Where and when to buy?

[Steve Navra]

Hi,



I thought I might share my 'Heatmaps©' that indicate when and where to buy, with the group and open up this methodology for discussion.



The 'Heatmaps©’ are generated by applying ‘Rental Reality©’ to the moving average 5 year yield.


Your comments,



Regards,

Steve

PS: I have 'Heatmaps©’ for all the capital cities, but can only add 3 attachments per post.

 

[MichaelW]

Hi Steve,

They look good. How do we read the numbers though? They're clearly not the rental yields or even the relative change in rental yields or gap to 5 year average rental yields.

Are they a percentage gap to 5 year average rental yield?

i.e. -7 = 7% less than the average yield of the last 5 years and by definition using your rental reality check, means a bad time to buy? I remember your rental reality as saying when prices rise the yield curve reduces so you can use the historic yield to pick when to enter the market for any given suburb.

Cheers,
Michael

 

[virgo]

Heat Maps

HI Steve

First welcome back!!! It's been a while and your posts are always thought provoking

My question is simple: so do i buy when it is getting hotter and hotter or when it is getting colder and colder???

 

[Ausprop]

'Good Afternoon©' - Perth would be interesting if you could do another post please?

 

[Aaron_C]

Just based on what I see in the Melbourne data you should buy when it's green and sell when it's red hot

 

[Andrew_A]

Looks like it might be a premium to the 'rental reality' figure of that capital city, so a -6% means we are priced 6% below what RR (c) indicates as fair value.

• Step 1: Ascertain the 5 year average yield for the area. (Residex supplies the historical yearly yields for most all postcodes in Australian cities)
• Step 2: Ascertain the actual annual rental achievable. (as mentioned above.)
• Step 3: Calculate: Actual Annual Rental / 5 year yield for the area = Real Value.

source

 

[Peter_Tersteeg]

Can you give us an idea of what the figures mean and how they're determined? Obviously these charts are ment to be some sort of market indicator, but indicating what and why?

 

[Steve Navra]

Looks like it might be a premium to the 'rental reality' figure of that capital city, so a -6% means we are priced 6% below what RR (c) indicates as fair value.

• Step 1: Ascertain the 5 year average yield for the area. (Residex supplies the historical yearly yields for most all postcodes in Australian cities)
• Step 2: Ascertain the actual annual rental achievable.Step 3: Calculate: Actual Annual Rental / 5 year yield for the area = Real Value.

source

Andrew states it perfectly

They look good. How do we read the numbers though?

My question is simple: so do i buy when it is getting hotter and hotter or when it is getting colder and colder???

Can you give us an idea of what the figures mean and how they're determined? Obviously these charts are meant to be some sort of market indicator, but indicating what and why?

The green is an indicator to buy; the red not to buy and the shades between are transition periods.

So the darker the green gets, the better becomes the opportunity to buy.
Never buy when RED or transitioning to red: This means the market is overpriced.

The negative figures (GREEN) shown reflect the percentage less than Rental Reality© and likewise the positive figures (RED) reflect the percentage greater than Rental Reality©.

It is intertesting to look back and see just how accurate this methadology has been.

Attached: some more capital cities.

Regards,
Steve

 

[toony]

Can you give us an idea of what the figures mean and how they're determined? Obviously these charts are ment to be some sort of market indicator, but indicating what and why?

I will send you the Course Application!!!!!

 

[MichaelW]

So the moral of the story is that its a good time to buy in Brisbane! I could have told you that, I just did...

My only question then is why some small positive numbers up to about 5% are still showing as green as these would be an overvalued market relative to rental reality, albeit modestly.

Cheers,
Michael

 

[Ausprop]

rents lag at best, are inelastic at worst. I am wondering if you plotted prices against the price of milk if you would get a very similar result?

 

[Steve Navra]

My only question then is why some small positive numbers up to about 5% are still showing as green as these would be an overvalued market relative to rental reality, albeit modestly.

Correct, however moving towards a transition stage and at these levels, still represent a buying opportunity albeit not as enticing as the darker green.



Note that the annual yield is a moving target and that ultimately property is a long term growth asset. Thus, even if one did purchase at a slight positive (light green) you will notice that 5 years later there will have been an appreciation in Capital Growth. (The darker the green, the greater the Capital Growth achieved!)



I have used this method for a long time now and it takes all the guess work out of trying to 'read' the market.



Regards,

Steve

 

[Steve Navra]

rents lag at best, are inelastic at worst. I am wondering if you plotted prices against the price of milk if you would get a very similar result?

Rents do lag, hence using the 5 year average yield per post code and comparing that to the current obtainable rent.

All price to earnings calculations contain a market lag effect, this is reflected in the transition between colours.

Does Ausprop trade in milk

Regards,
Steve

 

[MichaelW]

Can I just say that for Sydney, if I step back and look at it with squinty eyes, that the period 1990-1996 looks very similar to the current period 2005-2011. Just sayin' And we all know what the late 90's were in property terms and what happened thereafter.

Cheers,
Michael

 

[tess85]

Fascinating! This appeals to my inner number-cruncher. Good to see my "in hindsight" thoughts about my purchases confirmed. eg. I knew that our PPOR (bought end of 2008) was hands down the best buy we have ever done. IP #1 and IP #2, while we don't regret buying them in beginning 2010 as they have given us equity and 7% yield... probably could've done better. Then again it's not just about timing the market but time in the market. Looking to buy IP #3 in the coming months and am glad to see that indicator back around the green mark!

 

[Steve Navra]

Can I just say that for Sydney, if I step back and look at it with squinty eyes, that the period 1990-1996 looks very similar to the current period 2005-2011. Just sayin' And we all know what the late 90's were in property terms and what happened thereafter.

You are correct and the interesting test is if one had purchased at the dark green indicators; then if you compare median house prices for Sydney 5 years after the event, you will see the resultant Capital Growth.

 

[tess85]

Can I just say that for Sydney, if I step back and look at it with squinty eyes, that the period 1990-1996 looks very similar to the current period 2005-2011. Just sayin' And we all know what the late 90's were in property terms and what happened thereafter.

MikeW, so educate me In 1990 I was in kindergarten and my idea of property was not letting other people take my pencil away...!

 

[ndpjai]

Fantastic & accurate indicator. Thanks Steve. For Sydney, 2014-15 is the next 20% growth, so next 2 years flattening or probably 2 to 3 % growth. Time to enter is probably around mid next year based on stable interest rates & low unemployment.

 

[Aaron_C]

MikeW, so educate me In 1990 I was in kindergarten and my idea of property was not letting other people take my pencil away...!

1990 = recession. Recovery of prices after that.
2000 = introduction of GST. bad for property - recovery after that.

 

[tess85]

Thanks Aaron