So which camp was right the doomsayers or the property faithfull?

It has been a while now that the dust has more or less settled since the upheival that was the "end of the world" otherswise known as the GFC had occured and given we are still here and the banks have no repossesed my house I thought I might write some words about who was right the doomsayers or the property faithfull.

Please dont interpret my flippant way of writting as an attemt to discount what occured during the GFC but like all good hysteria panics they are blown out of proportion. Further more people use such events and the media's exageration of it as a vindication of their own ideological views be it for prices to go up or down.

The views I refer to is the usual idelogical battle between the two camps i.e. those in the "property prices always rises" camp and those that beleive "property price is going to crash" camp.

So who is/was right?

For instance using the GFC as the clear modern day example, prices can fall. Ask any developer who tried to get finance during this period and they will say it was pretty hard to get valuations to stack up or any distressed seller trying to sell their house and how many viewings they got. Prices fell, sale figures fell and approvals fell across the board that is fact.

But this is nothing amazing, this is business and known as risk. Like ANY asset class prices go and and dow and sideways. So this event should have been a clear enough example to those saying prices always go up are wrong.

Finally? vindication for the doomsayers camp??, who use this event as vindication that the end is near that prices are inflated and property prices will collapse 20-30 even 40%.

The problem now is, that given time has passed, a mere 6 or so months, prices did not fall that much, if anything they have recovered so what are the doomsayers now saying?

If your a property supporter who is grinning at reading the last paragraph and saying "yep sucked in to those idiots they were wrong", just mentioning the likes of Steven Keen even makes me also want to insticively think the same, then you are wrong too. Basically you are no different from the doomsayers camp because no sooner than prices start to rise we hear the familiar parrots for for the other camp screaming that the skies the limit and boom times are here to stay and that "this time its different".

So who is/was right?

The answer should be clear, neither! Instead the large number of faceless and more importantly campless business minded people who were quietly adjusting their investment strategy based on the prevailing information were right. They understood simple economic principals such as cycles start and end and therefore taking advantage of the downside by picking up undervalued assets and now re-adujsting again for the prevailing up cycle.

So what I am saying is be smarter than the masses, see property for what it really is, an asset class, that goes up and down and that money can be made whatever stage in the cycle we are in so long as your decisions are business ones and not ideoligical ones.

Good luck in 2010, happy investing (or not).

PS: I am hoping for responses other/better than "but what about the USA and UK.."
 
I don't think enough time has passed to make that call - there were too many stimuluses thrown around and the FHOG booost only ended 7 days ago now. The Ed Karan camp of 40% falls from Q1 2008 is obviously wrong, but there's nothing to say we won't still get a correction. The question is more when, and how dramatic it is.

Check all those graphs - our house prices are exponential over the last decade and then some. You just *can't* keep that kind of growth up indefinitely or the average house will be several hundred times the average wage by 2050 or some such.

Personally I'm tipping quite long term stagnation to correct prices not a major crash. Sort of like the 90s when house prices didn't do much of anything. Too soon to be proved right or wrong on that one either ...
 
Gotta roughly go with the Rump on this one.
I tip stagnation setting in from late 2010 and growing serious through 11, with our correction coming more through the stagnation form and lasting around 10 yrs min' there after at the lower end , maybe 15 % drops .
I feel middle to top end = far more severe though and if you happen to have a spare mill or two, hang onto your hat and you might just nail a 9 or 10 mill property at the bargain of a lifetime price 2011 -12.

There ya go - we're all set . No seriously , wish I knew !

Cheers
 
The bulls were right, obviously.

Well done to all the big bulls, and especially Rixter, Bayview, Bluecard, Skater, Ozperp, Propertunity, Michael W, Shadow, Rob Williams, Nathan, Want2bewealthy, Thorpie, York, and appologies to all the other bulls I've forgotten to mention.


See ya's.
 
