Strong Growth in Brisbane
- Thread starter Andrew_A
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have you considered an independent valuer??
i know there often not worth the paper they are written on, but for the sake of a couple of hundred dollars...if they accepted the new val, you're laughing!! i they don't, at least you know have the expected value on paper next time you need to do anything
i know there often not worth the paper they are written on, but for the sake of a couple of hundred dollars...if they accepted the new val, you're laughing!! i they don't, at least you know have the expected value on paper next time you need to do anything
Sorry to disgaree but it is the lack of stock that is pushing prices up.
The ownee occupiers (in particular) and the invetsors coming abck into the market are all chasing the same good properties and outbidding each other. Well located properties are getting multiple bids from anxious purchasers often at above asking price.
maybe i didn't make myself clear enough - have a habit of doing that.
yes its the lack of stock pushing prices up but that also has the reverse effect in that growth is measured in terms of averages, medians and means...fewer houses on the market will bring those figures down slightly as well.
there is certainly a saturation point where prices will drop again with so many homes etc etc...but from what i am seeing on a daily basis - we are a long way from that point.
there could be dozens more properties come onto the market each day in NW Brisbane and i doubt very much it would have a negative effect on prices due to the sheer number of folks looking at the moment - most cashed up and ready to go. the numbers coming through open homes are staggering.
yes its the lack of stock pushing prices up but that also has the reverse effect in that growth is measured in terms of averages, medians and means...fewer houses on the market will bring those figures down slightly as well.
there is certainly a saturation point where prices will drop again with so many homes etc etc...but from what i am seeing on a daily basis - we are a long way from that point.
there could be dozens more properties come onto the market each day in NW Brisbane and i doubt very much it would have a negative effect on prices due to the sheer number of folks looking at the moment - most cashed up and ready to go. the numbers coming through open homes are staggering.
My view is the $400K median is the absolute peak for Brisbane. People in Brisbane earn around $50K to $60K (household income) so despite the lack of supply or otherwise they simply won't be able to get the cash. Especially with the availablity of credit tightening. I actually predict a "lack of credit" induced price drop - to $350K median (or less) by mid 2008.
Feel free to save this post and laugh at me mid next year but I'm pretty confident.
The only thing that might keep it up there (post $400K) over the medium term would be government intereference in some way (higher first home buyer grants, tax relief for owner occupiers, allowing shared equity schemes or some other stupid policy like that).
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very interesting, are you saying it would be worth to wait for a while?
We don't have any IP yet and was planning of getting one in Brisbane/Gold Cost soon, but after reading posts like yours, I don't know what to think anymore.
I know some people will say if you can hold long enought etc. it won't be a problem, but if prices will drop next year, what's the point to buy now??
That's my view - but of course I could be wrong!!
Long term I'm not against property - especially if you find a good location. It's just about timing of entry so you don't overpay.
Lenders have admitted that credit will tighten. So my theory is if all the bottom feeders can't get credit then the market will pull back a bit. We will see in time if I am correct .....
I'm not sure the average in Sydney is much more than $50 - $60k, you know. Yet Sydney median prices are consistently above $400k.
I think the market is WAY too fragmented, with too much happening in terms of income distribution to be able to tell anything from city-wide median data.
Alex
Because if you don't have any property, the longer you wait the harder it is to pull the trigger. ESPECIALLY when the market is falling.
Also, don't think of this as a one-off. Hopefully you're going to buy many many properties over the years. My own theory is that those who wait to buy at the best time end up buying less than those who just buy then they can, and in the long run the higher your gross assets the higher your wealth.
I assume, of course that over the long term every property returns around 7% CG.
Alex
Thats a fair point. For example you could get the top 20% of incomes buying and selling median houses so that the median house can remain at a high price for a while yet.
But long term the distribution of properties should come close to the distribution of incomes. i.e. high income = large house in nice area --- poor income = small house in bad area. Does this sound illogical?
Anyway - my point about the availability of credit still stands. If credit is pulled back the market will have a hickup.
Not necessarily. Crap flats in horrible areas in London are still very expensive compared to average salaries. If more skewed income distribution just drives up the price of the LAND, you can have the situation where even crap properties sell for high prices because of the location.
