We will have a property crash, but this isn’t it! (M. Yardney)

Discussion in 'Property Market Economics' started by Shadow, 2nd Aug, 2008.

  1. Shadow

    Shadow Evil Specufestor

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    Michael Yardney makes the following statement in his newsletter this month...

    Now... I happen to agree with this. I believe the next property crash will begin sometime around 2016, and it could be a big one.

    So what will cause this crash?

    First of all, we need to consider our recent property boom, which in Australia was characterised primarily by the exchange of existing stock, rather than the development of new stock.

    In other words, it was not a construction-led boom, unlike the recent boom in the USA (and also Ireland).

    This means we now have a shortage of stock in many places as we move into the next growth cycle during a period of record population growth, record low vacancy rates, and rising rents.

    As interest rates fall, the credit crunch eases, and house prices start rising again, I expect a new construction-led boom to kick off in Australia, probably around 2010-2011.

    However, I think there is a good chance we will make the same mistake as the US... we will eventually build too many houses (there are currently 18.6 million empty houses in the US).

    This oversupply will create a massive glut of property late next decade, just as the baby boomers start to die off, which will further increase supply and reduce demand. This is what will trigger the next big crash.

    Anyway, that's just my theory. I would be interested to hear what Michael had in mind when he made the above statement in his newsletter, and also to hear what the other forum members think.

    Cheers,

    Shadow.
     
    Last edited: 2nd Aug, 2008
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  2. Piston Broke

    Piston Broke Banned

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    Did'nt he say "We had a property crash but did'nt realize it" a few yrs ago :rolleyes:
     
  3. topcropper

    topcropper waffleing speculator

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    Shortage of stock?

    It's fairly obvious to me that Sydney property prices reached a level of overvaluation in 2003 that caused people to get up and leave. People stopped building houses in Sydney, but they didn't stop building elsewhere. Go and have a look at Toowoomba or Dalby or Lismore or Tamworth or Dubbo or Gunnedah or Orange or Wagga. Especially the acreage properties around these places. The building boom moved to the bush and so did the people. The property boom started in the bush in 2003, and the average property has doubled in value.

    Rural populations have grown faster than Sydney in 07, and if you consider the flood of immigrants entering Sydney, the amount of residents leaving was significant.

    The commodities boom has also ment that rural ecomomies have done better than the city. Not many bankers, traders, fundmanagers etc will get bonuses this year or next, but lots of rural people have had their income trippled in 5 years.

    Having just given the bush a big plug, I'm not saying it's a better place to invest going forward, I'm just puting a possible explanation up for the so called housing shortage. Housing construction didn't dry up, it just moved to more affordable places.



    I think property prices are in for a big drop starting yesterday. There is an asset devaluation happening. Owners of listed assets like shares and property trusts know exactly how much they have lost as these assets trade by the hour, and the losses are magnifies by the level of gearing of the asset. Unlisted assets like resi property, people don't know yet the extent of the losses. Resi property won't drop any where near as much as shares or listed property, but if you then add the gearing effect, the losses of an individual will be as big or bigger.

    The big winners for the next few years will be those who cashed up last year. The second biggest winners will be those who are debt free. The opportunities to those in the next few years who can put together money will be unbelievable.

    See ya's.
     
    Last edited: 2nd Aug, 2008
  4. HandyAndy888

    HandyAndy888 Member

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    Yeah, the baby boomer aging is a concern....but I am beginning to think these BBs will rather cash out their investments and, as there are many savvy investors out there, bargains will be snapped up. I think we have to remember that this mini-negative trend we are experiencing is not as a result of over supply, it is the rates game....Australia will not have an over supply for a long time, regardless of population trends, and prices regulate supply anyway.
     
    Last edited: 2nd Aug, 2008
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  5. MarkandTina

    MarkandTina Member

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    Will all those baby boomers retiring just cause a relocation of the shortage?

    Maybe they will all try to sell their Sydney properties and move to the central coast, or further north where they can buy something near the coast for 50% of what they sell their Sydney home for.

    But then again who knows. Two days ago we were talking about rba interest rate cuts in 2009 and all of a sudden we are now talking August/September 08.
     
  6. yieldmatters

    yieldmatters Member

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    The shortage will save us argument was rampant in Aug 2007 in the UK

    7 Aug 2007: UK house prices to rise 40% by 2012
    http://economictimes.indiatimes.com/News/International__Business/UK_house_prices_to_rise_40_by_2012/articleshow/2261318.cms

    June 28 2007: U.K. House Prices Rise More Than Forecast in June
    http://www.bloomberg.com/apps/news?pid=20601087&sid=au_kWgPoNUoA&refer=home

    These days the shortage story has completely dropped off the radar ... can anybody find an article that mentions it?

    31 July 2008: UK house price fall 'at a record'
    http://news.bbc.co.uk/2/hi/business/7534052.stm

    31 July 2008: U.K. July House Prices Decline by Most in Almost Two Decades
    http://www.bloomberg.com/apps/news?pid=20601087&sid=a__dIGMSVp8Y&refer=home
     
  7. Michael Yardney

    Michael Yardney Member

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    Hi

    We didn't have a property crash - we had a property slump in Sydney.;)

    Sure they are just words, but to me a crash is when you get a significant (more than 10%) drop in property values across a city.