Well, we never hear from nonrecourse any more. Or Token Funder. Or YieldMatters, Hired Goon, and all the other gloomers who used to come over here to tell us the world was about to end. I think that says a lot.

Check all those graphs - our house prices are exponential over the last decade and then some. You just *can't* keep that kind of growth up indefinitely or the average house will be several hundred times the average wage by 2050 or some such.

RumpledElf, Australian house prices have been rising in real terms for 60 years. The house price to income ratio in Australia is pretty low compared to other countries, as shown below. Your talk of 'several hundred times average wage' is meaningless. We are nowhere near that. There is nothing to suggest further rises aren't possible here. Even Foundation no longer claims prices will crash. The bears have been proved wrong again. Maybe they will be right sometime, but this wasn't it.

http://www.numbeo.com/property-investment/rankings.jsp

House Price To Income Ratio, City
31.7 Moscow, Russia
30.3 Bucharest, Romania
27.8 Kiev, Ukraine
27.1 Riga, Latvia
22.5 Vilnius, Lithuania
22.3 Beijing, China
22.0 Manila, Philippines
21.3 Seoul, South Korea
21.2 Hong Kong, Hong Kong
19.8 Bangkok, Thailand
19.1 Warsaw, Poland
18.1 Shanghai, China
17.7 Belgrade, Serbia
17.0 Novi Sad, Serbia
16.5 Delhi, India
16.2 Paris, France
16.0 Athens, Greece
15.9 Sofia, Bulgaria
15.2 Ljubljana, Slovenia
15.1 Rome, Italy
15.1 Bratislava, Slovakia
14.9 Prague, Czech Republic
14.7 London, United Kingdom
14.4 Singapore, Singapore
14.2 Banja Luka, Bosnia And Herzegovina
14.1 Tallinn, Estonia
13.9 Budapest, Hungary
13.2 Dnipropetrovsk, Ukraine
12.4 Tel Aviv-yafo, Israel
10.5 Kuala Lumpur, Malaysia
10.5 Tokyo, Japan
10.3 Jakarta, Indonesia
10.0 Buenos Aires, Argentina
9.7 Dubai, United Arab Emirates
9.3 Barcelona, Spain
9.2 Milan, Italy
9.1 Rio De Janeiro, Brazil
8.3 Dublin, Ireland
8.2 Helsinki, Finland
8.0 Toronto, Canada
7.9 New York, United States
7.9 Geneva, Switzerland
7.8 Lisbon, Portugal
7.4 Lyon, France
7.3 Oslo, Norway
7.0 San Francisco, United States
7.0 Rotterdam, Netherlands
6.5 Lima, Peru
6.5 Sydney, Australia
 
The GFC is over. By referring its own acronym its a "crisis" and we are no longer in a crisis.

My post was more to do with the "beleif" people have with airy fairy economics behind some of the statements made by both sides.

Your response is more to do with what I am trying to suggest/or promote, that there is no magical reasons behind property being so great, it can go up down and like you suggest sideways.

But you cannot just make broad stroke comments like prices will always go up or its "time" for a bust.

Regarding your comments that prices just "cant" keep going up indefinetly they cant.. but they dont need too. There was a nice saying i heard that if there is enough demmand for eggs even the roosters start laying eggs.

Basically there is a shortage of housing in Australia which put pressure on prices going up but there are constraints a big one being wages are you indicated.

However over time other factors play a larger role, cost of construction goes down through new technology etc so althrough headline prices may go up more slowly the margins may indeed increase. This can happen until wages keep growing and then once again the cycle kicks in and pushes prices up. These are macro views but when you use historical graphs as a referrence point micro

In short one will find it hard to argue a situation where prices stagnate, inflation increases (or merely is present), wages stagnate and yet houses keep getting built.

Before house prices fall in prices "as a consistent trend" we will stop buying luxuries, cars, boats, entertainment etc. Because like food, housing or shelter isnt a "nice to have" but a requirement.

