It's good you've managed to convince them,
History tells us that they can buy the same thing later but they'll have to pay more
The how much more depends on what they buy, where they buy it and what part of the property cycle they buy into.
We will defy history if the bubble doesn't burst
- Thread starter Property Meister
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History tells us that they can buy the same thing later but they'll have to pay more
The how much more depends on what they buy, where they buy it and what part of the property cycle they buy into.
History tells us that they can buy the same thing later but they'll have to pay more
Well, that certainly does not apply to most of Japan and Germany over the last 20 years. Or even much of the USA. Prices and rents have fallen massively. Those who bought at the top have been badly hurt. In Tokyo and many German cities, the population has risen but has still been unable to stem the downward spiral in prices. Perhaps they need more immigrants to steady prices?
Aussie kids who borrow to the hilt to buy $600k houses in the outer suburbs of major cities are going to be it hard when crunchtime arrives. I'm not saying house prices will crash anytime soon...however, I daresay some of the overpriced outer suburbs in major cities won't see much real capital growth.
Meconium
I disagree, I think the growth of any property depends on the driving forces behind it and often outer suburbs do better than inner suburbs.
Its all in the timing and the part of the property cycle we buy into but the long term trend for property in the same city is to have similar growth with a couple of % above inflation.
Also,what does overpriced mean?
People see the same thing differently.
One can see many overpriced properties close to the CBD but they are only overpriced in the eyes of a low income person. It really depends on who the buyers are and their borrowing capacity.
If the buyers are 2 professionals on $80K wages each then a $600K loan is no big deal for them so a property in Sydney's inner west for example is still affordable and prices can keep going up till they've reached the level of affordability of the people who live there.
The same on the North Shore, prices can be higher because a large % of the people who live there earn more.
However, outer suburbs are not undesirable either.
There are many nice outer suburbs with very nice and new facilities and they often offer better lifestyle than inner suburbs.
Also, as transportation improves and businesses decentralise and move further out, people also move out and you see this in the newer outer suburbs where tradesmen, young professionals and managers buy so they are also able to pay more.
So it's not exactly black and white as you put it.
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Well, its because there are different market dynamics.
For example:
The population in Japan is declining, people are scared of earthquakes etc.
Germany and Europe in General is not a good place to be a landlord because tenants have too many rights. It's also not in the culture of Germans to actively seek to buy property. They'd rather invest their money elsewhere.
USA is also different because of the subprime issues and speculator activity.
I hope this helps
Not exactly, the population of Tokyo has risen in the last 20 yrs as people flocked there in search of jobs. Hasn't helped property prices or rental yields one bit. Prices and rents have collapsed as reality set in.
Plenty of speculation happening in Australia as young 'uns get into the game and pay too much for overpriced junk. Anyone paying $600k for a house in the outerlying suburbs is going to feel the same pain that people in California and Florida are feeling. They too thought it would never 'appen.
Don't they have to many rights here too? Someone has to warn young uns not to get too carried away. Prices don't grow into the sky.
Why do you keep using this figure? 600k in outlying suburb? If people are paying this much, then they are probably contributing to the GenY stereotype of "wanting it all now". They could probably find a 300k place in the same "outlying suburb", but may have to give up the theatre room, the 5th bathroom and the 3rd parking space in the garage.
If you're buying at 600k when the median is 300k, then I would suggest you won't see much CG for a while!
They can buy their lovely dream houses in the styx for $600k and then be slaves to their mortgages forever as prices move sideways or down. It's the clever ones who buy the cheapies for $300k. No matter what, those who buy the cheapies will never lose. Pity that there are so few cheapies around.
Someone has to warn the young uns not to overpay for property. Prices won't grow into the sky. A lot of kids are going to get hurt if they listen to mum and dad's promises about property going up forever. It happened once. May not happen again in quite the way folks want.
yep sure did
also recently bought a startup business in hospitality
so absolutely no cashflow left whatsoever, so im hoping that once cashflow is stable, ill go shopping again,
so its very frustrating, hunting all the time but can't buy at all
He wants to make a point so he needs an imaginary high figure.
If there is a $600K property in the outer suburbs I'm sure it will be worth $600K or people wouldn't buy it. Even the banks wouldn't lend the money if a place was overpriced because they are not stupid, they do their own valuations.
Are you saying that the lenders aren't doing their due diligence?
You could be right, you know them better than me.
No. I'm saying that people who assume that because a bank lends on a given property that it is not, in investment terms, overpriced, doesn't understand banks.
At 80% LVR a bank has a lot of fat before they hit losses. An investor does not. As a result, a bank will can live with a level of potential future volatility/downside risk that as investor, I wouldn't.
Banks and the insurers also have the law of large numbers on their side. An investor does not.
The fact that someone will buy a property for a given figure and a funder will lend against it, is no substitute for actual due diligence.
"Survivorship Bias" & "Phantom Bubbles" Falsify This Research.
Here is the guts of the research from the article.
It appears on the surface of it (not having read the research), that this research breaks a fundamental law of historical market analisys. "Survivorship Bias". For example share trading systems are often flawed because any data thats available (price or fundamental data), often does not include companies delisted by bankruptcy. If you re-include bankruptcy data the backtest results will be far worse.
