Will Australia's next property boom be the greatest boom we've ever seen?

Discussion in 'Property Investment - Other' started by Shadow, 31st Dec, 2007.

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What will happen to Australian property prices over the next 10 years...

Poll closed 13th Jan, 2008.
  1. Big boom first, then bust (bigger boom & bust than the last one)

    20 vote(s)
    20.6%
  2. Small boom first, then bust (smaller boom & bust than the last one)

    25 vote(s)
    25.8%
  3. Recession first, then big boom (bigger boom than the last one)

    17 vote(s)
    17.5%
  4. Recession first, then small boom (smaller boom than the last one)

    24 vote(s)
    24.7%
  5. Continual stagnation or falling prices for the next 10 years

    11 vote(s)
    11.3%
  1. Shadow

    Shadow Evil Specufestor

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    I believe it will... that property will continue to grow as per the trend lines shown below. Which means that the median price in Sydney will exceed one million dollars within the next 7 or 8 years. I expect this massive boom is just round the corner, and in fact that the preliminary growth phase has already begun in several cities...

    But will it be followed by the worst bust in history? Again, yes I think it will.

    [​IMG]

    Cheers,

    Shadow.
     
    Last edited: 31st Dec, 2007
  2. Nth Brisbanite

    Nth Brisbanite Member

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    Shadow, do you think that we are currently in the greatest boom we've ever seen? When do you anticipate the bust to take place?

    I've just read Michael Yardney's book How to Grow a Multi-Million Dollar Property Portfolio in your Spare Time (2006) and he mentions about the next big boom as well. It's also a recurrent theme in Steve McKnight's recent newsletters.

    Is this just talk or is there some substance in these statements?
     
  3. Kennethkohsg

    Kennethkohsg Member

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    Dear Shadow,

    1. Can you please also include the Perth median house price trend in your trend chart, for comparison purposes?

    2. Why do you think that the biggest housing boom in Australia should neccessarily be followed by its biggest housing bust, in the first place? Care to further elaborate on your viewspoints,please.

    3. Demographically speaking, I believe it is quite likely that we may soon see the biggest housing boom in Australia in the near future, all things being equal. This is because the existing babyboomer generation cohort group is believed to be the biggest generational group in recent times, and provided that overseas emigration into Australia, does not alter this basic global trend in Australia in the near future, all things being equal.

    3. However, I further believe that whether the biggest housing boom in Australia will neccessarily be followed immediately by the biggest "housing bust" in Australia, is entirely a separate hypothetical discussion in itself.

    4. For your further comments/discussion, please.

    5. Thank you.

    Cheers,
    Kenneth KOH
     
  4. yieldmatters

    yieldmatters Member

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    If property growth continually outstrips wages growth I am wondering where the money will come from to fund the increase?
     
  5. alexlee

    alexlee Member

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    So it goes from 500k to $1m in 8-9 years. That's just an increase of 7-8% a year. Hardly stellar.

    My own view: we're going to see a bust first due to a US-led recession, and THEN we'll have another boom, but from a lower point on the long term trend.
    Alex
     
  6. GIDDO

    GIDDO travelling member

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    [QUOTE

    But will it be followed by the worst bust in history? Again, yes I think it will.


    Hi Shadow,

    Looks like most markets are following your trendline. Bris is over and Sydney looks ripe to go up.
    Looks perfectly feasible, based on the time since 1979.

    Do you not consider that factors like the SUB PRIME problems and the widening GAP between WAGE growth and property price will conspire to puncture the boom before 2009 is out?

    You mention 7 or 8 years before a big bust.

    I would love to have your iron clad guarantee on this.

    Do you consider "a big bust" to be a larger squiggle on the trendline than is current?
     
  7. stumunro

    stumunro PCA

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    What is the current growth rate for the trend lines ?

    What will the affect of population shift have on the trend lines? Has there ever been a time where Melbourne & Brisbane have been steam rolling population indicators ?
     
  8. Shadow

    Shadow Evil Specufestor

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    I think this boom has already begun in several cities. My prediction, simply based on extrapolating the median price lines against the trendlines, following similar peaks and dips to previous booms...

