What will happen to property prices / rents if interest rates increase?

[brains]

Thanks Norm,

I understand the correlation between interest rates and housing prices (price) and therefore rent (earnings).

I was referring to p/e ratios relation to interest rates in the more common business usage of the term as its not used often for housing.

 

[Aceyducey]

Originally posted by L Bernham
It also says property investors in the UK laugh when they see the rental returns here as they expect a minimum of 8-9% gross even in property boom times.

I thought I'd just tack on a comment here about media reporting & the reliability of trusting figures reported in the media.

L Bernham supported his view that property prices would decline by 30% partially based on the fact that The Economist was reporting that rental returns in London are currently around 4%.

Yet earlier in the same thread, L Bernham used a SMH report claiming UK rental returns were currently at least 8-9% to support his same view from the angle of housing prices being too high.

While I appreciate using figures from the media to build a view, I do see a problem when you use contradictory figures from different media sources to build a single picture.

Importantly, this highlights the problem with relying on the media for accurate figures. As I posted in the media thread discussing this issue, journos are more interested in a story than the facts and many do not understand the relevance or dependencies of the figures they post anyway.

Always be VERY careful about relying on secondary & tertiary research reports - wherever possible go back to the primary figures (the source) and check for youself!

Otherwise it ends up like a game of whispers (pass it on!)

Oh, and this post isn't to single anyone out - I think we're all probably guilty of not sufficiently questioning what's reported in the media - or what is placed on the web

Cheers,

Aceyducey

 

[NormH]

Brains hi,
I am guessing as I am not in the head of the posters who speak of it. Jeez gotta be careful these days don't you

But you could come from the sharemarket world and still track property returns the same way ie price/income. Only thing is instead of seeing a number that I am accustomed to which is my rent as a % of my purchase price and hence my house that
cost me say 172,000 with a rent of 210/week and a return of 6.65%, yes it was rented for the full 12mths.

You could look at it in the p/e perspective of 172,000/11440 or a p/e of 15.

This would then be seen in the same context as shares where you would look at the number and say OK it is going to take me 15 years to get my money back.

Where as I use the % of say 6.65% subtract that from 15% as that is what I believe property returns long term (sum of rent and capital growth) and say to myself is this likely to grow at 8.35% and I get that number from the long term suburb average. If that is the case then my numbers are starting to look OK.

All of this is only my opinion

Norman

Originally posted by brains
Thanks Norm,

I understand the correlation between interest rates and housing prices (price) and therefore rent (earnings).

I was referring to p/e ratios relation to interest rates in the more common business usage of the term as its not used often for housing.

 

[Aceyducey]

Norm I think (not quite certain of this) that when L Bernham talks of using a P/E ratio he also is referring to using the current value of the property, not your purchase price. So the % would presumably be lower - and decrease further in a situation where CG grows faster than rental returns.

L Bernham, could you confirm or deny this point.

Cheers,

Aceyducey

 

[L Bernham]

Acey wrote

L Bernham supported his view that property prices would decline by 30% partially based on the fact that The Economist was reporting that rental returns in London are currently around 4%. Yet earlier in the same thread, L Bernham used a SMH report claiming UK rental returns were currently at least 8-9% t


Mate, please!?

Since when did London become "the whole UK"

If Sydney yields are 3% does that mean yields in the whole of Australia are 3%?

Of course not.

One must be careful refuting statistics provided by the media when they havent looked at the whole picture.

LB

 

[L Bernham]

Acey asked
"Norm I think (not quite certain of this) that when L Bernham talks of using a P/E ratio he also is referring to using the current value of the property, not your purchase price. So the % would presumably be lower - and decrease further in a situation where CG grows faster than rental returns.

L Bernham, could you confirm or deny this point."

Correct.
P/E ratios referred to by myself and in general are based on current value. Basing it on historical cost, apart from making it look good, are irrelevant when deciding its true value today.

Thanks for pointing that out.

LB