Prospect of a sudden & dramatic drop in prices should not be ignored

[.toe]

why does it have to be exponential growth from here? why can't they just hold steady or fluctuate a little?

if they held steady or even fell 20% from here it'd still be an awesome economy driving forward.

I'm not saying it has to be exponential growth, I'm saying it has been exponential growth, at such a pace that I wonder whether they know when or how to moderate it. Japan couldn't do it, the market did it for them, and they haven't recovered yet.

Lets say for arguements sake that the current 5sqr feet per person of construction will be finished in a year. And China has been growing at 10%pa for some time mostly on construction. Could that mean that in the last year they also built 4.5sqr feet, then 4.05sqr feet the year before that? Will it be 5.5 next year?

 

[HiEquity]

On the question of the potential housing under-supply, I agree with evand. With the evaporation of developers' ability to build new supply on the back of speculative capital gains (courtesy of a lack of finance for the purpose), we are now back to fundamentals. Rents have to rise sufficiently to bring forward the ability of developers to get their projects away. IMO, across the (vast) majority of Australia's resi markets, rents are far too low to justify bringing on new supply. Hence, there is no under-supply. When rents get up to replacement level then we will see. The other way of looking at it is the ability for people to pay an average rent is still far easier than their ability to service an average FHB mortgage. That has to get far closer to parity to bring on new supply in the new world order. Until then we are still over-supplied (in general of course!).

Ausprop - the answer to your question lies in pondering the impact of agent's fees, capital gains tax and stamp duty to get the same level of IP exposure back again. The downsides of churn are significant! Looking forwards rather than backwards is my preference...

 

[Ausprop]

Ausprop - the answer to your question lies in pondering the impact of agent's fees, capital gains tax and stamp duty to get the same level of IP exposure back again. The downsides of churn are significant! Looking forwards rather than backwards is my preference...

true - the wealth destruction from holding a loss making asset needs to be weighed up against the damage to your balance sheet from sales agents, taxes etc. Either way you're gunna hurt. All you an do is try to pile on CF+ as fast as possible, if you can.

 

[recruit2]

I think we are at the very beginning of WORLD BOOM #2 and things are going to surpass where they were prior to the GFC very soon. Much of the gloom will pass and multiple countries will be simultaneously booming. Bigger economic growth than ever seen before inline with current population figures. We've had the correction, the huge sustained next boom will be on the way.

 

[DanielG]

I think we are at the very beginning of WORLD BOOM #2 and things are going to surpass where they were prior to the GFC very soon. Much of the gloom will pass and multiple countries will be simultaneously booming. Bigger economic growth than ever seen before inline with current population figures. We've had the correction, the huge sustained next boom will be on the way.

Wow. Is your assessment of a BOOM based on any facts you would like to share or a "gut instinct"?

I just ask because all indicators are pointing down...

 

[Ausprop]

yeh I was wondering where the exuberance was coming from too...

 

[recruit2]

Wow. Is your assessment of a BOOM based on any facts you would like to share or a "gut instinct"?

I just ask because all indicators are pointing down...

Just gut instinct. Fear/gloom always passes. But in the times when its present, it always seems like it will never end. The whole world is tightening its belt right now and productivity will only increase. There will be a huge recovery.

 

[PeterC]

can you define very soon? sometime this year?

 

[Aaron Sice]

as in.....with all of 3 weeks left of it?

 

[tom32]

I think stock levels will tell us when the market is turning up again.

It does not appear to be at the moment.

Went to an open home on the weekend wrt to my first PPOR and was discussing the lack of interest on what appeared to be one of the best value homes in the suburb with the agent at the second home to which she said she thinks people are too busy this time of year to go to open homes.

I don't think while stock levels for sale are both high and rising you can expect a turn around in the short term. You would want to see them at least start to fall before thinking it was a good time to buy preferably return to normal levels. Even if you have a long term view it is still worthwhile timing your entry to some extent.

If you look at stock levels through 08 and the way they dramatically fell upon introduction of the boost and low interest rates then the latter follow through on rising prices stock levels seem to be the number one best indicator of the markets strength or lack of strength.

