Prices falling Investors running away

Imnteresting topic Philip,

Perhaps a turn in the cycle is due. The interesting thing about investment is that usually, when all men and sundry start jumping on the bandwagon you’ve literally missed the boat.

While eroding capital and even negative equity occurred back in the late 80’s early 90’s there were still bargains to be had. Those who were too heavily geared when demand fell and interest rates rose were forced to sell. Those who were positioned well and had consolidated their portfolios were able to pick up some absolute bargains.

A book on this situation in NZ is “Lost Property” by Olly Newland.

So, in answer to your question – who knows? All I am doing is retaining some cash and liquid assets to pounce if the opportunity presents itself. Aside from that I’m ensuring I have stable cashflows in place.

Be prepared – theres a bargain in every market

Cheers
Jeff

10 pct in the next 6 months. 30 pct in the next 4 years!!

there you go!

30% from peak, 15-20% left to fall. Id go for 6 months as well but depends on the election.

Will we go to an election before the “shrub” (little Bush).

Rate rise definately on the cards after the election based on US rates and THIER economy not ours.

When $h1t hits the fan cash is king, as it was last recession, downturn, bust whatever you want to call it.

Since there is some crystal ball gazing going on here, it’s time to recap on reasons for the possible slowdown.

It’s patchy, say my agent contacts, some districts are still going gangbusters.

Consumption, as opposed to investment, is subject to all sorts of things but sentiment is most important, as it is with property.

When an international equilibrium appears again and our election is out of the way, (whoever wins), all those who have enjoyed an as yet unrealised capital gain from the past three years of property price appreciation, are gonna gear-up.

They will increase their mortgages and invest again and spend again, probably like never before. Only two requirements are needed, continued fullish employment and interest rates below 10%.

Any inflation will, as usual, increase your equity in any property you have a loan on.

My perception of what you have described John would be refected as more consumer debt, remember for every Aussie dollar earnt we borrow $1.30!

Think about all the traps set for the not so money smart, credit card ad’s, 48 year interest free ad’s etc etc. Then go to the next level like our youth who are not being taught much at all about saving.

What about the “Me” generation who still live with mum and dad at the age of 35? No savings no house no nothing!

Then we have good ol uncle Sam[medieval] financing a war at the tune of $6 Billion a week???? What do you think the outcome will be? When was the last time all these elements were tuned such as these?

Do the big guns really give a toss when they screw it all up again and again?

A very senior advisor for a certain government told me 10 months ago, “dont owe to much in 3 years time” meaning some heavy duty shit would go down in 06. Then the same date comes up 10 months later on 4 Corners?? Did the chills go down my spine!!

How many predicted the last bust?? Most were all roses and coffee before the bust, complacent go-getters most of whom got burnt, just like the next bust looming.

Property has doubled nearly every 7 years on a rough average, but if you monitor the situation now you will more than likely realize that the wage to borrow ratio is out of orbit! But then averages are averages. In the 4 Crn’s story they interview a Gentlemen who purchased a new home in the then new sub-division of Mt Druitt, he paid 10k for the property, his gross income was 8.5K!!!!

What would be the situation today? Mt Druitt 3 bedda 320k income 35k……wow simple but effective. i think the one thing people loose sight of is who is really the asstute investor? us[eh] or the Banks?[evil4]

What was that old saying? “when the shoe shine boy starts talking about share trading then it’s time to get out”[skull]

We are all made from Stars

The big bang theory. Do you remember that clean up Australia guy? I cant place his name but I do remember seeing him on 60 minutes telling us how he once had over 2 or 3 hundred properties and lost the lot in the recession we had to have (thanx Paul)

We are all made from Stars

IIRC, the $10k/$8.5k example was from the early 1960s. $8.5k would have been a huge wage back then, and the average wage would have been nearer $2k pa.

So the house was worth about 5 times the average wage.

Assuming an average wage of $35k, then a multiple of 5 becomes $175k. But if we assume both partners working and a household income of $60k, then the house beocomes $300k.

Relative to household income the real price of property has increased, and it appears more expensive relative to household incomes than in the past. But maybe only 20-50%, no more (to the disappointment of spruikers that claim 10% cap growth per year). And the big city markets are maintained by the steady flow of migrants, the largest number of whom want to live in Sydney.

Another thing is that finance now is easier to get than 30 years ago and you can get low-doc loans, high LVRs, FHOG, etc.

Prices are set by what people are willing to pay. Willingness to pay is determined by what people can afford. What people can afford is determined by how much the banks are willing to lend. Thus the banks control house prices.

If the banks said ‘You must have 20% cash deposit and can only borrow up three times your annual income’ you can bet that this would kill the housing market as only first home buyers with good savings and investors with significant equity could afford to buy.

Peter

I agree with residentialwealth. I can only laugh at people who have bought into these McMansions. I mean by 2011 the population will be moving out of these huge properties (as they will be too large too maintain – as if they aren’t already) and moving into smaller accomodation.

Older people want a few things.

1. Security. Over 55s developments that younger people or groups of young people cannot move into will be attractive.

2. Close to transport, shops and hospitals. Give them a sense of mobility.

3. Space yet easy to clean. The feeling of space will be important but actual square metreage will be hard for them to maintain.

I really see places like Kellyville, etc., and the people who bought in those areas, going through a very tough period. They have bought huge homes at huge prices and it could be 10 years before they ever see a return on their investment. In fact over 10 years with interest and inflation they will have lost huge amounts of money.

Just my opinion but health and aged care is the future trend. I agree with the saying that when the bellhops are buying start selling.