Wealth have been thinking myself about the Sydney Hole. Had a chat with property investor clients who asked what is actually going on, with the “Rental shortage” as their two bed unit at Pendle Hill is on around $260 per week, and stuck at that price.
Think there is still a lot of vested interest hype.
There is no land shortage in Sydney. Developers are sitting tight for now as too much supply will do bad things to the market.
“there is a rental shortage in the Nth Shore Eastern suburbs etc.” What’s new, I cannot remember the vacancy rate ever being greater than 1/2% there. Campbelltown diff storey but Sydney’s desireable suburbs have always been hard to rent in.
“First home buyers renters etc need a govt boost. ” WRONG as a stock broker was quoted last week on the ABC following the “boo hoo its all the fault of the super changes” line the REI is currently spinning, it was the GOVT assist that screwed the market in the first place. As he said “does the Govt give share investors a hand everytime the market dips”, ….. tampering broke it, let market forces fix it.
Now for my spin.
think Sydney is roughly three markets.
East of Five Dock is doing okay thanks.
Parra to Five Dock varies, some okay (strathfield) others not.
West of Parra still creeping slowly downwards.Now to help understand the latest stats. Sydney slipped last 1/4 1%.
Now that is peanuts BUT if the high end is stable that means the other half dropped a healthy 2-3% depending on where, so as to pull the overall average down.Have so many clients hanging on.
Reasons are, the usual personal ones, not the economic rational ones.
When they were wealthy a few years ago (old values) they were a lot happier. To stay happy they must “hold on till the market recovers to its correct value”. Selling to market will be a troubling emotional ride, that they are putting off (while slowly bleeding)Some others need those pre slump values to support the old retirement plan . If they sold for market they will have to admit there retirement assets are well short and they seem unable to deal with that at the moment.
Think next few months will be interesting in the west.
Originally posted by gmh454:Had a chat with property investor clients who asked what is actually going on, with the “Rental shortage” as their two bed unit at Pendle Hill is on around $260 per week, and stuck at that price.
Think there is still a lot of vested interest hype.
Yup. Did you catch Media Watch last night?
http://www.abc.net.au/mediawatch/transcripts/s1857566.htm
Hilarious. And shocking, especially the involvement of certain prominant people who may or may not have their hands in the ‘industry’s pocket…
F. [cowboy2]
Foundation thanks for that, suspected as much. I am amazed at how the REI press releases are taken as fact.
Always thought our media (ABC excepted) was very, very poor
Well, the media never lets the facts get in the way of a good story…but then…if they keep saying rent is going to increase then we can get away with raising ours accordingly because people will expect it & it will in effect become a reality, and in turn people will hate paying high rent so they’ll look for their own place so the ol’ supply n demand thing will come back into play and property prices could rise again – win win really
Trading your plan is the goal – profits are the reward.
Originally posted by CanAm:people will hate paying high rent so they’ll look for their own place so the ol’ supply n demand thing will come back into play and property prices could rise again – win win really
I suspect there’s an element of truth to that. Inflation expectations lead inflation. Do you see that this cycle will inevitably fail though? Affordability is the main constraint on rent, and over time, purchase price.
F.[cowboy2]
Take today’s share market for example; ouch, it hurts. I finally got rid of TLS shares.. Enjoyed the little ride while it lasted. Astute investors are cashed up took opportunity of the days? weeks? of corrections. Smart move it seems. But according to the analysts there are more corrections before mid year. Another option is to dripfeed into the market.
Where are the markets all heading 2007/08?
The point is, a correction cannot be ruled out in the property market as well. Those ripe to take advantage of Super “window” are the lucky ones for the moment at least. Current unsustainable housing issue coupled with spiralling debt level do not seem to give comfort for investors taking the plunge.
I’d like to know what are the gurus doing for wealth in this climate? Keep dogged persistence on reinvesting? Stay at sideline to wait for markets to crash? Buy blue chips? Sell more seminars to investors?
Hmmm… on that note, I’d better sign off. [confused2]
CT
Hi CT and I totally agree … not at the bottom yet …
Perth is changing to a downward pattern … SE QLD still a high investor market and if you stay away from the two tiered stuff there are some good buys there … Mackay is the big boom town with 5 billion dollars of infrastructure going in over the next 10 years … Airlie Beach has 3 billion dollars being invested there but you must have a water view to get the growth because this is still a high back packer location.
