Where and when to buy?

Hi Steve, thanks for sharing -great info. Just checking, does your Rental Reality incorporate interest rates? I use something similar, but in timeline graph form, which is essentially gross rental return as a function of the standard variable interest rate.
Cheers Ali
 
Hi Steve, thanks for sharing -great info. Just checking, does your Rental Reality incorporate interest rates? I use something similar, but in timeline graph form, which is essentially gross rental return as a function of the standard variable interest rate.
Cheers Ali
Hi Ali,

No it doesn't. Rental Reality just uses the current rental yield relative to the 5 year moving average to identify when to enter the market and how much to pay. It doesn't include any reference to interest rates.

Cheers,
Michael
 
Thanks for the reply. That would explain why my results are quite different for Sydney. Surely including interest rates would give a better indication of the real cost of purchasing and holding housing relative to rental return and therefore be a better predictor of the best buying times?
Cheers Ali
 
Thanks for the reply. That would explain why my results are quite different for Sydney. Surely including interest rates would give a better indication of the real cost of purchasing and holding housing relative to rental return and therefore be a better predictor of the best buying times?
Cheers Ali
Hi Ali,

I don't want to take this thread off topic and into a discussion of other ways of timing the market but I think others have argued there isn't a statistically valid correlation between interest rates and capital growth.

Personally, I agree with you. Hence my article and hypothesis some years back here which argued the relationship between yield and interest rates as the best predictor of when to buy. But I like Steve's Rental Reality. In effect, they're all valid and should be considered in conjunction. Think of it as just another weapon in your arsenal.

Cheers,
Michael
 
Thanks for the reply. That would explain why my results are quite different for Sydney. Surely including interest rates would give a better indication of the real cost of purchasing and holding housing relative to rental return and therefore be a better predictor of the best buying times?
Cheers Ali

Kieran Trass has done a lot of analysis along these lines.
 
Hi Ali,

I don't want to take this thread off topic and into a discussion of other ways of timing the market but I think others have argued there isn't a statistically valid correlation between interest rates and capital growth.

Personally, I agree with you. Hence my article and hypothesis some years back here which argued the relationship between yield and interest rates as the best predictor of when to buy. But I like Steve's Rental Reality. In effect, they're all valid and should be considered in conjunction. Think of it as just another weapon in your arsenal.

Cheers,
Michael

Hi Michael, I agree there probabaly isn't a great correlation between IR and CG but it is a critical factor in determining the price of a property and whether people decide to rent or buy. But you are right - I am sure there are heaps of threads on how to time the market already!
Cheers, Ali
 
Sorry Michael, I should have read your stuff in the link you provided before I responded. Brilliant stuff there, and I have used a somewhat similar approach that I have adapted for postcodes after reading Paul Do. I am pretty new to all this but a bit of analysis suits my way of thinking:).
Cheers Ali
 
Hi Steve, and welcome back to SS..... will you be conducting your Optimising Investment Structures courses around Australia again?

I credit where I am today from your course I attended years ago when you came over here to Perth.. Cash bonds sure did come in handy :)
 
HeatCharts.gif
 
Hi Steve, thanks for sharing -great info. Just checking, does your Rental Reality incorporate interest rates?
Hi Ali,

No, Rental Reality does not incorporate interest rates:
A property will attract a market rent based on the desirability and attributes of the property itself. Market rental affordability takes into account the effect of interest rates.

What I am suggesting is that property prices will be effected by interest rates changes as will the rent achievable; however the rent will be far less effected.

Therefore by using the average 5 year moving yield against the current rent achievable (slightly higher or lower depending on interest rates and many other factors) you achieve a true measure of the real market (actual affordability) value of the property.

Regards,
Steve
 
will you be conducting your Optimising Investment Structures courses around Australia again?

I credit where I am today from your course I attended years ago when you came over here to Perth.. Cash bonds sure did come in handy :)

Hi Rixter,

Thanks for that I am happy to have contributed to your success.

Yes I will be presenting in all the major cities between Nov and Feb; however I will not be spamming or touting for business, nor posting any sort of advertising on this forum!

I will contribute educational articles and perhaps share some of my methods for the benefit of all who wish to read any of my posts.

Regards,
Steve
 
Hi Stefan,

On behalf of all of us - MERCI BEAUCOUP

I also wish to add that thanks to your good work, it is evident that there have been many buying opportunities in the time period; if one had been prepared to diversify their purchases between the capital cities.

Kind regards,
Steve
 
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Graphs

Hiya

Thanks StefanA for your graphs but please explain: what does the Y-axis really represent?

I don't think it reflects prices as anyone who bought at the peak of those graphs in 88/89 would still have done very well in 2000...:rolleyes:

Does it represent "buying frenziness" or "heat" as Steve would have put it??
 


It looks to me like this info gives a great indication of when prices are at a peak and it's probably not a good time to buy. For example it says don't buy anywhere in 1989 which was spot on. Also not to buy in Sydney in 2003, Brisy in 2004, Perth in 2007 etc. The peaks are spot on.

However it doesn't seem to do as good a job with the time to buy? It says it was time to buy in Sydney and Melbourne in 1990, just 12 months after the peak? In reality, this was a bad time to buy. It was better to wait till 1997. It doesn't show that it was time to buy in Perth in 2003.

It shows that everywhere was great buying in 2009? It's too early yet to say if that is correct so the answer lies in the years ahead.


Is that what others see? Or am I reading it all wrong?


See ya's.
 
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Tried to post yesterday but it didn't work for some reason..
Anyhow, just wanted to say Thank You Steve. This work is extremely valuable. Of course, it also makes me happy that SOMEthing SOMEwhere legitimises my recent property hunting in Melb (Which is not exactly supported around here of late....Not that it would stop me :cool:).

One thing I particularly like is that I can use the HEATMAP for different strategies. For example, currently would be great buy & hold territory for Melb. When it starts turning orange & the heat turns up would be a good time for reno/develop/flip opportunities.

Steve, assuming you update these monthly, how can we access them?
 
Hiya

Thanks StefanA for your graphs but please explain: what does the Y-axis really represent?

I don't think it reflects prices as anyone who bought at the peak of those graphs in 88/89 would still have done very well in 2000...:rolleyes:

Does it represent "buying frenziness" or "heat" as Steve would have put it??

Hi Virgo,

The Y-axis represents the 'variance' from Rental Reality: in other words the further you are from the true value of the asset.

So the lower the number trending toward a negative- indicates a buying opportunity and the higher numbers trending towards less of a buying opportunity.

As you mention, someone who bought in 88/89 would still have done well in the medium to longer term - for property is a medium to long term growth asset and ultimately it is also about 'time in the market' that will achieve a result.

The most important thing to note is that the earlier that one enters the market, the sooner real equity gains are achieved, which allows one to 'duplicate' the process and acquire the next asset.

So the person who purchased say in 1985/6 would have acquired enough equity to look for another purchase in 1990/1; whereas the purchaser in 1998/9, who although they would still achieve growth in the medium term, would have to wait for sufficient equity before acquiring the next asset.

Heatmaps are all about accuracy and the ability to gain sufficient equity to be able to 'duplicate' the process sooner, rather than missing out on future buying opportunities!

Kind regards,
Steve
 
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