What it takes to change the market

[see_change]

As we watch the market moving up , there is a steady trickle of comments of people saying it can't continue and if they wait , they'll be able to buy cheaper when prices pull back .

My observation from the last few decades of watching the property and share markets is .

It takes a lot to change the direction of a market , whether it's going up or down , or just sideways .

Markets react to what the " Herd " thinks and as a whole , the " Herd " is not that smart and reacts on the basis of emotion rather than on the basis of Fact.

I think it will take a while of the market being at unaffordable prices combined with major shocks to change the direction of the market . It might slow down as things become unaffordable but in reality it's not there .

There are always people who can afford to buy when it no longer makes sense on the basis of a realistic return as an investment . At this stage it's easy to justify investments on the basis of expected capital returns ( because that's the expectation ) and the low cost of holding ( historically low ).

Cliff

 

[devank]

What is really 'unaffordable'?
I would like to buy a house near a beach... but it is 'unaffordable' to me. So I'm living 20 km away. There is no 'unaffordable' if we drop our 'wants'.

 

[D.T.]

OO's who are impatient succumb to their wants

 

[The Fence]

Well if Deloitte's bullishness comes anywhere near fruition it certainly will take alot to change the market.

No wonder outsiders wants to own a piece of this country.

 

[see_change]

OO's who are impatient succumb to their wants

Add uninformed investors as well .

Unaffordable is not an absolute , it's a relative thing . The more people who find property unaffordable , the more relevant it becomes .

Devank ? Which beach ? You'd probably be able to afford a beach front property if you were happy to buy in north arm cove or pindimar , but that would make it a relatively long way to go to work ... And all your relatives

Cliff

 

[MTR]

Hi SC
This is an interesting article on boom/bust cycles by John Lindeman, this guy seems to have his finger on the pulse

http://propertyupdate.com.au/what-causes-housing-markets-to-boom-and-bust-john-lindeman/

 

[perthguy]

I think it will take a while of the market being at unaffordable prices combined with major shocks to change the direction of the market . It might slow down as things become unaffordable but in reality it's not there .

What about interest rates? If rates incresed by 2% or 3%, could that change the direction of the market?

 

[see_change]

What about interest rates? If rates incresed by 2% or 3%, could that change the direction of the market?

Personally I wouldn't expect it to change the direction . Might slow it down , but in the past , on one occasion I recall it sped the market up as people wanted to buy so they could lock in rates before it went up further ..... .

I certainly wouldn't expect an interest rate on its own to crash the market .

Cliff

 

[Brady]

What is really 'unaffordable'?
I would like to buy a house near a beach... but it is 'unaffordable' to me. So I'm living 20 km away. There is no 'unaffordable' if we drop our 'wants'.

Agreed there is property priced at all different levels, I always laugh when some young couple is on TV saying that they can't afford to buy and what not... turns out they are trying to buy in some hipster Eastern Suburbs as their first PPOR.

Seriously a couple earning $40k each with 2 children can afford to borrow ~$400k that gets you a reasonable house in alot of areas.

What about interest rates? If rates incresed by 2% or 3%, could that change the direction of the market?

Even with 2% increase the above couple could borrow ~$350k


The main issues is and will continue to be people saving for the deposit.

 

[datto]

What if the Chinese economy crashes and they stop buying Ozzie properties? That will leave a dent for sure.

 

[Propertunity]

What if the Chinese economy crashes and they stop buying Ozzie properties? That will leave a dent for sure.

That only affects brand new and OTP properties, as that is all foreign nationals are allowed to buy.

 

[Propertunity]

What about interest rates? If rates incresed by 2% or 3%, could that change the direction of the market?

It can affect market sentiment for sure. But affodability, not so much, as serviceability calcs by the banks are done at +2% over present day anyway.

 

[turk]

It can affect market sentiment for sure. But affodability, not so much, as serviceability calcs by the banks are done at +2% over present day anyway.

The increase would affect affordability as the new repayments would be the 2% increase plus the 2% buffer.

 

[Brady]

The increase would affect affordability as the new repayments would be the 2% increase plus the 2% buffer.

But then you're likely looking at increase rental income as market has improved.

And for rates to improve by 2% the market as a whole is alot stronger which could possibly also mean better income.

 

[turk]

But then you're likely looking at increase rental income as market has improved.

And for rates to improve by 2% the market as a whole is alot stronger which could possibly also mean better income.

The market is not only made up of investors, 70% or so are owner occupiers.

But for investors a 2% increase on a $350,000 loan equates to an extra $134 PW in repayments, what would the rent have increase on a $400,000 property to cover the extra interest,
-30/40%, don't think that will happen.

Better incomes often lead to higher expenses(inflation).

 

[perthguy]

Personally I wouldn't expect it to change the direction . Might slow it down , but in the past , on one occasion I recall it sped the market up as people wanted to buy so they could lock in rates before it went up further ..... .

I certainly wouldn't expect an interest rate on its own to crash the market .

What happened after the market sped up? That's what I am interested in.

From my experience in the Perth market, prices increase, increase, increase, correct, stay flat for a while, increase again.

The market has always turned around in the past. What did it take for this turn around to occur?

 

[see_change]

What happened after the market sped up? That's what I am interested in.

From my experience in the Perth market, prices increase, increase, increase, correct, stay flat for a while, increase again.

The market has always turned around in the past. What did it take for this turn around to occur?

Eventually we had " the Recession we had to have " , THEN , things came down .

I've seen two occasions when the market turned down significantly , then and the GFC

Cliff

 

[devank]

Market is like a big ship. It takes a lot of time & effort of change the direction. I think it was Andrew Wilson who said this.

 

[perthguy]

Market is like a big ship. It takes a lot of time & effort of change the direction. I think it was Andrew Wilson who said this.

I seem to remember " the Recession we had to have " took quite a while to develop. At least it seemed like a long time while my parents were paying 18% interest on a single wage.

GFC on the other hand seemed pretty quick, but I don't recall a big drop in house prices. I was in the market at the time, so I was looking out for good deals. Of course then I could not get a loan because the lending criteria changed

 

[see_change]

I seem to remember " the Recession we had to have " took quite a while to develop. At least it seemed like a long time while my parents were paying 18% interest on a single wage.

GFC on the other hand seemed pretty quick, but I don't recall a big drop in house prices. I was in the market at the time, so I was looking out for good deals. Of course then I could not get a loan because the lending criteria changed

We were active and we had money in a LOC available . People didn't sell unless they had to , but because there were few buyers you could pick up very good deals. It was just a matter of low balling and some blinked .

We offered 800 of two units in mosman they were asking 1.275 for . Picked them up for 900 ( for the two of them ) a one bedder and a two bedder , both over 100 m2

The one bedder above ours , just sold for 750 ......

Cliff