We will defy history if the bubble doesn't burst
- Thread starter Property Meister
- Start date
Is this the bit you don't like? "This may not be a great example of an investment to most on here but to the average punter who blows all the spare cash they have, This would be a good forced saving system for their retirement/kids schooling or anything else".
If that's the best you can say for your favoured investment, Let me out too. LOL
well the cap value being underwater in 10 years was slightly disturbing too, seeing as in reality you are probably funding the IP on the way. So your investment is going bakwards, but HEY, thos rents are loooking good LOL
Yes like i said this is not a great outcome and most would expect things to be significantly better. But if you had an IP that wiped its own but in the first few years. I think the 10 year risk is not too bad.
As i said not an ideal position to be in.Im talking one of the more dissapointing outcomes.
The core point im trying to make is given a cycle or so and little to no holding costs.Do you expect values to be higher. is this a risk you would take. (This is a risk most are taking as they have already done this).
most assume this to be the worst case and would actually expect something significantly better.
ooops... crap i didnt just give advice did i
Repent repentinteresting chart toe. thx. But after contemplating it for a bit, I considered it thus:
The difference between real income and income after repayments represents change in loan repayments, above cpi.
In 2004, real income is about 60,000, after repayments 45,000.
In 2008, 70,000 and 52,000.
That's a 17000/15000 growth in loan repayments between 2004 and 2008 = 13.3%, annualized it is 3.2% above inflation. If inflation is 3%, then the chart indicates average household loan repayments grew at 6.2%pa from 04-08.
Does that reflect what happened to property prices?
The ABS weighted average of 8 capitals established house price index was 100 in jun04 and 148.5 in jun08. That's 10.4% annualized growth.
It's worth contemplating why the average household loan repayment changes at a lower rate than median house price. That will clarify why I'd ignore this chart in determining spare debt serviceability.
Thank you WW, you're stretching my powers of perception on these matters
I would argue that perhaps a 6.2%pa increase in loan repayments could perhaps explain 10.4%pa growth. The reason is that while every house is increasing in value during that time, the increases are brought on by the turnover a small percentage of housing. And only those new owners with higher mortgages have increased their repayments. Though it is reflected in the chart as an average increase across all loans.
How do you see the argument that average interest rates are lower than in the past?
I would argue that perhaps a 6.2%pa increase in loan repayments could perhaps explain 10.4%pa growth. The reason is that while every house is increasing in value during that time, the increases are brought on by the turnover a small percentage of housing. And only those new owners with higher mortgages have increased their repayments. Though it is reflected in the chart as an average increase across all loans.
How do you see the argument that average interest rates are lower than in the past?
Thanks to all for the advice and FYI....
FYI I have decided to acquire two new IPs. I say acquire as one is not a buy.
You see, we bought a very large block with very old home at the very front edge of the block. Since then home is renovated into PPOR.
But the deal with Wife was NEW home at other end of block so whilst I think now is good time to buy another new unit in Sydney….. 50% SD exemption etc... I have stuck to my strategy (as recommended by Peter Spann - have a strategy) and to build the new home first. Likely to cost $150 to $200k and then I can rent out the front home for $250 a week and get some very nice depreciation on the reno. Instant IP.
I lower my LVR to well under 60% and I understand most banks will offer tasty discount for low LVR , large debt portfolios.
Then I can get the next IP in the best state at the time except VIC ( land tax issue).
On the debate above I agree that long term, an IP is (pun intended) safe as houses. Debate about crash in CG really don’t bother me and my investments are for cashflow now not CG as I own my PPOR. Banks will not call in debts as if they are right, do they really want to see a bunch of IP in crashed market. Provided I pay the interest they don’t care.
And despite a past addiction to Italian Cars, the frugal old man inside cannot come at a new toy. So buy safe, low maintenance and watch the rent beat the interest and costs over 5 years and bingo, safe secure, 100% control investment. Shares are a gamble to me and cash is low return. Gold is well beyond the average man commonsense IMO.
