RPData Rismark and ASX introduce daily house price index

[mattnz]

i suggest you read the fine print before actioning this strategy.

but i guess thats what makes a market.

For myself i am increasing my positions on QBE.

What drivers do you see that would lead to increasing your position in QBE.

If the Australian housing market tanks, your best bang for buck is shorting the LMI providers as they are the most vulnerable. They take the brunt of the first 20% of falls and aren't adequately capitalised for a market collapse.

 

[TomW]

It's hard for retail investors to short stocks in Australia at the best of times. If a real crisis hits the bank lobbyists will give the Treasury a call and all shorting of financial companies will be banned as they were in the GFC.

 

[wobbycarly]

It's hard for retail investors to short stocks in Australia at the best of times. If a real crisis hits the bank lobbyists will give the Treasury a call and all shorting of financial companies will be banned as they were in the GFC.

A true short IS difficult, but wouldn't the purchase of a put would usually provide similar results?

 

[Shadow]

Buy and hold leveraged Gold would have far outperformed property over the past 7 years regardless of property receiving an abysmal yield.

The yield on gold would have been more abysmal than the yield on property. I'd guess if you calculate the total return on gold vs Sydney property since 2006, there wouldn't be a huge difference. Do you have a chart that makes this comparison? I know you have plenty of gold price vs house price charts on your site, but they don't provide a fair comparison of investment returns when they ignore the yield from property.

thanks for your concern though

You're welcome.

 

[majest3]

The yield on gold would have been more abysmal than the yield on property. I'd guess if you calculate the total return on gold vs Sydney property since 2006, there wouldn't be a huge difference. Do you have a chart that makes this comparison? I know you have plenty of gold price vs house price charts on your site, but they don't provide a fair comparison of investment returns when they ignore the yield from property.



You're welcome.

I am assuming from your previous posts you are leveraged into Sydney property, if so what is your net yield?

You mentioned previously that you had not lost any purchasing power from your property investments in the last 6 or 7 years. So l am interested in what sort of return your property investments have returned in that time, as the bulk of residential property has been declining in value for the last 2 to 3 years?

I think you are being very optimistic in thinking property prices will jump 20% in the next 2 years. Retail is in a hole, businesses are cutting jobs across the country, banks are slashing jobs, the car industry is only staying afloat on government hand outs, the steel industry is moving parts off shore, the true unemployment rate is closer to 14% and not the phony 5,2% we are told, do your own research and add back in all the people who are not classified as unemployed. Unemployment rates will rise further, maybe you have been listenening to Wayne Swan a little to much "we are the envy of the world".

We are not immune to the global problems, Have a look around the world and look at what has happened to property prices in Europe, USA, UK, they are all falling. Why is it you don't think it will happen here??

 

[hobo-jo]

I know you have plenty of gold price vs house price charts on your site, but they don't provide a fair comparison of investment returns when they ignore the yield from property.

Would be too much work to add the rent and then also account for:
- Maintenance
- Buying/selling costs
- Council/water rates and levvies
- Mortgage expenses
- LMI if applicable
- etc

But I would be happy to email you a spreadsheet with the Gold/House price data if you wanted to add in this yourself to calculate.

 

[Shadow]

Would be too much work to add the rent and then also account for:
- Maintenance
- Buying/selling costs
- Council/water rates and levvies
- Mortgage expenses
- LMI if applicable
- etc

But I would be happy to email you a spreadsheet with the Gold/House price data if you wanted to add in this yourself to calculate.

Mortgage expenses and LMI wouldn't be applicable if you want to do a proper comparison of unleveraged property returns vs unleveraged gold returns.

The other costs you mention would have minimal impact over the period in question.

 

[Shadow]

the bulk of residential property has been declining in value for the last 2 to 3 years?

The chart below shows the changes in the ABS house price index for Sydney since 2005. Apart from small falls in 2008 and mid 2010-2011, prices have generally been moving up...

http://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/6416.0Dec 2011?OpenDocument

I think you are being very optimistic in thinking property prices will jump 20% in the next 2 years

When did I say property prices would jump 20% in the next two years?

Have a look around the world and look at what has happened to property prices in Europe, USA, UK, they are all falling. Why is it you don't think it will happen here??

Why do you think it didn't happen here when it happened in a few other countries?

In my opinion, it didn't happen here because there is no bubble here.

