Forum Replies Created
- Originally posted by tony wpb:
Hello Foundation,
i would be interested , if you could detail your successes so that we can all ascertain the level of your insight.I have already detailed my investing history on this site. Use the search function. Current real estate investment situation is one PPOR and a modest beach house. I have no immediate intention to invest further in RE, although I am watching a property with subdivision potential (adjacent to Res1 and unnofficially the next area for rezoning). If I can purchase this property for 30% off asking price it should turn a handy profit as a 25 (large) block subdivision.
My concern is you are giving negative information to people because you sell what?Concern duly noted, but I sell nothing. I am an analyst in a field completely unrelated to real estate. I assure you my motive in posting ‘negative’ information is to present what I see as an inevitable, unprecedented and nationwide adjustment in percieved and realised value of housing assets. I plan to take advantage of this opportunity. Those who read my posts can choose their own adventure.
Attempting to link CPI to capital growth is pointless.I assume I missunderstand this statement. The absolute minimum aim of any investor is to match the rate of inflation. Anything less is a bad investment.
If you mean there is no correllation between house price inflation and consumer price inflation, I also disagree. While the cycles do not always coincide, there is a relationship. This relationship has a logical origin, as wage inflation follows (leads?) consumer price inflation, providing home buyers increased nominal purchasing power. This is the main driver of sustainable house price inflation.I’m always happy to be corrected or challenged.
Cheers, F.[cowboy2]Incidentally, I just found the original article, complete with pretty graphs.
Enjoy:
Link HereCan you also ples let a novice like me know Foundation, how is the Real CG calculated on your table (second last column).It’s just the difference between how much the asset should be worth if you adjust for inflation and how much it’s actually worth.
For example, if you’d bought that house for 147k in 1990 and inflation ran at 5.3% over 12 months, you’d need that house to be worth $154k just to give you the same purchasing power return if you were to sell it.
If as in your example it is only worth $142k after 12 months, were you to sell, you would actually buy $12k less with the proceeds of the sale (in 1991 dollars).
The last column (sorry they got all screwed up when I posted) contains the same gains / losses translated into 2005 dollars.Hope this helps, and that I didn’t @ook up too badly anywhere.
Cheers, f.[cowboy2]I know you are but what am I?[biggrin]
Dude, at least I’m prepared to make a case!It is this simple – short of a collapse in the US dollar#, rising US interest rates narrow the interest rate differential between the US and Us. Foreign investment flows to the US rather than Australia, placing downward pressure on the Australian dollar. This is fine… sort of. A lower AUD is good for Australian exporters and our current accounts, but makes imports more expensive. It also increases the cost of US-dollar contracted commodities of which oil is one. Oil costs are already rising, and a falling AUD will only exacerbate the situation. The cost of oil is factored into almost everything we purchase as darn near anything is either made from oil, with machines that use oil and/or transported with… oil.
Rising oil price = Rising consumer prices = Inflation
And what does the RBA do when prices inflate beyond their target (which is already set to be breached within the next 12 months)? It raises interest rates.
Oops, I produced an argument to support my post!
Now I know very well that I’m only looking at one small factor here but there are many others I could have grabbed. The surprisingly strong recent employment figures for example. Have we possibly fallen below the NAIRU*? Does such a thing even exist? What about a slightly Austrian take on monetary expansion – with the broad money supply growing by 10-14% per year where in the hell is all this money going to go?Now how about you try making a case for the Reserve to lower the overnight cash rate. Or just perhaps post a few links to economic forecasters who believe the next move is down. Show me just one and I’ll show you a Grade A moron.
