are you dismissing the rental reality calcs on the basis the cycles are due to other external factors?
Where and when to buy?
- Thread starter Steve Navra
- Start date
are you dismissing the rental reality calcs on the basis the cycles are due to other external factors?
Hiya Tess,MikeW, so educate meIn 1990 I was in kindergarten and my idea of property was not letting other people take my pencil away...!
I forget how old I am sometimes and how many of these cycles I've witnessed, thanks for reminding me.
The late 90's was the consolidation stage for Sydney property before it boomed into the 2003 peak. It was a dark period where everyone told you not to buy property and that prices would never go up. But eventually the yields got to the point where people started taking notice and realising they were better off buying than renting. Pretty soon they started doing so. Everyone got over Keating's recession that we had to have and realised it wasn't the end of the world. Property boomed and doubled in price through the next few years. Property cycles aren't uniform and growth is not regular. What you get is long flat periods that set the scene for the next leg up in prices. We seem to have had that long flat period in Sydney over the last 8 years or so with all the doom and gloom necessary to hold it back before the sky clears and the next leg up happens.Not saying we'll see a doubling in prices from here, but a few more years of consolidation with the big debt reduction drive that a lot of households are on right now and the scene will be set for some increased leverage on the back of increased wages and increased yields. We could conceivably see a big run up in prices from current levels. Macro economic factors do come into play and can distort / extend / interrupt the business cycle but they don't kill it. Greece is today's headlines, and there might be more gloom headlines for another few years but eventually the sun will come out on a new business cycle. Some new innovation will come along to substantially improve our quality of life such as the tech revolution in the last cycle. Some are already stating that biotech is the next big thing or it could be GM foods. My bet is health, but whatever it is it will happen. Human nature dictates that the business cycle is a must. Those willing to invest in the depths of despair often profit when that despair lifts if they have the guts to rail against the mob mood and see the cycle for what it is.
They say you need one cycle to become aware of its existence, one cycle to learn from then one cycle to profit from. I'm ready for that third cycle having been around for a few now.
Sorry for the waffle post, its nap time...
Cheers,
Michael
Prices
Hiya
Mate, i Dunno about those greens and yellows..when i was doing Economics 101 in uni, i was taught Price is a function of Demand and Supply.......any abberation is just short term distortion....
In the US, lots of supply but no demand....look at their prices...
In Hongkong and Singapore, lots of demand but no supply...yes, prices have dropped in the past, but have you seen the prices recently? (dammit shouldn't have sold myself)
Or is Economics 101 not relevant anymore???!!!!
Hiya
Mate, i Dunno about those greens and yellows..when i was doing Economics 101 in uni, i was taught Price is a function of Demand and Supply.......any abberation is just short term distortion....
In the US, lots of supply but no demand....look at their prices...
In Hongkong and Singapore, lots of demand but no supply...yes, prices have dropped in the past, but have you seen the prices recently? (dammit shouldn't have sold myself
)Or is Economics 101 not relevant anymore???!!!!
Nope, you're spot on. I'm an economics 101 kinda guy myself and definately buy into the supply and demand argument.
But rent is a proxy for demand. Its still property "consumption" but in a different form. As rental "prices" increase this is reflected in yields. The charts Steve has produced show when those yields are demonstrating that there is a demand/supply imbalance relative to history and that's why it works so well for measuring when to enter the market with a purchasing decision.
Cheers,
Michael
So for Brisbane, let's say a confident buy signal is <=2%.
In the plot below, when the plot cross down into green territory, there's your buy signal.....or should it be crosses up out of green?
1.
That means only be a property permabull 14.8% of the time.
For 85.2% of the time, be a property bear, invest elsewhere.
2.
After I bought in 1983, I didn't have to bother buying property again for 12 years!
After buying in 1997, I didn't have to bother buying property again for 12 years!!
Gee the REAs and BAs will have to revise their business models!!!
Hmmmm....if I was developing a heat map like that, I'd want to standardize the index to help discriminate structural and cyclical variability.
OTOH, maybe structural variables are better represented in the plot as it is....the volatility since 2003 and the unprecedented fall into BUY BUY BUY territory since Aug2010, might be interpreted as don't BUY until descend trend end, cos something structural, not cyclical is awash.
This structural concern is underscored by all 5 sub -5% scores in the frequency distribution below having occurred in 2011.
Hmmmmm.... methinks this spells something more nefarious in ze chartz......possibly extinct in heat, and light.
In the plot below, when the plot cross down into green territory, there's your buy signal.....or should it be crosses up out of green?
1.
That means only be a property permabull 14.8% of the time.
For 85.2% of the time, be a property bear, invest elsewhere.
2.
After I bought in 1983, I didn't have to bother buying property again for 12 years!
After buying in 1997, I didn't have to bother buying property again for 12 years!!
Gee the REAs and BAs will have to revise their business models!!!
Hmmmm....if I was developing a heat map like that, I'd want to standardize the index to help discriminate structural and cyclical variability.
OTOH, maybe structural variables are better represented in the plot as it is....the volatility since 2003 and the unprecedented fall into BUY BUY BUY territory since Aug2010, might be interpreted as don't BUY until descend trend end, cos something structural, not cyclical is awash.