 

[Ergophobia]

So back to the original topic... what will the introduction of a property index mean to us property investors?

Can we learn anything from the outcome in the US?

Will this lead to relaxed lending criteria especially in terms of LMI since insurers would be able to hedge against falling prices?

 

[hobo-jo]

Mortgage expenses and LMI wouldn't be applicable if you want to do a proper comparison of unleveraged property returns vs unleveraged gold returns.

The other costs you mention would have minimal impact over the period in question.

Stamp duty on a $600k house (in Sydney) would be $23k.
Most investors would pay a property manager, reducing rental return.
Maintenance would vary, but budgeting figures I've seen used here are .5% - 1% of the properties value per year.
+ Council/water rates and levies
+ Building/Landlord insurance
+ Any gaps between tenants over the 6 year period

There wouldn't be much of a yield after taking into account all costs.

But spin it however you like Even with rent included and not taking into account standard costs of an investment property Gold has still far outperformed.

 

[majest3]

The chart below shows the changes in the ABS house price index for Sydney since 2005. Apart from small falls in 2008 and mid 2010-2011, prices have generally been moving up...

I didn't notice any response to my question on your net yields and property returns.

http://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/6416.0Dec 2011?OpenDocument

When did I say property prices would jump 20% in the next two years?

I took this statement to mean that.

OK, well good luck. Just don't do a 'Hired Goon 2008' and celebrate the beginning of the crash only to watch prices jump 20% over the next couple of years.

Why do you think it didn't happen here when it happened in a few other countries?

In my opinion, it didn't happen here because there is no bubble here.

Lots of nice charts - In 2003 the IMF warned that Australia, USA, UK & Ireland were in property bubbles & would burst... They got 3 of them correct.
They reiterated Australia is 25% over valued, again in 2008.

In 2010, The Economist house price indicators estimated Australian house prices were the most overpriced in the world, at 56.1% overpriced .

In March 2011, Morgan Stanley global strategist Gerard Minack said that "we've had 20 years where the Australian consumers have been willing to borrow more to buy an asset that they believe always goes up in value. The classic sign of an asset bubble." and that "home prices are 30 to 40 per cent above fair value."

No one thought that the USA or Irish markets were in bubbles either, until they crashed.

 

[Shadow]

Stamp duty on a $600k house (in Sydney) would be $23k.
Most investors would pay a property manager, reducing rental return.
Maintenance would vary, but budgeting figures I've seen used here are .5% - 1% of the properties value per year.
+ Council/water rates and levies
+ Building/Landlord insurance
+ Any gaps between tenants over the 6 year period

There wouldn't be much of a yield after taking into account all costs.

But spin it however you like Even with rent included and not taking into account standard costs of an investment property Gold has still far outperformed.

$23K SD isn't much per annum when spread over the 6-7 year period. Property managements costs are tiny... about 5% of the total rental income goes to the PM.

PM and all the other costs you mention are tax deductible.

What about gold storage costs? Insurance? Risk? It would be a lot easier for someone to steal your gold than steal your house.

Also, if you invest in gold instead of investing in a PPOR, you need to subtract your rent payments from the return on gold.

 

[Shadow]

In 2003 the IMF warned that Australia, USA, UK & Ireland were in property bubbles

No one thought that the USA or Irish markets were in bubbles either, until they crashed.

Aren't those statements contradictory?

Yes, lots of people have been wrongly claiming Australia has a property bubble since 2003.

Meanwhile, Australian house prices have simply risen in line with incomes since 2003.

That's not typical bubble behaviour.

Google "What are the typical signs of a housing bubble?"

 

[hobo-jo]

$23K SD isn't much per annum when spread over the 6-7 year period. Property managements costs are tiny... about 5% of the total rental income goes to the PM.

PM and all the other costs you mention are tax deductible.

What about gold storage costs? Insurance? Risk? It would be a lot easier for someone to steal your gold than steal your house.

Stamp duty = $3,800 per annum over 6 years or over 12% of rent in the first year (assuming a 5% yield). Isn't much?

You are understating property management costs.

I pay $84 per annum for a Safety Deposit Box that can store $600k Gold. I imagine tax deductible as well.

Also, if you invest in gold instead of investing in a PPOR, you need to subtract your rent payments from the return on gold.

Are we talking investment property or now PPOR, I love how you like to twist the topic here there and everywhere.

