Forum Replies Created
- I also purchased a 3 bed townhouse in Richmond for $550K , bank value for finance came in at $800K.
Am I alone in hearing a faint tinkling noise that sounds vaguely like warning bells being muffled by the industry VIs?
Without meaning to hijack this thread, I’d be very interested to know the proportion of people here who think this townhouse is worth $550k, vs those who think it is worth $800k…F.[cowboy2]
Originally posted by Derek:The essence of the story is based on the results of a limited number of MORTGAGEE auctions where prices fetched were less than those realised in 2003.
… Mortgagee prices being the most realistic representation of market values HERE AND NOW! These are the only auctions where the property will sell to the highest bidder. There are tens, perhaps hundreds of thousands of houses in Melb and Syd where the vendor is not currently under pressure, and refuses to lower their price expectations that were set 2-4 years ago.
These people are withdrawing their properties from auction, ‘resting’ their properties from regular sale (for fear of ‘overexposure’), or leaving the ‘For Sale’ signs fading on the front fence. They all say “well, I’m not going to give it away!” or “I know what it’s worth”. Many of them have had these price expectations cemented by bank valuations… and have borrowed against values that no longer exist…
Second point. The erosion of values will continue to work through the tiers of the market in the same way as price rises did – from cheap houses in undesirable suburbs, through to more ‘effluent ereas’. During the boom, rising prices for rubbish houses enabled owners to ‘withdraw equity’ and leverage it into more expensive houses, driving up demand, and prices. Rinse and repeat.
During the bust, the falling prices of low to middle-tier houses (due largely to 2 factors – affordability constraints, and the plugging of the mortgage equity withdrawal spigot) will decimate a whole generation of buyers. These are the upsizers, and aspirational buyers. People who have a house and feel they need to move to another that better suits their lifestyle, or the image they have & wish to project of their lifestyle.
These people normally account for around 40-50% of the market (with 20% FHB, 20% Investors and 10-20% downsizing or dying). They normally increase their mortgage, and normally move to a house with a higher value. In recent years, these people have been relatively unaffected, save for false notions of ‘how much their house is worth’ (uh, let’s see, 1 house equals…. Oh, 1 house! Same as 300 years ago!). So, once this large portion of the market has been stripped of their buying power, you’ll see houses in the $500k – $1,500k bracket in Sydney plunge. Fast. Same for the $400k – $1200k bracket in Melbourne.
Originally posted by ugez99:Anyway, time is forgiving, if you own a property in Sydney over 10 years, you will hit some cycle peak and make money.
I think you’re being overly optimistic. As I pointed out on another thread, the last great real estate boom in this country wasn’t so forgiving. At the end of the ‘Melbourne land boom’, prices halved in the space of a few years, and didn’t surpass their peak levels (in actual, nominal terms, not even adjusted for inflation!) for over 20 years!!!
Now I believe house prices in Australia deviated from their underlying values not in 2001, nor in 1996, but in the 1980s. My ‘bubble-o-meter’ points to the current bubble being a more significant event than the one that began 100 years earlier, because the miracle of CB-sponsored inflation has allowed it to re-inflate every time it looked set to burst under its own pressure.
Cheers, F.[cowboy2]
CRASH AHOY!!!
Housing crash puts sellers in debt crisisJonathan Chancellor Property Editor
August 21, 2006A THREE-BEDROOM brick-veneer house in St Clair sold for just $260,000 at the weekend – down about 42 per cent from its last sale at $450,000 in 2003 in a further sign of the depressed state of the Sydney property market.
The Herald checked 16 properties in south-western and western suburbs listed at the weekend and found 60 per cent had prices or had attracted offers at a discount to their last sale price.Lethbridge Park, near Penrith, recorded the second highest fall, when a townhouse that sold for $257,000 in 2003 was resold by mortgagees for $156,500, reflecting a roughly 40 per cent fall.sold for $330,000 in 2003 resold at $255,000 in another mortgagee sale.mortagees accepted $541,500 for an unrenovated house that fetched $736,000 in 2003ast sold at $1,355,000 unrenovated in boom-time 2003. It attracted a $1,179,000 top bid after its recent renovationHope that’s put a smile on your dial Joy & Tony~!
F.[cowboy2]
What is your definition of ‘crash’?
No problem Jack, I appreciate your good humour in the face of my frustration.
I’d suggest you go looking for a copy of ‘The Land Boomers’, Melbourne University Press (1966), by M Cannon. It’s certainly eye-opening. I’ll attach some examples for any readers who may be unable to locate a copy.Victorian average rateable value 1891 = 500 pounds.
– at 10% (doubling every 7 years) that would be 32.768 million pounds, or $65 million in 2003 dollars.
– at 7% (doubling every 10 years) that would be 2.048 million pounds or $4.096 million dollars in 2001.Nowhere near reality.
Taking another measure, that of R Silberberg from ‘Rates of return on Melbourne land investments 1880-92’ from Economic Record, 51, pp203, 217, we can project both forwards and backwards many Melbourne land prices. Let’s look at Surrey Hills.
