Well if the FHBers aren't going to be buying the $1 mil + properties of the Inner West, then who will?
The Mother of All Booms is Coming??
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Upgraders, with a bigger deposit from selling.
Inflation hit 0% in the UK recently. I don't know the situation in the US, but I think that the EU is in a state of mild deflation.
OK, it's not Australia, but I wouldn't be surprised if the economy follows that trajectory.
Typically the base rate is a couple of percentage points above inflation, with mortgages a few points higher. So you might expect in that situation to have borrowing costing around 4% or 5% for the long term.
But the kicker is going to be wage growth. If earnings track inflation then they'll be flat, where's the money going to come from to push up rents and property prices?
OK, it's not Australia, but I wouldn't be surprised if the economy follows that trajectory.
Typically the base rate is a couple of percentage points above inflation, with mortgages a few points higher. So you might expect in that situation to have borrowing costing around 4% or 5% for the long term.
But the kicker is going to be wage growth. If earnings track inflation then they'll be flat, where's the money going to come from to push up rents and property prices?
Sharemarket
Ok money could come from the share market, however when economic growth is low so are company profits and when profits fall so does the share price.
I'd be careful in shifting my money from overvalued shares to overvalued property.
Diversification comes to mind.
Exactly. You'll be stupid to buy 1 millions + home when you're in mid- late 20 with household income for ~150k and 5-10% deposit. Most people in Auction purchasing 1 mill -1.5 mill is around 40-50 years old. This people have saved up big money or they sold their previous house and put the money on the next deposit.
Also their household income will be ~ 200k or more.
Note: I saw a lot of young professional in their 30s in auction for a 2 bedder apartment for 650k-900k range.
Hopefully the economy is just in a period of adjustment which may take several years to play out, the AUD has dropped to something closer to its true value possibly and this will help many sectors of the economy. Wages probably overshot to the upside over the last 7-8years and there will be some subdued wages growth for a period going forward. I don't think there is any reason to believe that the sun won't come up tomorrow, wages will still edge up overall but some sector wages are uncompetitive internationally, a lower AUD will help soften this problem.
Rental growth will probably be limited in some locations unless there is an imbalance between supply and demand but most landlords will still look for increases inline with increasing costs IMO
Rental growth will probably be limited in some locations unless there is an imbalance between supply and demand but most landlords will still look for increases inline with increasing costs IMO
Have just been linked this article, Australia: one of the worst housing bubbles ever, which predicts that "having the largest housing bubble and mining boom in Australia?s economic history going down simultaneously will cause a severe economic and social catastrophe."
Talk about doom and gloom! Is it really that bad?
Just entering my first property cycle..
Talk about doom and gloom! Is it really that bad?
Just entering my first property cycle..
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I doubt it, this time we don't have mining boosting the economy.
Even NSW is weak and if we didn't have housing construction many of us would be unemployed.
I'd hate to think what's going to happen when all the construction finishes in 8 or 12 or so months time and no new developments start because the buyers have dissapeared
Oh well . We can agree to disagree
We'll see how brisbane goes over the next couple of years .
We've just paid off close to 2 mill debt on NSW properties . Looking at investing that and some more elsewhere .
Are you buying anywhere soon ?
Cliff
I'm sorry, but I don't follow.
Who, exactly, are these upgraders?
The 40-50 year olds you are talking about would have little interest in living in an Inner West dwelling valued at 1-1.5 mill. At that price you are looking at 2br (maybe 3) in Marrickville, Dulwich Hill, Petersham, Lewisham. The houses are old, single storey, without much of a backyard and with little on street parking. The surrounding environment is more suited for the young family or younger adult who enjoys the cafe scene; night life; or is attending university. Essentially, they are more suitable to the younger adult or the mid 30s couple.
Hence why I don't understand what they could be possibly "upgrading" to. The only reason I could see a 40-50 year old purchasing such a property is for:
- Investment purposes
- 2nd home to be close to work
- Property for children
IMO, #1 is the most likely reason for why a 40-50 year old would be at an auction in Inner West Sydney.
There will be few people who will be looking (mid 30 or low 40) to upgrade from their 1-2 bedroom apartment (near the city) to a 3 bedroom terrace.
I'm pretty sure most young adult in their high 20 wont be able to afford anything around 1-1.5 mil.
Wow, you are brave and can you tell me where the growth will come from to justify the doubling of their share price?
Will their growing exposure to overvalued property have any impact?
Will the expected crash/correction in overvalued US/multinational shares have any impact do you think?
My bet would be lower than $50, perhaps as low as $20. Banks get absolutely clobbered in a property crash. It is one sector I avoid these days after having been bitten in the GFC. Good dividends at the moment but too risky.
CBA was about $75 six months ago. With the lowering of interest rates by the reserve , house prices will continue to go up and do will CBA share price. The US is on the cusp of raising interest rates. Things are going to get better not worse ( where's Freckle?).
DYOR as this is my opinion only
DYOR as this is my opinion only
No Cliff,
Why buy when it's almost certain that I'll be holding losers and waiting for the next boom to come in 15 or so years...
I was looking at coastal properties near Sydney but prices have already moved and rents are low so it doesn't make sense to buy anything now.
I'm paying down debt instead and increasing yields.
Money in the bank earns nothing so I'm better of offsetting my loans.
Ok I'll pay more tax but there is nothing wrong with that, it means I'm making money
Ok good luck with that well deserved growth
