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

[L Bernham]

I thought I should add - my stat on rental vacany rates being at 3.9% for victoria wasnt far off the mark for the nation which is running at 4% according to page 80 in the SMH today.
Interesting article . Mentioned that rents have only increased in line with inflation over the last 10 years and with the concurrent building boom look like they will be heading down due to oversupply.

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.

WE will see average of 8-9% again too in the next few years and it wont be because of rising rents either.

LB

 

[geoffw]

For 9 years (1990 to 1999) I was getting perhaps 4% gross in the UK. And rents barely rose in that time.

Originally posted by L Bernham
I thought I should add - my stat on rental vacany rates being at 3.9% for victoria wasnt far off the mark for the nation which is running at 4% according to page 80 in the SMH today.
Interesting article . Mentioned that rents have only increased in line with inflation over the last 10 years and with the concurrent building boom look like they will be heading down due to oversupply.

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.

WE will see average of 8-9% again too in the next few years and it wont be because of rising rents either.

LB

 

[L Bernham]

For 9 years (1990 to 1999) I was getting perhaps 4% gross in the UK. And rents barely rose in that time

Maybe thats why you didnt get much of a capital gain when you sold.
Over the long term, rents and capital growth should move in line with each other. Some a little more and some a little less but generally in tandem. If rents arent rising but capital gains are, it will eventually even out.

Just my thoughts.

Cheers
LB

 

[geoffw]

Originally posted by L Bernham
Over the long term, rents and capital growth should move in line with each other. Some a little more and some a little less but generally in tandem. If rents arent rising but capital gains are, it will eventually even out.

I don't quite agree with that.

Rents and prices are two separate forces. Prices are driven by supply and demand of those buying and selling housing. And rents are obviously driven by supply and demand of those renting. They're two separate groups with two separate requirements.

Queanbeyan unit prices recorded the largest medain price range of anywhere in NSW according to figures published yesterday. Prices rose 80% in the 12 months to September this year. But there's no way that rents will rise to that extent- that will put them beyond Canberra's rents. I suspect it's just that investors chasing cashflow ahead of capital growth have pushed prices beyond what a local investor may consider a reasonable yield.

When I bought my block, 9% yield was a little below average. Investors (presumably from Sydney) are quite happy with 5% yield now.

Re England. I bought just before the end of a boom. It was followed by a slump for some years. And I sold at the start of a rise again. I recognise that I bought at a bad time. But I'm not unhappy to sell when I did. The house had not been managed well, and was in bad condition. I did not have the money then to bring it up to scratch again- especially as I could not claim against any Oz tax.

As it turned out, the small profit was very handy towards a nasty tax bill.

 

[L Bernham]

Prices rose 80% in the 12 months to September this year. But there's no way that rents will rise to that extent-

thats why I said that when it doesnt it will even out one way or the other.
Average rental yields dont fluctuate wildy. They are usually fair consistent either moving up slowly or down slowly.

Some of those negative nellies saying that property prices will collapse suddenly are wrong. This wont happen. Yields will get back to normal historical averages ie 8 -10% , but it will take a little while. I give it 3 -5 years.

LB

 

[Bill.L]

Hi all,

LB, where do you get your figures from??

Quote "Yields will get
back to normal historical averages ie 8 -10% "

What type of properties are these, where are they located, and what is the source of this historical average???

I can tell you for a fact that the very average house we owned in Mulgrave in the last 22 years has grown at a compound rate of 8.5% PA. Only once in the mid 80's (after Keating killed negative gearing) did the yield go over 8%. But interest rates were around 15% at the time.

For most of the 22 year period the yield was less than HALF the current interest rate, the exception being the last 6 years.

bye

 

[ani]

Hello L Bernham (or may I call you Lester)

An interesting choice of nic

Forgive me if I'm wrong, but having read your numerous posts , I've felt something doesn't quite sit right.

You have previously stated

"It will be shorter and sharper than many anticipate as opposed to a slow decline. "

and now you say

"Some of those negative nellies saying that property prices will collapse suddenly are wrong.

My gut instinct tells me that you are trying to do Kevin Spacey out of a job

 

[Choosy]

Hi All
I am Fairly new here, well a few months old, but don't really say a lot, as Olly mentioned, I'm one of them newbies that is a little scared to post for fear of getting attacked, although i feel a bit safer posting to this thread as L. Bernham seems to coping most of it.

I haven't read everything on here, trying to get thru them slowly, but each time i come across a L.Bernham post it seems to get nasty. For gods sake, why can everyone else have an opinion but him? From what i have read he always seems to be telling people what he thinks IN HIS OPINION will happen. I'm yet to find where he states he is an expert that knows in all certainty what is going to happen as a lot of you make out he is doing.

