I am starting to think I should have chosen the user name 'Merchant of Doom', but because having seen the effects of the dot com bust/last property bust, i am a little nervous when I see people behaving with the same fervour as an amway meeting on speed.
I am therefore attempting to do some thorough research before I jump into buying any more property with the blind belief that prices will always rise. I thought the most appropriate way to do this was to look at the clock and try to estimate where we are.
I think we may be between 12 and 3 on the property clock. I think the only thing really missing is an oversupply of properties, which may arrive courtesy of rising credit card debt and interest rate rises. I am leaning towards the 3 O'Clock level.
I have attempted to base my observations on Adelaide property data and other more general factors.
Indicators
Median House Price Sept06 $325,033
Median House Rent Sept06 $215pw
Times Rent Covers Interest 11,180/19501.98 = .573 times
Official Rate Sept06 6.0%Median House Price Sept07 $359,581
Median House Rent Sept07 $230
Times Rent Covers Interest 11,960/23372.77 = .511 times
Official Rate Sept07 6.5%Median Flat Price Sept06 $211,924
Median Flat Rent Sept06 $175
Times Rent Covers Interest 9100/12715.44 = .716 times
Official Rate Sept06 6.0%Median Flat Price Sept07 $242,538
Median Flat Rent Sept07 $190
Times Rent Covers Interest 9880/15764.97 = .627 times
Official Rate Sept07 6.5%In addition Median house prices in Adelaide have risen more than 5% in the last Qtr.
Commodity Prices Sept06-Sept07
– Base Metals Falling Significantly (one of the triggers for yesterday's 2% fall on the share market).
– Other Falling Significantly
– Agricultural Rising SignificantlyAuction Clearance Rates Sept06 – 64% (from memory)
Auction Clearance Rates Sept07 – 75% (from memory) Can't remember the exact figures but it increased between the two qtrsUnemployment Rate Sept06 – 4.7%
Unemployment Rate Sept07 – 4.2%Notes – Close to full employment. Govt talking about making inroads into structural unemployment by
targetting mining opportunities.
– Points to future danger for inflation.
Corporate Failures – Rams, CentroWorldwide Triggers – US Credit Crunch
Notes – Australian banks seem to have higher standards of lending however there are secondary lenders in the market.
– Causing volatility in the Australian Share Market. Falls if 3% and 2% in a day over the last few weeks, and just under 10% since November (the bear is on the window ledge selecting his landing site).
– Should the US go into recession, what are the implications for world economic growth and the demand for Australian Raw Materials.
– Recently NAB has raised rates as a result of the US credit crunch. Today ANZ has announced a .2% increase. Others will follow suit may compound the likely official interest rate rise in Feb making interest rates for some rise higher than the expected RBA .25% cut.
– The government has today asked for a briefing on the effect of the US Sub Prime issue.
Housing Starts – According to the MBA are currently flat. (Supply Constraint).Inflation – is already at the top of the RBA comfort zone and an interest rate rise in Feb is almost a done deal.
New Loans – for new construction are slightly up, maybe a leading indicator of increased newbuild and an easing of supply constraint
New loans – for existing dwellings falling slightly over the last 2 months, perhaps Xmas, perhaps the start of interest rate rises impacting first home buyers.
Household Debt – Steadily increasing.
Other observations
– placed an offer on a house the other day and it went for 60,000 above the asking price.
– See also the post on REDCLIFFE MANIA (although Brisbane related, gives similar picture and a flavour of current fervour).
– US will go into recession given their exposure to the subprime issue. Also don't forget they are spending $1billion a day on someone elses
country (this increases with the oil price as well) so with oil at a high of around 100 per barrel and most of the money borrowed, the US
is looking ripe for a massive fall. This spending may also be masking the seriousness of the slowdown as a great deal of this money is going into US corporations,
it may be comparable in effect to a massive fiscal spending policy.
– Affordability index 8.3 per cent lower in a year (Article in news section)
– Typical first home buyers in mortgage stress (Article in news section)
– NEWS.com.au survey found a quarter of lower income earners used 60 per cent or more of their income on home loan repayments (Article in news section)
– More than one in eight borrowers, or 13 per cent, thought that their mortgage was worth more than their home. (Article in news section)hw
It must be close to beer o'clock.
If we are at 12 to 3 then it means that we have hit the boom and on the way down. Herron Todd White in their last report stated that Brisbane and Adelaide are in a rising market which is 9 to 12 while Melbourne is in boom conditions so it is at 12 oclock. Most of your information is very gloom and doom. A falling sharemarket is usually good for housing as investors channel their money form shares to investment property.
There are a lot of good reasons why the boom should continue:
1. Highest immigration ever, a lot of whom are either economic migrants or highly skilled immigrants.
2. Lowest unemployment rate for many years. More people in work than ever.
3. Huge infrastructure projects in areas such as SE Qld.
4. Large number of baby boomers retiring which will mean that there will be even more work available
5, Highest birth rate for many years which again will create a demand for additional housing, especially on the fringes of the capital cities.Thanks for your response, I am aiming to stimulate some discussion, I have no preconceived notion that I may be correct.
