 0.5%. What RBA do will say a lot about where they see the economy are at in 12months. 0.5% will be we really overcooked it.

Peter
 
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