What if property prices drop 40%?

[alexlee]

I agree with LAA. you have in general argued logiically and seem to be familiar with the ABS website. Though you have probably played the bear thing to an extreme.

YM's problem is that he uses TOO MUCH logic. Investing, especially property, is not just about logic. It's about emotions and psychology, especially the psychology of millions of ordinary people, not economic automatons. YM ignores that to his loss.
Alex

 

[nonrecourse]

Yogi Bear smarter than your average bear boo boo!

I wouldn't give myself too much credit, YM. The media is doing its job for you.

Booms don't last forever, as you keep telling us. The more important question is, what do we plan to do next? I'm planning for the bear market, and the boom after THAT. You're just going to sit there and watch the bear market unfold even as you watched the bull market unfold, without significant exposure to the market. You'll have fun watching, but the people investing will be the ones getting rich (and risk crashing and burning - and many will).

I never wrote you off as a nut case (there are a few of those on the forum). I wrote you off as being too 'smart' to be a property investor.
Alex

Alex you will have plenty of time to prepare for the next property boom. My crystal ball tells me with the aging demographic of all the mums and dads selling their big homes and drawing down on their super that boom won't occur untill around 2018 to 2025. This is not a common garden variety recession we are facing.I repeat we are witnessing the start of a soft financial depression where most of us will not have access to further borrowings.

My father was a teenager in the great depression and I remember him saying that property repossessions were a weekly event in rural Canada with often the property being passed back to the bank as there were no bidders.

On a more positive vein he also said that lots of business's did better than survive. They were companies that had no or little debt and funded their enterprises by reinvesting their earnings thereby being self funded.

The baby boomer generation has used "opm" (other peoples money) to acquire assets. In good times when our age demographic was a lot younger you could borrow with the expectation that the economy would continue to grow and allow you to carry the debt. That's fine provided you have an end plan of how your going to pay it back when the inevitable occurs and the world goes pear shape.

Most investors are poor students of history particularly my generation of baby boomers. They are really speculators rather than true investors. They are fiscal pygmies when it comes to their grasp on how capital markets function. A loss of confidence finds them acting like lemmings stampeeding to what they percieve as the exit but they instead discover themselves in a free fall into the abyss.

Warren Buffetts two rules on investing;

Rule 1 Protect your initial capital investment
Rule 2 Refer to rule 1

 

[Token Funder]

and.....

1. there's less cash washing around
2. it's way more expensive
3. the parties that have it are far more risk averse than they were when most of us bought.
4. as a consequence, the potential buyers we require to pay more for our properties than we did will find it harder to do so.
5. capital growth will ease or move in to negative territory.
6. highly geared property speculators looking for a quick buck are screwed.

 

[alexlee]

I'm most interested in what will happen AFTER this downturn, and how I will be placed for it. As investors we have to look at the short term (survival) AND the long term (exposure). To only focus on one or the other is much riskier.

We're going to see a LOT more doom and gloomers on the forum from now on, because the short term outlook is drifting downwards. Not necessarily a bad thing, because the long term doesn't matter if you can't survive the short term (a margin call you can't cover is a fast and nasy version of that). Your property doubling in 10 years doesn't help you if you can't cover the interest payments now.

Some people will only focus on the D&G short term. Some overly optimistic people will focus only on the long term. Some have the resources to be optimistic because they are able to weather very nasty falls. Be wary of who you listen to and what resources they have.
Alex

 

[BayView]

YM's problem is that he uses TOO MUCH logic. Investing, especially property, is not just about logic. It's about emotions and psychology, especially the psychology of millions of ordinary people, not economic automatons. YM ignores that to his loss.
Alex

Yeah, agree.

Maybe I'm TOO simplistic, and too trusting of the property market in the future, but the past speaks strongly, so I tend to believe that what has been happening for the last 1,00 years should continue, give or take a few ups and downs.

And I pretty much look at it from this basic point of view;

OK, can I afford to buy again now? Yes.
OK, now; where can I buy that looks like it might be going up in value? Here's a town.
OK, which of these areas will give me a decent rent return so I can keep the servicability easy? This town won't; this town will. Let's pick a few properties.
OK, can I add some value and get some decent tax benefits form depreciation? Yes. let's put in an offer on this one.

 

[jingo]

I'm most interested in what will happen AFTER this downturn, and how I will be placed for it. As investors we have to look at the short term (survival) AND the long term (exposure). To only focus on one or the other is much riskier.

We're going to see a LOT more doom and gloomers on the forum from now on, because the short term outlook is drifting downwards. Not necessarily a bad thing, because the long term doesn't matter if you can't survive the short term (a margin call you can't cover is a fast and nasy version of that). Your property doubling in 10 years doesn't help you if you can't cover the interest payments now.

