Sash's View on Property for FY2010-2011

How time flys....

Just yesterday (2009) we were in doom and gloom about the property market....now the newspapers are screaming a boom in real estate in mid 2010. Is a another bust around the corner?

Being a counter cyclical investor...I am increasingly growing cautious about the property market.

My crystal balling has made me come to the following conclusions:

1. We are not at the end of the interest cycle yet....I am of the view that there is another 0.5% to 0.75% in increases. This means that rates have will have rised between 50%-60% by the end of 2010. This will hurt because it is more than the rise from 6.8% to 9% in percentage terms, where is increased about 33%.

2. The recent attempts by China to cool growth and the risk of this being overdone and the recent tax increases on Mining companies are potential risks to one of the key areas of the Australian economy.

3. Credit will get tighter....as I suspect what is happening with the PIIGS (Portugal, Ireland, Iceland, Greece, and Spain) will reverberate through the financial markets. Watch this space...Greece is going to be minor impact compared to what will happen if Spain does not sort their economy out.

4. Being an election year....and politicians being predictable will make immgration and issue and rein this in from the current 300k to 150-180k. This will have an impact on housing.

5. The building approvals are increasingly rapidly....though Qld and NSW will continue to experience supply constrainsts even if immigration is reduced.

6. Some FHB are realising their first home dream is starting to become a nightmare....who would have predicted??:D

So what does this mean?:

1. Interest rates will top at somewhere between 7.8% and 8.5% late in 2010. Given the level of indebtness of people, this will not stay at these levels for long....and by May 2011 we will see a downward movement as things really cool in real estate.

2. The riskiest markets will be Vic (Melbourne) as it has boomed a lot followed by Brisbane and Perth due their exposure to the Mining sector. Sydney/NSW can also be risky....but due to the shortfall there maybe a floor there. The real dark horse is what will happen with immigration and if it becomes an election issue?

3. The tightening of credit will also rein in the market and even more so if the PIIG issues affects the financing side of things. Should China waver....it buckle up!

What will I be doing?

1. I have decided to hold off on purchases...as I suspect there will be some opportunities which will present when the FHB sell up as they realise mortgages can be bummer...and sales due to bankruptcies are another possibility.

2. If the supply side is constrained I will pushing rents up possibly 10-20% per annum. The potential for this exists mostly in Qld and NSW.

3. Will continue to identify areas around Australia which will be unaffected by any of this. Still working on this.

4. I seem to be in a solid position from a borrowing perspective as I have up to $2m to spend. Though I don't like the thought of putting down a 10% deposit!:rolleyes:

Would love to hear commentary on my thoughts above??
 
this is why i have changed my mindset - i too have learned that throughout history it is best to be counter cyclical.

i'm chasing cash returns now, i'll stay out of equitable assets for a little while yet. i may be proved wrong - but hey, that's not to say i'm not making good money doing what i'm doing - i just choose to avoid assets in this instance.
 
I've got my eye on a property that has been on the market for about 18 months now, but is undervalued and has been missed by others. If it's still on the market next FY I'll buy it.

Other than that, I'm planning just to keep adding to my shares portfolio month in mount out, year in year out, for the forseeable future. I strongly suspect we are getting near to the top of the market in many places (including where I invest), but I don't think we'll see a sharp pull back, more a cooling that will result in and extended period of stagnation. Rents will drift up a bit during this time.

I don't think the market can realistically keep growing at this rate. That said, I'm not selling.
 
OP - When you say you dont like 10% deposit does that mean you would like more (20%) on nil? - Would be hard to get no deposit in this market.....

Like your read, but not sure re immigration - dont think it will stop/slow down any time soon but thats just my thoughts!

Will property prices burst - the magic question lol!!:confused: Who knows, but if we look into the historic ball it never does really does it (ie we have just had 20% pa increase in sydney so it might gio back 10% therefore this is not a bust)? And if it does it always bounces back lol!
 
I typically finance with 5% deposit and capitalise LMI...so essentially borrow 97%.

Watch the space on immigration....it will be an election issue....not saying it will be stopped but will definitely will be curtailed to keep the "bogan" vote.

Agree on property prices not dropping in absolute terms....but if you bought at the peak and you are in trouble it is a different story.

At the end of the day....time will tell....

I am building my Ark as I always do.....will see if I need it...;)

OP - When you say you dont like 10% deposit does that mean you would like more (20%) on nil? - Would be hard to get no deposit in this market.....

Like your read, but not sure re immigration - dont think it will stop/slow down any time soon but thats just my thoughts!

Will property prices burst - the magic question lol!!:confused: Who knows, but if we look into the historic ball it never does really does it (ie we have just had 20% pa increase in sydney so it might gio back 10% therefore this is not a bust)? And if it does it always bounces back lol!
 
