Owners face fall in house values
http://www.theaustralian.news.com.au/common/story_page/0,5744,15235653%5E2702,00.html
“Economists at investment bank JP Morgan said prices would fall 10per cent in nominal terms, assuming no rate rise and without taking inflation into account.”More here:
http://www.abc.net.au/worldtoday/content/2005/s1363128.htmThat is consistent with the National Australia Bank survey of business expectations, also out today, which shows a significant slowing of the economy. This is consistent with their recent surveys, but stronger. It’s really pointing to weaker sales and profits, and a slowdown in employment, so on balance, the indicators coming from a variety of sources are now strongly suggesting that we really are in a slowdown in the economy.
There are some who are smelling the stench of recession in the air, but most think that we’re heading for a soft landing.
ELEANOR HALL: Well I guess also fitting the pattern is the investment bank, JP Morgan’s research today predicting a 10 per cent fall in house prices. It’s quite a significant number. What’s their reasoning?
STEPHEN LONG: Well, they’re relying on Newton’s law of physics that what goes up must come down. They’re saying that since the last trough in 2000-2001, Sydney’s house prices – Australia’s house prices rather – have rocketed 75 per cent. And we saw a slowdown in some of the major capitals in the second half of last year, therefore casting a 10 per cent fall in house prices this year, and it’s basically a demand-supply equation.
JP Morgan estimates that demand for housing can absorb 155,000 dwellings a year, but over the past three years, there’s been an average of 170,000 new housing starts, pretty much a glut on the market.
ELEANOR HALL: And if that prediction of a house price fall is right, how will that hit the economy?
STEPHEN LONG: Well, three quarters of the jobs in the economy flow directly or indirectly from the housing sector.
ELEANOR HALL: That’s enormous, isn’t it?
STEPHEN LONG: It is, and that’s why some of the focus on the skill shortages has been, some would say, a little bit misleading because the main skill shortages that we’ve seen, they have been in construction, but we’ve got a slowing construction sector now. Mainly, however, in mining and manufacturing. What we’re seeing now is we’re seeing a big slowdown, and I’ve been told reliably that a lot of the big construction firms are really looking at very, very shaky profits, some of the mid-level subcontractors are in big trouble. In the retail trade area, you’ve got high volumes of retail trade, but prices coming down because of competition, that’s hitting the mid-tier retailers and the small retailers, small retailers try to break their leases.
So we’ve already got a significant slowing in the areas of the economy that bounce from housing. If house prices come off by a further 10 per cent, people will pull back more on spending because houses are people’s biggest asset.
What we’ve already seen, as soon as you saw a slump in the housing market, Australia’s debt-laden consumers started to pull back on spending. If they pull back further, it can really add to the momentum of the downturn.
ELEANOR HALL: You mentioned the stench of recession. Your call on that?
STEPHEN LONG: Oh, I’m too timid to make a call, but I think that we’re really facing rocky times ahead. Whether it’s going to be a recession or not, it’s not clear. Technically it’s very possible. We were just, we were just a whiff off a technical recession, two successive quarters of negative growth in the second half of last year, it is quite possible.
Seriously dmichie, how many doom and gloom threads do you want to start?
You are starting to remind me of Neil Jenman – ALWAYS NEGATIVE!
No-one is doubting the economy is slowing. Many of us just don’t believe it is going to implode as you seem to think. If you are that worried, stay out of the market and let others do what they want to do.
Robert Bou-Hamdan
Mortgage AdviserSeriously dmichie, how many doom and gloom threads do you want to start?There are so many gloomy news stories ATM, I reckon I could post 2 or 3 a day [biggrin]
And in 5 years time we will be past the slow down and in another speed up. Then there will be another slow down and the sky will fall, then there will be a speed up.
I can’t say I’ve lived all that long, but certainly long enough to know that what goes down must go up just as surely as what goes up must come down.
However it is important to note that house prices are higher now than ever have been. I recon in another 5 or so years house prices will also be higher than they ever have been. To my mind economic slow down or not if the equation (investment equation) works then it works.
Economic slowdown is based off a national aggregate of results, not off my results. There will be many who don’t go anywhere, some who drop a little, a few who drop lots. At the other end of the scale there will be some who go up and a few who go up lots. I think whether the economy is slowing or growing it is roughly the same people in any case. I don’t believe (wrongly or rightly) that I’m in the group that go down.
My net worth has steadily risen throughout my life without any significant set backs through boom times and through bust times.
“But weakness in Sydney and Melbourne will be tempered by healthier markets in cities such as Perth and Brisbane.”
not quite the message that the headline conveyed, but I guess headlines are what sell newspapers! property selection is everything
http://www.megainvestments.com.auExtensive list of ‘Off The Plan’ property available for sale in Perth.
John – 0419 198 856
However, JP Morgan said “it would not be a recession-generating event”, and this writer agrees wholeheartedly.
I wish that there was an ignore facility on this forum because the amount of negativity coming through is disheartening. Always being negative is just not the trait of a successful investor in my opinion.
Risk profiles differ greatly from person to person and mine is off the map. I am confident that a lot of money can be made in any market if you know how. I especially love it when the US stock market is in a downward trend. It is easy money!!!