Cheers, F.[cowboy2]
# This is darn near inevitable, but not yet imminent.
* Non-accelerating inflation rate of unemployment.A slightly different set of numbers to the REIV medians… but anyway, here’s the way I prefer to look at numbers:
Year MED$ NomCG CPI* RealHPI RealCG CG2005
1990 147k – 3% 8.0% -11.0% -$16k -$24k
1991 142k – 3% 5.3% – 8.7% -$12k -$17k
1992 136k – 4% 1.9% – 6.1% – $8k -$11k
1993 145k + 7% 1.0% + 5.6% + $8k +$11k
1994 146k + 1% 1.8% – 1.1% – $1k – $2k
1995 145k – 1% 3.2% – 3.9% – $5k – $7k
1996 153k + 6% 4.2% + 1.3% + $2k + $2k
1997 170k +11% 1.3% + 9.8% +$16k +$20k
1998 198k +16% 0.8% +15.7% +$31k +$38k
1999 208k + 5% 1.3% + 3.8% + $7k + $9k
2000 222k + 7% 3.9% + 2.8% + $6k + $7kSo if you’d bought a “median” [biggrin] house in Melb in 1990, by the time 1996 rolled around you’d still be dragging an effective loss of $50,000 in today’s dollars. Considering that houses are far more over-valued now than they were in 1989…
Yup, this aint gonna be pretty.
How will the mum & dad investor types feel in 10 years once they realise those 2 median houses they bought to set themselves up for retirement have actually cost them hundreds of thousands of dollars in REAL WEALTH?
I think a full-blown crash would serve them better.
Me too.
F.[cowboy2]Originally posted by nkibel:Dont you love these people. They spread doom and gloom without trying to explain there reasons.
As opposed to those who make interest rate predictions without basis?
Recall this:Interest rates in Nz and Australia in the medium term will either stay stable or move down. Even if they do increase it wont be by much. It is also clear that it is unlikly that rates will keep on increasing in the United States as the economy is hardly booming.Do you have any idea who Alan Greenspan is and his import to US interest rates? From last night:
Alan Greenspan told the US Congress on Thursday the Federal Reserve would continue to raise interest rates, dispelling market speculation that the cycle of rate rises was about to end.I assure you, interest rates will rise further in Australia. NZ I really couldn’t care about.
F.[cowboy2]are you suggesting there are better ways to invest your money at the moment then IP’s?If by ‘IP’ you mean a standard residential property yielding 2-7%, then yes. If you mean a ‘cashflow positive’ house in a country town, then absolutely yes.
I have two IP’s and a small parcel of shares and I doubt the level of excellent performance from either sector will be repeated in the next few years.I agree… somewhat. Regarding shares, I think further correction in most sectors is likely this year despite the current upward trend. This will be a buy opportunity, not an exit sign.
Cheers, F.[cowboy2]Sorry Ian, either you or I forgot to push the sarcasm button. Clearly no rational person can expect any house purchased today to be worth double in ten years (without some property-specific external influence or inflation-driven 12-15% interest rates).
Cheers, F.[cowboy2]I disagree with Nigel. I think the capital growth prospects for apartments in Melbourne city are bugger all and none for the foreseeable future (I’m talking many, many years here not 18 months.) Given the ongoing costs associated with holding this asset while it loses more value (in real terms, and perhaps even nominally), you may well be better off in the long term to be shot of it ASAP*.
Cheers, F.[cowboy2]
* This should be taken as general opinion, not specific advice. For qualified advice, speak to a qualified person.
If you plan to capitalise on this “TT Theory”, I’d suggest you wait untill the sheep have reacted rather than beating them to it.
In other words, if TT or similar manage to convince the amateurs that house prices are falling, not only will many more be inclined to sell, but they will also be more receptive to low offers. The whole thing will snowball…
My point is – if you’re playing the contrarian investor game, try to oppose your thoughts to the masses, not the mass media.
Cheers, F.[cowboy2]I am sure that you have a perfectly good and reasonable excuse for no action.
Perhaps your kids will understand.Why thank you Colin. Thank you for making me sick to the stomach.
Regardless, F.[cowboy2]Phew… I give up.
Originally posted by SeeChange:
We have had a longer boom time this time, but , the flat down period before this boom was longer than normal , so one could argue that the long boom was a result of the long flat period before hand.Of course it was actually a very short period in terms of inflation growth…
Between 1977 & 1983 (a period of declining real house prices in Melbourne) consumer price inflation was up 100%.
