Property Crash Early 90's

[Kevmeister]

What was the impact of the early 90's property crash in % terms on median prices. Particularly for Melbourne.

Was it really a crash, or more a flattening out?

I've seen the figures somewhere, but can't find them.

 

[agent007]

Steve has in his site the median house prices from 1981 to 2002 in all capital cities.

http://www.navra.com.au/articles/medianhouseprices-81-02.html

Regards,
James.

 

[Kevmeister]

Thanks, James.

 

[bundy1964]

Hi Kevin

You have to remember the Interest rates that were around at that time as well.

If your gearing at 80% or higher interest rates around 15% will hurt.

History has so far shown the median price has kept rising with a few flat spots and -ives along the path.....if you can hold on in the down times the market finds new highets sooner or later. You may need to sit on your hands for a while waiting for he right buying/selling times.

bundy

 

[bundy1964]

This may be compared to the median price of houses it only starts from the 90's though.

http://www.rba.gov.au/Statistics/cashrate_target.html

Maybe someone could find the mortgage rate at that time?

bundy

 

[always_learning]

To give you just one real life example, I purchased in 1992 a 3br house in Seddon (inner west Melbourne) $88K. The neighbour paid for a similar house $120K in 1990. The owner of my house told me he was offered $120K also in 1990 but he didnt accept it.

This was a 30% decline. In 1996 after repainting/reblocking the house was revalued at $100K ($12K in 4 years and I spent $8K on improvements). Only in 1998 do I think that the price exceeded $120K.

 

[suejones]

I don't claim to be an expert, but we did a reasonably thorough analysis of median prices by suburb, based on the valuer general's data before we bought our first IP. An interesting trend I saw was that during the early 90s, some suburbs declined a little, some stayed flat and some rose slightly. We decided to look at investing in suburbs that rose slightly.

Of course as always_learning points out, some individual houses would have done better or worse than that. By the way, a renovated 3 bed house in Seddon would be worth $350,000+ now. Hope you've still got it always_learning!!

Sue

 

[paulzag]

Originally posted by bundy1964
If your gearing at 80% or higher interest rates around 15% will hurt.

umm most IP's at the time were 90-95% LVR with LMI not objecting to anything. Banks still had branch managers with sales targets, they'd lend on anything with a roof, door, floor and at least 1 separate bedroom.

Regards

Paulzag

 

[Bill.L]

Hi
We sold a house in Mulgrave in 1990 for $110k and 3-4 years later could have bought similar in same street for $96k. Even around 1996 could have bought in same area for around the $110k mark. Hope this helps.

bye

 

[always_learning]

Is the valuer general data real based on actual sales prices? Or just conservative estimates of values?

In the case of Seddon, I believe that my figures where very indicative of the market trend downward on actual sales prices in the area.

In 1996 I almost sold Seddon...but I then read "Building Wealth in Changing Times"...and choose to keep it! $200K+ in equity latter and basically cash flow positive all that time...lets just say the ideas in Jan's $20 book ( I think I paid $20) have repaid me 1000 fold! Words and idea's are so powerful!

 

[investor]

Originally posted by paulzag
umm most IP's at the time were 90-95% LVR with LMI not objecting to anything. Banks still had branch managers with sales targets, they'd lend on anything with a roof, door, floor and at least 1 separate bedroom.
Paulzag

Hi

Sounds like the present situation.

If buying after a boom represents a 30% discount, I wonder why everyone talks about buying and holding and not many about trading properties.

Regards

Investor

 

[Aceyducey]

I like to think of the property market as like the share market in ultra slow motion.

You can't pick the peak of a boom or trough of a bust, so the aim is to buy when prices in an area have a consistent uptrend and sell when there is a consistent downtrend.

At the moment the market across the board is slowing, though there are some areas still rocketing ahead and some basically standing still (anyone seen a suburb/city where prices are currently going backwards?).

So there are still good reasons to continue buying property and not many for selling yet....particularly if after you take your cash out there aren't yet the cheaper properties to buy back into.

Of course, the property market isn't the same as shares so this is a rule of thumb to be modified when common sense/real events dictates otherwise. (I do have a place for sale at the moment, but it was bought specifically to be renoed & traded)

And I do bear in mind the % of income required to cover the loans on properties. Historically this has hung around the 30% mark...when it goes over this (roughly - a few % are sustainable) the market is due for a slowdown & when it's under this the market can sustain a boom....this is impacted by wage levels, inflation, unemployment & interest rates.

Personally I would love to operate in a market like the US which is large enough to have significant booms/busts in different places at the same time. Australia unfortunately shows a tendency due to its small size to all be up or down at once, only at different rates.

Cheers,

Aceyducey

 

[see_change]

Investor

The people who talk about buying and holding Properties are the same type of people who talked about buying and Holding shares.