    Peak of boom: 2014-2015. Sydney Median Price: $1,250,000
    Bottom of bust: 2017-2018. Sydney Median Price: $1,100,000

    Something like this...

    [​IMG]

    I could be completely wrong of course so don't go buying lots of property just based on my prediction!

    Cheers,

    Shadow.
     
    Last edited: 1st Jan, 2008
  9. FHB

    FHB Member

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    As I said in the other thread:

    The problem I have with your graph, is that it is being shown relative to nominal dollars. If we all get 10% rises each year (which is what happened in the pre 91 era of your graph) then income totally supports a continuation of the trend.

    If we get less than this then something else has to take up the shortfall. This could be increases in debt, drops in interest rates, many more cashed up immigrants, broader reliance on investments, etc. I'm sure there could be others, I'm not sure these factors could be sustained to see prices go from 8 times income to 16 over a longer term. I could be wrong.
     
  10. Bazza

    Bazza Time to buy

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    Good extrapolation Shadow.

    But, not much of a bust if it only drops 12% in 2017? Long term investors will still be miles ahead.

    Cheers,

    Bazza
     
  11. alexlee

    alexlee Member

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    Long term investors usually are, as long as you can hold for the long term.

    However, 12% will be very painful if you maxed out your borrowing capacity to buy place at the top of the market, probably with a loan you can't really service, expecting rising prices to save you. Then, a change such as unemployment, children, etc will fry you.
    Alex
     
  12. VYBerlinaV8

    VYBerlinaV8 Member

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    ...which is why we, as investors, need to practice risk management. It's even easier if you have a good idea as to the likelihood of a negative event actually occurring. And let's assume we have several years warning for this 'bust'. Knowing a drop of up to, say, 15% is going to occur (or assuming it will to protect yourself) means you can get your ducks in a row so if the event does happen, you're ready (to pick up some bargains...).
     
  13. GIDDO

    GIDDO travelling member

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    Surely Alex, most investors would not be spooked by a drop of 12%?

    Wouldn't most investors factor in say 2 percentage points rise, and the need to hold the property for a coupla extra years if required to get back to parity?

    Or am I dreamin?
    Do people really sell up over a hiccup of 12%?
    seems like a waste of entry and exit costs to me.
     
  14. alexlee

    alexlee Member

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    I wouldn't be spooked. If markets dropped by 12% I would be out there buying. I keep a pretty low LVR, cash, and ungeared shares for risk management purposes.

    But reading about the US and Australian foreclosures, recurring themes are:
    1) they bought thinking property would always go up, so they were willing to pay any price, and
    2) foreclosure comes because they can't make the payments, not because the value goes down. This is often due to illness, stupid financial behaviour, divorce, death, unemployment, loss of one income, etc.

    People at the top actually buy HIGHER than even the implied median value, because the market is so crazy. They're already totally at the spending red line, but figure rising prices will allow them to refinance. When it doesn't, and they don't change their financial behaviour (or lose one income, etc) they can't make their payments.

    Most people are just a few paydays away from being broke. When these people buy properties, do we expect them to be any more financially intelligent than with their credit cards?

    That's what separates the investors from the 'me too' idiots. That's why a bear market is good for us. Shake out the financially inept and weak, giving us more opportunities.
    Alex
     
  15. Peter 14.7

    Peter 14.7 Wannabee Farmer

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    I agree with most of the above although I dont know if we are in a great boom. I mean, great is relative and it really does not matter.

    If:
    1. Your strategy is to invest in IP
    2. Then buy IPs and
    3. Lock rates to fix your risk and enjoy the ride.
    What is clear is demand for housing is not dropping yet housing starts are low.
    SO we will see rents go up a lot as demand rises.

    AND as rents go up and shares stop rising then money will move into property big time and then the real boom starts, like 2001 to 2003.

    Last year I took most of readily available equity and bought three new IPS, two in Melbourne West Suburbs and one in Sydney CBD. Share the risk. In 2008 I build a new PPOR and then review the equity this will release (Note: Bank counts cash at bank as income not equity). Probably $200k. If market is still good for growth then go again.