Most of the houses I've seen sold recently in the area i watch in Perth have all been advertised for rent. I wonder if they are inexperienced investors who have no idea of the loss they are carrying each week, or experienced investors whose property has turned positive cashflow. I agree with most of what you say. There could be good buying opportunities in the future.
 
How time flys....

Just yesterday (2009) we were in doom and gloom about the property market....now the newspapers are screaming a boom in real estate in mid 2010. Is a another bust around the corner?

Being a counter cyclical investor...I am increasingly growing cautious about the property market.

My crystal balling has made me come to the following conclusions:

1. We are not at the end of the interest cycle yet....I am of the view that there is another 0.5% to 0.75% in increases. This means that rates have will have rised between 50%-60% by the end of 2010. This will hurt because it is more than the rise from 6.8% to 9% in percentage terms, where is increased about 33%.

2. The recent attempts by China to cool growth and the risk of this being overdone and the recent tax increases on Mining companies are potential risks to one of the key areas of the Australian economy.

3. Credit will get tighter....as I suspect what is happening with the PIIGS (Portugal, Ireland, Iceland, Greece, and Spain) will reverberate through the financial markets. Watch this space...Greece is going to be minor impact compared to what will happen if Spain does not sort their economy out.

4. Being an election year....and politicians being predictable will make immgration and issue and rein this in from the current 300k to 150-180k. This will have an impact on housing.

5. The building approvals are increasingly rapidly....though Qld and NSW will continue to experience supply constrainsts even if immigration is reduced.

6. Some FHB are realising their first home dream is starting to become a nightmare....who would have predicted??:D

So what does this mean?:

1. Interest rates will top at somewhere between 7.8% and 8.5% late in 2010. Given the level of indebtness of people, this will not stay at these levels for long....and by May 2011 we will see a downward movement as things really cool in real estate.

2. The riskiest markets will be Vic (Melbourne) as it has boomed a lot followed by Brisbane and Perth due their exposure to the Mining sector. Sydney/NSW can also be risky....but due to the shortfall there maybe a floor there. The real dark horse is what will happen with immigration and if it becomes an election issue?

3. The tightening of credit will also rein in the market and even more so if the PIIG issues affects the financing side of things. Should China waver....it buckle up!

What will I be doing?

1. I have decided to hold off on purchases...as I suspect there will be some opportunities which will present when the FHB sell up as they realise mortgages can be bummer...and sales due to bankruptcies are another possibility.

2. If the supply side is constrained I will pushing rents up possibly 10-20% per annum. The potential for this exists mostly in Qld and NSW.

3. Will continue to identify areas around Australia which will be unaffected by any of this. Still working on this.

4. I seem to be in a solid position from a borrowing perspective as I have up to $2m to spend. Though I don't like the thought of putting down a 10% deposit!:rolleyes:

Would love to hear commentary on my thoughts above??

Hi Sash
Good post.

I plan to continue following the cycle and loading up in areas I believe will see double digit growth. Most importantly I will try to jump in at the early stages of the cycle.

I am not spooked by the points you raise, I don't believe this will stop growth, may go sideways in some areas for a short period of time, but it certainly wont stop dead.

It will be great to revisit this post in 3-6 months time and evaluate what has happened.

Cheers, MTR
 
I believe prices will hammer along for at least another 6 months, then slow down in 2011. Interest rates will go back to normal, no big deal, but it all comes back down to demand\supply and the obsession Aussies have with property.
 
In theory rate increases indicate stronger economic outlook. I remember a couple of years ago when the interest rate at 9%+ lower end market struggling but middle tier market was actually holding up quite well. For the last 12 months, my investment in premium inner city suburb outperformed the lower end market.
 
hi sash i'm keen to get your thoughts on whether you see any value in houses in the middle suburbs. in particular, the hills district sydney.

i was hoping to get in but it seems like i may have missed the boat and will need to wait for the next correction
 
I believe the Hills District is fully priced for the moment due to a 100-200k in price increase over later 2009 - early 2010.

Having said that this is one of the areas that will feel the IR raises...so opportunities will present given there a lot of houses with 500k plus mortgages.

I also remember reading that Baulkham Hills as one of the areas predicted to be in Mortgage stress over the next few months.

hi sash i'm keen to get your thoughts on whether you see any value in houses in the middle suburbs. in particular, the hills district sydney.

i was hoping to get in but it seems like i may have missed the boat and will need to wait for the next correction
 
sold scarborough perth 2008 same place (inc good rezoning) sold feb this year 90k less.

bought bullion with part of proceeds (gold up 300+ an ounce ...silver up 9.75 an ounce )

no shares what so ever .still own 5 acres in qld

my call for the next year is housing to soften .could see 20% drop by end 2011
we are having a claytons recovery based on gov bailouts and spending .
lets face it every rebate for things is part of the stimulus package .

