Will yields rise via increased rents or lower capital values?

[Perp]

Following on from my recent poll as to whether yields must rise, I thought it would be interesting to find out how most of you think this will happen. The significant majority view was that yields will rise gradually over the coming years.

And yes, I'm aware that it doesn't matter what the market does; only your property. But I'm still interested in what you think the overall market will do.

 

[Gatoblanco]

Don't interest rates need to go in there somewhere too? The greatest influence on yields lately IMO has been the interest rate cuts as house prices havent dropped a massive amount.

Oh, I just thought the way you calculate yield doesnt include loan costs. I will go away and think some more before answering.

 

[myoung]

Depends on the market, i think yields will hold up in the low end and fall away in higher end property.

 

[lizzie]

i put combination - but not just combination of the choices. as gato pointed out interest rates will also have an influence amongst other things.

 

[topcropper]

Depends on the market, i think yields will hold up in the low end and fall away in higher end property.

I think the same.

Probably also applies to property prices too. Expensive property to continue to drop, cheaper property to hold up and even increase a bit.

See ya's.

 

[troyhunt]

Don't interest rates need to go in there somewhere too? The greatest influence on yields lately IMO has been the interest rate cuts as house prices havent dropped a massive amount.

I think the context is gross yield in which case rates don't factor.

 

[yieldmatters]

Lower house prices and increased rents

I think lower house prices and increased rents but the main driver will be lower house prices. This is all in "real" terms of course - a high inflation environment would change the nominal numbers (i.e. it would appear that house prices are flat or rising) but it would give the same outcome.

Here is my logic:

Rents are limited by incomes - hard to get blood out of a stone / can't borrow to pay rent. So if you look at the historical ABS data on rents while there are surges and slumps it tends to stay broadly in line with CPI.

House prices on the other hand left incomes a long time ago and have been funded by an every growing (until recently) pool of debt. This can reverse as easily as it built up. Further to that the price of a house is well beyond the true economic cost of providing it (even if you unfairly include all that infrastructure that the baby boomers no longer want to pay for). There is more scope for houses to drop than there is for rents to rise.

 

[HiEquity]

Hi Tracey

Why do yields need to increase at all? With another couple of percent in interest rate drops (under the assumption that it all keeps hitting the fan out there), then won't we all be positively geared anyway?

Nothing wrong with that... and should that come to pass then it will be a case of buy, buy, buy, even at current yields...

 

[want2bewealthy]

Hi Tracey

Why do yields need to increase at all? With another couple of percent in interest rate drops (under the assumption that it all keeps hitting the fan out there), then won't we all be positively geared anyway?

Nothing wrong with that... and should that come to pass then it will be a case of buy, buy, buy, even at current yields...

Exactly, thats the way I see things happening, cycles happen thats a fact of life and rather than looking at it as 'scary' I prefer to look at all the massive upsides to buying right now, I wouldve thought that with all the seasoned investors on this board it would be common knowledge? especially those who have been through the cycles before.

 

[Aaron Sice]

i'm a combo voter.

if IRs keep falling, the yield doesn't rise, but it's much easier to hold a property.

i wonder if IRs will get to a point where high CG, low yielding property become CF neutral? ah...to dream.

 

[GoAnna!]

For reasons I am unclear on my rents seem to be rising on the lower and upper end properties but not the middle.

The reason interest rates are dropping is that the economy is tanking and this means less new builds and pressure on rents. So yes lower interest rates and rising yields is consistant with this time in the cycle.

When times are booming and heaps are being built is when free rent for one week etc offers come out of the woodwork. Don't see many of those offers around at the moment.

At the same times as rents are rising I think that most property is falling in real terms.

 

[boomtown]

Rents have been consistently rising in my area - and for the first time - I am seeing falling prices. This just started last week. Suddenly 3 properties have popped up on my radar that are a bit below the peak.

 

[Perp]

Now that's an extrapolation...

I am seeing falling prices. This just started last week. Suddenly 3 properties have popped up on my radar that are a bit below the peak.

boomtown, you sound like my hubby watching the cricket. The batting is slow, we're not going to make the target, then somebody hits a four and all of a sudden "we're going to get there! Yee-ha!". The next ball is a dot ball and "That's it, it's all over! We're never going to make it!".

Methinks perhaps this sample is just a bit too small from which to draw any useful conclusions.

 

[boomtown]

But but ... hes right ....

 

[LynnH]

LOL, Tracey! Sounds like that in our house during 'cricket season', too!

Cheers
LynnH