Robert Bou-Hamdan
Mortgage AdviserI especially love it when the US stock market is in a downward trend. It is easy money!!![blink]
Sniff…. Sniff…
Is that hypocrisy I smell?F.[cowboy2]
No, it was me being serious.
Robert Bou-Hamdan
Mortgage AdviserI wish that there was an ignore facility on this forum because the amount of negativity coming through is disheartening.But, but … you love it when “the US stock market is in a downward trend”. Well I love it when the Austrlian property market is in a downward trend! It means those poor first home buyers will finally be able to buy something, and the rest of us can trade up to better houses. The only losers are the speculators.
dmichie, I never said the Australian market was not in a downward trend. I just don’t believe the bottom is in China like you do. A trend is also very different to bursting bubbles.
Robert Bou-Hamdan
Mortgage AdviserOriginally posted by dmichie:Seriously dmichie, how many doom and gloom threads do you want to start?There are so many gloomy news stories ATM, I reckon I could post 2 or 3 a day [biggrin]
Hi Folks
Anyone want an antidope to fight doom ‘n gloom? It’s been 20 years or so since I first read the biography of the Cattle King:
“Sidney Kidman – The Forgotten King”
I’ve just re-read it, and what a positive morale boost it makes.Talk about a counter-cyclical, +CF investor!! This Kidman fellow SERIOUSLY invested in the ‘back of beyond”. Bought massive strings of drought ridden properties, and made a squillion with almost every deal. He ended up owning nearly 4% of Australia’s landmass in his awesome chain of cattle properties in some of the worst drought-affected areas this arid country of ours boasts.
The point is this: he had a plan (Steve: “Success comes from doing things differently”). If you wanna know how DIFFERENT his plan was, go to your local library and read the book, even if you’ve gotta get it in on Inter-Library Loan.
The bottom line? Let all the doom and gloomers sit on their hands whilst more experienced operators keep making money.
Here’s the Key Question doom and gloomers need to ask themselves:
“Can you imagine Steve McKnight, Rick Otton, Steve Navra, Michael Yardney, Dale Gatherum-Goss etc etc buying NO PROPERTIES over the next few years?”Cheers
GregHi Greg
Here here!
Who cares about doom and gloom, Life is what you make of it.
Clay
Come the revolution the first to go should be the economists. When are they ever right. They are mainly negative. They prove that they do not understand the overall property market. But I hope they keep talking it creates some good buys.
Nigel Kibel
http://www.propertyknowhow.com.au
Australian and New Zealand Buyers advocate
service and seminarsNigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
They are mainly negative.They don’t call it the dismal science for nothing. Economists have predicted 14 of the last 3 recessions [biggrin]
When are they ever right.Robert Shiller, Professor of Economics at Yale University, famously predicted the tech wreck in his book “Irrational Exuberance”. He’s just released a new edition of his book predicting the bursting of the housing bubble in Australia, the UK and the US.
http://money.cnn.com/2005/01/13/real_estate/realestate_shiller1_0502/“Houses will fall 10%”
Which houses exactly? One property I own is in a suburb that was red hot three years ago when I bought it, and has now apparently (according to the experts) had dropping house prices. Recently for refinancing reasons I had the house valued while in the middle of a major renovation (the front half was gutted – no floors, no walls – and the garden has a trench for new sewerage/rainwater pipes, no livable condition)and the property was still valued at considerably more than we paid (when it was in a livable state). They also did a projection of the value they expect it to be worth once renovation is completed, and it is a healthy figure that can’t be purely from the renovation.
Of course, some people buying in the same suburb have lost money when trying to sell – because they paid too much in the first place (expecting to recoup the costs with continued high equity growth, which has since slowed to a more managable rate). If you choose to pay too much for something, when research says it is worth something less, then you can hardly turn around and complain that the ‘market fell’.
In the article it clearly states that it’s a matter of supply and demand. I agree. That’s why, if you invest in a property that will always be in demand, you are unlikely to suffer capital losses.
The property in the above scenario is 5kms from Sydney CBD, has plenty of public transport into the city (can also walk), close to shops, schools, parks, universities, is in a heritage listed area (so no high rise unit blocks popping up next door) and the property itself is a Victorian terrace (popular, and irreplaceable).
Sydney is a growing city, which means constant population growth is expected for at least the next 20 years (barring terrorism or natural disasters). While sprawl is happening on the outer limits – that is a good hour away by car (up to two hours in peak hour), and the transport to the outer suburbs is a mess – thus forcing people to live close to the CBD unless they want to spend hours commuting each day. It doesn’t matter how many McMansions they build in Kellyville or wherever, it is not going to affect the needs of the area that I have chosen to invest in.
And if the NSW govt does get their act together and provide adequate transport and roads to the satellite city/suburbs? The area I have invested in has a strong trendy/popular urban culture that cannot be replicated that easily. There are 3 arthouse cinemas within walking distance, numerous theatres and live performance/music venues, pubs, cafes and restuarants that people come from all over Sydney to visit… people don’t just live here because it’s convenient – they’re after a certain lifestyle that they can only get in a few inner city suburbs.
