Properties that have dropped 20-50% over the years

[Token Funder]

ok I would like to ask a question as well

my guess is that some of these properties that have dropped significaintly, say 20-40%, excluding serviced apartments, overpriced penthouses, and single miner towns or towns with population 10

my assumption is that yields must have been horrible back then, the people buying would be people who had emotional attachments, PPOR, or for whatever personal/non investment reason.
had the yields been ok back then, assuming CPI increases in rent, that would mean that at a 20-40% drop, then the yields of today must be between 10-20% which is not possible for standard resi property

so I guess from an investment perspective, buying in a place with say 2% yield in todays market is nuts or a massive gamble,

so any smart investor would not have touched it back then????

and in terms of future growth back then, could anybody see any indicators that a market could drop so significantly????? I ask myself, if a suburb has fallen 20% in a couple of years, and all the fundamentals still stack up, whats stopping it from falling another 10%?

And herein lies the problem.

The examples we see aren't crazy people buying crazy properties. They are largely investors like those frequenting these forums who simply fail to understand the volatility of an individual housing asset. And, given the equity contribution in many circmstances is less than 10%, relatively small falls have the effect of wiping out all of someone's cash.

This isn't to say property isn't a reasonable invesment - simply that is isn't the one way street it is often seen to be and losses aren't restricted to poor purchases.

Anyone who thinks drops of 15% or more this only happens to unusual property need only cast their minds back to Sydney post 2003.

Yes, localised manias are always a problem (as will manifest in mining areas over the next few years) but decent drops aren't rare nor exclusively the result of bad decisions.

 

[Property Meister]

And herein lies the problem.

The examples we see aren't crazy people buying crazy properties. They are largely investors like those frequenting these forums who simply fail to understand the volatility of an individual housing asset. And, given the equity contribution in many circmstances is less than 10%, relatively small falls have the effect of wiping out all of someone's cash.

This isn't to say property isn't a reasonable invesment - simply that is isn't the one way street it is often seen to be and losses aren't restricted to poor purchases.

Anyone who thinks drops of 15% or more this only happens to unusual property need only cast their minds back to Sydney post 2003.

Yes, localised manias are always a problem (as will manifest in mining areas over the next few years) but decent drops aren't rare nor exclusively the result of bad decisions.

great answer Token FUnder

my guess, is that the really smart investors would not have purchased in these areas that have dropped by significant amounts, eg one area im looking at current prices are $130kish, 5-7 years ago they were $220k, prices were about $140k about 3 months ago, current yields are between 7-7.5% which compared to todays rates is just netural/neg geared, I cant see prices dropping too much further, maybe another $5k at best, assuming 3% rental increases every year, that would mean yields would ahve been 3.8%, which would have been severly neg geared, and smart investors would not have bought here unless they thought a boom was iminent

 

[Truly Exotic]

great answer Token FUnder

my guess, is that the really smart investors would not have purchased in these areas that have dropped by significant amounts, eg one area im looking at current prices are $130kish, 5-7 years ago they were $220k, prices were about $140k about 3 months ago, current yields are between 7-7.5% which compared to todays rates is just netural/neg geared, I cant see prices dropping too much further, maybe another $5k at best, assuming 3% rental increases every year, that would mean yields would ahve been 3.8%, which would have been severly neg geared, and smart investors would not have bought here unless they thought a boom was iminent

yes agree, thats what Im starting to think, unless you expected a massive boom imininet, then buying at 3.8% yields are crazy, unless everywhere else in teh state/country was 3.8% or interest rates were like 1%!

a question?, which is sort of linekd to the other thread about house prices to income ratio,

in the recent booms of 2000ish and 2007ish, just before the boom was about to start, what was the income to house price ratios???

I hear a lot of people saying that house prices will stay flat for up to another 5 years, whether that be based on some economic evidence or just doom and gloom mindset. Just before our recent 2 booms, what sort of market factors were we faced with????? eg did people predict houses prices to stay flat for up to 5 years again??? were the key fundamentals the same each time and we are seeing the same this time around. As my view is that, incomes grow at a similar rate to inflation, CPI etc. whereas, property prices do not, and hence, there must be a point when an average salary is 50k for example, and where prices were $1mill (for hypothetically) at a point where its not sustainable for FHO to buy a property, and hence the market stays flat for another say 15 years until salaries catch up