Top of the cycle ?

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From: Richard Hughes


I am getting the feeling that the property market is getting near its peak.
Very high valuations, high clearance rates, low interest rates, FHOG extended, everyone getting onto the IP bandwagon, .....
And the economy is going the other way : companies going belly up, OneTel, HIH, Ansett, Pasminco , everyone else saying how hard its getting ...
Is the property market lagging the share market by about 12 months ? and about to have a downturn.

Who thinks that property will be more expensive this time next year ?

Who thinks property is currently fair value ?

I suspect extending the FHOG until June 02, will keep things powering along for a bit, creating an artificial demand, but once that goes the impetus behind the higher prices may also go with it.

Interested to hear people's comments on this.
 
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Reply: 1
From: Robert Longmore


I dont believe the economy is going south. If you believe what you read in the press, then sure it is! but a lesson i learned during my past 3 years investing heavily in the markets, is "Never believe what you read in the paper!"
Our economy grew at more than 2% higher than the OECD average, the US as far as im concerned, in a recession, yet we are still holding position well. The ASX is only 20 points off its pre Sep 11 attack levels. and the Currency rates makes us Very competative on the world stage. I just bought my first IP, just this week, but i still see no reason to be out of either market, Property or equities.
 
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Re: Top of the cycle?...not yet.

Reply: 2
From: Dave :)


Hi Richard,

You'll get a stack of different views on this question, many of them
probably suggesting the top of the cycle is now.

My opinion, and that's all it is - my opinion - is that we have between
another 6-12 months before we hit the top of the cycle. This is based not
only on the feedback I received daily from those in the industry, but also
on what I see.

I know of at least 4 residential developments in Melbourne that were due to
be released for sale over the last four weeks, that have been put off for
another 4-6 months. Why? Great question. I would have thought that since
demand for residential property is still quite strong, and consumer
confidence is still reasonable, developers would have been falling over
themselves trying to sign up every person they can to buy at these 'top'
prices. Wouldn't you, especially in light of all the doom and gloom we see
in the media lately? Obviously, those that have access to more information
than the average person, i.e - many developers - know something we
don't...maybe they are waiting to sell when they know they'll get the top
dollar for their product. Most developers I've spoken to are very confident
that prices will remain strong, even increase, for another 6 months at
least. That's the reason they're holding off releasing some projects -
they're waiting for the time THEY think will be the top of the cycle.

I speak to valuers every day as well. I had a chat to one this morning, a
guy who knows everything about every residential development that's worth
knowing about in Melbourne. And, he sits on all the major lenders' panels.
I asked him his honest thoughts about the state of the market, and where he
thought we were in the current cycle. He said what I've been seeing myself
over the last 3-4 weeks. It's the TOP of the market type properties that
are starting to see a market correction already - properties priced $450K +.
There doesn't seem to be as many people willing to spend that amount of
money on a property right now. You could name all the recent international
and domestic events as some of the reasons that have collectively
contributed to this. By the way, the correction hasn't been in the form of
a price drop...not yet anyway. It's been in the form of a 'no price
increase' instead. The way Melbourne's been going over the last two years,
this is, relatively speaking, a significant sign of a correction. However,
the buyers that would have bought a $450K property a few months ago have
chosen to buy into the $300K-$400K price range instead. What's the result?
Yep, you guessed it - demand on these properties increases again, pushing
prices up further. I've seen this happen again and again lately...and it's
kinda freaky.

The extension of the FHOG will, in my opinion, lengthen the time taken to
reach the top of the cycle. Add to this low interest rates (and room to
move even lower), add to that the traditional post-Christmas 'mini-boom'
that happens around February, and you get another 6 months before signs of
the top of the cycle appearing.

This is just my opinion....but I reckon I've had it agreed to by enough
people in the Melbourne residential market, whose opinions I respect, that
I'm probably not that far off the mark.

I'd love to hear other people's thoughts as well.