Alex
I have read in API mag yesterday that government is organizing a body to review lending practices and that requirement for 20% deposit might come back.
If thats true, it would mean less people can get easy loans as well, right?
But what if they don't? What if we are just going through a normal mini boom that seems to happen between the big booms? Affordability didn't cause a major correction in 2003/2004 so why should it now? Things slowed down and money moved into a share boom which according to some people is about 75% over. Where is it going to go when the share boom is over? Can you afford to wait buying an IP even if values just go up 5% annually?
I guess it's just human nature to see a pattern that fits into one's expectations. So if you are an optimist it's all good, if you are a pessimist the sky will fall down.
I liked Dazzling's point in a recent post, saying that he just doesn't bother about the macro economics and but gets to know his market really well so that he can make money in any condition. And look at what he's acheived!
kaf
At the macro level over the long term I can't see property as a category going up 5% annually. Why? Because if it goes up that is because somebody else is prepared to pay more than you did. If credit / wages is tight now, why will it be easier for your future buyer?
There are surges and then periods of no activity I agree but 5% annually forever (when wage growth is 3% for example) just can't happen. If you think far enough ahead can you imagine somebody making $1000 for the week, putting $900 into his house, and living on $100? It can't happen. If you think even further ahead you end up with the situation of somebody making $2000 a week and putting $2500 into his house - that definetly can't happen!
So I think if you are playing at the macro level then timing is everything - need to get in low and sell high. At the micro level (to Dazzling's point) it might not matter. If you find a good location it may perform regardless of the macro environment. So I agree with you there.
'cause credit won't be tight forever, just as it couldn't be loose forever.
What has been happening for the last couple of decades, if not hundreds of years?
You're ignoring population growth. A house doesn't move, but the population around it does as the city grows. Your worker's suburb 30 years ago is no longer a worker's suburb now. Now it's populated by white-collar managers who make more than the average worker. Population growth causes suburb creep which allows price increases above inflation and wage growth. An outer-suburb house becomes a mid-ring suburb house then gets turned into inner-city townhouses/units. That's still the same block of land and you can own it right through those changes, racking up gains all the way (though paying for redevelopment). e.g. a new duplex usually costs (each) around the same price as an old house on a full-sized block in the same suburb.
Find me any property in an Australian capital city that hasn't increased above wages in the last 20 years. Also find me anyone who has lost money (most likely, they got 7% or so a year appreciation) on a capital city property in 20 years. As evidence, find me a suburb that has kept the same characteristics (e.g. outer suburb, blue collar, whatever) over the last generation. Even if the same people live there their characteristics would have changed.
Alex
alexlee - I am talking macro and long term, you are talking micro and short term so both can be correct.
At the macro level over the long term, people can not keep paying more and more of their wage towards housing - there is a hard limit and that is 100% of wages. In actual fact it will be much less than 100% as credit restrictions and other blockers come into play (i.e. the requirement to eat!). Now I am sure you don't disagree with me there - that is simple. Hence housing at the macro level will surge, stay still for a while, surge but it will never break free of wages.
At the micro level over the short term (i.e. I consider even 15 years short term), yes it can break away from wages for a time (via increased debt usually) and certain areas can do well as the income of the population living in the area changes.
But my point is this. Just buying anywhere anytime and believing on the "house prices always outstrip wages" is naive and fairly illogical if you think it through. At the micro level though it is possible to do well - good timing and good location.
At the macro level over the long term, people can not keep paying more and more of their wage towards housing - there is a hard limit and that is 100% of wages. In actual fact it will be much less than 100% as credit restrictions and other blockers come into play (i.e. the requirement to eat!). Now I am sure you don't disagree with me there - that is simple. Hence housing at the macro level will surge, stay still for a while, surge but it will never break free of wages.
At the micro level over the short term (i.e. I consider even 15 years short term), yes it can break away from wages for a time (via increased debt usually) and certain areas can do well as the income of the population living in the area changes.
But my point is this. Just buying anywhere anytime and believing on the "house prices always outstrip wages" is naive and fairly illogical if you think it through. At the micro level though it is possible to do well - good timing and good location.