This structural concern is underscored by all 5 sub -5% scores in the frequency distribution below having occurred in 2011.
Hmmmmm.... methinks this spells something more nefarious in ze chartz......possibly extinct in heat, and light.
which raises a valid point in Jan Somers' books - that you should buy when you can afford to, because you don't know whether the banks will lend to you tomorrow. I'd say that advice applies to a lot of people today, when all the caps are synched dark green, and finance isn't necessarily forthcoming.
Hi JWR,
Rental Reality can be applied for an individual post code.
Ultimately the property will either be within the RR price range which represents a buying opportunity, or out of RR range (too high) therefore not a buying opportunity.
All suburbs have their good and less good points and this will be accurately reflected over time by the yield that the particular suburb can achieve.
It is thus the actual rent achievable / the running yield of the suburb that reflects the 'real' value; and it is this data that translates into the heatmaps.
Regards,
Steve
1.
That means only be a property permabull 14.8% of the time.
For 85.2% of the time, be a property bear, invest elsewhere.
2.
After I bought in 1983, I didn't have to bother buying property again for 12 years!
After buying in 1997, I didn't have to bother buying property again for 12 years!!
Hi StefanA,
Thank you, your graph is a brilliant illustration of the point that the heatmap demonstrates. (With your permission, I might use exactly such a graph in my seminars!)
It makes perfect sense to ONLY buy in the one city, in this example Brisbane, just 14% of the time. This gives the best and maximized capital gain for the money invested. Please note that the various cities peak and trough at different times and given that there are at least 8 Australian cities x 14% = you can buy 112% of the time. (Assuming they all peak and trough at different times
)Realise of course that there can also be times when there are very few, or literally no buying opportunities in any of the cities simultaneously - but it is better to sit out of the market than overpay for an asset. Whatever the amount of the overpayment is, will obviously have to first be overcome, before any true capital growth is achieved.
I agree that banks get the most difficult at the most opportune times, which is a reflection of exactly why these opportunities exist! The answer to this conundrum is of course in optimizing your structure to enhance your serviceability.
Regards,
Steve
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Graph
Hi Stefan
Love your graph too! Perchance can you provide one for Sydney???
thanks!
So for Brisbane, let's say a confident buy signal is <=2%.
In the plot below, when the plot cross down into green territory, there's your buy signal.....or should it be crosses up out of green?
1.
That means only be a property permabull 14.8% of the time.
For 85.2% of the time, be a property bear, invest elsewhere.
2.
After I bought in 1983, I didn't have to bother buying property again for 12 years!
After buying in 1997, I didn't have to bother buying property again for 12 years!!
Gee the REAs and BAs will have to revise their business models!!!
Hmmmm....if I was developing a heat map like that, I'd want to standardize the index to help discriminate structural and cyclical variability.
OTOH, maybe structural variables are better represented in the plot as it is....the volatility since 2003 and the unprecedented fall into BUY BUY BUY territory since Aug2010, might be interpreted as don't BUY until descend trend end, cos something structural, not cyclical is awash.
This structural concern is underscored by all 5 sub -5% scores in the frequency distribution below having occurred in 2011.
Hmmmmm.... methinks this spells something more nefarious in ze chartz......possibly extinct in heat, and light.
Hi Stefan
Love your graph too! Perchance can you provide one for Sydney???
thanks!
....and for Adelaide, Perth Melbourne and Canberra too!Hi Stefan
Love your graph too! Perchance can you provide one for Sydney???
thanks!
Please
Steve, you are very welcome to use the chart. Am sure it would be trivial for one of your minions to generate them for all caps.
In fact, I think when dealing with time, a "timeline heat chart" is more appropriate than a raw data heat map. With a chart you can run appropriate horizontal bands of color (above the green), and visualize the relationship over time of premiums to rental reality, and hopefully more clearly recognize disturbing trends like structural changes in value vs cyclical.
Your 'yield' analysis is how several of my US resi property mates operate, and obviously it is common place when buying commercial property in Oz.
edit: just noted requests for other caps, unlikely to be in the next 12 hours. Amongst other things, I've a lot of global macro and commodities reading to do.
In fact, I think when dealing with time, a "timeline heat chart" is more appropriate than a raw data heat map. With a chart you can run appropriate horizontal bands of color (above the green), and visualize the relationship over time of premiums to rental reality, and hopefully more clearly recognize disturbing trends like structural changes in value vs cyclical.
Your 'yield' analysis is how several of my US resi property mates operate, and obviously it is common place when buying commercial property in Oz.
edit: just noted requests for other caps, unlikely to be in the next 12 hours. Amongst other things, I've a lot of global macro and commodities reading to do.
Hi Stefan,
Yep, I have my guys working on producing the graphs.
Thank you so much for sharing the idea, I believe it will be exceptionally valuable in demonstrating how effective the methodology has been based on the historical data.
I am also working on collating the Capital Growth achieved from the actual 'buy' signals to both the 5yr and 10yr anniversaries, after that start.
Historical returns are certainly no guarantee of future results, but it does lend credibility to the methodology used to come up with the results.
Once again, many thanks for your input.
Regards,
Steve