In 1884 you could buy 1 ft of street frontage for 15 shillings. looking backwards, that would equal 3.54 shillings per average (2006) block in 1806 assuming 7% pa appreciation. Roughly 9c per 1/4 acre house block.
At 10% pa appreciation that would be reduced to 1c per 1/4 acre house block in 1807.
Neither is accurate. The best figures I can find value 1/4 acre at around 25 pounds per acre in the first decade of the 19th century. More on this later.
Projecting forward post land boom, with 15 pounds per foot (using Silberberg again) in 1887 terms that equals:
– $236 million per 1/4 acre house block at 10% annual appreciation by 2006.
– $7.37 million per 1/4 acre house block at 7% annual appreciation by2007.Clearly both rubish. Between 40 and 1000 times more than current values!
Now let’s take the analysis to it’s extreme silliness. Back to 7 pounds per 1/4 acre in 1806. That equates to:
– $7.34 million dollars for a house block in 2006 at 7% per annum.
– $375.8 BIILLION dollars for a house block in 2009 at 10% per annum!!!!Note – I’ve used 7% and 10% as proxies for doubling every 10 and 7 years, respectively. They’re very close.
Let’s please lay this to rest. House prices have averaged around 8.5% pa since 1970. No more, no less (time and value). I can explain “Why is this so?” if anybody cares to listen. Regardless, it’s the truth. Any statement to the contrary is wonky!
Love, F.[cowboy2]
PS – while you’re researching, don’t forget to google the “Melbourne land boom” as it was once commonly known, but now largely forgotten. As that bubble burst, land values fell by 20%+ in a year, and in many areas by 50% in a decade. Just thought I’d point that out to you, since you’re interested in the Xtra long term view…[wink]
Originally posted by joshadelsa:With properties doubling every 7-10 years , It is fact and if you look back over the last 200 years in australia it is a continuing trend that keeps repeating. Research yourself and you’ll find out its true.
[angry2]
False.
Wrong.
Misleading.
Please direct me to any research showing 200 years of property ‘doubling every 7-10 years’. I’ll tear it to pieces.And if house prices were to double every 7 years until 2036, Australians would collectively be paying 100% of their pre-tax income in interest…
Is this a plausible scenario? No.
You do the sums. Currently almost $780 billion of housing debt. There is a very tight correlation between house price inflation and housing debt inflation – in fact of the last 23 years there have only been 3 when the following rule has not worked:
If DBI < 15.7% then HPI < 7%
If DBI > 15.7% then HPI >7%where DBI = Debt Bubble Inflation
and HPI = House Price Inflation.What’s more, if DBI falls below 10%, house prices don’t rise… and it requires DBI of around 20% for HPI to exceed 10%.
How many times can you compound housing debt at 20% (or even 10%!) before our interest payments (~7% of $780 billion currently) exceed our income (currently $440 billion)? Even accounting for 4.1% wage inflation, the most simple of fools can see that this cannot go on forever. It will stop. The question is when.
With all the current moaning about a $12pw increase in interest payments, I doubt we as a country have what it takes to keep this bubble inflating. I think we’re just about out of puff. And even if we’re not, the Japanese central bank is winding up to knock the wind out of us by cutting off our supply to tens of billions of dollars of their debt per year.
So Josh, consider your line “Research yourself and you’ll find out its true.” refuted. I’ve mused, I’ve fumbled, I’ve researched, I’ve modelled, I’ve written tens of thousands of words on the subject (who knows, you might even be able to buy the book one day) and I’ve read litterally hundreds of papers (no, not the tabloid type, the research type) and read dozens of books (of the Austrian economics variety, not the “How to bludge your way to riches beyond your wildest expectations by buying lots of houses and waiting for them to double in worth in seven years!!!” variety).
Let me suggest you spend less time parrotting the spruikers and more time with a pen, paper and calculator.
Phew. Yup this winds me up. Why is it, that as the old Chinese saying goes, “It takes three men to make a tiger”?
F.[cowboy2]
Sarah, I’d say pay off your loan.
I’d dispute the Residex idea (I work with statistics and I like to read there ‘analysis’ whenever I need a good laugh) as well as the suggestion that “Future growth potential of established sbrurbs can be pretty accurately determined by examining the average annual growth over the previous decade.”
I estimate that by waiting 24 months you can realistically expect to purchase in the area you are looking at for somewhere 7-15% below current prices. My estimate may be off the mark, but I’ll bet it’s a hell of a lot closer than Artuad’s estimate of 20% above current prices (based on homepriceguide’s 9.7% pa average over last 10 years).
Cheers, F.[cowboy2]
Sarah, you need to identify the difference between someone ‘sharing knowledge” and someone ‘sharing BS’. Here is your first challenge – which do the following fall into:
yeah definately buy ASAPa) Knowledge?
b) BS?I heard someone say once that you will never save your way to riches.a) Knowledge?
b) BS?The only way to do is leverage you money and have it working for you.a) Knowledge?
b) BS?If you buy a house and it double’s in value every 7-10 years.a) BS?
b) BS?
c) BS?
d) All of the above?I’m a mortgage broker myselfa) Surprise Surprise?
