The Right Type of Boom

Discussion in 'Property Market Economics' started by keithj, 10th Aug, 2009.

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  1. keithj

    keithj Member

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    Following on from The Wrong Type of Boom

    Today, in 2009, we have good fundamentals -
    • low IRs,
    • tight rental market,
    • little growth for several years,
    • little extra supply because of low number of new homes built
    • lots of extra demand through population growth
    • high affordability (v. high disposable income)
    • the economic cycle is turning up
    We also have anecdotal evidence (that hasn't really filtered through to the macro data yet) that prices are starting to rise.

    Booms aren't really forecastable because they depend largely on the sentiment of the masses. However, at the moment there appears to be little downside, and sustainable upturn appears the most likely outcome, along with the possibility of a boom.

    ...property nirvana almost :).
     
  2. Player

    Player Live Every Day

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    Confusing....Bumpy....Exciting....Opportune.

    Great points Keith.

    And while we're at it, if we all talk ourselves into a recovery then so be it. Even good fundamentals need some momentum from sentiment to carry on the charge.

    These times are Confusing....Bumpy....Exciting....Opportune. ;)

    I speak only of Melbourne, where I have most knowledge, at present there is a lack of good stock in above median areas and hence prices are flying compared to even three and six months ago. The bottom end and just below median has been bubbling along despite the "recession we never ever had to have, and didn't ......because it's different here"

    As far as unemplopyment, I 'm not sure how they arrive at figures, being mindful of statistics and lies and confuguring anything to suit the bias of the author/journo/govt, however if hours are down and saving jobs in this regard then whilst it's not ideal, it is certainly better than losing "whole" jobs to save full time positions and the impact that has on "whole" families and "entire"households......better to tighten the belt that lose the trousers all together. :rolleyes:

    As for the stock market, if it's all hot air making that balloon rise, then "hay whilst the sun is shining." In that arena, need to be nimble however, lest any other deleterious outcomes come out of the US from their smoke and mirrors financial (debt) products shenanigins.........and the sentiment will drive down our market............and hence provide more future opportunity :D

    I see the mortgage re-sets to come there (in the USA) affecting us perhaps with money/credit supply and this may stangle the ability to accumulate IP's .......we may still feel the squeeze here as money dries up. There may be owner occupier demand and investor demand, however if funds are tight in a year or two moving forward, transaction volumes will fall and values might stagnate for a while. This will then bring more pent up demand and wind that spring up nice and tight.........and when it's let go, values will rise sharply as another mini-boom begins.

    Right now and the next few months moving forward, I am having everything re-valued to drop my conservative LVR's (in the bank's eyes) even lower and have LOC's at the ready for long stock investing and to purchase further IP's.

    In this climate, whilst I'm looking at comm, I would be pleased to fund the purchase from my own (resi equity) bank using resi criteria and interest rates. When the true bonanza begins and the next up-cycle tsunami is in full swing, I will re-fi the comm on it's own terms and take my cash/equity back for other things......so many options, so many choices.

    Whilst we are not out of the woods totally, the back burning has begun and these are exciting, albeit confusing times. These may be the halcyon days we look back upon in five years and proclaim, woulda, coulda, shoulda.

    Night follows day, contraction follows expansion, a slump follows a boom which follows a slump. It is always darkest before the dawn.......and dawn is certainly trying to break through at the moment.

    Sustainable???

    I may be wrong, however always erring on being prepared for the worst with modest LVR's , perhaps expect a few more clouds to darken the horizon, and then the cycle will again begin with pure daylight. It might still be bumpy at times and not IMHO the time to max out LVR's just yet with credit supply (and cost) uncertainty, however we are not far from the king tide that shall rise all ships.

    If I'm being too careful, that's OK, as imy net worth will then be increasing anyway with numerous zeroes at the tail end on a monthly basis. :D

    As dawn slowly breaks and some clouds appear from time to time, I always think.....This too shall pass! :)
     
    Last edited: 10th Aug, 2009
  3. Aaron Sice

    Aaron Sice Seldom Seen Kid

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    no boom whatsoever on the horizon.

    just a return to steady, funadmentally strong growth.

    maybe in about 10 years, we'll see the demand pop like boiled champagne bottle. but until credit eases up totally - which is about 10 years away - then i see no boom.
     
  4. chilliaa

    chilliaa Member

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    Keith under normal circumstances i would agree with you.
    But i have one underlying factor that is preventing me from being bullish on property on a medium term basis of 5yrs (note: this doese not mean i am bearish either, just neutral)

    Interest rates have been pushed down to 40yr lows.
    For a sustainable bull run in property i would like to see interest rates at their 'normal' trading range with RBA rates at 5%-6%.

    I fully agree with the supply issue, but i cant get it out of my mind that we are doing something similar to the US in 2000-01 when they tried to cushion the economy by reducing interest rates (which then lead to the boom-bust in property because of cheap debt).

    Of course the lending institutions will be more select in their lending criteria given recent overseas knowledge, but still.....
     
  5. HomePage

    HomePage Member

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  6. Aaron Sice

    Aaron Sice Seldom Seen Kid

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    please no more references to booms.

    we don't want booms.
     
