well why don't you shift your comments over to a sharemarket forum?
Residential Investment No Longer Safe
- Thread starter yieldmatters
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well why don't you shift your comments over to a sharemarket forum?
Seems we have two threads running with a similar theme. For the record, I just posted in the other one on where I think Sydney is in the cycle:As IanInvestor reminds us, we are in a cycle. All the states don't peak and fall at once. Brisbane has seen a profitable year with fantastic growth in most areas. It is now Sydneys turn.
So while we may be seeing higher medium prices in Brisbane, we have just begun the rise in the cycle for Sydney. Give it time. . . . .
http://www.somersoft.com/forums/showpost.php?p=397861&postcount=25
Agreed, give it time...
And I also agree, as Michael Yardney points out, that perception tends to lag reality. So if you think we're at 6 o'clock we're probably already at 8.
Cheers,
Michael
Yep
Thinking the same way, with the current housing crisis, people need/want a roof over their heads. Some low cost housing would be great but with the price of land and building costs the cheap housing is still only giving about 5% yeild.
I still think housing is a safe investment or safer than many other investments but it will not fund its self in the first 5 years.
Safest but still costly.
Cheers
graeme
Gambling is international
A somewhat fatuous "analysis" as US & AU are apples and oranges and do not stand up to all comparisons but it is a reminder that cycles do and will occur. My view is that for AU the yield does not justify investing such that betting on further capital growth is the only justification for taking on debt. No to argue whether this is a good or bad bet, just to remind myself and others that it IS a bet, due to the fact that there is a cycle and we are always somewhere in it.
"A report prepared by the International Monetary Fund has warned that Australian property is among the most overvalued in the developed world, behind only Ireland, the Netherlands and Britain in terms of vulnerability."
"While Australia doesn’t have the sub-prime lending crisis that has engulfed the US, Australia has its own “lo-doc” sector, which includes originators like Liberty Financial, Bluestone and Mobius. Mobius, a subsidiary of Allco, last year reported a technical default rate of more than 15 percent (prior to the spate of interest rate rises). Unsurprisingly on 29 February, Allco announced that Mobius will no longer accept mortgage applications and would attempt to offload its assets. "
http://www.crikey.com.au/Business/20080404-Are-highly-leveraged-homeowners-about-to-crash.html
A somewhat fatuous "analysis" as US & AU are apples and oranges and do not stand up to all comparisons but it is a reminder that cycles do and will occur. My view is that for AU the yield does not justify investing such that betting on further capital growth is the only justification for taking on debt. No to argue whether this is a good or bad bet, just to remind myself and others that it IS a bet, due to the fact that there is a cycle and we are always somewhere in it.
"A report prepared by the International Monetary Fund has warned that Australian property is among the most overvalued in the developed world, behind only Ireland, the Netherlands and Britain in terms of vulnerability."
"While Australia doesn’t have the sub-prime lending crisis that has engulfed the US, Australia has its own “lo-doc” sector, which includes originators like Liberty Financial, Bluestone and Mobius. Mobius, a subsidiary of Allco, last year reported a technical default rate of more than 15 percent (prior to the spate of interest rate rises). Unsurprisingly on 29 February, Allco announced that Mobius will no longer accept mortgage applications and would attempt to offload its assets. "
http://www.crikey.com.au/Business/20080404-Are-highly-leveraged-homeowners-about-to-crash.html
I think they are very similar and easy to compare.
House price rises driving house price rises (get in now before it's too late!!!)
The price rises funded mainly by debt.
House prices to wages completely off long term trend.
Low yields as nobody cared about them anymore - all about CG.
Apparantly a massive shortage in California in 2006 - underlying demand was outstripping new housing.
The realestate industry and spruikers giving it all they have to keep it going just a week longer.
All sound familiar?
Yieldmatters - question...
Your assertion - resi IP investment no longer safe?
How long does this hold true for?
You obviously predict a fall or a long period of flat nominal prices / falling real prices.
Please elaborate as to at what time in your forecast prices will fall and/or rents will rise enough to warrant (in your view) investing in resi property?
Your assertion - resi IP investment no longer safe?
How long does this hold true for?
You obviously predict a fall or a long period of flat nominal prices / falling real prices.