Cheers,

Dave
:)

p.s As for this time next year, we'll see. Remember the basics - buy the
right property today, in the right suburb, at the best negotiated price,
and I'd be VERY suprised if your property is worth less in 12 months.
 
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Re: Top of the cycle?...not yet.

Reply: 2.1
From: Robert Forward


Dave, Dave, Dave

You sound like a Real Estate Agent with that long spiel.

Are you????


Cheers
A wondering Robert...
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.1
From: Douglas K


my two cents worth!

my feeling for sydney's inner west unit market is that it has peaked. houses are still hot and will remain so. however for units, vacancy rates are higher, rents are falling and clearances is also falling.

whilst the economy is in good shape, confidence is soft. time to make some solid defensive moves and be ready to capitalise from the new year moves as a new crop of renters come into the market place.


cheers

Dougie

the one with the most property at the end wins!
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.2
From: Dave :)


Rob, Rob, Rob. *grins*

hehe...umm, no Rob, I'm no real estate agent.

Does a long post explaining my reasons as to why I don't think we've hit the top of the cycle automatically put me in the same class as a real estate agent?

I'll be more concise in the future...just to avoid any misconceptions about what I am.

Cheers,

Dave
:)

{Life's short...play hard}
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.1.1
From: H T


My "feeling" is that we are at the very top of everything in Melbourne. I'd like to belive otherwise but whenever I open the business section of the paper it's all about business closure in the states -doesnt affect us you say? It just has to have a negative impact on Australia, we are a little island that has 15% of our exports going to them. It may take a while but I think things have been to good for to long.

anecdotallymy wife works in recruitment. This time last year 35 jobs to fill in her section, now 3.

I just cant see how RE can go up 20% in 6 months and people believe this is sustainable in this climate. The bottom line is that wages have not increased substantially with the boom so when int. rates increase (inevitable) there will be much carnage.


HT
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.2.1
From: Robert Forward


G'day Dave.

No, a long post doesn't put you in the RE Agent category, unless you want to be there. But to me, your post read as desperately trying to push the Melbourne market completely to the top of the cycle. The fact that it's already 80-90% of the way up the property cycle peak as it is made me think only a RE Agent could still try and push a market further up.

You see Melbourne follows Sydney within the property cycle. Sydneys boom has already keeled over, prices are down, clearance rates have fallen, buyers are becoming more realistic about the market, though you may still hear of the one or two top quality properties gaining good prices still. But on the whole, the Sydney market is not what it was 2-3 months ago. You may be correct that Melbourne has another 6 months to go, but that is only cause Melbournes property cycle is 6 months behind Sydneys property cycle.

Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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Melbourne

Reply: 2.1.1.1.1
From: Brett Burt


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BIS Shrapnel said a few months ago that Melbourne properties could drop =20%. Not sure if this was referring to current prices or new stock not =valuing up, but not a good thing. BB

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BIS Shrapnel said a few months ago =thatMelbourne
properties could drop 20%. Not sure if this was referring to current =prices or
new stock not valuing up, but not a good thing. =BB

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Re: Top of the cycle?...not yet.

Reply: 2.1.2.1.1
From: Sergey Golovin


How long the down turn will last?
When to buy in Sydney?
This year, next year, year after?....


Serge.
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.2.1.1.1
From: Robert Forward


Ahhh, the question that most would want to know. When to buy in Sydney, we'll it's time to pull out the crystal ball..

hodi, hodi, hodi, yuma, yuma, yuma (he says this as he's running his hands around the outside of the crystal ball). Damn it, it just ain't clearing up from the swirl of multi coloured clouds within the ball. Sorry, I can't predict it Sergy.

Give me another few tries and I may have something for you.

Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.2.1.1.1.1
From: Sergey Golovin


Robert,

People say that springtime is busy one real estate wise.
What about autumn?

Also half year down track after the big election.

