Will interst rate cuts = Property boom?

[singingtheblues]

port adelaide

Predicted Port Adelaide 30 years ago and still waiting for that baby to come home.....I know it will eventually.

you'll be waiting a while yet - i just dont see port adelaide going anywhere - it's dirty, grubby, polluted, remote, transport poor to the city centre (& the city isn't much to write home about either), non existant beach .. it just has nothing going for it - except the possibility of gentrification & that will require a whole load of wealth to come to the area .. but people (& businesses) are still leaving SA - i just dont see where the growth in SA will come from

.. as for interest rates .. if people aren't buying at these low IR levels then they'll never buy - another 1/4 percent wont make any difference - it's more about jobs confidence than interest rates, confidence in the economy will stengthen the market

.. however my view is that it's still a good time to buy .. i just can't work out where is truely undervalued at the moment

 

[spludgey]

2. Banks willingness to provide finance - very limited since GFC.

I'd disagree with that. Maybe prior to the GFC the banks were throwing money at people, but now it's still pretty simple to get finance. I've certainly not been declined by any bank yet and have home loans totaling 15 times my annual income with the banks more than willing to lend me more.

 

[quoll]

I need it to start hitting Cairns, port Douglas and Adelaide

Nope, gotta wait for the shock waves to spread, with luck it will be mid next year for it to hit Adelaide

Cheers
Graeme

 

[quoll]

I notice no more doom and gloom posters lurking around, that's also got to be a good sign

Noticed the Somersoft users hit a high back in July this year, that is always a good sign, group dynamics, people moving into property, getting a bit of momentum building.

Umm, might be interesting times in the next year or three.

 

[The Fence]

Keen got this very wrong.

Extract from above article:

Despite his loss, Dr Keen is still predicting doom for the Australian real estate market.

He was especially critical of the boost to the first home owners grant.

"It'll be real fun and games next year when the boost disappears,

"The Reserve Bank has recognised that there is a housing bubble and is trying to ***** it by raising rates now."

That was in 2009.


Now, whats happening today...?


Just noticed the word describing the prickly action of a pin into a balloon was censored...???

 

[MTR]

Noticed the Somersoft users hit a high back in July this year, that is always a good sign, group dynamics, people moving into property, getting a bit of momentum building.

Umm, might be interesting times in the next year or three.

Its been interesting Perth has been rising started about 18 months ago.

Syd, my guess that started rising perhaps 12 months ago, when I was looking the signs were already there. Just different this time, I think this market usually starts in the inner city and then ripples out.

MTR

 

[Intrinsic_Value]

My view is this;

we have had exceptionally low interest rates for some time now, yet there hasn't been much excitement in r/e.

Why?

1. Consumer confidence - none.
2. Banks willingness to provide finance - very limited since GFC.
3. Affordability at a very low level.
4. Unemployment on the rise.

So, what's changed?

These factors are determining business and consumer confidence more than realestate prices.

This translates into low business investment/expansion and low consumer spending patterns.

When it comes to property, we still have a growing population, supply of property never experienced a speculative 'blow out' (unlike in the USA).

Interest rates are a major factor on the ability to buy real estate.
Low interest rates = big demand push

Some of the low income regions might not benefit because of job instability (especially in Victoria with its manufacturing focus).

But the middle of the road is still ok: think doctors/lawyers/accountants/teachers/police/etc etc

 

[MTR]

Keen got a lot right in the GFC, which is why he is internationally respected. I expect he's just biding his time now with no regrets, he may still have the last laugh. Many of the real estate crashes around the world in the GFC were preceded by speculative blow off tops fueled by historically low interest rates.

I always have a good laugh when I read stuff like this. So he kinda got some of it right and then he kinda got some of it wrong. That's definitely reassuring.

He actually went on record stating that he got it wrong, especially when it came to his own backyard and this is the only market that interests me.

In fact when he was predicting the Australian property market would crash and I think he was quoting 30-50% from what I recall, Melbourne property market was actually booming this was around 2008. I know cos I was buying up, increases from 20-30% and more depending on the area.

I'll post this again, makes sense why one should not take this seriously

http://danerwin.typepad.com/my_weblog/2011/02/ten-reasons-why-economists-get-it-wrong.html

 

[Crabnet]

Keen got this very wrong.

Extract from above article:

That was in 2009.


Now, whats happening today...?


Just noticed the word describing the prickly action of a pin into a balloon was censored...???

