I think part of the factor is the new wave investor is passing on interest rate rises. In the past most property investors were not so highly leveraged and wanted 52 weeks of rental income with minimal letting costs. Rents often only rose when the place went vacant.

These days the investor raises it and hopes the significant costs and inconvienence of a move will lock his tennant in.

When many of these speculators get pushed pass their tipping point and the resetting of rates that will happen to many this year and next will push a substantial amount of property onto the market to be sold at “market”

I am keeping my hand in my pockets till then

Have most of my property investors looking like they are living on lemons right now, not a happy bunch, some life changing stories there.

You always need at least one over priced house on your books.

It scares people when thay look in the window, and then you sell the cheaper stuff off it…

straight selling tool

Well done.

Should leave this alone but I can’t.

Yep this was a govt lead boom.

After the building boom of late 90s when everyone tried to build before GST, we had the post GST building slump. To avoid the backlash from buidlers and the inevitable downturn to follow, they had the first home owner grant, not to help home buyers but to prop up profits of builders, this combined with the rise of the unregulated spruiker (I’m an accountant and by law cannot advise on investments, but for a while real estate agaents were setting up more super funds than we were) the deregulation of banks and the proliferation of fake and lo doc loans, etc together with the media (who use press relases by the REI as news…..hello it is spin not news) and yep we had a greed fear boom, that risks screwing the economy and changing the egalataian society for ever.

We have just experienced the biggest wealth effect (imaginary not real) boom OZ has ever seen.

Scamp, there are specific dynamics here, but I worry when people here say “our market is different”.

Without getting into the debate, we are totally out of whack with a “proper economic market”. Maybe we will stay that way, and we will write our own chapter in economic and social theory, or maybe we will shift back to the norm.

Great timing, as credit card rates are climbing and may climb even more.

well done.

Seriously guys – have you guys ever met or are you just the one guy under different names ?

More prior posts would add creditablity,

Steve should charge for advertising

We have very lazy media in Australia who run press releases from the REI and developer lobbies as news, without any analysis.

Very scepitical of positive news in RE.

In US Merryl Linch sacked 4,000, Citi Group 6,000, mortgage stress in OZuilding, UK govt bailing out banks. yep Sydney will turn any day, BUY NOW !!!!!!

On a sidenote just did a cap gain calc for a client who bought Mosman in 2003 at   $1,175,000 and is selling at $1,850,000 cap gain is around $20,000 as the raw stats don't show the $400,000 +++++ in a reno, and do not reflect  the $100,000 in maintenance claimed during the reno.

Raw facts can be very deceiving..

I agree with Blogs, and when someone writes this up after the final washup, we will see a convergence of factors never seen before.

Not just the halving of rates and the speculation referred to but the deregulating of the market meant any homelss drunk could get not only 100%+ finance but a cheque for many thousands on top, a whole industry of people , brokers, spruikers, bankers, agents and not to be left out TV, with the Block, Hot Property location location, all created an unreal world, where assessment of investment, rate of return, became meaningless.

Back in 2004/2005 the biggest profession setting up self managed super funds were not accountants, solicitors or financial planners but real estate agents.

I am an  accountant and when people would tell us what they were buying we would ask what is the rent and calc net rate of return, which sometimes was as low as less than 2%. When we would advise them of this we were always comforted by the client's confidence that the capital gain would make that return immaterial. Could not loose, can't fail….

Once on this board someone chided  foundation on his negativism, explaining to him that property had to double because interest rates halved………..wonder what he will tell the people who bought in recent years as rates have ow gone up over 58%.
(9.36 -5.9 = 3.46 = 58.6%).

We have several clients who have haemorrhaged their retirement plans, not looking forward to the next conversation..

A couple of years ago when the issue of the economics of this boom were discussed on this board a member stated that a slump/correction would not happen until we had a trigger, and went through the last couple of slumps as examples.

We now may see the trigger in the distance. The current maket has been driven by unprecedented demand. For the first time property investment needed no capital as shown by posts on this board by people relying on centrelink who started on their portfolio.

This segment has relied on the 100% + loans. 

If the powers that make such decisions perceive that the greater risk in the market means that debts could be reduced to 90% even then we could see some adjustment. If that figure drops lowers than 90%, it could suck out enough buyers to slow the growth. Actually I think less than 85% would make very interesting viewing.

The typical refinace strategies relied upong by many will fail, as they will have finally maxed their card (house equity)

Many property investors who have relied on increased equity to cover their neg gearing will be faced with unloading or finding some temporary cash shortfall ( expensive) and hope the loans will loossen up before even more equity disappears.

Too many of the above, could push enough to sell property to ease demand, and also to change the perception that the market will run forever.

The debt issue will have some fallout in big business as many of these equity buyouts from recent years are coming under pressure. ( I myself have benefited as my biggest client was prepping for a 20mil + sale this June that has now evaporated – propably will now keep the S6 after all)

Enough of the above may encourage enough consumers to pull in the belt, and that could trigger a negative wealth effect and public perception on property as seen in all prior booms.

I know that China and India still have steam , but not sure if our economy could whether a cooling in consumption

From the look of the banks now trying to cover their margins I have to wonder about Wizard etc and how much margin they now have left.

The stock market is driven by a bunch of kids who don't  know how to make money other than in a Bull market and we seem to oscilate between 6300 -6700. Maybe the bull run is finished there too. And I know that China etc has steam, but the brokers have factored all of that current growth and more into the current prices.

This was the year that the crunch was predicted by the long term forecasters back in around 2000. Be interesting to see how it plays out