Bear in mind though that the transaction costs in property are higher , But if you can double the value of a property in a bit over a year and considerably more than double you actual investment why wouldn't you .

Obviously there are only certain times of the cycle when you can do this, but why wait around for the rest of the time getting minimal returns. Obviously during part of this time , the share market will be moving, so put your money there.

While it is hard to pick the bottom and top of a particular trend , you don't have to do that to still do very well our of it. In share trading the aim is to pick the central bit of a trend. One house I nearly bought in logan had sold for 60 K about 18 months before I nearly bought it for 80. It would be worth 130 now. To anyone actively looking at the market a year ago it was pretty obvious that it was moving. My main complaint now is I didn't buy more. That was more due to a lack of experience . Then again , going from zero to 11 IP's in one year wasn't to bad.

I'll be selling some when I think the market is peaking , and using the money to pay for some renos, pay some school fee's off in advance and make the remaining IP's well and truly cash flow pos. We'll keep some in reserve for buying other investments when we see improved value. I mean AMP is still going down....


see change

 

[brains]

Good post Acey. Very true.

My experience is i bought a terrace in Leichhardt in inner west Sydney in 89 for $170k which was BIG bucks at the time. Rented it out for $250/week. After about 18 months i moved in for a couple of years, eventually got sick of rising damp, leaking roofs, living under the flight path...etc..and sold it for $187k in 1992, Thats a 10% rise in 3 years, not bad in a static or falling market but not great.

Its probably worth $600k these days so of course i regret selling it but didnt have a clue about PI then.

My only consolation is with the money from the sale i bought a house on a big block in the burbs and did a sub divide/dual occ while i lived in the original one for a couple of years.

Bought that house for $133k in late 92 and sold both properties for about $175k each in early 97. And still the PI light didnt come on!!

Late 2001 my wife bought me RDPD and finally the penny dropped

 

[coolstyle]

Thanks guys - valuable post (esp. for zero ip guy ready to go)...

I need to discuss the following to make sense of it:

1) I look at the median property values and follow the trend (albiet only since 1981) .. following the trend-line tells me the general market will basically remain flat over the next 3-5 years, and rise again in 2007.

2) I look at the economy & cash/ interest rate trends and my assessment tells me that rates will not rise for 3-5 years .. I really can't see the economy rising enough to support rate rises in the next 3 years.

Conclusion:
Aim to purchase a property in 5-8 years as once the market begins to grow again, the rates may come in and knock many risk taking/ inexperienced IP owners to sell in panic mode.

My best assessment is to build cash and gain experience during this period. Having said that, my current money is working for me in other commodity trading area's, so I find it hard to justify dropping 50+k deposit only to see it stagnant for 5 years.

Personally 50 k in three years can net me 20k minimum profit after tax, so I would encounter a double hit.

**I realise the flipside maybe more risky (ie, staying out of the market & it does not follow my assumptions) ... please let me know if your opinions & experience can tell me I'm wrong!

regards,
CoolStyle

 

[brains]

Not a bad strategy Coolstyle, except for i dont think property will be flat everywhere in the next 3-5 years. There are different markets in Australia, some going sideways, some growing , some falling.

You have to find the growing market area and buy there if you dont mind buying anywhere in Aust.

And i think you could bring your interest rate prediction forward a year or two, i think rates will begin to rise in 2 years and be at about 8-9% in 4-5 years.

 

[silas]

Brains.
Thanks for the post. Where In Australia currently would you be looking for property that has not reacged or in close to reaching the top of its growth.

Silas

 

[brains]

Thats a big question and it depends a lot on how you want to invest in property. Do you want to pos. gear or neg. gear and achieve growth...etc

Having said that, some areas around Perth and SE QLD have still some growth i think.

But you need to do your own research. Heres a start:

www.residex.com.au

www.homepriceguide.com.au

 

[coolstyle]

Thanks Brains.

I don't feel comfortable looking to Perth and Queensland forIP's at this stage (considering I have Job and own business commitments in Melb.).

I'm sure if I look hard enough and begin to bargain hunt more intelligently, I can find some l/t discounts in Melb.

Your assessment of economic factors are interesting, and alert me to prepare for variations to my own theories ... I guess having employment in the I.T. industry encourages my pessimistic view to a recovery being so soon

Cheers,
Coolstyle

 

[abcdiamond]

The scary part of Property is "What if Values FALL"

In Australia that hasn't really happened..

But: In 1996 I bought a property in UK for GBP13,000, it had dropped from its build price of GBP 40,000. That was at the bottom of the slump. Everyone thought Financial Disater!
But now 9 years later, prices are back up to 3 to 4 times the 1998 vales.

Treat property "Long Term" and ... "she'll be right mate" (did I get the saying right?