Certainly Auction Clearance rates and Sales prices suggest 10-12, but prices are rising rapidly suggesting around 12, yeilds are falling suggesting about 1 and interest rates are raising quite fast with plenty of data to support their continued increase, suggesting closer to 3. Essentially what you are saying is that demand is too strong for the boom to end, and this is the point I am unsure of myself, how long can this demand negate the other factors.
1. Highest immigration ever, a lot of whom are either economic migrants or highly skilled immigrants.
Yes – I agree.2. Lowest unemployment rate for many years. More people in work than ever.
Maybe – Low unemployment is good, until we go beyond full employment. This puts pressure on wages and inflation (and interest Rates), watch for increased wage claims.3. Huge infrastructure projects in areas such as SE Qld.
Yes – my figures are for Adelaide, but there is probably something similar.4. Large number of baby boomers retiring which will mean that there will be even more work available
Yes – but conversely taxes must rise to pay the pension for them reducing household incomes. See table on page 31 of Steve's book 0-260 properties.5, Highest birth rate for many years which again will create a demand for additional housing,
especially on the fringes of the capital cities.
Yes – this is coming from a low base, and is symptomatic of the strong growth we have recently had and the baby bonus.You also mentioned the share market. This correction may be different as the shares getting hammered are property trusts and banks, because of their exposure to the sub prime mess. The question here is whether these investors will jump immediately out of their property related investments at a significant loss thinking I know i'll stick whatever i have left into the property market, there's a good idea.
I am aware however that this post looks a little negative, sorry but sometimes you just have to trust Newton.
hw wrote:Thanks for your response, I am aiming to stimulate some discussion, I have no preconceived notion that I may be correct.
Certainly Auction Clearance rates and Sales prices suggest 10-12, but prices are rising rapidly suggesting around 12, yeilds are falling suggesting about 1 and interest rates are raising quite fast with plenty of data to support their continued increase, suggesting closer to 3. Essentially what you are saying is that demand is too strong for the boom to end, and this is the point I am unsure of myself, how long can this demand negate the other factors.
1. Highest immigration ever, a lot of whom are either economic migrants or highly skilled immigrants.
Yes – I agree.2. Lowest unemployment rate for many years. More people in work than ever.
Maybe – Low unemployment is good, until we go beyond full employment. This puts pressure on wages and inflation (and interest Rates), watch for increased wage claims.3. Huge infrastructure projects in areas such as SE Qld.
Yes – my figures are for Adelaide, but there is probably something similar.4. Large number of baby boomers retiring which will mean that there will be even more work available
Yes – but conversely taxes must rise to pay the pension for them reducing household incomes. See table on page 31 of Steve's book 0-260 properties.5, Highest birth rate for many years which again will create a demand for additional housing,
especially on the fringes of the capital cities.
Yes – this is coming from a low base, and is symptomatic of the strong growth we have recently had and the baby bonus.You also mentioned the share market. This correction may be different as the shares getting hammered are property trusts and banks, because of their exposure to the sub prime mess. The question here is whether these investors will jump immediately out of their property related investments at a significant loss thinking I know i'll stick whatever i have left into the property market, there's a good idea.
I am aware however that this post looks a little negative, sorry but sometimes you just have to trust Newton.
The property cycle historically shows that investors go from the peak of the sharemarket to the safe haven of property. I'm confident that we are at this stage and that is the reason I have been buying as much property as I have over the last 18 months. I am very confident that Brisbane is nearing the top of the boom (12 o'clock) but prices should continue to rise throughout the year. At the moment they are rising by about 20% per annum and all indications are that they will continue to rise by about 10% for the rest of the year. You don't have to be an Einstein to work out where we are in the property cycle.
Who is Newton?
You would have to say that on pure macroeconomics, the Australian domestic economy is very strong, and on property demand and supply, it's very rosy for those holding property. I hold a very bullish view for the next 2 years on nearly all capital city real estate within 10km of the CBD or anywhere regarded as blue-chip, in middle and high end suburbs. Interest rate rises if relatively gradual will not materially affect these markets.
The real great danger is the ripples of US credit crunch if it shuts down the supply of loans/finance here in Australia.
For Melbourne, I'm guesstimating we are still at most 11 o'clock on the back of tremendous migrant and student influx. Jury's out on Adelaide – still way cheap in certain areas considering some great stimulatory factors on the horizon(for me, could still be about 9 o'clock where I am interested). Sydney – 7 o'clock for the good mid-tier areas.
Have a look at these posts:
https://www.propertyinvesting.com/forums/property-investing/help-needed/4322828https://www.propertyinvesting.com/forums/property-investing/general-property/4322827
Also, have listen to the podcasts at (and read throught the comments):
http://www.debtdeflation.com/blogs/2007/11/23/debtwatch-podcast-now-up-and-running/(Thanks to Foundation for bringing this stuff to my attention).
I'm not sure the clock is that relevant, because of the assumptions that it is based on. What does matter is what you do with the information available to you, and how you find opportunity in it.
Daedalus.
PS Loved your response SNM
Daedalus
Daedalus,
Thanks for those links. I think Foundation is spot on with the discussion around Debt, Rent/Interest and Wages.
I also think you have raised an interesting point. Its all about finding the opportunity, but it always helps to know that the strategy you are working on is consistent with the market conditions.
And just for interest sake, I did have a couple of beers writing the initial post last night so SNM was right.
hw
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