what would happen if property prices crashed

After another discussion with hubby, with him saying we should now diversify into shares as we would be stuffed if property prices crashed. It got me thinking back to the old question.

What would happen if Australian property prices did crash? Specifically to rent prices?

I had an unsuccessful google and forum search. Obviously it would depend on the cause, the current interest rates, and the like.

I think people will always need a place to live. Even if both property prices and rent went down due to a shocking economy, I imagine that share prices would fare a lot worse. If it was due to a "bubble", I guess it depends on when you bought, as to how you would fair. Anyway rambling

Would love to hear peoples thoughts, experiences and the like.
 
We've just gone through the second biggest economic shock in " recent " memory .

All of our IP's rented all the time , no decrease rents . We always have access to plenty of money as a buffer .

If we go down , the economy would have to be so f....ed that the rule of law was breaking down and people would stocking up on ammunition ....

All comes down to how secure your jobs are and how much spare money you have backing you up.

Cliff
 
When property prices crash generally what happens is there will be an over supply of property on the market, which in turn means property prices go backwards and it will be dependent on areas/suburbs how far they will drop. In many cases properties will stay on the market for many months as there are no buyers and too much stock.

For example the last boom/bust cycle Gold Coast, there was an over supply of units/villas/apartments, certain properties have fallen back as much as 40%, this market is only now starting to recover.

I have jumped into 4 property cycles around Oz and to reduce risk I like to jump in on a rise, buy up as many as I can afford and then sell off a few prior to the market stalling. It has worked well for me.

I believe it is important to watch markets and to buy in the early part of a rising market, otherwise you could be up sh@t creek without a paddle. The last thing you want to be doing is holding negatively geared property that crashes and your loan is more than the value of your property.

Market sentiment is very strong at the moment, lots of good spin in the media, this helps, I don't believe I have seen so many markets doing so well at the same time.:)
 
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It doesn't necessarily need a stuffed economy to drive prices down, one of the biggest drivers of property prices is the availability of credit.

If credit was restricted or banks were unable to fund mortgages to the same extent, real estate prices would plummet, causing a destructive feedback loop (the more prices fall the less able banks are to lend). Bank shares would crash, some becoming worthless if bailouts were required. This scenario is what happened in the countries worst hit by the GFC. Australia escaped that.
 
It doesn't necessarily need a stuffed economy to drive prices down, one of the biggest drivers of property prices is the availability of credit.

If credit was restricted or banks were unable to fund mortgages to the same extent, real estate prices would plummet, causing a destructive feedback loop (the more prices fall the less able banks are to lend). Bank shares would crash, some becoming worthless if bailouts were required. This scenario is what happened in the countries worst hit by the GFC. Australia escaped that.

However we no longer have lo doc/no doc, I never saw this coming.

Those were the good old days;)
 
It doesn't necessarily need a stuffed economy to drive prices down, one of the biggest drivers of property prices is the availability of credit.

If credit was restricted or banks were unable to fund mortgages to the same extent, real estate prices would plummet, causing a destructive feedback loop (the more prices fall the less able banks are to lend). Bank shares would crash, some becoming worthless if bailouts were required. This scenario is what happened in the countries worst hit by the GFC. Australia escaped that.

mmm

That's what I'd call a stuffed economy :confused:

Cliff
 
What would happen if Australian property prices did crash?

The ones who are not prepared will sell thus the prices will crash further. And the ones who are prepared will buy more. And then the prices will go up again. Whether boom or bust, the prepared ones will make money.
 
After another discussion with hubby, with him saying we should now diversify into shares as we would be stuffed if property prices crashed. It got me thinking back to the old question.

If property crashed, shares would be the first ones to crash way beforehand. History has shown this time and time again. Stock market crash in 1987? Small dip in property, then a surge. Most stocks fell 30-40%. Same for the GFC. It would be some apocalyptic event to cause property to crash and if that happened, then the value of your real estate would be the least of your worries.
 
mmm

That's what I'd call a stuffed economy :confused:
The result is yes and a worsening economy feeds a crash but it may not have been the initial trigger of the crash.

If you do diversify into shares to protect against property going down just make sure it's not bank shares since then you're still effectively exposed to the property market (in Australia anyway).

