RPData - House prices falling (nation wide) - Q2 2010

[bluestorm]

I wouldn't go so far as to bet on a property price drop of 30%. There is still alot of borrowing capacity out there and banks have the balance sheet to lend. As soon as prices drop the market will react and keep the prices fairly leveled. But I can see a flat market similar to those experienced in the 1990s - really depends on how quickly the world economies recover and price volatility flattens

Diffence is there weren't so many people negatively geared in 1990's. It will hurt a lot of people. World economies recover . Obviously your listening to the RBA and Fed too much. It's not doing anything of the sort anytime soon. Another dip on the way.

 

[Propertunity]

I'm positioning for a 30% fall.

Good luck

Sitting on 28% LVR with 3 properties, and waiting for a correction,

That LVR of 28% is going to take a hit if you are right and your properties fall 30% ....or is it just everybody else's properties that will fall?

Every bit of bad news is like Gold to me currently

Look, I thought you were reasonably intelligent. You trade in the share market. You know what a trend line looks like...yes?

Attached is a 5 year CG chart of an Inner West suburb plotted in Qtrs. I have added the trend line in red. It may not be exactly right , but you can't deny it goes up.....yes? But the wavy blue line which is the Qtr to Qtr movement goes up and down .....yes?

....and you want to extrapolate a single recent Qtr showing downward movement ....into a 30% across the board fall? Mmmmmm. Your logic escapes me.

 

[Sunfish]

So posting a chart that shows that anyone buying in SYD during the fever 0f '03 is still 50% underwater is supposed to be reassuring?

You will suggest that it was unwise to buy in SYD then but I can assure you that not one bull here on SS was saying that.

Trust me, I was a member here soon after and I have vivid memories of the gurus telling us all not to even think of buying outside SYD. Only mental pygmies thought otherwise. History says that things turned and SYD died in the bum and regionals thrived.

But you fight the good fight for the perma-bulls.

 

[Propertunity]

So posting a chart that shows that anyone buying in SYD during the fever 0f '03 is still 50% underwater is supposed to be reassuring?

You must be reading the chart wrongly Thommo.

The bars are the number of sales in any given Qtr.
The wavy blue lines are the median prices.

This particular suburb, has already exceeded the dizzy heights reached in 2003.....and yes, it has been 7-8 years coming, which is just one reason I don't see any great falls coming anytime soon.

As for regional doing well - I couldn't agree more. Newcastle for example has been going gangbusters for at least the last 18 months - 2 years. There would be plenty of other examples around I'm sure.

 

[StefanA]

All this focus on property price growth, when the bottom line is dependent on growth AND cash flow (rates, rents, etc).

The prospect of 5+ years of negative internal rate of return isn't attractive to me. But to each their own.

 

[bluestorm]

Yes Propertunity. Everyone, in every country, pre-GFC has nice graphs with nice trend lines only pointing up.

I'm not extrapolating anything on a single recent Qtr. I'm basing my view on the state of the world economy, and the impact that will have on Australia property. The "trend line" will follow.
"trend lines" show you what has been in the past, and what "may" be in the future. Not what will be. They are good when all factors remain unchanged. Change the ease of credit for example, and the trend can change.

 

[Propertunity]

No event has happened before like the combination of events of currently happening (PIIGS, US, etc, etc). ........I'm positioning for a 30% fall.

OK, so you say no event like what is currently happening has ever happened before....... but at the same time you are anticipating a big fall in RE prices.

You're entitled to your opinion but it isn't a fact. I'm not convinced. Time will tell.

PIIGS might fly

 

[Indifference]

Look, I thought you were reasonably intelligent. You trade in the share market. You know what a trend line looks like...yes?

Attached is a 5 year CG chart of an Inner West suburb plotted in Qtrs. I have added the trend line in red. It may not be exactly right , but you can't deny it goes up.....yes? But the wavy blue line which is the Qtr to Qtr movement goes up and down .....yes?

....and you want to extrapolate a single recent Qtr showing downward movement ....into a 30% across the board fall? Mmmmmm. Your logic escapes me.

Not intending to fuel the debate/fire, but that trend line looks Wrong to me. Have another look at the underlying data bars behind the "trendline". It tells a different story. Additionally, that chart shows a 30% decline in a certain snapshot of time, so you are only reinforcing that it is actually possible.

I'm not taking a stand in "your" debate here, I'm just commenting that the chart tells a very different story to the over-optimistic trendline overlay ....

Surely you can see this?

EDIT: My bad back to grade school for me....

 

[bluestorm]

I'm not taking a stand in "your" debate here, I'm just commenting that the chart tells a very different story to the over-optimistic trendline overlay ....

On this point Propertunity is correct. The bars represent the No. Sales on the right axis, and the trend line the Median Price on the Left Axis.
(Not much of a sample size, and no indication of the underlying assets - eg, old buildings being replaces with new apartment blocks in the suburb may increase the median as well). It does not necessarily mean all growth.
We also have the "Renevation Rescue" days. Money pumped into renovations. This may increase the prices overall, but again, not necessarily all growth.

The fact is, that a previous trend does not always mean that the same will occur in the future.

 

[Indifference]

OK, bluestorm, I stand corrected.

I thought this was one data set at a quick glance..... I should have realized this 1st time around.

However, I don't place much confidence in the Median trend without upper/lower quartile bands as they reveal a much clearer picture of events.

I agree with your comments regarding previous trends not always being indicative of future events, in the short to mid term. In the longterm (>25+ yrs) an upward trend is inevitable (has been for centuries) unless sustained historic events come into play, such as enduring civil war etc...