    Sub prime is a blip to us Aussies, in my opinion. What we really need to worry about is Oil going ballistic and wages breaking out and/or inflation going crazy as a result of the former. Then recession then jobs losses and prices drop for housing.

    To me, the Oil Price is the real risk to watch. It affects everything. If it stays reasonable then demand cannot hep but drive a boom in prices.

    A 12% drop at the end is simply readjustment to the overshoot. Like the 15% in SYdney in 2004-5. In Sydney, I bought in 1996 and 2000 so it didn't matter at all. Both had doubled in that time.

    Peter 14.7
     
  16. GIDDO

    GIDDO travelling member

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    Peter is this correct?
    Why does the bank count cash at bank as income.?

    I thought I was doing the right thing going in applying for a loan with 30-40 thousand sitting around.
     
  17. Shadow

    Shadow Evil Specufestor

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    Hi Kenneth,

    Unfortunately I don't have Perth data going back far enough to generate a meaningful trend line.

    Simply because the boom will be bigger I also think the bust will be bigger - but not the ridiculous 20-40% bust that some are calling for... more like 15%. Which will seem pretty big at the time if you bought at the peak and then medians fell by $200K, but long term investors who get in early would still be well ahead (as others have mentioned).

    Consider also that a 15% drop, followed by three or four years of stagnation, where prices don't keep up with inflation at say 3%, would actually feel like a 25% drop.

    Cheers,

    Shadow.
     
  18. yieldmatters

    yieldmatters Member

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    I suspect you will be wrong. Both I (and FHB but more eloquently) have asked where the money will come from?

    Trend lines are interesting but you need to question the prediction of the trend with a little common sense as well. A rising nominal price needs to be financed with dollars. Wages? Debt? Foreign money? Where will the cash come from?

    Rising population with smaller block sizes would be a plausible theory (i.e. more cash available per square meter) - but it wouldn't show up in the figures I expect as I expect the median price is not adjusted for block size. And this theory is contingent on the government maintaining tight planning controls on urban sprawl.
     
  19. alexlee

    alexlee Member

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    Effective sprawl requires transport. Opening a new area requires at least a main road back into the city. Trains would be even better, but I don't see much govt appetite for new trainlines. If you release large areas without adequate transport, it won't draw much demand away from existing established areas that have transport. Also, if you charge developers more and more to put in infrastructure, they're going to pass those costs on. If they can't pass those costs on (say because the market is stagnant) they just won't build. I suspect this is one cause of the unusual undersupply situation even though most cities are still booming.

    For the government to really make housing affordable, they need to make NEW housing DESIRABLE. That means transport. It needs to encourage satellite CBDs and build lots of new trainlines everywhere. Do you really see that happening?

    I don't think we're just going to ride into another boom from here, because I think we have two VERY big elephants in the room: higher inflation, and tightening liquidity. I would expect the markets to stagnate while the system works out the recent excesses. But I've also been wrong before. On the other hand, I own property with conservative LVRs, so it it crashes I go in and buy more, and if it booms I go in and buy more. Then whenever the next boom happens I get rich.

    In any case, as I've said before, median prices are interesting and all, but may have no bearing on YOUR particular properties. Median price can fall (e.g. a sudden rush of lower priced properties, whether high density or houses in new areas), but that doesn't mean YOUR particular IP falls. Similarly, the Sydney median has been steady but obviously Western Sydney prices have been falling (though the North Shore, for example, has been rising). The median can stay exactly the same but your particular property can rise or fall.
    Alex
     
  20. lizzie

    lizzie when i grow up ...

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    very plausible ... the four townhouses i am building will be worth more each than what i paid for a 3 bed house (on 600m) 7 years ago in the same suburb - so each townhouse will be on land a quarter of the size.

    wages are also increasing rapidly in certain sectors (although not all) and banks will always find a way to lend - possibly next step is 40 years mortgages.

    however, i personally do expect a stagnation for the next 12 months until the subprime jitters sort themselves out.
     
    Last edited: 2nd Jan, 2008