Good luck Sarah.
F.[cowboy2]… and those responsible are beginning a conditioning process. Maybe, just maybe they will be able to convince the sheeple that the blame lies with oil prices/global inflation/skills shortage… but the fact is that we have let them convince us that accumulating a massive mountain of household and foreign debt secured against unproductive assets is the way to lasting wealth. It’s not. It’s simply a passport and ticket to economic calamity. That’s where the real blame lays.
INVESTORS and home owners have received a rare, dire warning from the Treasurer to brace for the economic fallout from “world record oil prices”.With underlying inflation high and apparently rising, Mr Costello told reporters yesterday that the country faced a “great” risk of repeating the economic mess that followed the 1970s oil shocks.“Economic management is difficult; it is very difficult at the current time,” he said. “There is not much of a margin for error, I can assure you of that.”
Analysts said “management” was a euphemism for higher interest rates.
http://www.smh.com.au/news/business/brace-yourselves-warns-costello/2006/08/15/1155407809092.html
Fun times ahead!
F.[cowboy2]Originally posted by simple:Does any one have any ideas on how the interest rate will move in next 12-24 months?
Yup. OCR will hit 7.5% in around 18-24 months (retail around 9.5%). It will again be around that level again in about 4-5 years. In between there will be at least one sharp upward movement, then downward movement. And a bit of wobbling.
But I could be well wrong if major political, military, health, natural or man-made disasters intervene.[blink]F.[cowboy2]
When the seemingly endless credit runs dry. The living standards of the spendthrifts who currently live far more affluently than me via accumulation of debt will face payment day. Meanwhile, I’ll go on living within my means… which means I’m perhaps already rich. It’s just that it doesn’t feel like it when everybody else seems to spend so much more than me.
F.[cowboy2][upsidedown][laughing]
So you’re living in a house with a $450k mortgage attached? On $50k, the answer to “when we can have kids” is uh, never.
Why on earth would a couple with no kids need such an expensive house? Bizzarre. I’ll bet my hat it’s on interest only too – ie renting from the bank.
Bah, crazy crazy world. Bring back the days when those with irresponsibly large debts were stigmatised, not idolised.
F.[cowboy2]Originally posted by 888Abundance:Sometimes the CG issue can be less important to an entry level investor. Let’s look at this slightly differently, and think about CG being a phenomenon of the times.
[blink]Perhaps I misunderstand you.
Taking CG out of the euation, if TK were looking for cashflow surely there are many options with much higher returns with much less risk of losing capital? Shares with fully franked dividends of >6% for example? Even, as Terry pointed out, high interest savings accounts would give a higher COC return net of tax… and with interest rates on the up and up, such an option is only going to become more attractive over the next couple of years.My thoughts only – not intended to be viewed as financial advice.
Cheers, F.[cowboy2]
Hi Jomari59,
I’ve just had a quick squizz at the Foundation Economic Clock of Doom (FEC’D) and it appears that we’re currently passing at 1 minute to midnight, with the second hand just starting to tick through the last 60 seconds to and event that the FEC’D describes as “The Greater Depression”.
This indicates that the true state of the economic cycle will be starting to become clear by Xmas next year.
Cheers, F.[cowboy2]Originally posted by grant7:Sounds like a great deal to me, id like to sign for 3 or 4, pity they didnt leave any clues on how to apply??
How exactly is it a great deal?
By the end of the 5th year, you’ll be paying (on their $400k example) an extra $500 per month extra as compared to fixing the entire $400k at 6.99% (which is easily doable NOW). Add 30 years of repayments, and that figure comes to almost an additional $170,000 in interest payments, plus the repayment of the $44,600 in capitalised interest, so all up you’re down to the tune of around $210,000!Is this a great deal?
Try running the figures for a more realistic 3/4% long term appreciation and things look pretty sour… Try with the even more likely -5% to -10%pa correction for the first few years…
But I imagine there will be no shortage of takers for this product, after all, the old saying “a fool and his money…”F.[cowboy2]
Hi Xenia,
Where on earth do you get people stupid enough to take a ‘deal’ on those terms? Do you advertise or do they come to you? Is there a list somewhere? Can I have a copy? I’ve got a whole bunch of ‘Magic Cheese Powder’ Link I’m having trouble shifting and these sound like the sort of people who would be interested…
F.[cowboy2]<cough>advertising<cough>
Originally posted by lyndon_g:Hi goodbyekitty,
you have signed a contract with the builder, and they have to hold that price. they can only price rise you if
a)
b)
c)OR as per earlier posts, if the contract contains prime costing/provisional sums. It’s probably not helpful to post suggestions that the builder has done the wrong thing when for all we know, these ‘variations’ may have been agreed and signed for in the contract. Don’t want to give false hope.
Cheers, F.[cowboy2]Originally posted by foxyac:I am all out of money now as I have this and another one that are negative geared and draining all my money and am at 95% LVR
You should perhaps rethink your sales pitch… That there doesn’t really inspire confidence in a potential JV partner. I’ll pass.
Good luck,
F.[cowboy2]