In short I myself beleive there are always more reasons for house prices to go up over the long term than down thats not to say prices cant get ahead of themselves and overshoot and come back down.


I don't think enough time has passed to make that call - there were too many stimuluses thrown around and the FHOG booost only ended 7 days ago now. The Ed Karan camp of 40% falls from Q1 2008 is obviously wrong, but there's nothing to say we won't still get a correction. The question is more when, and how dramatic it is.

Check all those graphs - our house prices are exponential over the last decade and then some. You just *can't* keep that kind of growth up indefinitely or the average house will be several hundred times the average wage by 2050 or some such.

Personally I'm tipping quite long term stagnation to correct prices not a major crash. Sort of like the 90s when house prices didn't do much of anything. Too soon to be proved right or wrong on that one either ...
 
It has been a while now that the dust has more or less settled since the upheival that was the "end of the world" otherswise known as the GFC had occured

Please dont interpret my flippant way of writting as an attemt to discount what occured during the GFC but like all good hysteria panics they are blown out of proportion.
You talk about the GFC like it is over when it is far from that.

Over 2008 at the "crash" site I was normally grouped with the property bulls. I was regularly posting and usually in defense of property prices (as there were still reasonable prices in some Adelaide suburbs). Over 2008 I was of the opinion there were still opportunities for those wanting a PPOR, but thought as an investment it didn't make much sense to buy. To me, in the Adelaide market, property as an investment hasn't made sense (e.g. to purchase now) since early 2007 which is when I stopped looking for my first IP. Over 2008 I was of the opinion we would probably see 15% off nominal prices by around 2011-2012. I was not part of the group claiming qtr 1 2008 was the tipping point and I am no Steven Keen follower when it comes to his house price predictions.

Over 2009 I observed. Watching FHBs continue to flock to property, continue to borrow excessively to purchase, continue to mainly stick with variable rates...watched as prices in many states even started to climb again. It didn't make sense to me that following the greatest financial catastrophe they had ever seen the younger generations were still diving head first into overpriced assets under 1 year later. Not only that but the government was encouraging it with increases in the FHOG. 2009 absolutely reeked of the final stages of a mania/bubble. Hence towards the end of 2009 I became quite bearish and sold the only property I owned (there were other contributing factors), which was purchased as a first home with the intention to subdivide down the track. I now believe we will see at least 15-20% of nominal prices over all capital cities over the next few years and probably another 5+ years stagnation/low growth. It could end up being worse.

My prediction is the tipping point is Qtr 1 2010 (that may just mean relatively flat growth to begin with). Though my expectations are no where near as bearish as some that have been here before. We have already seen a drop off in borrowing from FHBs after the reduction in the FHG and that will only continue as I believe it was reduced again December 31st (?). Investors are picking up the slack for now, but don't believe that will continue.

Increasing interest rates (including non RBA moves from increases in lending costs), credit availability, reduced FHOG, will all be contributing factors which tip property into negative growth starting next year.

I think 5% off most capitals at least is likely in 2010. If we don't see drops and property prices stay flat then I think blaster's scenario with stagflation while property prices don't rise seems likely dropping the real price of them anyway.

Not really fussed if I'm wrong. Overpriced assets with a 5% return (- high costs) are not really of interest to me, so even if house prices don't come down it's likely that I will just continue to find other under priced assets to invest in.
 
The answer should be clear, neither! Instead the large number of faceless and more importantly campless business minded people who were quietly adjusting their investment strategy based on the prevailing information were right. They understood simple economic principals such as cycles start and end and therefore taking advantage of the downside by picking up undervalued assets and now re-adujsting again for the prevailing up cycle.

So what I am saying is be smarter than the masses, see property for what it really is, an asset class, that goes up and down and that money can be made whatever stage in the cycle we are in so long as your decisions are business ones and not ideoligical ones."

Spot on.

Now that's what I call a reality cheque!


RC
 
I myself beleive there are always more reasons for house prices to go up over the long term than down thats not to say prices cant get ahead of themselves and overshoot and come back down.