Some people will only focus on the D&G short term. Some overly optimistic people will focus only on the long term. Some have the resources to be optimistic because they are able to weather very nasty falls. Be wary of who you listen to and what resources they have.
Alex

Good advice Alex, especially to those who are interested in investing but haven't yet begun. (Not saying to rush out now and buy, but don't let the current doom and gloom prevent you from ever investing).

Many D&G's who visit this forum from GHPC are not investors. They have very little understanding of how property investment really works and the defense mechanisms that property investors have in place to protect them in a downturn.

Speculative predictions in the form of graphs, charts, pessimistic newspaper articles and misinformation surround the GHPC forum. Scratch the surface of the contributors to this forum and you will find frustration, bitterness, anger and resentment that they have been priced out of the property market.

Whilst there are some objective posters on the forum who have significant salaries and a decent networth, the majority have barely two cents to rub together. Some pitiful earnings in a savings account currently being erroded by inflation is the most that these prophets of doom and gloom can exhibit.

Yes, be careful who you listen to, paying particular attention to, as Alex highlights, the resources these people have or haven't got at their disposal.

 

[sash]

Yet again I am agreeing with Alex and you Jingo!

Yes...there are alot of naysayers around at the moment...and their favourite topic...doom and gloom.

I am on record of saying that I am optimistic of property in the medium term. There are going to be some opportunities to pick up bargains in the short-term.....as interest rates filter through and bite.

No bitterness and resentment here....just respect for the cyclical nature of property markets. And a solid attention to risk management and cashflow management!

Good advice Alex, especially to those who are interested in investing but haven't yet begun. (Not saying to rush out now and buy, but don't let the current doom and gloom prevent you from ever investing).

Many D&G's who visit this forum from GHPC are not investors. They have very little understanding of how property investment really works and the defense mechanisms that property investors have in place to protect them in a downturn.

Speculative predictions in the form of graphs, charts, pessimistic newspaper articles and misinformation surround the GHPC forum. Scratch the surface of the contributors to this forum and you will find frustration, bitterness, anger and resentment that they have been priced out of the property market.

Whilst there are some objective posters on the forum who have significant salaries and a decent networth, the majority have barely two cents to rub together. Some pitiful earnings in a savings account currently being erroded by inflation is the most that these prophets of doom and gloom can exhibit.

Yes, be careful who you listen to, paying particular attention to, as Alex highlights, the resources these people have or haven't got at their disposal.

 

[feihong]

out of interest, does anyone have any recollection/data on how the property market was performing during the Great Depression? We all know about the shares, but nobody mentioned about the properties.. I guess that could be used as the benchmark for risk management?

 

[The Fence]

Lots of arguing back and forth over what is right or wrong.......some sides will never give in...... it's getting a bit boring, I find myself skipping certain posts to see what some folks are doing about the next phase......

so....I think we nearly all agree that it's time to knuckle down, consolidate, clean up you act finance wise and ride her out.....?
Right?

 

[nonrecourse]

End of the thread

Lots of arguing back and forth over what is right or wrong.......some sides will never give in...... it's getting a bit boring, I find myself skipping certain posts to see what some folks are doing about the next phase......

so....I think we nearly all agree that it's time to knuckle down, consolidate, clean up you act finance wise and ride her out.....?
Right?

That's right. You can make money in down times too, its just that with the financial contagion easy finance is no longer available.

 

[Humphrey]

Maybe I don't read the right (or wrong) papers but I don't actually see that we are in Doom and Gloom. I see that the Australian economy is still very strong, immigration still strong, shortage of housing stock. Sure rates have risen but they're no exorbitant - maybe people don't remember the 80's and 90's.

So where is all the D&G taking place?

 

[Sunfish]

Maybe I don't read the right (or wrong) papers but I don't actually see that we are in Doom and Gloom. ......

Mr Market doesn't give a rats whether you are informed or not.

 

[sydneydave]

Landlords in a depression

out of interest, does anyone have any recollection/data on how the property market was performing during the Great Depression? We all know about the shares, but nobody mentioned about the properties.. I guess that could be used as the benchmark for risk management?

As a "hope for the best but plan for the worst" strategy, I attempted to find out what I could about how property was affected in the Great Depression.
The most relevant piece I read was from "Conquer the Crash" by Robert Prechter (who first predicted a huge crash beginning in 2000 - better too early than too late?)
He basically stated: "Landlords became charities.... tenants lost their jobs and couldn't afford rent. If they were kicked out, squatters moved in, damaging the property. Landlords would let their tenants live in their homes for free, ensuring the property would at least be looked after. House values fell by up to 80-90% of their boomtime value and rents continues to deflate well into the 40's."

Some food for thought...

 

[The Fence]

That'll shake your booties now won't it!!!