Also – if there is such an oversupply in housing, why is the NSW government considering the creation of a new satellite city to house the growing population that cannot fit into Sydney? They’ve been talking of up to 300,000 dwellings… but as all things with NSW govt it’s all talk for now. Which is bad news for the citizens of Sydney, but good news for smart property investors who can only profit from such a squeeze.
Never take a newspaper article seriously. They are looking for a good headline, a story today, while property investing is a long term investment.
I still remember the hype when the Sydney market began slowing. By began ‘slowing’, I mean there was still strong growth, just not the 30% growth high of the above suburb. There was an article in the Sydney Morning Herald (probably the most reputable of australian newpapers, barring perhaps the Financial Review) that claimed the market had fallen. As example, they listed four individual properties that had each been bought and sold twice within the last twelve months, sometimes only a couple months apart. Each had sold for a higher price than their previous sale, in one case $150k more “but if you take into consideration the expenses of stamp duty, tax, renovation costs, it is hardly profitable”.
So the properties, both renovated and unrenovated, had increased in value! But people trying to make a quick buck by buying and selling within a short time span got burned by the expenses that come with buying and selling in a short time frame. This obviously had nothing to do with the market “going down”, as the properties had done nothing of the sort.
Remember when the economists talk: a decline in the property growth rate is not the same thing as a decline in a property’s value.
If you purchase a $500,000 house in a year that there is a 30% growth rate, and the next year there is ‘only’ 15% growth, then your house will potentially be worth $575,000 despite a DECREASE in the growth rate. Headlines will scream “Property growth down” while your house value is still going up!
Do your own research on an area before you take anyone else at word value. Everyone thinks they’re an expert. Many of the wealthiest people in the world made their money in times that other’s complained were troubled times with no opportunities (depressions etc). It’s a matter of making informed decisions and creating your own opportunities where others only see risk.
If you purchase a $500,000 house in a year that there is a 30% growth rate, and the next year there is ‘only’ 15% growth, then your house will potentially be worth $575,000 despite a DECREASE in the growth rate. Headlines will scream “Property growth down” while your house value is still going up!Actually none of these ‘gloom and doom’ stories claim that its just growth rates that have fallen (or will fall). They are saying that the actual dollar value of houses has fallen (in Brisbane) and will fall nationwide (JP Morgan). The loss in real terms is even worse, because your house needs to increase in value by 2%-3% per year just to maintain its value.
I’m not saying all properties will fall by the same amount, some will do better than others, but to suggest that property prices cannot fall, and have never fallen, is fanciful.
To be as negative as you is just ludicrous!
Why don’t you differentiate between unit prices and house prices when quoting figures instead of using such generic figures?
House prices have not fallen anywhere near as much as unit prices!
Robert Bou-Hamdan
Mortgage AdviserTo be as negative as you is just ludicrous!Yet again you fail to understand that a fall in house prices is a positive thing for many Australians. It allows struggling FHBs into the market, and makes it much more affordable for existing home owners to trade up. Where on earth do you get this idea that ludicrously high house prices is a good thing?
Why don’t you differentiate between unit prices and house prices when quoting figures instead of using such generic figures?Because the Courier Mail article focused on houses (as opposed to units) and the JP Morgan article didn’t mention units at all.
You want me to talk about units I will, but you might regret it.
dmichie, why do you keep putting INCORRECT words in people’s mouths?
I never said anything like high house prices are a good thing. Please open your other eye!
For every comment you make, there is always an opposing view. A lot of people will also get into a lot of trouble with house prices dropping as much as you think they will. I don’t agree with your views which is pretty clear. For every winner, there is also a loser.
I will never respect any of your comments until they are your own. You just regurgitate more and more negative articles that you find and spend hours searching to support the doom and gloomers in an attempt to support your very narrow economic views.
You have an alterior motive which is to scare people off property so house prices drop further so you can afford to purchase the property you seek on the northern beaches. Get over it as it is getting very old.
Publishers love people like you as the negative headlines and articles work so well on you. You will never see the happy stories in the media at great levels because they just don’t sell papers and magazines.
Economists are nearly always wrong. You can quote 500 of them and it still won’t convince me. I believe in doing the exact opposite of the majority which kept me write out of the dot com saga.
Any moron could have seen that none of the dot com stocks that collapsed were viable investments. They had disgusting PE Ratios and none were asset backed. When the economists started predicting the bust, it was already happening. I wish I had a degree so I could follow the flock or always be wrong and get away with it.
Please give us all a break from this crap or move it to the less read opinionated section where it belongs.
Robert Bou-Hamdan
Mortgage AdviserHi All
Yet again you fail to understand that a fall in house prices is a positive thing for many Australians. It allows struggling FHBs into the market, and makes it much more affordable for existing home owners to trade up.
dmichie you are forgetting one thing? If the economy goes bad these same poor FHBs are going to be on the wrong end of the stick again. The banks will simply withdraw their lending and make it harder to get a loan, so FHBs will be behind the 8 ball again. To counter this the price of housing would have to fall far lower than 10%.
Kerwyn.
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