Between 1990 & 1998 – up 21%.Cheers, F.[cowboy2]
Originally posted by Wylie:Just giving this some more thought, the house we bought in Coorparoo for $156K about seven years ago was valued at $520K last year.
[snip]I have a lot of faith in the seven to ten years calculation.Rrright… but what you are failing to accept is that at $520k this house is over-valued. What is the PE ratio / rental yield at $520k? Can you see why this house is very, very, very, extremely unlikely to be worth $1.04 million in 2015?
Cheers, F.[cowboy2]How can “The month in review” come out on the 2nd of the month?
Cheers, F.[cowboy2]It’s getting harder and harder to find reasons to devote such a large proportion of cashflow to PPOR’s.My PPOR is roughly cashflow neutral. Any capital gains are tax-free as Ausprop pointed out.
Perhaps the question should be “why bother mortgaging a PPOR ever again?” Owning one outright is a fairly safe bet.
Cheers, F.[cowboy2]Originally posted by mitm:Also, the house will double in value to $600,000 in 7-10 years, making up for any spending spree.
Of course it will.[blink]
F.[cowboy2]As property prices keep sliding I would like to consider purchasing another IP with the other $240k that the bank will loan us (after I convince my partner).Upon application for that loan, I’d assume the bank will want to do another valuation on your first property as well as your fiance’s. If they come back short that $240 will no longer be available.
Just a thought.
Cheers, F.[cowboy2]Thanks, the. [thumbsupanim]
I can’t believe I’d never read that report (only the media commentaries).
Gold.
F.[cowboy2]I’m one of the believers in house prices doubling every 7 to 10 years.Sure, but you know what else has been doubling at the same time? Consumer prices on everything! Your nominal doubling is supported by inflation and by wage increases.
Taking Melbourne as an example, REIV house prices and ABS inflation stats.
From 1971 through 2004, the average real (inflation adjusted) increase in median house price has been just under 1.9% per annum. If prices completely correct to historic trend through house price falls or a continuation of the current stagnation, that will be reduced to around 1.0 to 1.1%. Not a great return on investment. Still, if nominal gains are your game you will be quite satisfied with such a return.
So, what does the future hold?
Could it be:a)House prices to double every 7 years (supported by inflation & wage increases). Of course we’d be looking at an inflation figure around 9% and an interest rate of say, 12-14% (?).
b)House prices to rise in line with inflation? If inflation stays constant within the RBA’s target, let’s say 3.5%, your house price will double every 16 years. The real gain will be about 0% (inflation adjusted).
c)House prices to stagnate until inflation brings them back into line with historic trends against wages & rents (say -30%) then continue in line with inflation. This would leave investors with a real capital loss of 30%. If prices rose 1.1% above inflation, they will reach the same (inflation adjusted) value in just under 25 years.
d)House prices to fall back to trend then further as burnt Mum & Dad investors decide real estate is not as safe as houses.
Cheerio, F.[cowboy2]
I thought I’d better add – divide median house price by avewage for a nice graph.
Oh what the hey, here it is:
Sydney Melbourne
4.59 3.68
4.25 3.55
4.03 3.60
3.77 3.56
3.80 3.30
4.12 3.09
5.08 2.91
5.32 2.96
4.85 2.85
4.46 2.87
4.40 3.33
4.34 3.69
4.45 3.71
4.97 3.71
5.45 4.21
6.15 4.75
6.47 4.37
5.76 4.02
5.69 3.88
5.78 3.87
5.62 3.79
5.57 3.65
5.73 3.56
6.51 3.96
6.67 4.15
7.05 4.53
7.17 4.77
7.66 5.35
8.73 5.81
9.90 6.02Unfortunately, the really interesting bit is long term trend which is a bit lost from the mid 80s on. Refer my earlier link.
F.[cowboy2]
