Just thought I would post recent email I received from Steve McKnight, love him or hate him, I think clearly he has a good point here.......time to be cautious.
We are now seeing more investors than home owners/buyers in the market, no one rings a bell when it reaches the top.
Also last paragraph..... I wonder if these were D Boholts will groupies, I believe she was recommending this area.
"These record prices are not supported by the current or expected performance of our economy, job prospects, or rental yields. Surely we are in fool territory where values are being bid up on the belief that prices cannot, and will not, fall. This is simply wrong.
Consider Moranbah in Queensland. Rents for a 3 bedroom home in March 2012 were a whopping $2,000 a week. Attracted by high returns, median house prices rocketed up to $710,000 as investors outbid each other to get a slice of the positive cash flow action (median house prices in March 2009 were $176,435). It was happy days indeed.
Then the mining boom ended, and as jobs were shed, rents fell as housing supply exceeded demand. Prices followed and today a 4 bedroom home rents for $340 a week and the median house price is $372,000.
The principle here is that any housing market characterised by more investors than home owners runs the risk of a sudden price collapse when the reason for investors being attracted to that property ends causing them to need to exit quickly.
That is, if investors cannot afford to hold the property then supply can suddenly increase as properties are offloaded, and if there are not a sufficient number of buyers (which there won?t be if the majority of buyers were investors in the first place), then price can fall, fast as sellers compete to exit by slashing prices.
In respect to Moranbah it was the high rents that ended as the job market softened and vacancies increased, but the same holds true in respect to the removal of tax incentives (beware NRAS investors), or the removal of tax concessions (beware heavily negatively geared investors)..
Rarely do you see the reason for the change in conditions coming, but you will certainly feel the nasty effects of being caught up in a whirlwind downturn".
(As a side note I have to note that several prominent hot spotting sprinklers advocated buying in towns like Moranbah and have quickly moved on to other areas and have hushed up their failed projections, whereas investors who followed their advice are left with the nasty consequences.)
We are now seeing more investors than home owners/buyers in the market, no one rings a bell when it reaches the top.
Also last paragraph..... I wonder if these were D Boholts will groupies, I believe she was recommending this area.
"These record prices are not supported by the current or expected performance of our economy, job prospects, or rental yields. Surely we are in fool territory where values are being bid up on the belief that prices cannot, and will not, fall. This is simply wrong.
Consider Moranbah in Queensland. Rents for a 3 bedroom home in March 2012 were a whopping $2,000 a week. Attracted by high returns, median house prices rocketed up to $710,000 as investors outbid each other to get a slice of the positive cash flow action (median house prices in March 2009 were $176,435). It was happy days indeed.
Then the mining boom ended, and as jobs were shed, rents fell as housing supply exceeded demand. Prices followed and today a 4 bedroom home rents for $340 a week and the median house price is $372,000.
The principle here is that any housing market characterised by more investors than home owners runs the risk of a sudden price collapse when the reason for investors being attracted to that property ends causing them to need to exit quickly.
That is, if investors cannot afford to hold the property then supply can suddenly increase as properties are offloaded, and if there are not a sufficient number of buyers (which there won?t be if the majority of buyers were investors in the first place), then price can fall, fast as sellers compete to exit by slashing prices.
In respect to Moranbah it was the high rents that ended as the job market softened and vacancies increased, but the same holds true in respect to the removal of tax incentives (beware NRAS investors), or the removal of tax concessions (beware heavily negatively geared investors)..
Rarely do you see the reason for the change in conditions coming, but you will certainly feel the nasty effects of being caught up in a whirlwind downturn".
(As a side note I have to note that several prominent hot spotting sprinklers advocated buying in towns like Moranbah and have quickly moved on to other areas and have hushed up their failed projections, whereas investors who followed their advice are left with the nasty consequences.)