Give the guy a break, I personally like to read what he has to say, it's a pity there are so many comments that have nothing to do with the original question that we have to sort thru to get to the few comments that we originally come here for, and after saying that, i've just realised why it's taking me so long to get thru all the posts on this forum.

Whats say you start up a new topic under the forum. The Boxing Ring, maybe then i'll get thru these other topics a bit quicker.

As for L.B admitting to being wrong, Lets just wait a couple of years and see what happens or maybe because these are merely opinions, no one will need to appologise for saying what they think

Seeya Later
Choosy

 

[MarkB]

FYI - the following is an exchange that PT Bear and I had in this thread:

http://www.somersoft.com/forums/showthread.php?s=&threadid=12005

Originally posted by PT_Bear
Interest rates rising? Not a problem. My tenants are about due for a rent increase anyway.

Originally posted by Pitt St
Bear

I like your attitude.

(The message I got upon reading your post, which was that you see interest rates as an unavoidable fact of investing and that you "deal with it". This, of course, is the ONLY way to treat interest rates).

But consider this - suppose, for a moment, that BIS is right and interest rates do hit 10% within 3 years. That is a 66% increase (on 6%).

If rates hit 8% which is, IMHO, highly likely, even that is a 33% increase.

Can your rents rise that quickly?

MB

Originally posted by PT_Bear
Interest rates go up and they go down. My crystal ball says than sometime in the future they will go up. Then they will go down again. Just don't ask me when this will happen or by how much (poor quality crystal, so it's a bit murky).

Changing interest rates are a fact of borrowing. Anyone who doesn't anticipate rate rises at some point is looking for trouble.

You're also right, I can't raise my rents by 66% over 3 years, unless the market also shows a massive rental increase. What I can do is have enough cash/line of credit/equity available to see me though a tough period if rates do rise.

A rate rise will probably be due to a booming economy, which means a rise in salaries - both mine and the tenants. This means that renting is more affordable, so rents also increase. Between my salary increasing and rents going up, maintaining or even expanding my portfolio shouldn't be too much of a problem. If these things don't happen in the required timeframe, there's also plenty of luxuries I can do without - making my own lunch each day will probably cover one of my loans!

A rise in interest rates also brings it's own set of oppertuinities. If a rise lowers housing prices and increases rents, it could be an oppertunity to buy +ve cashflow houses with growth potential in the next boom. Booming rents and booming house values both occur in cycles, but they usually don't occur at the same time.

At this point, I don't believe that I've over-extended myself. The boom has been a start to investing and a learning experience for me. I believe that I've made some good money in the last few years, but it'll be in the next 10 years or so that I'll put my current asset foundation and knowledge to use and really make go places.

MB

 

[Aceyducey]

Originally posted by Choosy
Hi All
I am Fairly new here, well a few months old, but don't really say a lot, as Olly mentioned, I'm one of them newbies that is a little scared to post for fear of getting attacked, although i feel a bit safer posting to this thread as L. Bernham seems to coping most of it.

Hi Choosy,

Welcome to the forum.

No need to be scared of being attacked, this only happens in situations where blanket claims are made without supporting evidence 9ie: "Yields will get back to normal historical averages ie 8 -10% "

Please also bear in mind that L Bernham is also not shy in attacking people, often personally - even when his claims are proven incorrect by facts

I have to admit that I also bear in mind that Bernham actually doesn't own any investment property, and in his lifetime has only bought one, which he sold before the boom peaked due to a fear of an imminent collapse of the market. He's mostly into share trading - which requires a different kind of discipline.

I welcome all of your future contributions.

Cheers,

Aceyducey

 

[Aceyducey]

Originally posted by L Bernham
I thought I should add - my stat on rental vacany rates being at 3.9% for victoria wasnt far off the mark for the nation which is running at 4% according to page 80 in the SMH today.
Interesting article .

L Bernham, can you provide a context for these figures?

For example - 4% may well be below the average vacancy rate in the long term.

So on that basis, the market is still booming.

Provide the historic vacancy rate over the last 40 years & then it may be possible to draw some accurate conclusions.

Cheers,

Aceyducey

PS: Canberra is still seeing vacancy rates below 2%, so I guess there must be plenty of blue sky in that market based on L Bernham's views

 

[L Bernham]

this only happens in situations where blanket claims are made without supporting evidence 9ie: "Yields will get back to normal historical averages ie 8 -10% "

When I make a statement like this, I expect that everyone knows that this is my opinion only -thats what forums are about. HAving had a scroll back through some other peoples posts I notice that most people state opinions without the "in my opinion"disclaimer. Do you pull them up on these too Acey?