    Sydney's slump was confined to a geographic segment of that city - caused in part by easy credit to first home owners and lower socio economic groups
     
  8. JIT

    JIT Member

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    Didn't MY mention something about the ''last great property boom'' in his book? Something to do with baby boomers dropping off...?
     
  9. Shadow

    Shadow Evil Specufestor

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    Ah... that old argument... they didn't really have a shortage in the UK, so we can't possibly have a shortage in Australia!

    High prices and low vacancy rates in many parts of Australia are a symptom of shortage, not abundance, of dwellings.

    Note that our population is growing a LOT faster than the UK...

    Net Population Growth
    [​IMG]

    While building approvals are at record lows...

    Shadow.
     
  10. coastymike

    coastymike Member

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    People are hurting and can barely afford property at present so what is going to cause an increase in current prices. The response is undersupply and overdemand. Agreed that immigration is increasing and therefore supply is required but many people forget that with increasing rents people are moving more towards the societies of London and New York. No longer are two young couples renting an apartment together. Now people are considering using all the bedrooms and having three or four people together in an apartment. This will become more and more common. It is not uncommon in London to have three, four or five people all sharing together.

    Unless wages increase then I do not see how most people can afford property in Sydney. And people are telling me they can't. Instead couples are moving back with their parents, friends are moving in together, people moving interstate and overseas (have 5 friends who have moved to the US for work and cheaper housing). We have sufficient bedrooms for people but a mindshift is taking place where people will realise more and more than the large property with five bedrooms in Cherrybrook is a waste. Fill it with another couple and life becomes easier. Australia is one of the few countries where people don't live with families and friends. This will change in my opinion. Undersupply yes. Fixable yes. Mindshift change required but will happen.
     
  11. yieldmatters

    yieldmatters Member

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    Same in the UK, same in California - towards the peak of their bubble they had low vacancy rates, high prices. I found articles similar on Dublin infact! Shortage of "well located homes" was the language used - wow, that is familiar language!

    My point is the "shortage will save us" story is not unique to Australia. If you believe Australia is "different" for some reason then that's fine - each can have their view but the storyline certainly isn't unique.
     
  12. Ausprop

    Ausprop Member

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    its hard enough to predict 1 year ahead, let alone 8.
     
  13. Stinktier

    Stinktier Member

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    LOL, well pointed out. People that predict so far ahead are kidding themselves as economic fundamentals, globalisation, demographics and simply the way we live can change very quickly (not to mention these things shoot off into the extremes as well).

    But dont forget, if you have a conflict of interest and an underlying business that you want to palm off to would-be-investors, then you will hold everyones hand till the year 2020 as a modern day Nostradamus.

    In spite of all the baloney people talk, i just look at a simply little factor in all of this -----> affordability -----> there are only a few people on this site that have mentioned the same so i know that there are a few that agree. If wages are going to move these miniscule amounts as they have, i cant see property moving a lot higher IN REAL TERMS (not nominal!!!!). Immigration is just not enough to support movements of the last 10yrs - actually i view current immigration policies as a rort (a good thing for those that are abusing it :D ) - a shame actually the average australian hasnt cottoned on :mad: .
     
  14. redwing

    redwing Progress Not Perfection

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    Agreed.....just had a mental picture flash up

    [​IMG]
     
  15. chilliaa

    chilliaa Member

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    This is exactly what is happening. One of my two bedroom apartments (unfurnished) in melbourne CBD is rented rented to multiple international students (4 students to one two bedroom apartment). High income earners ($100k+) are 'downsizing' from two bedroom two large one bedroom apartments if they are the sole occupant.
     
  16. chilliaa

    chilliaa Member

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    You are only partially true YLD Matters.
    The important point is to increase the area of coverage and then look at vacency ylds. Not just in prime 'want to live' areas. For example if you look at inner melbourne with a radius of about 8km from the cbd spanning outwards, vacancies are still tight (but not as tight as 2007). If the area of coverage is wide enough then low vancency ylds will still push rents up.

    I think you will find the dominant two factors that saved Australia will be the unique position of our RBA and the higher lending standards of Australian financial institutions.
     
  17. chilliaa

    chilliaa Member

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    Actually i think its the opposite. Its much easier to predict 8yrs into the future than one year.
    For starters 8 years into the future means inflation will have taken out maybe 30% of the nominal value. Peoples salaries should be about 50% higher in nominal terms.
     
  18. chilliaa

    chilliaa Member

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    Im not sure on my following point, but didnt the low vacancy rates in california act as a catalyst for mass construction. There is definately no shortage of rental accomodation now. Rental vacancies are quite high in the US. Thats one of the big headaches, there is no incentive to buy.
     
  19. myla

    myla Member

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    hello,

    how can that be, many of the articles around Tent Cities comment how charity organisations are seeing people being "squeezed" out of rental as "previous" home owners ditch the keys and sign for rental,

    its all propaganda and the affordability crew keep the rubbish coming,

    although HG has sold out

    thanks
    myla
     
  20. chilliaa

    chilliaa Member

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    because much of the construction was targeted at the rental market. A bit like our cbd boom in residential apartments from year 2000-03.
    There will always be section of the community that is experiencing rental hardship generally because they are in the lower economic group.