Please elaborate as to at what time in your forecast prices will fall and/or rents will rise enough to warrant (in your view) investing in resi property?
That article on Crikey was filed where it belongs. Under OPINION.
IMHO it lacks any factual argument, and is only saying that something bad happened in the US, and so its going to happen here. But doesnt go into the fundamentals of each market which drive it, in particular massive oversupply in the US, and critical undersupply in Aus.
It also suggests that people buy houses to invest in, even though we know this is only approx 30% of the market, and areas such as Hawthorn are HIGHLY sought after by people wanting to live there, not invest. Didnt mention some mining towns which are yielding up to 10% either.
Oh, and I love the reference to Warren Buffett, who is talking about the US market, and somehow the writer has made it sound like he's talking about the AUSTRALIAN market! He didnt even mention Australia! In fact, he talked about lending conditions which were common in the US, and are not common here.
IMHO it lacks any factual argument, and is only saying that something bad happened in the US, and so its going to happen here. But doesnt go into the fundamentals of each market which drive it, in particular massive oversupply in the US, and critical undersupply in Aus.
It also suggests that people buy houses to invest in, even though we know this is only approx 30% of the market, and areas such as Hawthorn are HIGHLY sought after by people wanting to live there, not invest. Didnt mention some mining towns which are yielding up to 10% either.
Oh, and I love the reference to Warren Buffett, who is talking about the US market, and somehow the writer has made it sound like he's talking about the AUSTRALIAN market! He didnt even mention Australia! In fact, he talked about lending conditions which were common in the US, and are not common here.
I can spot sick fundamentals easily but the timing of the correction is much harder to forecast.
This is my best effort though. For Brisbane (my area) beginning this year (2008) we will see median price drops which will continue until we hit 2003 prices (in real terms - i.e. 2003 + CPI). It could take 2 years to slowly unwind and it may be steady nominal prices while CPI wipes out the real value - same outcome.
Heavy and quick nominal price declines will only happen if there is unemployment. That depends on China and far too difficult to forecast.
What median price do you predict for Brisbane then.
From the figures I have available to me, median was $289,000 then and are $461,000 now. (according to http://www.myrp.com.au/brisbane_house_prices.do)
Your prediction is that house prices will fall to $289k + inflation (eg 3.5%) in 2 years time, which is inflation for years 2004-2009. This is $355,000.
So, you are saying then that Brisbane prices will fall from $461k now to $355k at the end of next year.
The thing that I dont agree with is that if prices had a moderate fall of 10%, this would put them at $415k, or $41k cheaper. I believe that, given the number of buyers wanting to get in and the little supply around, that any stock at this new price would be snapped up very fast.
My point is that the demand is so high for housing that even a small price drop will allow entry for a whole new bunch of buyers, and that this will stop massive price drops. As soon as prices go down, even just a little, then people will be keen to buy, which will keep prices from falling. The demand is too great, and the supply too limited to see even half the falls you're predicting without a buying frenzy.
From the figures I have available to me, median was $289,000 then and are $461,000 now. (according to http://www.myrp.com.au/brisbane_house_prices.do)
Your prediction is that house prices will fall to $289k + inflation (eg 3.5%) in 2 years time, which is inflation for years 2004-2009. This is $355,000.
So, you are saying then that Brisbane prices will fall from $461k now to $355k at the end of next year.
The thing that I dont agree with is that if prices had a moderate fall of 10%, this would put them at $415k, or $41k cheaper. I believe that, given the number of buyers wanting to get in and the little supply around, that any stock at this new price would be snapped up very fast.
My point is that the demand is so high for housing that even a small price drop will allow entry for a whole new bunch of buyers, and that this will stop massive price drops. As soon as prices go down, even just a little, then people will be keen to buy, which will keep prices from falling. The demand is too great, and the supply too limited to see even half the falls you're predicting without a buying frenzy.
Exactly. The short term is important in terms of you have to have enough cashflow or access to enough equity to survive it. Otherwise, for me it's about how big a portfolio I can accumulate and how long I can hold it for.
Alex
If this happened would you then consider investing in the area in any way? Curious to know!
Yes - I would buy back in. I think prices would be fair value then and I'd like to have some property in my portfolio.
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