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

[rambada]

There are as many different opinions as there are recipies for chocolate cake. Crash or no crash. This debate was going on during the rising market & it is carrying on now during the falling market.
I like to keep it simple - its what allows me to sleep at night. You buy when you can afford to.
This takes into account servicability & capital. I remember from Jans book Story by Story (a real classic and always re-readable) about a guy who did just this despite advice to contrary from experts, family & friends. He obviously succeded.
I feel we have to do something with our hard earned money. It is our own personal responsability to ourselves. Stick under the matress? Inflation negates this. So we have to plant our money, nurse it, fertilise it, watch for disease, remove the duds & produce the best crop we can. Frost, floods, disease may come but it also goes. If you dont plant you dont reap. You just have to decide which crop to sow or how many varities.
Because we live in houses, shelter is our basic instinct, IP is my main crop with complimentary crops to assist.

 

[jingo]

There are as many different opinions as there are recipies for chocolate cake. Crash or no crash. This debate was going on during the rising market & it is carrying on now during the falling market.
I like to keep it simple - its what allows me to sleep at night. You buy when you can afford to.
This takes into account servicability & capital. I remember from Jans book Story by Story (a real classic and always re-readable) about a guy who did just this despite advice to contrary from experts, family & friends. He obviously succeded.
I feel we have to do something with our hard earned money. It is our own personal responsability to ourselves. Stick under the matress? Inflation negates this. So we have to plant our money, nurse it, fertilise it, watch for disease, remove the duds & produce the best crop we can. Frost, floods, disease may come but it also goes. If you dont plant you dont reap. You just have to decide which crop to sow or how many varities.
Because we live in houses, shelter is our basic instinct, IP is my main crop with complimentary crops to assist.

Good post rambada.

I would be interested to gain Ian Somer's thoughts on the latest trembles in the financial markets. I know that in last months API Jan Somers mentioned that she has heard the doom and gloom regarding the property market in previous cycles. Over time the market had then recovered and rose in the upward cycle.

I think some common sense needs to prevail. Investors probably need to assess whether they can afford to hold their current IP's and other investments. If they can, hold tight - otherwise sell down to a more comfortable level.

Although I must say seeing the share market and bank shares fall by up to 40% has been rather sobering!

Such dramatic falls in property would see many people in dire straits.

Regards Jason.

 

[HandyAndy888]

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

Yes, but we can try...and have guesstimates, or even better, inferences (educated guesses)...

 

[Ausprop]

Yes, but we can try...and have guesstimates, or even better, inferences (educated guesses)...

'try' being the operative word... from sept 11 to bird flu potential to sub prime - events of the past 8 years that I would hate to have tried to forecast

 

[Norwester]

Hi Jingo,

I think some common sense needs to prevail. Investors probably need to assess whether they can afford to hold their current IP's and other investments. If they can, hold tight - otherwise sell down to a more comfortable level.

Only problem is that for some, selling to mitigate losses in some sectors of the market only brings further loss.

A very good reason to ensure that the DD includes forward projections on interest rates.........before you bought the place not after.....

ciao

Nor

 

[jingo]

Hi Jingo,



Only problem is that for some, selling to mitigate losses in some sectors of the market only brings further loss.

A very good reason to ensure that the DD includes forward projections on interest rates.........before you bought the place not after.....

ciao

Nor

Yes, this is very true. Some sellers may end up with -ve equity, and that is not an enviable situation to be in.

 

[Player]

In the US they've coined the term of negative equity (people owing more on their mortgages than their house is worth) as "being upside down".

 

[Shadow]

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.

Australia has a few unique characteristics that set us apart (at least for now) from many other countries where house prices have crashed...

- Strong economy
- Interest rates already high... plenty of scope for rates to fall compared to UK / USA
- Strong government surplus... plenty of scope for stimulatory spending
- Less than 1% of loans considered sub-prime, compared to 15% in USA
- Very low mortgage default rates, despite interest rates being at the top of the cycle
- Australian mortgages are full-recourse, as opposed to US non-recourse loans
- Record population growth
- Trend towards fewer persons per household
- Already very high current pent-up demand for housing
- Not enough new houses being built... building approvals at record lows
- Australian median house prices are still very low compared to many other countries
- Rapidly increasing rents and record low vacancy rates

Regarding the shortage, this has been recognised by the RBA, the Media, the Major Banks, the Federal Government, the HIA, the RE Industry, and all property analysts and commentators.

High prices and low vacancy rates is a symptom of shortage.

The only people who don't seem to believe there is a shortage are a handful of GHPC members. What do you base this on?

Shadow.

 

[warmed_cockles]

Australia has a few unique characteristics that set us apart (at least for now) from many other countries where house prices have crashed...

- Strong economy
- Interest rates already high... plenty of scope for rates to fall compared to UK / USA
- Strong government surplus... plenty of scope for stimulatory spending
- Less than 1% of loans considered sub-prime, compared to 15% in USA
- Very low mortgage default rates, despite interest rates being at the top of the cycle
- Australian mortgages are full-recourse, as opposed to US non-recourse loans
- Record population growth
- Trend towards fewer persons per household
- Already very high current pent-up demand for housing
- Not enough new houses being built... building approvals at record lows
- Australian median house prices are still very low compared to many other countries
- Rapidly increasing rents and record low vacancy rates

Regarding the shortage, this has been recognised by the RBA, the Media, the Major Banks, the Federal Government, the HIA, the RE Industry, and all property analysts and commentators.

High prices and low vacancy rates is a symptom of shortage.

The only people who don't seem to believe there is a shortage are a handful of GHPC members. What do you base this on?

Shadow.

Otherwise known as 'it's different here'.