Most global stock markets have gone up tremendously in the last 5 years while real estate kept going down. It takes a lot longer for property to crash to a final bottom. Again, Australia has been a GFC exception in this respect.
 
takes a lot longer for property to crash to a final bottom. Again, Australia has been a GFC exception in this respect.

Yet real estate in places like Manhattan, London etc have been going up and up and up. It is all location. The rich get richer, the poor (think Detroit) just get poorer.
 
If property crashed, shares would be the first ones to crash way beforehand. History has shown this time and time again. Stock market crash in 1987? Small dip in property, then a surge. Most stocks fell 30-40%. Same for the GFC. It would be some apocalyptic event to cause property to crash and if that happened, then the value of your real estate would be the least of your worries.

Agree. This is generally the timeline and sequence of events. For those concerned about aberrant corrections, be hedged by keeping LVR's sensible and within comfort levels.

When the banks start really throwing money around again with low/no doc products and advertising "equity maaaate" type loans, then be prepared for a ramp up in values and cash in by selling down one or two holdings and enter when the fan is disseminating excrement again. These are all cycles. Nothing new.

The giant canary is China. If by reports they have over-built to the degree that is claimed with some 20-25 % vacancy in their brand new product, then that may be the biggest threat to us here with commodity prices softening and more job losses than are currently in the pipeline.
 
What would happen if Australian property prices did crash? Specifically to rent prices?

Well, not a "crash" as such but a price cycle....

I bought an IP in Melbourne years ago. I bought in the upswing of the property cycle. Rents were ok at the time. I bought in the high 3's. Values in the area continued to rise until comparable properties were selling in the low 7's. Then prices came off and a very similar property sold mid last year for mid 4's. Now similar properties in teh area are selling for low 6's again. And people say the stockmarket is volatile :p

In terms of rent, rents went up for a couple of years but last time I had to find a tenant I had to drop the rent a lot to get someone in. Rent was $330 but is now $270pw. I hear rents are on the increase again.

I terms of a "crash", it would depend on interest rates. A high rate scenario and low rate scenario would be different IMO.
 
As many said, major cities will be fine in the long run. Regional areas will be ***ed for a long time to come. Think 91 crash.

In the mean time, if you diversify into shares, you would've gone bankrupt before the property crash.
 
If there's a crash and the economy is stuffed, interest rates will likely go down to a level where most properties are CF+. You wouldn't have a problem holding them till the economy looks up again.

Whether you still want to hold them is another issue.
 
After another discussion with hubby, with him saying we should now diversify into shares as we would be stuffed if property prices crashed. It got me thinking back to the old question.


We diversified into shares. The GFC came and just about wiped us out.
Meanwhile our properties chugged away churning out rent....

If only..... :(

The Y-man
 
Prices can go up and down depending on where the property is.

I bought when prices "crashed" in Cairns immediately following the pilots strike. Prices were halved. The first apartment I bought, had been sold for $97k and I bought it for $52k. Within the year the prices started to rise again and I doubled my money in a very short time. I bought whatever I could while the prices were low.

Prices went up, then the dollar went up and the tourist market dropped, hence the need for rentals reduced and rents went down and property prices fell.

I realised what the rising dollar meant and sold most of the properties. Holding on to the higher quality properties. The rents still went down but are on the rise again now. Dollar is lower and there is the talk of the development at Yorkeys.

I believe you have to really know your market and to watch the signs constantly.

Chris
 
IR's take care of it .....

If property prices 'crash' or threaten to do so ( which would normally be a part of some other financial crisis ) then IRs fall like a stone. Remember the GFC ? Big-Rev-Kev had a panic attack ; Uncle Glenn at the RBA dropped 2% over night: and I immediately changed my beer order from VB to Crownies so as to soak up some of my excess cashflow ...Man, I was so worried ( that I might have to pay income tax !!) ;) LL PS That reminds me isn't it so nice not to have Kev or Big Jules in your face everyday ... I love this new gov't !!!
 
Oh no!

Hiya

If property prices "crash"....i will start buying for my grandkids (seriously:p)

(FYI my oldest son is 17..ha)
 
If property prices 'crash' or threaten to do so ( which would normally be a part of some other financial crisis ) then IRs fall like a stone.
The RBA might drop interest rates but in a true banking crisis the banks can't pass the drop on. Just look at the UK where a lot of banks went under, even today their variable mortgage rates are between 4 and 5% for most new buyers when bank of England rate is only 0.5%
 
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