There are many different views accross the board about this and after reading Steves book, reasearch and talking to people alot of new door to vital information have been opened.
The feeling i’m getting is while economic growth is expected to sustain it’s growth over the next two years as prediced intrest rates will rise a quarter % before christmas and once again before the end of the finnancial year. Reports this week showed housing affordability rates at their lowest and with intrest ratesrising this is only going to get worse.
Based on these results I can only assume housing prices will decrease eairly next year when some first time investers are released from their honeymoon periods of there loan only to find out they can no longer afford to pay it off.
Prices may fall between 5 to 20,000 on the average house.
However, this is my view but what is yours?[
]Oh it’s going to burst and leave gooey stuff everywhere…
The sky is falling, the sky is falling…
Just as well I’ve got my swag to live in if it all goes really bad.
Seriously, I think there will be a continued softening of the market as interest rates edge up… going on all the noise the RBA makes about overcommitted households in terms of debt there are a lot of people out there who are geared to the max (mind you I don’t know the good debt v bad debt breakdown in those households)
It’s a bit of a worry really, because interest rates are still quite low, even with the .25 rise expected in December.
I reckon there will be a few people in property investing that may have been sucked in at seminars, or by spruikers, that will off-load their properties as the “property is bad” mantra grows momentum while further rate rises hit home.
I don’t quite think it will be the “blood in the streets” scenario some are predicting, but it’ll be a good buyers market nonotheless.
your predictino of 5k to 20k on the average house… where is your “average” house located?
cheers
rIf there’s a bust, it’ll be for the same reason there was a boom – the herd mentality. Just every man and his dog rushed into RE because they saw prices climb, when prices show the first sign of dipping, those same people may very well rush out of RE.
Hi Kkowalsk,
It’s not necessarily herd mentality but a correlation of a number of factors. The interest rate rise will hurt some people coming off their honeymoon loans. These people knew the loans would change but most likely didn’t factor in to the situation the extra cost of an additional rate rise. The boom was going to occur the moment the interest rates kept falling past 8% and 20yr lows. Why 8% I’m not too sure but it was explained to me a while ago that 8% interest rates appear to stimulate peoples thinking and once interest rates go under this figure the more people think about buying. The reverse happens once the rates go the other way and the dreaded figure is 10%. The other factor is the magic 2.5%. When the interest rate starts to head towards 2.5% above the original loan on a variable rate many home owners start to feel an uneasy pressure to do something.
C2
“Is it true the more you owe the more you grow until the bank steps in?”Hi All,
I read in the financial review about a property over East (Sydney or Melbourne) i think, dropping $300 000. granted this was an up market inner city apartment, bet your glad you didn’t buy it.! Things don’t seem to have gotten as rough in WA at the moment, just slowing down at the moment.
I too remember buying my first property when intrest rates were around the 13-14% mark, and yes things do look good when rates are below 8% and its a good time make a move if you have the $, we all knew intrest rates were going to rise it was only a matter of when.
REDWING
“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
On the “bubble” subject , there was a very interesing interview on this morning’s business Sunday program on channel 9 in Melbourne with Macquarie Bank’s Bill Moss. He disagree’s we are in a bubble . Here is a transcript if anyone is interested …….
http://businesssunday.ninemsn.com.au/BUSINESSSUNDAY/INTERVIEWS/STORIES/STORY_1997.ASPI have just bought my fouth IP and am tossing up whether to sell or rent my third. Although selling would be more to free up some cash to work on the fourth rather than anything else, the uncertainty in the market is only causing me to lean more towards consolidation and sitting back rather than keeping and buying more at this time.
hey richmond,
I was taking the average from prices within se qld namely on the gold coast.
I happen to disagree with Bill Moss’s assessment of the market. He says that property crashes occur when the market fundamentals are out of kilter. I would have though that average rental yields of 3% was slightly out of kilter. And if rents are dropping in some areas then vacancy rates are too high in those areas no what matter the numerical figure is.
Also I find the name of this topic quite interesting. Isn’t asking “Is the bubble going to burst?” the same as questioning whether something that goes up will ever come down? I would have though that what goes up must come down and a bubble is by definition full of air and must burst.
Cheers
DavidIt all depends on the market on your local area.
I would focus on knowing a particular area nad not be too concerned about the general market. You can’t invest in the general market, only in a specific house.
The media mostly gives general info which may be not be particularly useful.
Cheers,
Herve.
If interest rates do go up dramatically, rents will also go up. A vacancy rate of 2.9% in the Sydney market is healthy – I agree with Bill Moss. Why be pessimistic? Doesn’t it make more sense to assume that your property is going to be one of the 97.1% of properties rented rather than the 2.9% sitting vacant? Renting a flat, either in inner city Melbourne or Sydney, is a nightmare. 50 people come to see the flat – there are so many applications goodness only knows how the agent and landlord choose someone. The demand is huge. 35km from Melbourne, most houses and units are rented before the sitting tenants vacate, i.e. in their notice period.
When I was first looking for an investment property I started out looking at places to buy, but also looked at places for rent. Not because I wanted to rent one but because I wanted to see what was on the market at what price.It’s easy to be pessimistic. As for those who lost on Henry Kaye deals, they’re victims of their own fear. Have courage, people. Take a risk. It will be the best thing you ever did financially. My first investment property paid for my trip to Paris, likely to be remembered long after I have forgotten the address of the property.
Kat [
]
If interest rates do go up dramatically, rents will also go up.Huh? Is this true? I would not have thought this to be the case….not directly anyway.
Would not rent levels still be according to supply and demand…..ie oversupply of rentals=cheap rent.
Maybe when interest rates go up, investors bale, causing undersupply of rentals = rents go up? If this were the case that effect would be somewhat delayed, yes?