 

[PeterC]

as in.....with all of 3 weeks left of it?

thats someone's my definition of very soon, but if he's the one saying hold on to your pants for WORLD BOOM #2, id like to know how soon i'll need to buy that new belt to keep the pants on.

 

[Bargain Hunter]

So what the hell does China, India and the US have to do with the lack of supply in Australia and hence the sustained prices within the domestic market.

This type of mumbo jumbo about a dramatic 'adjustment' of the local market gets rolled out now and again and I have yet to witness this phenomenon. When there is a dip those predicting the huge losses will claim they are Nostradamus and give some equally obscure reason for the impact not being as severe as predicted.

I am yet to read any facts supporting the predictions thus far. Hence I am happy to ignore this sort of unsubstantiated clap trap.

 

[Propertunity]

I think stock levels will tell us when the market is turning up again.
It does not appear to be at the moment.

Just be aware that in Dec / Jan the number of sales "falls off a cliff". See peak selling times chart (for Syd LGA) attached. People go into holiday mode and they don't come back until February. This is not a new phenomenon. The chart is the aggregation of 15 years of data.

Many investors use this as a time to snag a bargain, where there is plenty of stock and few buyers. February, IMO, it will be full steam ahead again in the "in demand" areas.

 

[hobo-jo]

February, IMO, it will be full steam ahead again in the "in demand" areas.

That's what some were saying about Spring a few months back.

Can you be specific about the "in demand" areas that you think will be "full steam ahead" in February?

 

[Propertunity]

Can you be specific about the "in demand" areas that you think will be "full steam ahead" in February?

Yes, I can be. It was quite obvious to people 'on the ground' in these areas, that the boom in prices was very narrow and did not extend across all suburbs of Sydney & Newcastle.

For example, in Sydney's Inner West which was and is still going gangbusters for certain types of property. There are 3 hotspots in Newcastle at the moment which are doing likewise. The types of property in these areas that are doing well vary according to the suburb.

e.g. Inner West = Art Deco apartments and townhouses (both in limited supply) The Hill in Newcastle = Terraces. Hamilton = Federation style.... and so on.

 

[zed_kid]

The people across the road from my house were selling their house for about 2months and have recently took down the for sale sign (don’t know if its still listed with the agent or not)... crash? No. Decline? Maybe. Bad timing? Yes...

 

[BV]

The people across the road from my house were selling their house for about 2months and have recently took down the for sale sign
crash? No. Decline? Maybe. Bad timing? Yes...

some vendors will have unealistic expectations and when they can't get the money they want they take the property off the market

 

[Ms Jade]

Just be aware that in Dec / Jan the number of sales "falls off a cliff". Many investors use this as a time to snag a bargain, where there is plenty of stock and few buyers.

Yep, this is usually the case in Melbourne, too. But more tantalising this year. There are listings everywhere; this Saturday will be the biggest auction weekend for a couple of years (1280). An agent told me this week that his office had their biggest listing month EVER in November. There are also a lot of houses passed in from the last 4 weeks, so unless many people change their mind about selling, the stock is likely to sit on the market through Xmas into Jan at least.
There will be many fed-up sellers whose properties are still languishing into the new year. The really motivated ones will probably be prepared to drop prices.

 

[woohoo]

i think Australia is safe, in the sense that there are many people from China, India, Asia and other migrants that are snapping up properties, not just for their own residence but also for investment.

The govt was smart to let more Asians come in during the GFC.

 

[Intrinsic_Value]

I think stock levels will tell us when the market is turning up again.

It does not appear to be at the moment.

Went to an open home on the weekend wrt to my first PPOR and was discussing the lack of interest on what appeared to be one of the best value homes in the suburb with the agent at the second home to which she said she thinks people are too busy this time of year to go to open homes.

I don't think while stock levels for sale are both high and rising you can expect a turn around in the short term. You would want to see them at least start to fall before thinking it was a good time to buy preferably return to normal levels. Even if you have a long term view it is still worthwhile timing your entry to some extent.

If you look at stock levels through 08 and the way they dramatically fell upon introduction of the boost and low interest rates then the latter follow through on rising prices stock levels seem to be the number one best indicator of the markets strength or lack of strength.

this is a fantastic post, it will probably get lost amongst the noise, but well done
Kudos to you