china will slow down and have their own problems . the piigs , greece is just the begining of the europe probs something like 1/2 trillion due for payment this year .so watch that space .

i called to get out of stocks 3 odd weeks ago .(recorded for posterity )

the usa is heading down further in housing also . you watch . another huge wave of mortgage resets are due soon . alt A mortgages .

plus i will once again state there is no shortage of housing in australia . full stop . we have enough to house everyone comfortably . big problem is they cost too much for the average person to buy now . i can tell you one thing wages wont be racing up any time soon . but inflation is rearing its head in a big way and expect it to get worse . i'm expecting even higher rates than the op. due to the inflation getting out of hand .

also another cost that is coming is higher rates water electric and gas . plus the gov going to have to start looking for taxes as the sales of houses way down so that,s a hit to state govs .

spending is slowing so will hit the fed gov taxes coupled with less real spending as the spending that is taking place is on borrowed money from overseas and the cost of that money is going up .

is a time to be out of debt totally . many will lose their shirts before this runs its course .

for now i have place in qld and aprox 50/50 cash to bullion. will post again if i decide to alter that . .

sorry to be so pessimistic about things but its better to be prepared .
 
The hills district doesnt often get a price "correction"... prices tend to stay flatter for a while, and then pick up again.

Living in the hills myself - i cant say that im so sure things are going to slow down there. There are still eleventy billion buyer wanting to buy a home, and only about 5 houses listed to buy at any one time (gross exaggeration, but you get what i mean).
Prices have moved a bit in the last 12 months, but supply now is even more restricted than it was 12 months ago.
A new townhouse complex (about 15 townhouses) just down the road from me is now 100% sold, and it isnt even finished yet (still about 4-6 months off completion).
 
That is correct Witzl....but exactly the reason why I would not jump in....as people are paying silly prices.

The papers are now reporting about a potential property downturn...watch the psychology of people as this....the PIIG situation in Europe pervades the general psyche.

I love it....they are setting up the next opportunity for me to purchase.

All we need is the front page of the Telegraph to scream....repossessions are shooting up! This will be far from the truth as there were only 650 repossessions in NSW last year (or was it six months).

The average punter is easily sucked in...they are not very sophisticated and do not consider the longer term view or the bigger picture let alone the economic fundamentals.;)

The old buffet saying "Be greedy when everyone else is fearful"!!

The hills district doesnt often get a price "correction"... prices tend to stay flatter for a while, and then pick up again.

Living in the hills myself - i cant say that im so sure things are going to slow down there. There are still eleventy billion buyer wanting to buy a home, and only about 5 houses listed to buy at any one time (gross exaggeration, but you get what i mean).
Prices have moved a bit in the last 12 months, but supply now is even more restricted than it was 12 months ago.
A new townhouse complex (about 15 townhouses) just down the road from me is now 100% sold, and it isnt even finished yet (still about 4-6 months off completion).
 
At the end of the day....time will tell....

Just how long is this supposed day sash ?? You seem to keep pressing the restart button on this stopwatch of yours.

You were predicting dire consequences on a whole bunch of stuff years ago that never came true.

Time has already told.
 
Aahh....my friend Dazz......welcome...welcome....(says the spider to fly)....

So you think the stopping and starting stop watches heh??? Dire consequences that did not come true heh??? Did you read my posts carefully my friend??

Did I not say in 2007 that property will take a hit....what did I say about interest rates??....care to dig up the posts and repost them so we can debate what exactly I said. I might not have gotten it right to the tea ...but close enough....

This is what time tells.....property has cycles....prices rise....they fall...and then they rise.

Really simple actually.....that is why I bought 4 places over 2009-2010....now I am cooling my heels...I live by my decisions....so far so good....

Now be a good boy....and go out and play with you ball...there ...there..:p





Just how long is this supposed day sash ?? You seem to keep pressing the restart button on this stopwatch of yours.

You were predicting dire consequences on a whole bunch of stuff years ago that never came true.

Time has already told.
 
Dazz....some tidbits of the posts I have made....care to share what insights you have brought to date in regards to the residential property market??


http://www.somersoft.com/forums/showthread.php?t=49518

http://www.somersoft.com/forums/showthread.php?t=44959

http://www.somersoft.com/forums/showthread.php?p=614403#post614403

http://www.somersoft.com/forums/showthread.php?t=39453

Just how long is this supposed day sash ?? You seem to keep pressing the restart button on this stopwatch of yours.

You were predicting dire consequences on a whole bunch of stuff years ago that never came true.

Time has already told.
 
Really simple actually.....that is why I bought 4 places over 2009-2010....now I am cooling my heels...I live by my decisions....so far so good....

Fair enough, that's more than I have bought in the past 5 years. You truly are a property doyen.

Now be a good boy....and go out and play with you ball...there ...there..:p

Right you are ma'am, will do. Apologies for the intrusion.

Back to the sash show....
 
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