Just thinking out loud here[?]
I also would’ve thought with a lot of investors getting into the market of late and intrest rates going upwards.. they’d be desperate for tenants and be offering incentives and reduced rents to attract a tenant rather than carry the cost themselves.
Property boom-lots of property on the market and i think a lot was investor driven..
REDWING
“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
No, all that happens is that the higher interest rates go, the less people are able to borrow. So you have banks which will lend you, based on your earnings of say $36000 pa, $173K at 6.5% but only $154K at 8%. So the problem then is, if the house you want to buy costs $210K, you’ve gone from needing a $37K deposit to needing a $56K deposit all in the space of a 1.5% interest rate rise. If you’re on $36,000 a year, even a half percent change in rates can reduce the amount you can borrow by $7K to $8K.So people stay renting, because it will take them an extra 6 to 12 months of saving to cover the deposit gap. Add to that the way people get freaked out by interest rate increases, and you have more people staying in the rental market than would otherwise be the case.
So you have on any one day heaps of new immigrants flowing into cities and regional towns wanting rental properties, but the current tenants not moving into purchased homes as quickly as usual. Higher demand for finite stock means higher rents. So when interest rates go up, rental incomes also rise.
Buy prices should be cheaper, but what you are more likely to get is people holding onto their properties instead, waiting for a better time to sell. So lack of stock keeps prices at least stable. Investors would be mad to bale when interest rates go up – they should just put up their rent at the first opportunity instead.
Is there a chart somewhere that shows this to be fact? I have all sorts of charts saying why property may go down….but none that say rents will go up with the immediacy indicated above.
Hi Redwing,
For decent properties well located, the rental market is always good, and when interest rates rise, they are akin to gold.
I’ve got a friend who has just spent 4 weeks – 4 weeks mind you – trying to find a two bedroom flat in the inner northern suburbs of Melbourne to rent. He kept missing out because heaps of other people were also applying at the same time. The newspapers down here are full of news of how the auction clearance rates are dropping. It seems to me fewer people are buying – or rather can’t afford to buy because interest rates have gone up so their deposit is no longer enough. Places like Ballarat and Bendigo are terrible for finding decent property to rent. I mean as a tenant rather than an investor. At the moment, in places close to Melbourne like Woodend, Daylesford or Trentham, you have to pay Melbourne prices for a decent place to rent.
Even if all tenants (obviously not the case) would prefer to own their own home, one of the main things that will be an obstacle to their being able to do this is interest rates going up.Vendors are slightly better off. If they have sufficient equity in their properties, they can afford to ride out the slump in values. If they have to sell, then they may have to come down a little in price (e.g. Steve’s Blackburn house example, though I think this is more a case of over optomistic vendors rather than due to the interest hike fuelled slump per se).
Existing landlords should be rubbing their hands together in glee and laughing all the way to the bank. And if you are cashed up and can afford to buy into a cheaper market, go for it.
Cheers
Kat []Firstly due to the media, (the Wentworth Courier..a local paper Sydney is about the size of a Metropolitan Telephone book..and lets not start on the TV shows ) a lot of people have had a vested interest in the statistics that have been thrown around..ie the immigration rate, the dept responsible said that there had been a mistake in recent years and the figures had been overstated about 200,000 over 4-5 years.
A vacancy rate of 2-3 %, don’t think so. I live in the Hills area of Sydney and travel 20 kilms to work each day. No matter which way I go I pass over 30 for lease signs. Some been there for 11 weeks. Going back a few years I could not find one.
next point will be the lend rates. A rate rise will not only make a buyer more hesitant it makers it harder to get the loan, as the repayment formula is usually income based (yes I know you can go lo docs, but with rising rates in a slowing market, why would they )
Finally, when a market rises the banks lend a very high percentage of value, but when it falls as in 1983 when units in the Gold coast halved, and 1991 the banks drop the lend rate down,
So when its overvalued you can borrow 95%, when it drops you can only borrow 70%.
Simply put there will be less buyers and those left will find it much harder.
Finally these factors start to compound, and the media start selling papers on “property is poison ” again.
Counterpoint, Howard needs this property market to hold…it was the aspirational west of Sydney who won the last election for him..so maybe we will get further tinkering with the market, and he will pass the poison chalice to Peter after the election.
Re the comment on putting up rent on the first opportunity, I worked with a US ex pat, who rented in a large development in Pyrmont in around 1995-1996. Every six months he moved. Could always find cheaper rent in the same block. Bouhgt his own trolley and used to get some friends over on a Saturday morning to help move. Got quite good at it. In the years following the 1989-1991 boom rents in that block slowly cascaded down.
I’m sure there are places in the capital cities with relatively high vacancy rates, including parts of the North Western suburbs of Sydney. And there will always be tenants who are prepared to move rather than pay more rent.
Talking of Pyrmont, I rented a place in Jones Street, Ultimo in the early 80s for about $130 a week or so, and was vaguely horrified (given the kind of 2 bedders they were – all concrete, painted, modern and no airflow) to see flats in the same block renting for $395 a week now. Yes, you could own a house on a main road in a traffic nightmare like Sydney, put a high rent on it, and three months later it still hasn’t rented. But it’s still possible to buy well in Sydney and make a reasonable return. Maybe not Steve’s kind of returns, but enough for the tenant to be paying at least some fo the principal off. You say:
“Simply put there will be less buyers and those left will find it much harder.”
But for those who have already bought and are currently landlords, less buyers also means more people (left languishing, unable to afford to buy) in the rental market. Not to mention new entrants coming to Australia every day. These factors mean upward pressure on the rent.
Vendors will find it harder to sell their properties, no doubt, but why sell your IP when people who would have bought can now only afford to rent, not buy?
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