Peter 14.7
FYI I have decided to acquire two new IPs. I say acquire as one is not a buy.
You see, we bought a very large block with very old home at the very front edge of the block. Since then home is renovated into PPOR.
But the deal with Wife was NEW home at other end of block so whilst I think now is good time to buy another new unit in Sydney….. 50% SD exemption etc... I have stuck to my strategy (as recommended by Peter Spann - have a strategy) and to build the new home first. Likely to cost $150 to $200k and then I can rent out the front home for $250 a week and get some very nice depreciation on the reno. Instant IP.
I lower my LVR to well under 60% and I understand most banks will offer tasty discount for low LVR , large debt portfolios.
Then I can get the next IP in the best state at the time except VIC ( land tax issue).
On the debate above I agree that long term, an IP is (pun intended) safe as houses. Debate about crash in CG really don’t bother me and my investments are for cashflow now not CG as I own my PPOR. Banks will not call in debts as if they are right, do they really want to see a bunch of IP in crashed market. Provided I pay the interest they don’t care.
And despite a past addiction to Italian Cars, the frugal old man inside cannot come at a new toy. So buy safe, low maintenance and watch the rent beat the interest and costs over 5 years and bingo, safe secure, 100% control investment. Shares are a gamble to me and cash is low return. Gold is well beyond the average man commonsense IMO.
Peter 14.7
Thank you WW, you're stretching my powers of perception on these matters
I am ever in quest of a more lucid view myself. From what is written by the RBA, the banks, the ABS, I don't think anyone is producing the right data....which leaves most to confabulate from indirect data, with all the pitfalls and artefacts that entails. Happy to discuss and explore though. The most difficult artefacts for me to see are the ones in my head
I would argue that perhaps a 6.2%pa increase in loan repayments could perhaps explain 10.4%pa growth. The reason is that while every house is increasing in value during that time, the increases are brought on by the turnover a small percentage of housing.
Precisely.....
And only those new owners with higher mortgages have increased their repayments. Though it is reflected in the chart as an average increase across all loans.
Yup.....which means the averaged loan repayment acts like a very long term simple moving average, with older mortgage repayment levels masking/confounding leading edge action.
How do you see the argument that average interest rates are lower than in the past?
They certainly are and many are saying that HAS to become the new normal for serviceability reasons. However, that necessity is going to collide with our growing dependence on foreign credit. Those creditors won't be taking into consideration so much our domestic stability, but rather global stability and fx risk.
The way I see it, housing prices are fast becoming a house built from a deck of cards. There's a very fragile foundation (higher risk) to all this growth.
Personally though, rather than being in or out of property altogether, I am looking at more liquid hedging strategies to offset the growing risk to property performance. This avoids heavy property in/out costs. And allows me to be a property bear active in property...
Australian property imo, is a proxy for commodities, as is the AUD. And that seems to be becoming evermore so. Look at how the AUD crashed 13% in May. You can't ignore what that indicates about our foreign creditors' views on our economy.....and our mortgages. A few months ago, I didn't think interest rates could go above 9% in the next 5 years. However, if global credit risk rises, commodities will get slapped, as will the AUD, and interest charged by our foreign creditors.
Our property prices are the EFFECT of multiple CAUSES. And imo, there's little truly insightful debate in Australia of what those root causes are.
BTW, this is why I laugh when people talk about the intrinsic value of property. The most powerful influence on property prices is credit. And Australia is growingly outsourcing the supply of credit to foreigners.
And why so? because our appetite for credit has grown faster than our ability to grow productivity. And that is an unsustainable appetite.