  7. DavidMc

    DavidMc Member

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    I'm happy with 7% or so average growth. That's good enough.
     
  8. craigb

    craigb craigb

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    If we want a price BOOM in the market we all (all ss ites ) tell 20 people that its going to be the largest housing boom since 1960?? then others would start a buying spree !

    I didn't say that don't sue me ! bla, bla , bla, whatever?
    craigb !:D
     
  9. Aaron Sice

    Aaron Sice Seldom Seen Kid

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    hmmm - craigb - you're not rene rivkin posting from the grave are you?
     
  10. craigb

    craigb craigb

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    and it worked so well!!!:D
     
  11. shuggy

    shuggy Banned

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    haha, i don't think telling 1,000-2,000 people will start a boom :D :rolleyes:
     
  12. BV

    BV Think outside the square

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    Thanks Keith and others

    I don't see a boom on the horizon, but because of the short supply, tight rental market etc I believe that we'll have continued growth close to CPI levels until the next boom.

    So is anyone buying?
    I've just bought 1 and I'm refinaning to access equity to buy 1 more.
    To me yields over 5% are acceptable and over time rents will increase so things will get even better.

    And why buy now I hear you say.
    Because right now our holding costs are almost zero and finance is likely to get tighter so we are either inside the club having a few drinks with our bank manager and the JONES's or we stay out.

    IMHO considering our current low interest environment and our ability to secure finance at cheap rates we should see this as THE OPPORTUNITY OF OUR LIFETIME so when we see value we should be buying.

    cheers
     
  13. devo76

    devo76 Member

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    I am buying although at modest amounts compared to some. IP 2 settled a week ago and im looking for builders to build a house on the back of the property straight away. I cant see the cost of building coming down regardless of the economy so may as well start the build ASAP.

    Some of the driving forces behind my decision are personal. Next year i may be starting a family and this will effect my borrowing capacity. No point waiting to save 5-10% in possible price falls if the banks will not lend anyway.

    I agree with steady growth over a boom. As i have not hit the limit of my borrowing capacity yet, steady growth allows me to purchase more property for long term gains.

    My 2 cents.
     
  14. Bill.L

    Bill.L Member

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    Hi all,

    Over the next 2-3 years I see a real possibility of a boom in property whilst interest rates rise and the 'recovery' happens in the broader economy. I think the size of the boom will surprise many, like 20%+ pa for a couple of years

    The conditions are reminiscent of straight after the '87 crash when interest rates fell suddenly and we didn't go to depression as many feared. Of course all the stimulus applied at the time, plus the underlying fundamentals lead to a property boom followed by Keatings "Recession we had to have".

    It is the 5-10 years after the boom that concerns me, that is the likely bust time, unless we get higher inflation that will tend to negate the negative effect on property investors.

    I don't subscribe to the nice steady growth concept, as it has never happened before.

    bye
     
  15. JIT

    JIT Member

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    Here's a compound interest calculator:

    http://www.moneychimp.com/calculator/compound_interest_calculator.htm

    If you had $1MM of RIP's now, compounded at 20% pa for 3 years, they would be worth $1.7MM in 3 years...is that right??

    $2MM would become $3.5MM, and $3MM would become $5.2MM??

    Agree, perhaps only in textbooks!
     
  16. willair

    willair xx

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    When you look at it that way then you may well be right,after Mr Keating
    had his way, property prices in Brisbane went no where for 6 years well at least the ones we control did we even bought several that were hal;f the price of what investors paid in 1993,I can see it happening in several inner city locations if the land content is on the highrise developments side of things so you may be right but it will not be all property,btw if property values go up 20% plus each year makes one think what will happen too the Australian Equities Markets afterall the ASX most times is the leader
    prior to property going up 10k per month again,..imho..willair..
     
  17. Bill.L

    Bill.L Member

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    Hi Willair,

    The stockmarket went up about 60% from the lows after the '87 crash while property was booming, until October '89. It didn't pass the previous peak until '94, and then promptly fell for a few months.

    bye
     
  18. willair

    willair xx

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    Thanks for that Bill.L,it always seems to go the same way just the time it takes to wash through too the next cycle,..
    willair..
     
  19. chilliaa

    chilliaa Member

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    i would agree with you if humans acted in a rational manner. Unfortunately they dont, humans suffer from near term data bais (just look at this change in rationality in this forum from some of the more inexperienced property investors) and with regards to the stock market where the mindset has recently changed from 'get me out at any price' to i want in at any price.

    In regards to buying residential property in the curent market i would be very nervous (there are always exceptions depending on your experience). The time to buy was 6+ months ago, when sellers where eager.
     
  20. BV

    BV Think outside the square

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    getting finance is easier now because of the all time low interest rates.
    Our borrowing capacity will reduce significantly when the standard variable interest gets to 8% for example, or when all lenders want us to have 20% saved up and to show genuine savings for at least 6 months



    6 months ago would have been a better time to buy
    It's still fine in some locations and with some properties
    Ofcourse you need to do your own DD