Hi,
I’d love to hear everyones take on the condition of the property market given the building approval stats that the ABS released today.
http://www.abs.gov.au/AUSSTATS/abs%40.nsf/mf/8731.0?OpenDocument
Given that the market is driven by demand, what tale do you think this information tells? What do you see happening in the next 18 months?
Dan Lewis
Not surprised, no real surprise anyway. Building a house, especially house and land packages are just so horrendously expensive these days, the vast majority of people are better off waiting until things get back to normal.
In the next 18 months, I believe real estate will trend back to the prices it should have been had we not had a boom.
In the next 18 months, I believe real estate will trend back to the prices it should have been had we not had a boom.Snap![biggrin]
Although I expect the correction to occur over a longer timeframe.
It’s not just the pointy end of development either. Watch the profit warnings roll in from the big building co’s. Things are starting to get ugly.
F.[cowboy2]Originally posted by g7:Building a house, especially house and land packages are just so horrendously expensive these days,
In the next 18 months, I believe real estate will trend back to the prices it should have been had we not had a boom.(quote)I agree completey, but my take on the stats was that it tanked because of a drop in apartment applications. Looks like the developers finally are seeing the writing on the wall…
What opportunities do you think this poses for the saavy investor?
Dan Lewis
This article was from the SMH today:
http://www.smh.com.au/news/Business/Builders-slump-may-stop-rate-rise/2005/05/03/1115092504495.html
— MJ.
This doesn’t surprise me at all. In any market where the price goes up and the quality goes down the volume of demand will ease. I think the problem will get worse as labour and material rates keep heading up.
as for the smaller investor… there has been talk for some time now that an undersupply of new apartments in the pipeline may result in problems down the track. Developers are gettting scared of reports of a glut of apartments, so why build when there is no one to buy your product and your construction costs are going through the roof? Simple answer – chop the development. The trouble is these projects are long term, the demand / supply imbalances are short term. Picking up a new apartment off of a distressed buyer could be a good addition to your portfolio.
http://www.megainvestments.com.auExtensive list of ‘Off The Plan’ property available for sale in Perth.
John – 0419 198 856
What opportunities do you think this poses for the saavy investor?At this point the savvy investor would sell everything and put it in the bank.
In the next 18 months, I believe real estate will trend back to the prices it should have been had we not had a boomWhat do you mean by “trend”? For property prices to get back to the long-term average income multiple in just 18 months you are really saying there will be a crash. The optimistic view is that property prices will stabilise and incomes will (eventually) catch up, but that would take a decade or more. The reality will probably be somewhere inbetween.
Remember all markets (yes, even real estate markets) tend to overshoot on the downside when there is a bust. i.e. prices go below long term average.
You can see some examples of what I mean in the charts here:
https://www.gmo.com/NR/rdonlyres/E5E95346-EA7F-4583-9A8B-9939A9789615/460/JGLetter_1Q05_ALL.pdfSurely you are not serious with this bank idea??? Bank returns are lame in comparison to what other investments are available.
I would also like to understand why a decline in building approvals would guide you to selling all your property in a flat market (where you wear the loss of equity over the last 18 months plus). A decline in building approvals potentially means a property shortage in coming years which would possibly result in under-supply, increased demand and higher prices. How could a negative return (after inflation, taxation and selling costs) by selling up and putting money in the bank be better than holding for the next cycle?
Robert Bou-Hamdan
Mortgage Adviserdmichie, that article does not support your claims. Why do you persist in posting it over and over and over again?
Robert Bou-Hamdan
Mortgage Adviserdmichie, that article does not support your claims. Why do you persist in posting it over and over and over again?My claim was that real estate markets overshoot on the downside during a crash, which the charts in that article clearly illustrate (in the UK, US and Australia)
In the next few years it will all be about preservation of capital. 6% in the bank (with capital guaranteed) is better than a 20% loss of capital with a 4% yield in property.
Originally posted by The Mortgage Adviser:dmichie, that article does not support your claims. Why do you persist in posting it over and over and over again?
Perhaps if I point you to the relevant paragraphs:
In any case, even in our world of fat tailed distributions, we have only found 28 good examples of previous bubbles including: stock markets around the world, currencies, and commodities.
