We’re in a similar sort of boom that the tech sector had a few years ago. this does not just relate to investment units but ALL property.
When are people going to accept that its rental yields that anchor property values not aniticipated capital gains. Rental yields are at an all time low and not looking like moving up any time soon.The US itself is going through a housing bubble, yet in Australia prices are at 430 weeks earnings while in the US they are only at 180 weeks.(Source AMP Henderson Global investors Sept 2002). This is despite the fact that Australia has a lower pop density/liveable land. Tell me whats wrong here?
‘this does not just relate investment units but ALL property’.
How can this be?
There is not just one property market in Australia, but several. The current property boom has affected mainly capital cities and some country areas. Other areas have had NO BOOM. I would expect the metro areas would bear the brunt of any ‘correction’ or levelling off, particularly those those off the plan CBD units that have high overheads and minimal land component.
The area that I chose has population growth but has seen minimal price increases since 1994. It also has average yields around 8-9%. Affordability there is also good relative to people’s incomes. I fail to see that this area is over priced, especially given the returns and the steady population growth.
‘When are people going to accept that it’s rental yields that anchor property values’.
People who buy property for income and financial independence do just that. Possibly try asking that question of those who buy mainly for capital gain.
‘in Australia prices are at 430 weeks earning’.
???
Let’s do the sums. $100 per week rent. $100 times 430 makes $43 000. Sounds super cheap to me! And a great yield. If it’s any good in a reasonable location, I’d buy buy buy!
Peter
Peter its 430 * the average australian weekly wage.
What’s wrong here is that the average Australian is borrowing too much for their homes compared to their incomes.
This was echoed by the RBA governor in his recent speech.
It is more evidence that says when interest rates go up, people who have been fooled into buying -ve geared property will lose a lot of money.
People who overborrowed for residential property and have not been able to repay will lose their house.
The ignorant investor will be hardest hit.
However, not all investors need worry. Those that adopt prudent investing strategies and invest in things that make money should begin to plan now for what their response will be when interest rates rise.
I agree with Kiyosaki that a great opportunity will exist for the prepared investor.
A sophisticated investor CAN make money in all markets.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Thanks for clearing that up Paul. Though I found the way this stat was presented ambiguous (I assumed property earnings, whereas it was actually average weekly earnings).
A couple of points:
1. The US appears to be in a different stage of the economic cycle to Australia at the moment. This may affect comparative prices.
2. Wage averages in the US are misleading. The US has many shoe-shine-domestic-help people on the minimum wage (or less) as well as a disproportionate number of high income earners (who get paid much more than their equivalent in Australia).
It could be that the majority (70-80%) of the population receive below the mean national income. This would skew the stats – I would prefer if they looked at median incomes and median property prices.
3. Even accepting your figures, a property I’m buying is in an area with high average incomes, low property prices, and a steadily growing population.
The property is worth between 100 and 120 weeks of the average wage. This makes it underpriced, even compared to the US.
As I said, there is no one property market, only property markets, which behave differently. Caution is certainly necessary, but this does not necessarily preclude property purchases if you’ve done your homework and know what you’re getting is good value. As a measure of this, someone suggested comparing the cost of the property with how much it would cost to build today, which I think sounds reasonable.
Peter
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