The fact that GMOs research used 32 real 'bubbles', but failed to use a single 'phantom bubble' (a circumstance which appeared to be a bubble at the time but was later proven not to be a bubble), is probably because GMO blindly operated with hindsight, they assumed that any bubble would be identified as such from the beginning. However at the time of the past bubbles it would not have been at all clear that it was a bubble. US housing and dotcom bubbles developed over years before they were clear. An asset bubble cannot be identified until its final stages, or even until after it bursts.
Lets say for arguments sake there were 32 'phantom bubbles' in the same period of the 32 real bubbles. In realtime and without hindsight your chances of identifying a real bubble in real time would be 50:50. So the two current 'bubbles' may actually be phantoms for all we know.
Yet GMO concludes that because all 32 past bubbles resulted in a bust, then the 2 present bubbles will also result in a bust. The GMO research technically 'peeks into the future' by identifying bubbles after they've happened. In real time it's impossible to 'peek into the future', but with historical data it's an easy but deadly mistake to make.
Here is the guts of the research from the article.
It appears on the surface of it (not having read the research), that this research breaks a fundamental law of historical market analisys. "Survivorship Bias". For example share trading systems are often flawed because any data thats available (price or fundamental data), often does not include companies delisted by bankruptcy. If you re-include bankruptcy data the backtest results will be far worse.
The fact that GMOs research used 32 real 'bubbles', but failed to use a single 'phantom bubble' (a circumstance which appeared to be a bubble at the time but was later proven not to be a bubble), is probably because GMO blindly operated with hindsight, they assumed that any bubble would be identified as such from the beginning. However at the time of the past bubbles it would not have been at all clear that it was a bubble. US housing and dotcom bubbles developed over years before they were clear. An asset bubble cannot be identified until its final stages, or even until after it bursts.
Lets say for arguments sake there were 32 'phantom bubbles' in the same period of the 32 real bubbles. In realtime and without hindsight your chances of identifying a real bubble in real time would be 50:50. So the two current 'bubbles' may actually be phantoms for all we know.
Yet GMO concludes that because all 32 past bubbles resulted in a bust, then the 2 present bubbles will also result in a bust. The GMO research technically 'peeks into the future' by identifying bubbles after they've happened. In real time it's impossible to 'peek into the future', but with historical data it's an easy but deadly mistake to make.
kudos.
so past performance is not indicative of future results, huh...?
sounds awfully familiar.
Ausprop thats exactly what I'm saying, the bubble happens before it's defined as a bubble. This sort of problem happens a lots in sharemarkets. I was involved in mechanical system trading for several years and it is very common.
Blue card! thanks for the kudos. Exactly also, thats often why past performance is not indicative of future results.
Slightly unrelated but some research I have read shows one reason why you cannot rely on past results with fund managers. As soon as it becomes clear that fund manager X has a star stock picker, that person is poached on big pay by fund manager Y. So we put our money on X because its doing so well, and right when we join up the performance of X suffers and Y begins to ramp up.
Blue card! thanks for the kudos. Exactly also, thats often why past performance is not indicative of future results.
Slightly unrelated but some research I have read shows one reason why you cannot rely on past results with fund managers. As soon as it becomes clear that fund manager X has a star stock picker, that person is poached on big pay by fund manager Y. So we put our money on X because its doing so well, and right when we join up the performance of X suffers and Y begins to ramp up.
Which trend ?
The 10,000 yr trend when we lived in caves ?
The 1,000 yr trend (when we were an agrarian society living in wooden shacks on acreage) with ~0% price inflation ?
The 200 yr trend since federation & massive growth in population ?
The 50 yr trend since WWII with huge stimulus ?
The 30 yr trend with high inflation, high disposable wages growth ?
The 15 yr trend with dual family incomes ?
The possible future 20 yr trend with increasing productivity, increasing resource wealth, increasing population, increasing desirability of Australian lifestyle ?
The problem with reverting to the mean (or trend) is choosing which trend to revert to. All the above trends were valid at the time. However, the underlying causes that drove the trend changed. We moved out of the caves, we all wanted to live close to the CBD or beach, dual incomes became normal, low IRs became normal.
The ratio of a median house price being 3x annual income was the trend for a short period of time towards the end of the last century. Todays median income is around $50K - imagine if a median house cost only 3x that at $150K ? It's easy to see that it's unlikely to revert to that trend - everyone could afford one.... and of course, the median would rise.
i think that's being facetious there keithj.
when discussing relatively modern data, i think it's fair to say that keeping in context one would use relevantly modern timescales and means of such.
if you want to talk antarctic ice core samples, you don't talk 20 years.
if you want to talk fiscal stimulus, you don't talk 1000 years.
when discussing relatively modern data, i think it's fair to say that keeping in context one would use relevantly modern timescales and means of such.
if you want to talk antarctic ice core samples, you don't talk 20 years.
if you want to talk fiscal stimulus, you don't talk 1000 years.
I'm illustrating the point that trends change for underlying reasons.
OK... which trend should we be reverting to ? 3x annual income ? house price increases equaling discretionary income increases ?
i would say the same data used to identify the "bubble trend" in the first place....?