<snip>
…all the other 27 identified bubbles did indeed move all the way back to (or below) the trend that existed prior to those bubbles forming.Today, though, in the U.K., the price/income ratio would have to fall by 37% to merely get to trend, and today’s lower inflation and lower income growth will cushion far less of the decline, perhaps only half. Once again any overrun would inflict additional pain. And any unexpected help from accelerating inflation in reducing the ratio would in the U.K. come with an equally unexpected sting in the tail: their floating mortgage rates would of course rise with inflation, leaving most people worse off, all things considered, than if inflation stayed low. Adamned if you do, damned if you don’t situation if ever there was one.Australia and New Zealand would both be in the same boat as the U.K.Cheers, F.[cowboy2]
*It is worth noting that I dispute the graph of Sydney house prices to income. Done properly it looks frighteningly more similar to the UK one over the last 20 years, except with a shallower trough in the 90s.
I am amazed at you guys. Anyway, I have spent more than enough time discussing an irrelevant US written article. It is a what if article which is not based on the Australian economy.
I wonder why you left out this bit Foundation?
“This point is more relevant now in the U.S. than it has been before because of the sudden recent rise towards 40% in the use of floating rates.”
Enjoy yourselves.
Robert Bou-Hamdan
Mortgage AdviserTypically inflated asset prices are eventually met by rising wage inflation. Now that it is a stated objective of the RBA to keep their foot on the neck of wage inflation, and also preventing another boom or happening a severe bump for housing prices, property must begin to trend down to where it should have been had we not had a boom and also to where it should be in relation to wages.
I know this wont all happen in the next 18 months, but I know it will eventually happen. I’ve heard, read and seen reports that it will happen in the next 12 months and also that it will take 10 years to get back to normal.
When and how truly is the $64 000 question.
I wonder why you left out this bit Foundation?“This point is more relevant now in the U.S. than it has been before because of the sudden recent rise towards 40% in the use of floating rates.”
The point the author is making (BTW the author is the chairman of GMO that has $82 billion under management) is that historically Americans have always favoured fixed-rate mortgages. Floating rate mortgages and interest-only loans are relatively recent phenomena in the U.S.
Obviously this makes American property investors more vulnerable when interest rates rise.Isn’t it interesting that when some one here posts a thread it goes side ways, lets keep to the post guys/gals.
tribe!!! If these people are so smart why don’t they give a date … in 12 mts time!! … give me a break … what date in 12 mts if u r so good … is that 05.05.06 at 3.30pm i mean really.
Tribe!! isn’t the point of this forum to look at ways to make money, the question u ask has been posted 1000 times, get a life mate and give us a real question or go look at the archives,
Resiwealth
Originally posted by AUSPROP:as for the smaller investor… there has been talk for some time now that an undersupply of new apartments in the pipeline may result in problems down the track. Developers are gettting scared of reports of a glut of apartments, so why build when there is no one to buy your product and your construction costs are going through the roof? Simple answer – chop the development. The trouble is these projects are long term, the demand / supply imbalances are short term. Picking up a new apartment off of a distressed buyer could be a good addition to your portfolio.
http://www.megainvestments.com.auExtensive list of ‘Off The Plan’ property available for sale in Perth.
John – 0419 198 856
The talk of a glut of apartments appears pretty accurate to me, it depends where you look.
In the Sydney outer rim there are a host of developments ranging from holes in the ground to completed complexes selling VERY VERY slowly.
Don’t know where you are looking but the oversupply is very real in some places and already having an effect.
Eg 2br old apartment 6 yrs ago for around 180, now new modern 2br, slightly bigger for asking of $249, probably take $220. (Parramatta) Now one of these developments …hole in ground .. is selling OTP 2brs, slightly smaller (in mid Parra mind you ) for originally 350s, with much higher outgoings.
Now Parra is around 14 klms from CBD. 30min by train, and not the boonies.
Houses in many areas are holding up as retirees get one shot at cashing out (Beecroft & Cheltenham are so over priced its funny ) but think it may eventually trickle across.
I personally think apartment prices in Sydney rim will continue to ease or hold for a long time, …. maybe until after the next crunch.
Hey, this is getting a little boring, same stuff.
You all need to come and investigate Perth RE market, different story here.
Some have wised up.
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