I agree, I think along the same lines.

I did take advantage of the low interest rates in 2009 and increased the size of my portfolio and I believe in long term growth for property but I don't believe that it is sustainable having 10% and 20% growth every year.

If a particular market oversoots, it has to come down or it will have a long time of stagnation.
Look at Darwin for example, in my eyes it's a giant bubble ready to burst...:eek:
 
prices still off up to 20% in Perth ATM. the effect of the resources boom will be interesting. with credit restriction being a global problem, yet having a local boom, I can see values holding (deflating in real terms) with yields improving significantly. a lot of neg geared portfolios could tip over to something of use before too long
 
agree thats its too early to pop the sparkling tho... the funny munny with pictures of presidents is yet to see its day of reckoning
 
The answer should be clear, neither!
At the risk of sounding like a fence-sitter, I find the truth (and profit) is nearly always found somewhere between passionate extremes. (The clever part is choosing precisely where to position yourself within the large middle ground. ;))
Personally I'm tipping quite long term stagnation to correct prices not a major crash. Sort of like the 90s when house prices didn't do much of anything.
I agree; my recipe for 2010/11 is be patient in Australia, and "buy buy buy" selected under-priced commercial assets in the USA for cashflow to subsidise negatively geared Australian assets.
I feel middle to top end = far more severe though and if you happen to have a spare mill or two, hang onto your hat and you might just nail a 9 or 10 mill property at the bargain of a lifetime price 2011 -12.
LOL - I have the opposite conclusion, at least with regards to Brisbane. (It's good to hear different views.) I think it's the middle to lower end that could suffer more. I think the FHOB has had the effect of pushing up the lower end of the market to the extent that the middle-upper now represents excellent value by comparison.

In our street, for example, the first home buyer houses went for around $350-400K around 2 years ago, and the very nicest houses on the street for $750K-ish. The former were mass-produced houses, usually only 3 bedrooms, mostly don't have a swimming pool, and little visual appeal. The best houses tend to have more character, are usually 4+ bedroom and multiple living areas, have a swimming pool, and usually nicer landscaping etc. The FHOB has pushed all those $350-400K houses up to around the $500K, whilst the best houses have only gone up a little, maybe up to $800K. Before, the best house was double the price of the worst; now it's only about 50% more. I think that anybody who's owned their $500K house for more than a year and has any equity in it, is going to be eyeing off the better houses, and thinking how much more they can get, for not that much more money. And I predict over the next couple of years, it's going to be the $700K-$1M bracket which sees all the action.
Well done to all the big bulls, and especially Rixter, Bayview, Bluecard, Skater, Ozperp, Propertunity, Michael W, Shadow, Rob Williams, Nathan, Want2bewealthy, Thorpie, York, and appologies to all the other bulls I've forgotten to mention.
Well, shucks, thanks TC. Though I consider myself more a composite "part bull part bear". ;)
RumpledElf, Australian house prices have been rising in real terms for 60 years. The house price to income ratio in Australia is pretty low compared to other countries, as shown below.
That is really interesting, Shadow. Thanks for sharing it. :) Vietnam is not listed there, but I know from talking to my Vietnamese friends that the average price there is also far in excess of what anybody can earn in a lifetime, yet somehow people manage to pay it, and they've even had more than 100% growth in parts of Hanoi the past year. :eek: For example, my friends bought what we'd call a villa (like a double-story townhouse, but detached) for $120K, and the average wage is only about $1K. And mortgages are rare; nearly everybody buys their house by getting loans from friends and family. (This is considered far safer than putting money in the bank; elderly people's life savings is distributed amongst dozens of members of extended family. If you need money, you just let it be known and people pay you back a bit of what they owe, possibly by borrowing it from somebody else. It's a chaotic system, but it seems to work!)
I now believe we will see at least 15-20% of nominal prices over all capital cities over the next few years and probably another 5+ years stagnation/low growth. ... I think 5% off most capitals at least is likely in 2010. If we don't see drops and property prices stay flat then I think blaster's scenario with stagflation while property prices don't rise seems likely dropping the real price of them anyway.
I also think it's quite possible resi property prices will drop in real terms via stagflation for several years yet. My only hesitation is that we've been surprisingly buffered from what many other countries have experienced, and I think a lot of it is because Australians have such a strong affinity for residential property investing, much more so than in many other parts of the world. I think we *should* have a few years stagflation yet, to dissipate the spectacular boom of 2003-2006 (ish), but Australians are so irrationally exuberant about home ownership that it's quite possible the outcome will be contrary to what is predicted by a logical analysis.
 