Keen still writes and lectures about debt.
He draws nice graphs and shows them to people on the internet.
A recent one here that re-iterates his thoughts on there having been an unsustainable private credit boom
http://2.static.australianindependentbusinessmedia.com.au/sites/default/files/styles/full_width/public/Keen2.png?itok=rDMEHaXN

Now I suppose with the low rates designed to stimulate the economy and keep a lid on the exchange rate the RBA risk inflating hose prices further.
I suppose the danger is that this would make Australia especially vulnerable to a black swan event if that should occur in the medium term.
It wasn't that long ago that Stevens was jaw boning Australians warning them not to gamble that house prices would keep rising above inflation.
Hopefully the present first home buyers have large deposits and have factored in the possibility of increasing interest rates.

 

[Aaron_C]

Hopefully the present first home buyers have large deposits and have factored in the possibility of increasing interest rates.

First Home buyers by definition have low deposits due to their low age. Nothing has changed with this.

 

[Intrinsic_Value]

I will add a cautionary word here.

If property prices really blow because of low interest rates, I will be offloading a good portion of my portfolio when the first interest rate rises occur.

Why?

because as the market adjusts price based on low interest rates, a return to a more normal interest rate environment could result in major repayment stress.

Why wait until the first interest rate rise?
because we don't know how long interest rates will remain low, but once the RBA starts to raise interest rates, they tend to have further rises. The first rise tends to go unnoticed by the market, as by that time, people are more focused on the trend in property prices (ie buyers have a buy now before property goes up more focus). However as consecutive interest rate rises go on, the pressure builds on the market and eventually it cools off.

I want to be out by the time this occurs, but only if prices rise significantly based on low interest rates.

 

[Jake Milne]

Intrinsic_Value, why sell when you can refinance?

Property market is definitely on the move already... Don't know if I'd call it a boom as such but Melbourne I'm sure will reach new median heights in the next 12 months.

 

[MTR]

Go hard when the market is rising, but also take some money off the table prior to it peaking. I purchase 4-5 properties while rising, then perhaps sell 2 at 25-30% profit I am pretty happy, keep my debt down and keep moving to the next project/market.

When the market cools you do not want to be holding stock that is going to do nothing for another 10 years and then dealing with IR rises and ending up in negative territory.

MTR

 

[Intrinsic_Value]

Go hard when the market is rising, but also take some money off the table prior to it peaking. I purchase 4-5 properties while rising, then perhaps sell 2 at 25-30% profit I am pretty happy, keep my debt down and keep moving to the next project/market.

When the market cools you do not want to be holding stock that is going to do nothing for another 10 years and then dealing with IR rises and ending up in negative territory.

MTR

Exactly MTR.

Yes I could refinance and extract equity, but I would still have the debt against an asset that will either not grow in the medium term, or worse decline (yes property prices can come down as well).

Ylds would have been compressed so it wouldn't be a value play on rents (ie the portfolio would probably be cash flow negative on the new values as prices have gone up)

Happy to pay CGT and move on.

Its the velocity of returns that I focus on. This is the real secret of wealth creation.

Bulls make money, bears make money but pigs get slaughtered.

Of course this strategic thinking is based on prices going up significantly, if they don't I just stay put collecting my cash flow positive returns. I get paid to wait.

Either way I win so long as I don't get greedy

 

[Benvolio]

in this case can it really be a good time to buy? i was looking at a property in marayong that was purchased in October and is now selling for 30k more

 

[devank]

Property market is definitely on the move already... Don't know if I'd call it a boom as such but Melbourne I'm sure will reach new median heights in the next 12 months.

I'm yet to meet a BA who says "Well.. prices are dropping in our area" or "May be it is not a good time to buy"

 

[Jake Milne]

You know as well as I devank that it's not timing the market it is time in the market

 

[buzzlightyear]

Revere Award - For those interested

He received the Revere award for most accurately predicting the GFC, Roubini came second.

http://rwer.wordpress.com/2010/05/13/keen-roubini-and-baker-win-revere-award-for-economics-2/

 

[one world]

Noticed the Somersoft users hit a high back in July this year, that is always a good sign, group dynamics, people moving into property, getting a bit of momentum building. .

A salient observation. Clearly, the dynamics are changing and a sellers market is headed our way.

 

[MTR]

Exactly MTR.

Yes I could refinance and extract equity, but I would still have the debt against an asset that will either not grow in the medium term, or worse decline (yes property prices can come down as well).

Ylds would have been compressed so it wouldn't be a value play on rents (ie the portfolio would probably be cash flow negative on the new values as prices have gone up)

Happy to pay CGT and move on.

Its the velocity of returns that I focus on. This is the real secret of wealth creation.

Bulls make money, bears make money but pigs get slaughtered.

Of course this strategic thinking is based on prices going up significantly, if they don't I just stay put collecting my cash flow positive returns. I get paid to wait.

Either way I win so long as I don't get greedy

Absolutely, when you have purchased/sold properties in at least 4 boom cycles you learn a few lessons along the way, and one is to protect your capital. Anyone can accumulate properties