Doesn't matter if you had to subtract rent anyway as Gold will still have outperformed over the last 6 years by far

 

[majest3]

Aren't those statements contradictory?

Yes, lots of people have been wrongly claiming Australia has a property bubble since 2003.

Meanwhile, Australian house prices have simply risen in line with incomes since 2003.

That's not typical bubble behaviour.

Google "What are the typical signs of a housing bubble?"

Not really , The IMF made the statement and then all the experts proceeded to claim they were wrong. Even Ben Bernake was claiming as late as 2006 that there were no problems with the American property market..... it then Crashed.

I am not sure where you are plucking your figures from claiming that house prices have just risen in line with income increases.

Australia topped the 2011 '7th Annual Demographia International Housing Affordability Survey'[20] for the second year in a row with the most severely unaffordable property market in the world.

Still waiting on your net rental yield and property returns for that 6 year period.

I agree with hobo-jo, gold has outperformed property for the last 6 years and will do well into the future.

If anyone has gold or silver and thinks it is a bad investment and they have enough of it, they can purchase my real estate with it.

 

[Shadow]

I am not sure where you are plucking your figures from claiming that house prices have just risen in line with income increases

They were 'plucked' from the Australian Bureau of Statistics and Reserve Bank.

The Australian house price to income ratio today is the same as it was in 2003.

RBA table G6 Column F - Average weekly ordinary-time earnings - full time adults:

Dec 2003 - $929.70
Sep 2011 - $1322.90

A rise of 42.3% or 4.7% per annum

ABS 8 cap city weighted average house price index

Dec 2003 - 101.5
Sep 2011 - 144.8

A rise of 42.6% or 4.7% per annum

Where's the bubble?

 

[majest3]

They were 'plucked' from the Australian Bureau of Statistics and Reserve Bank.

The Australian house price to income ratio today is the same as it was in 2003.

RBA table G6 Column F - Average weekly ordinary-time earnings - full time adults:

Dec 2003 - $929.70
Sep 2011 - $1322.90

A rise of 42.3% or 4.7% per annum

ABS 8 cap city weighted average house price index

Dec 2003 - 101.5
Sep 2011 - 144.8

A rise of 42.6% or 4.7% per annum

Where's the bubble?

The ratio of House price to income ratio was less then 2.5 in 1995, 16 years later it is around 7. How high do you think this can go before buyers are unable or unwilling to purchase property and a sizable adjustment is required?

Your time frame reflects a period when unemployment was relatively low, what happens as it increases?

Do you think that interest rates will remain at these historic lows forever, What happens when they go back to 9% plus?

All of your charts and figures talk about what has happened in the past, maybe you could produce a model that reflects interest rates @9% and reported unemployment at 8 to 9 %.

Because if you look at your historic charts and rates you will notice that both rates fluctuate up and down and at present we are at extreme lows for both.

I remember the late 80's and mid to late 90's when interest rates and unemployment were high and property was very difficult to sell and prices dropped significantly.

 

[Shadow]

The ratio of House price to income ratio was less then 2.5 in 1995, 16 years later it is around 7. How high do you think this can go...

The national house price to household income ratio is currently around 4x

The current ratio appears to be quite sustainable - it has remained around this level for almost a decade.

During most of that decade interest rates were rising (and rose to much higher levels than at present).

So house prices have risen in line with incomes for almost a decade, in an environment of relatively high and generally rising interest rates.

 

[Aaron Sice]

I don't understand the context of the question. Why 400:1? Why no rent?

because i can leverage into gold Fx at 400:1.

currency is a mediumof exchange, not money.

 

[Aaron Sice]

So back to the original topic... what will the introduction of a property index mean to us property investors?

Can we learn anything from the outcome in the US?

Will this lead to relaxed lending criteria especially in terms of LMI since insurers would be able to hedge against falling prices?

it will alow the value of capital city real estate to be artificially manipulated just as GLD and SVR now wag the dog by the tail, like i said two pages ago.

it will resurrect the US housing market to a more realistic level using an artificial market maker, the stock exchange.

it will allow money to move freely between assets. people will buy assets ike houses based on a graph where people trade the idea of houses. they will time the market, if it exists.

more importantly, australia is set to get one too. money will be pulled out of here and pumped into the US, and then the index will wag the dog here, too.