Well, we never hear from nonrecourse any more. Or Token Funder. Or YieldMatters, Hired Goon, and all the other gloomers who used to come over here to tell us the world was about to end. I think that says a lot.



RumpledElf, Australian house prices have been rising in real terms for 60 years. The house price to income ratio in Australia is pretty low compared to other countries, as shown below. Your talk of 'several hundred times average wage' is meaningless. We are nowhere near that. There is nothing to suggest further rises aren't possible here. Even Foundation no longer claims prices will crash. The bears have been proved wrong again. Maybe they will be right sometime, but this wasn't it.

http://www.numbeo.com/property-investment/rankings.jsp

House Price To Income Ratio, City
31.7 Moscow, Russia
30.3 Bucharest, Romania
27.8 Kiev, Ukraine
27.1 Riga, Latvia
22.5 Vilnius, Lithuania
22.3 Beijing, China
22.0 Manila, Philippines
21.3 Seoul, South Korea
21.2 Hong Kong, Hong Kong
19.8 Bangkok, Thailand
19.1 Warsaw, Poland
18.1 Shanghai, China
17.7 Belgrade, Serbia
17.0 Novi Sad, Serbia
16.5 Delhi, India
16.2 Paris, France
16.0 Athens, Greece
15.9 Sofia, Bulgaria
15.2 Ljubljana, Slovenia
15.1 Rome, Italy
15.1 Bratislava, Slovakia
14.9 Prague, Czech Republic
14.7 London, United Kingdom
14.4 Singapore, Singapore
14.2 Banja Luka, Bosnia And Herzegovina
14.1 Tallinn, Estonia
13.9 Budapest, Hungary
13.2 Dnipropetrovsk, Ukraine
12.4 Tel Aviv-yafo, Israel
10.5 Kuala Lumpur, Malaysia
10.5 Tokyo, Japan
10.3 Jakarta, Indonesia
10.0 Buenos Aires, Argentina
9.7 Dubai, United Arab Emirates
9.3 Barcelona, Spain
9.2 Milan, Italy
9.1 Rio De Janeiro, Brazil
8.3 Dublin, Ireland
8.2 Helsinki, Finland
8.0 Toronto, Canada
7.9 New York, United States
7.9 Geneva, Switzerland
7.8 Lisbon, Portugal
7.4 Lyon, France
7.3 Oslo, Norway
7.0 San Francisco, United States
7.0 Rotterdam, Netherlands
6.5 Lima, Peru
6.5 Sydney, Australia





What a chart Shadow , ripper , where do you guys get all this stuff from, silly question I know .
Obviously there are many worse off than ours but what I can't understand though is , how do we have supposed economic experts sitting on our TV screens for all to see stating Australia's housing is the dearest in the world when there are charts like this clearly showing otherwise, mind boggling. Our media isn't worth the paper it's written on .
My God , hows some of the US prices , looks like the place to be for the big players over the next few yrs I'd expect. Still with their debt , who knows.
One of my concerns with our markets though are the graphs , our spikes or more like cliff tops are crazy and the main reason I feel some serious stagnation min' has to be in order.
But then I'm an ex charting day trader of sorts so graphs rule for me in any language.
Mind you as we all know , they can also often mean zilch depending , hence the reason it did my head in !