The problem is, despite a strong economy, we're having record levels of defaults, not witnessed since the last big property downturn in the early 90s. So yes, Australia's stats aren't as bad as the US stats, but they are comparable to the woeful stats from the previous crash/correction. Most of the things in your list were true then, Shadow.

*awaits 'it's different this time'*

 

[Shadow]

The problem is, despite a strong economy, we're having record levels of defaults, not witnessed since the last big property downturn in the early 90s.

Oh dear... a record 0.2% in NSW, and much lower in other states... what a disaster... this will only get worse as interest rates start to go through the roof... oh, wait, interest rates have peaked... so that means...

 

[warmed_cockles]

Oh dear... a record 0.2% in NSW, and much lower in other states... what a disaster... this will only get worse as interest rates start to go through the roof... oh, wait, interest rates have peaked... so that means...

So looking at the graph there and seeing the spike in the early 90s, it seems only a small amount of repossessions are required for property to turn down?

Rates peaked in '89, but the property downturn lasted a good few years after.

Not a healthy sign at all.

 

[Shadow]

So looking at the graph there and seeing the spike in the early 90s, it seems only a small amount of repossessions are required for property to turn down?

Rates peaked in '89, but the property downturn lasted a good few years after.

Not a healthy sign at all.

Downturn? Or crash?

I thought you D&Gers were expecting a massive 40% crash?

I think everyone agrees that we are currently in the midst of a downturn which will probably last for a couple of years. The latest ABS statistics show that house price growth has stalled.

So now that interest rates have peaked, we will just have to wait for sentiment to improve and rates to drop over the next year or two. Then we will see the next surge in property prices.

But there is certainly no indication of an imminent crash. This thread is about the factors that may cause a future house price crash in Australia. I suggested a couple of possibilities in my first post... i.e. over-building during the next boom, coinciding with the death of the baby-boomers.

Can you think of anything yourself... factors that may cause a crash, and when these might occur?

Shadow.

 

[warmed_cockles]

Downturn? Or crash?

I thought you D&Gers were expecting a massive 40% crash?

I'm not expecting anything, yet. Until we start seeing largish index movements, I'd be hesitant to predict anything more wild than what you've predicted for the next two years. I don't think it's a good idea to predict over a longer term basis than that, which is where we disagree.

I think everyone agrees that we are currently in the midst of a downturn which will probably last for a couple of years. The latest ABS statistics show that house price growth has stalled.

Yep. What matters now is very much outside of the control of the RBA. A downturn in both domestic (demand) and international (supply) sentiment may prolong the slowdown or accelerate it. There is a strong likelihood that high rates here have kept capital in the country.

So now that interest rates have peaked, we will just have to wait for sentiment to improve and rates to drop over the next year or two. Then we will see the next surge in property prices.

The problem with interest rates going down is that it may mean foreign investors become less keen to invest their capital here. Especially as Australia is quite an indebted nation, with large household debt. If yields on money aren't as strong as in the past, and with the massive aversion to risk sweeping the globe, it may be sometime before we see mortgage rates come down.

But there is certainly no indication of an imminent crash. This thread is about the factors that may cause a future house price crash in Australia. I suggested a couple of possibilities in my first post... i.e. over-building during the next boom, coinciding with the death of the baby-boomers.

Can you think of anything yourself... factors that may cause a crash, and when these might occur?

It's impossible to predict a crash, and I don't like doing it. I don't think the country is primed for a boom as witnessed the past decade like you do. Long stagnation? Quite possibly. But these are all dependent trigger events, not gradual ones, and certainly not cycles. There are bigger forces at play than the RBA and flaky underlying fundamentals.

 

[Dazz]

Not a healthy sign at all.

...but who cares....especially if you don't have any skin in the game.

Very clever indeed to sit on the sidelines whilst pontificating and waxing lyrical about what might or might not be, whilst not playing the game.

The world is full of armchair experts who are poor....dime a dozen.

 

[warmed_cockles]

How is not having a stake different from having one? If I am wrong, I potentially have to cough up more to get into the property market.

If I am right, but enter anyway, I could potentially lose money as well.

It's called knowing your risk.

We all have skin in the game, Dazz.

The world is full of armchair experts who are poor....dime a dozen.

Is it really?

 

[evand]

Because someone might want to have skin in the game......

...but who cares....especially if you don't have any skin in the game.

 

[Francesco]

I'm not expecting anything, ...
The problem with interest rates going down is that it may mean foreign investors become less keen to invest their capital here. Especially as Australia is quite an indebted nation, with large household debt. If yields on money aren't as strong as in the past, and with the massive aversion to risk sweeping the globe, it may be sometime before we see mortgage rates come down.
....

It is good to cover all the gloomy base but a bit of balance with the credit rating of the country should not go amiss. With uncertainty in the globe as it is and the demand for Australia's minerals, particularly energy producing minerals - recording first few monthly import/export surpluses in many years, etc.

 

[knightm]

Dont worry Daz if all people can see is downside, even when looking at falling rates then that leaves more opportunity for those with eyes to see.

 

[Dazz]

It's called knowing your risk.

...but how would you ever find out what it's like to own property and be exposed to the risks as an individual property investor if you aren't one.

Owning, renting out and managing # 37 Tweedledum Crescent in Upper Longborne NSW, two streets back from the shopping mall and bus route, is just a bit different from commenting on likely international monetary policy and how that may affect Labor policy on housing moving forward to 2015.

You sound absolutely fantastic....like some RBA adviser to the Federal Treasurer on housing problems.....but that ain't what makes a successful property investor.

Maybe you'll try being an investor one of these years. Let us know when you buy something.

 

[warmed_cockles]

...but how would you ever find out what it's like to own property and be exposed to the risks as an individual property investor if you aren't one.

By learning from others experiences and mistakes. Only the foolish learn from their own mistakes.