Further toe, look at what happened to the AUD overnight, and check the spread between gold in AUD (proxy for safety) versus platinum in USD (proxy for global economic growth) over the last 12mths. It is one of my hedges for Aussie property. It's a rough proxy for the VIX, but smoother and with lag.
http://www.bloomberg.com.au/apps/news?pid=20601087&sid=a2LX1ujFJQTA&pos=6
June 8 (Bloomberg) -- Nations have reached a “Keynesian endpoint” as exhausted balance sheets leave policy makers with few options to bolster economic growth, according to Anthony Crescenzi, an investor at Pacific Investment Management Co., the world’s largest bond-fund manager.
“Time, devaluations, and debt restructurings might be the only way out for many nations,” Crescenzi wrote in an e-mailed note. Debt-fueled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now “being seen as a magic elixir that has morphed into poison.”
cont......
June 8 (Bloomberg) -- Nations have reached a “Keynesian endpoint” as exhausted balance sheets leave policy makers with few options to bolster economic growth, according to Anthony Crescenzi, an investor at Pacific Investment Management Co., the world’s largest bond-fund manager.
“Time, devaluations, and debt restructurings might be the only way out for many nations,” Crescenzi wrote in an e-mailed note. Debt-fueled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now “being seen as a magic elixir that has morphed into poison.”
cont......
“Keynesian endpoint” What an interesting concept, but that is a good term. Keynesians are out of ammo.
I try and work out whether there is a safe place and if Australia is in it. There will be a lot of collateral damage and really don't know if our banks and resource companies are strong enough.
Time will tell I guess.
I try and work out whether there is a safe place and if Australia is in it. There will be a lot of collateral damage and really don't know if our banks and resource companies are strong enough.
Time will tell I guess.
very good article about the current standings
http://www.dailyreckoning.com.au/european-bankers-go-to-the-mattresses/2010/06/08/
Are Europe's banks now playing a game of hide-and-don't-lend? According to overnight deposits made by European banks at the European Central Bank, the answer is "yes." The Financial Times reports that European banks parked around €350 billion at the ECB on Friday. There, huddled with all the other frightened deposits, it earned 0.25% in interest.
This is the equivalent of bankers hiding their money under big government mattress. Yes, it's different than what Sonny meant by in The Godfather. Sonny wanted to "go to the mattresses" against Sollozzo. It meant, we think, getting ready for war and hunkering down for a big battle.
If all that tarted up and pretty European money had been out on the street hustling - you always want your money working for you and not you for it - it would have earned closed to 0.32% in a money market account. But the streets aren't safe for paper money these days. You never know what kind of inflationary fire or deflationary pot hole is just around the corner. cont.....
http://www.dailyreckoning.com.au/european-bankers-go-to-the-mattresses/2010/06/08/
Are Europe's banks now playing a game of hide-and-don't-lend? According to overnight deposits made by European banks at the European Central Bank, the answer is "yes." The Financial Times reports that European banks parked around €350 billion at the ECB on Friday. There, huddled with all the other frightened deposits, it earned 0.25% in interest.
This is the equivalent of bankers hiding their money under big government mattress. Yes, it's different than what Sonny meant by in The Godfather. Sonny wanted to "go to the mattresses" against Sollozzo. It meant, we think, getting ready for war and hunkering down for a big battle.
If all that tarted up and pretty European money had been out on the street hustling - you always want your money working for you and not you for it - it would have earned closed to 0.32% in a money market account. But the streets aren't safe for paper money these days. You never know what kind of inflationary fire or deflationary pot hole is just around the corner. cont.....
It's still 50-50,Sunfish you for one should know by now that what goes up can also go down,like any of those start-up miners,or the high end
Banks,BHP,RIO,Property will have it's turn and it may have already started just as property moves that slow,..willair..
Absolutely, and thanks for your insights.
Further toe, look at what happened to the AUD overnight, and check the spread between gold in AUD (proxy for safety) versus platinum in USD (proxy for global economic growth) over the last 12mths. It is one of my hedges for Aussie property. It's a rough proxy for the VIX, but smoother and with lag.
Very shrewd. You could write naked call options against the AUD, collect the premium and call the risk a hedge against your property risk