PS: Canberra is still seeing vacancy rates below 2%, so I guess there must be plenty of blue sky in that market based on L Bernham's views

When did I ever say that everything is either black or white. Or that there is only ONE way to value property and that is vacancy rate.

I have to admit that I also bear in mind that Bernham actually doesn't own any investment property, and in his lifetime has only bought one, which he sold before the boom peaked due to a fear of an imminent collapse of the market

How can you even say this? Is someone who has researched the market (or any market) unqualified to STATE OPINIONS until they have had a large number of transactions?
Also, as similar properties to where I sold are being reduced in price to less than what I sold mine for I'm thinking I may have been lucky to sell right on peak. It wasnt my intention - I tried to sell before the peak as you suggest.

Please also bear in mind that L Bernham is also not shy in attacking people, often personally - even when his claims are proven incorrect by facts
I havent seen too many of my claims proven incorrect by fact - by opinion, yes, but thats okay with me. its what forums are for.

LB

PS I would like to spend a bit more of my time creating better quality posts but I seem to be spending an awful lot of time defending myself from the nitpicking that my posts seem to create.
Its not just Choosy who is scared to post. Judging from the private messages I get it, there are a few more people out there who have an alternative opinion to the louder majority, but are fearful of the recriminations that posting these would bring.

 

[Aceyducey]

Originally posted by L Bernham
Its not just Choosy who is scared to post. Judging from the private messages I get it, there are a few more people out there who have an alternative opinion to the louder majority, but are fearful of the recriminations that posting these would bring.

I like this, it's the thought police card

Note I ALWAYS put IMHO in my opinion posts, or otherwise qualify them. L Bernham, I can't tell when you're stating what your opinion is, as you have usually made your statements as if they were fact.

Cheers,

Aceyducey

 

[L Bernham]

For the record then:

Unless I qualify a comment with a website link or quoting the reference I got it from, please deem this as being MY HUMBLE OPINION only.

However if I say something is around a certain mark though please dont bite.

I'm not going to back up every comment like
"home loan interest rates are around 6.5%" with " ** source :Westpac standard variable home loan rate obtained from 30 Sept 2003 brochure entitled - Home Loan rates".

Why should I?
There are some statistics that are common knowledge.
We all know rental yields are lower than the historical average so why waste time arguing the point?

 

[abcdiamond]

Originally posted by L Bernham
Its not just Choosy who is scared to post. Judging from the private messages I get it, there are a few more people out there who have an alternative opinion to the louder majority, but are fearful of the recriminations that posting these would bring. [/B]

I agree, after our last encounter and one of your comments:

Originally posted by L Bernham
Its why I don't often bother with people who don't have a basic understanding of ordinary financial concepts. I thought posting on an PM Economics thread I would avoid this type of response.[/B]

I find myself unwilling to enter a discussion with you, for fear of your attacks, and unwarranted comments.

 

[L Bernham]

Heres a story of how one post written in a fleeting weak moment of impatience in reply to a post made with the sole purpose to demean my character and discredit my opinion can come back to haunt you time and time again.

 

[brains]

"Its not just Choosy who is scared to post. Judging from the private messages I get it, there are a few more people out there who have an alternative opinion to the louder majority, but are fearful of the recriminations that posting these would bring."



I'll second this one. Ive received so many PMs from posters unwilling to air their views publicly for fear of attack, its not funny.

And thats not a good way for a forum to operate - IMHO.

 

[Cosmo]

At least there’s some great information thrown off with everybody’s exchanges with L bernam!

Nothing like a cat amongst the pigeons for some lively debate!

I’ll go hide again now……

 

[suggo]

LB, that wasn't the only comment that people have found insulting, but as you have said every post from now is "In your opinion" then I will give each comment you make from now that consideration and disregard them entirely!!

 

[Aceyducey]

Originally posted by L Bernham
There are some statistics that are common knowledge.
We all know rental yields are lower than the historical average so why waste time arguing the point?

Thanks L Bernham,

I do respect your views, I just feel there are big holes in them

Regarding the point above, do bear in mind that historic averages are not GOD. Just because it has happened in the past is not a rationale for the future to repeat it (thankfully!)

I agree this applies equally to claims of 9% property growth on average per year as to rental yields and it is always important to be careful when building a premise on the basis that 'it worked that way last time'.

BTW: I've been following up on the 9% figure and it has been fairly well proven for the UK over the last 900 years & 'roughly' for Australia over the last four decades (within half a percentage point). of course there are years with 20% growth and years with negative growth, but the average IS around that 9% figure.

I'm chasing up US figures at the moment to address the propensity in that mrket & may drop a line to some people in NZ to check there as well - however 'm fairly certain that is a good rule of thumb for the last half century or so here in Oz.

Cheers,

Aceyducey