Serge.
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.2.1.1.1.1.1
From: See Change


Friend who is agent, yesterday, reports more people list houses for sale "because market is good" and ? less buyers. ( upper north shore ,syd )

see changes rubs hands with glee
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.2.1.1.1.1.1.1
From: Robert Forward


Yipee, it's getting towards negotiating times again. Cool. The deals will be coming back again soon.

Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.2.1.1.2
From: The Wife


Serge,

If your a 'buy and hold' person, then you can buy anytime, as you should be able to ride out any ups or downs.

Thats the theory anyway.

TW
~Life is a daring adventure, or nothing at all~
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.2.1.1.1.1.1.1.1
From: Peter Davidson


Clearance rates were down this week again in Melbourne. 4th time in a row. In Brunswick alone, 3km from city, there were 15 properties being sold. 12 got passed in. In about 4-5 cases, the last bid was 40-50K below reserve. Are vendors becoming unrealistic or is the property market turning? My view is that it is turning. All booms bust. Name one that hasn't?
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.2.1.1.2.1
From: H T


But if you had done research on the economy and its effect on RE prices and you had calculated that there would be a 70/30 chance of a downturn (15%) in prices over the next 2 years, even if you were a buy and hold person, wouldn't you you rather buy after everything has taken a hit?

HT
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.2.1.1.2.1.1
From: Michael Croft


Only if you can do something more productive with your money over the two years. Most people can't, and in fact would probably blow it!

Michael Croft
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.2.1.1.2.1.1.1
From: Steve Piggott


Ok heres my view!
Im an Adelaidian..... and it would appear we're having a delayed market here and prices are still surprizing me.
So u buy on a rising market... and ride the wave.... or if your real conservative.. and want to wait for the deals to cool off...you can wait for an economic slide and pick up deals from distressed sellers... and then sit it out 'til the next boom cycle in about 5 yrs or so.
Remember if you buy intelligently you will be able to sustain economic downturn. Every one needs to live somewhere! Just make your IP rentals attractive for long term tennancy.
Factor in the worse case scenario.
GOLDEN RULE: dont buy IP's that dont make you money eg CG or positive geared.
Both if your good!!
DO NOT Fall into the trap of neg' gearing.. will your accountant pick up the short fall if you lose your job???
NO JOB is safe theses days!!
Is anyone doin positive gearing??
Are you making 35% or more??
The best deals will give you passive income!!


Ok enuff raving... Neb :)
 
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Re: Top of the cycle?...not yet.

Reply: 2.1.2.1.1.2.1.1.1.1
From: Tom Cleary


O.K. I'll bite
This is how I see the next 12 months,
major hit on the economy due to falling profitability for most firms. Probably the most severe depression since the 30ies.But there is a big difference since then, Govt will pump liquid money into the economy to stop most banks going bankrupt, then how to control inflation?. A good method is to pump money into a specialised segment of the economy e.g. stock exchange or property. This stops wage inflation and does not show up in the official figures. The first has been used by USA and the second by Japan. At one stage the Tokyo residential property marked was worth more than the total of the USA landmass. This situation did not last long, and since then Japanese banks have been carrying loans which have little or no asset backing. A similar situation might happen in Aust (personally I think it will), so we will have the situation where any intelligent person will put whatever spare money they have into real or tangible assets, especially property to escape the fall in the value of currency.
But,as in Japan, these properties will have no relationship to reality, so the trend line line will be down, at least for the foreseeable future. In a situation like this. it is no use trying to prophetise the future, risk management tools have to be used.
Is the property positively geared?, if not is the alternative method of financing secure, If property prices in my area falls will I still have a good investment?. Japan has been waiting for 10 years and still the market has not turned.
What if the Govt change the present laws re negative gearing and "corrals" losses within the property structure, will capitalising expenses be enough to carry one through or is it only viable if tax relief is granted via negative gearing?.( I had a major blue with the tax office on this point 30 years ago, Just before the Falkland war, how long ago was that?)
Just some thoughts which I hope will make investors more aware and more prepared.
Regards
Tom
 
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