Yeah, but property is fundamentally micro. I don't care what the whole country's property does. I care about the ones that I own (and will buy). My point is that for any given property (and I don't buy the whole market, I just buy individual properties) the income of the people living in it will increase above average wage increases. That's because the relative characteristics of the property is changing and that is what is going to drive prices up above wage increases.
Say I buy a 'normal' property for $300k, renting $300pw when the average wage is about $50k (so rent is roughly 30%). Assume wages go up 4% a year and property 7%. In 20 years, the property is approx $1.2m, renting $1,150pw. Now, average wage is only $110k, so rent is now about 55% of averages. I agree that the average person can no long afford to rent this property, but that's because it's no longer an average property! It is now much (relatively) closer to the CBD. Probably someone making much more than average (an exec or professional, or business owner, or whatever) will now live here.
To maintain the 30% rent ratio, the renter would have to be making about $200k when average is $110k. Now, current average wage is about $50-$60k. Does anyone make double that? You do, YM, no? Would you live in an outer suburb hovel? Of course not. You'll want something closer to the city. Who do you think lived in that area a generation ago? A generation ago it would be an average worker. Now it's a person on double that wage. Where I live now (Epping, Sydney) used to be a hole a generation ago. It was for young families on pretty ordinary wages. Now you'd have to be on a pretty high salary to live in a house there (I just rent a townhouse, myself).
It's worked so far. I'm not going to live long enough for your macro long term to hit me (though I still disagree with it because property by definition is a micro thing). You don't have to believe in it, but those of us who do it think it's a good idea.........
The other point is that I don't care if it outstrips wages or not. If I'm borrowing 100%, as long as long term the rent is higher than interest rates (not for the first couple of years, but long term it will be), ANY gains are a bonus. It's all OPM.
Alex
alexlee - I don't think there is a lot of disagreement here especially on the micro trends.
The only point I'd make is that macro does have an impact and shouldn't be ignored all together. No areas are completely isolated from the rest of the property sector. Lets say you buy a property that will do 30% better than average for example - good location, higher income people moving in etc etc. But then the average of the sector drops 20%. In that case you are still 30% above average but the average is now 20% less. So that is where I was getting at - micro is always important but your timing on the macro factors is important too.
So, back to where this all started - my view on Brisbane. I think we are entering a new stage of the macro cycle where credit will be very hard to come by and it will impact demand across the whole sector. So I think waiting a year could be valuable as there may be some bargains available. And I acknowledged I could have this wrong - its just my view. Lets come back to this forum in a year and see if I got it right!
The only point I'd make is that macro does have an impact and shouldn't be ignored all together. No areas are completely isolated from the rest of the property sector. Lets say you buy a property that will do 30% better than average for example - good location, higher income people moving in etc etc. But then the average of the sector drops 20%. In that case you are still 30% above average but the average is now 20% less. So that is where I was getting at - micro is always important but your timing on the macro factors is important too.
So, back to where this all started - my view on Brisbane. I think we are entering a new stage of the macro cycle where credit will be very hard to come by and it will impact demand across the whole sector. So I think waiting a year could be valuable as there may be some bargains available. And I acknowledged I could have this wrong - its just my view. Lets come back to this forum in a year and see if I got it right!
What has been your experience with your own property investments?
A prediction that the Brisbane median will fall from 400+ to 350 is a poke in the eye to historical records going back to European settlement in this country. First time historical events do happen I guess but are you going to build an investment strategy around the hope they are going to happen soon?
On a shares forum nearby there is this two year old thread about 'Property Prices to Stagnate for Years' stumbling along still, I have been drawn back to that thread like a caffeine addict to the kettle despite my better judgement. To me the first post in that thread is a wonderful example of how opinions (we all have them) can be toxic if you confuse them with investing strategies. Yet after two years and many examples of how various posters were still making real money in property (myself included) the original thread starter came back with the conclusion that 'he had been accurate with his original idea', to me it was a shake of the head in awe moment... But that's just how our brains work I realize.
Ohh.. and Brisbane median growth of close to 10% is actually just more or less in line with historical longer term averages!
You go ahead and do what you do. I'm the one with real money on the line in Brisbane.
Alex