Cheers
 
Over 2009 I observed. Watching FHBs continue to flock to property, continue to borrow excessively to purchase, continue to mainly stick with variable rates...watched as prices in many states even started to climb again

Hi hobo-jo, how do you define 'excessive' borrowing, and how do you know most FHBs borrowed 'excessively'?

It didn't make sense to me that following the greatest financial catastrophe they had ever seen the younger generations were still diving head first into overpriced assets under 1 year later.

I doubt the younger generation saw a great financial catastrophe at all. Australia was only impacted to a limited degree. Most young people would have felt nothing other than the positive effects - stimulus cheques, grants, and lower interest rates.

2009 absolutely reeked of the final stages of a mania/bubble.

In the final stages of a boom, we often see the greatest percentage growth - for example, in the final stages of the last Sydney boom in 2003, growth was 20% per annum. Similarly with the final stages of a stock market boom. We didn't seen those sort of growth levels last year (except in Melbourne).

Hence towards the end of 2009 I became quite bearish and sold the only property I owned (there were other contributing factors)

Do you think the decision to sell your home (for other factors?) possibly made you more bearish - i.e. now that you are out of the market, there is less incentive for you to see prices go up, and more incentive to see prices go down?

Increasing interest rates (including non RBA moves from increases in lending costs), credit availability, reduced FHOG, will all be contributing factors which tip property into negative growth starting next year.

We had increasing interest rates from 2002 to 2007, while house prices rose. The FHOG boost was not in effect back then either, and population growth was much lower than it is today.
 
Hi hobo-jo, how do you define 'excessive' borrowing, and how do you know most FHBs borrowed 'excessively'?
Australian Mortgage Industry Report - Volume 10 - JPM/Fujitsu - October 2009
First home owners have used the falling cash rate to increase the average amount borrowed. Although national house prices actually fell by 3% over the period from January 2008 to March 2009, the average amount borrowed by first home owners increased 25% from A$230k to A$287k.
Although it dropped back a little from the $287k into July I suspect it would have rose again in the 3rd quarter as FHBs took advantage of the full FHOG before it ran out in September. Won't know for sure until next report is out.

Do you think the decision to sell your home (for other factors?) possibly made you more bearish - i.e. now that you are out of the market, there is less incentive for you to see prices go up, and more incentive to see prices go down?
No more so than those holding property have incentive to be bullish on prices.
 
No more so than those holding property have incentive to be bullish on prices.
I have three properties and while it is nice they go up, I'd rather they don't as that means everything else is going up too. If they get more expensive there is no yield, and I won't be able to afford to buy anything else if we ever decide to upgrade. Debt is bad, mmmkay?
 
Australian Mortgage Industry Report - Volume 10 - JPM/Fujitsu - October 2009

Although it dropped back a little from the $287k into July I suspect it would have rose again in the 3rd quarter as FHBs took advantage of the full FHOG before it ran out in September. Won't know for sure until next report is out.

But is that 'excessive', and if so, why? Lenders normally factor in a 2% IR increase when working out what people can pay back, so there should be room for at least another 1% rise in rates before some people really feel any discomfort. I think the majority though could handle even higher rises than that, and since house prices have risen 12% on average, there may be some room to refinance if necessary. And mortgage holidays are available for those in really dire straits. So how do you determine whether FHBs are borrowing at 'excessive' levels?
 
Debt is bad, mmmkay?

Debt is a tool. Like a knife or a rope. What you do with it may be either bad or good.

Using debt to purchase assets that provide cashflow and/or capital gains exceeding the total cost of the debt, is financially beneficial.

Using debt to purchase consumable items such as boats and holidays may not be not financially beneficial, however it may enhance one's lifestyle for the better, lead to improved health etc, so we can't really say debt is 'bad' in this case either. It really depends on what it is used for.

There is no morality in the debt itself. It is simply a tool.
 
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