Personally, I think that a correction is in the wind, however, this won't necessarily be in the form of large declines in the general market, but could be from sustained sidestepping. Looking at global events, international economic conditions and monetary policy seems to be heading into a new era... IMHO, rare earth metals have a far more stable future than currencies and real estate in the short to mid term. I still intend to buy another IP this year, but it will be cashflow +ve with a long term hold outlook, and most of my cash will be invested into rare earth metals

I've never been a big CG advocate as I prefer more tangible returns, such as regular and sustained cashflow, without high leverage. I know this is not the quickest path to mega bucks, but it creates a great market insulator at a personal level. Being relatively young and already having secured a "retireable" passive income stream, I have time on my side so don't need to rely on CG... but a little bit wouldn't hurt

 

[craigb]

it could likly be a 30% drop in the end figures , if the average damaged home gets sold off at 50% below the original purchace price, and folks sell off due to the interest rate, fruit, and fuel price increses , their selling value would be deminished by 30%, then the others sell some IP's to catch the share market train!!!!
when these figures get calculated and they become front page in the heralds then it could be a bit of a blood bath??/ one never knows these things .

 

[Aaron Sice]

buying property isn't exactly catching a falling knife - it's not like buying falling shares.

if anything, the falling prices are making yields more attractive every day. if you want to talk stock market charts, eventually the bullish inverted hammer / doji star / abandoned baby will form, the price dipping into a zone that makes poeple take notice and off we go again.

the spike back up from any one of these reversal patterns is often more aggressive than the fall preceding it. greed - or the 'fear of missing out' - is equally as powerful as the 'fear of loss'.

name some permabulls so we may dissect their posts. otherwise, dump the soapbox.

 

[wisty]

FWIW, Sydney might do better than Melbourne.

Melbourne is yielding 4%, while Sydney yields 5% (due to Sydney having supply issues).

So Melbourne could fall 20% to go down to Sydney's level, or Sydney could rise 25%. Or rents could rise (in Melbourne) or fall (in Sydney). But I think rents are less random than prices.

 

[Propertunity]

On this point Propertunity is correct.....(Not much of a sample size,

Well it was one whole suburb. I can do an LGA, but the chart looks pretty much the same.

and no indication of the underlying assets - eg, old buildings being replaces with new apartment blocks in the suburb may increase the median as well).

No data collectors separate out the sales in new Vs old buildings. However, I have only been buying, renovated in old buildings or old in need of a reno, and I have witnessed first hand the growth in these types of units.

It does not necessarily mean all growth.

That's quite true.....and we all know the issues with just looking at medians as only one indicator.

We also have the "Renevation Rescue" days. Money pumped into renovations. This may increase the prices overall, but again, not necessarily all growth.

That's also true. But just as true is the scenario that craigb noted, where damaged property, distressed sales, lower priced property selling in a Qtr due to FHB activity, etc can make the median seem to "fall", when in fact the market is not falling at all.

The fact is, that a previous trend does not always mean that the same will occur in the future.

That's also true......but if something has done something for a very long time, you have to ask yourself, on the balance of probabilities, what are the chances of something completely different occurring?

And even if you accept the fact that something completely different will occur (and I don't), but accepting that, what impact will it have on my long term goals? (Personally, I can tolerate an occassional dip on a chart or a long flat period - that is just the nature of the underlying asset.)

While bluestorm, you were busy de-leveraging to 28% LVR, others were leveraging up to 95% LVR, and in the case of this particular suburb, picked up 20-25% CG in the space of about 18 months. So for example, people who bought at $420K are now sitting on a val of $520K and $100K of equity.

To each his own.

 

[VYBerlinaV8]

All this focus on property price growth, when the bottom line is dependent on growth AND cash flow (rates, rents, etc).

The prospect of 5+ years of negative internal rate of return isn't attractive to me. But to each their own.

I tend to agree, and been enjoying my recent rent rises. If my property assets are paying for themselves (and then some) I'm quite happy to let these assets tick away in the background while I invest elsewhere.

I've always focussed on getting a decent yield on my IPs, figuring that I can more easily build a large portfolio, which gives me the long term exposure to market growth that I want.

 

[Sunfish]

You must be reading the chart wrongly Thommo.

Fair enough.

But falling price on falling volume still doesn't look good.

 

[Propertunity]

But falling price on falling volume still doesn't look good.

To borrow evand's signature line: ".....yeah but nah"

Yes, I admit it is not a good look BUT it has happened in many quarters in many years (you can see quite a few examples in the chart) and still the prices went up over time and the sky did not cave in

 

[evand]

I think its a coincidence that property prices start falling at the same time as floods etc.

I'm sure it would have happened anyway. What is there to drive above average demand now?

 

[Sunfish]

This particular suburb, has already exceeded the dizzy heights reached in 2003.....and yes, it has been 7-8 years coming, which is just one reason I don't see any great falls coming anytime soon.

On another chat site a poster was the only buyer who showed up at an auction in Glebe and had an offer $200k under reserve accepted.

Why can't a terrace house discounted from $1.5 mil to $1.3 mil fall a lot further? You could have my big, near new 4 br house on 1030 s/m block in a nice part of a regional town for a fraction of that money. There is plenty of room for price falls in SYD yet.

 

[Sunfish]

And another thing......

Sydney prices can move independently of wages because a higher proportion (than other cities) of personal income is profit based, not wages based.

The recent profit reporting season has been a bit of a disappointment. You can use Macquarie Bank as a bell wether. There will be no boom in Sydney property till MQG booms again.