New Guru … Mark Rolton (28 yr old) is about to roll out his property options seminars around the country … Move over Mike Yardney this guy is good and has some wonderful stratagies for wealth creation using property options …
D
Hi CT and I totally agree … not at the bottom yet …Perth is changing to a downward pattern … SE QLD still a high investor market and if you stay away from the two tiered stuff there are some good buys there … Mackay is the big boom town with 5 billion dollars of infrastructure going in over the next 10 years … Airlie Beach has 3 billion dollars being invested there but you must have a water view to get the growth because this is still a high back packer location.New Guru … Mark Rolton (28 yr old) is about to roll out his property options seminars around the country … Move over Mike Yardney this guy is good and has some wonderful stratagies for wealth creation using property options …D
please no… not more magical ways to make millions in property thru options, no money down, secrets of the rich, blah blah blah
YAWWWWNNNNNNNN;
If your predict a downturn long enough you will be right, no question about it. But, “show me the money”, whats going to do well?
I think the stock market still has some legs.Anyway off to read some positive posts![cigar][cigar][cigar][cigar][cigar]
Originally posted by ctaing:Take today’s share market for example; ouch, it hurts. …..
Where are the markets all heading 2007/08?
The point is, a correction cannot be ruled out ………
Yep, with the correction on Monday I was down 66% of my trading float, am currently back up 78% for this year…..its all in how you look at it and decide if you’re a panic merchant or not.
Design your trading plan (shares or r/e)…accept that corrections happen……trade your plan to the letter of the law……profit is just a bi-product, not a goal.
Currently in negotiation over another r/e deal…don’t care if it ‘looks like’ the market is slowing. I’ll take action WHEN my fallback position throws up a red flag.
I am not a guru….but I’d hazard a guess that the gurus probably do the same thing……
Cheers
Trading your plan is the goal – profits are the reward.
Hi
I think after 9 months of discussion, it looks like there is unlikely to be a crash or a major housing price correction anything soon. just a gradual slow down in the raise of housing prices.
So what is the moral of the story? To me, it is simply to make do what the current situation and just ride the wave the best you can.
Regards
Daniel Lee [specs]That market ‘crash’ was a joke. Seriously after that ‘crash’ most of us are still in profit from november. And alot of mine were already pulled out and going short. ‘corrections’ only happen in stock markets because there is pack mentality in that when it stards to decline, everyone wants profit and sells, pushing the price lower. When it starts climbing again, everyone wants in, pushing the price higher. Most markets are still in massive profit for this finanical year.
Originally posted by dacium:That market ‘crash’ was a joke. Seriously after that ‘crash’ most of us are still in profit from november. And alot of mine were already pulled out and going short. ‘corrections’ only happen in stock markets because there is pack mentality in that when it stards to decline, everyone wants profit and sells, pushing the price lower. When it starts climbing again, everyone wants in, pushing the price higher. Most markets are still in massive profit for this finanical year.
You seriously think there is no such things as a correction in Real Estate?? BWHAHAHAHAHAH you realise there was a world prior to the last 10 or so years!!!! SO many people base ‘fact’ based on the narrow view of what has happened recently. What do you think would/could happen if interest rates rose to a place where people felt they had better sell, all of a sudden there is an influx of property into the market but not many buyers, prices start to come down as people become more nervouse about cutting their losses and getting out while they can the prices drop even more….gee kinda like the stock market eh? I only have this opinion because I have read history and spoken to those who have lived through the DOWNS as well as the ups…
Dudes, Listen.
We run our spreadsheet at 6% capital growth.
It seems that this is the average metro rate and gives a great picture of your future
With 9 properties we have been in for the long haul.
Turning 54 this year and now thinking of rolling some into a cash producing portfolio but mght buy a couple more properties also if we can find some that met our criteria (dno’t cost us anything) we no longer have any tax benefit.
We’ve been playing the game since the mid 90’s and have a 3.5 mil portfolio and net worth of about 1.6mil.
Certainly not big players but for humble peasants it’s been a no brainer.
All you gotta do is do it.
You can’t catch a wave sitting on the beach!
Blessings
MARK[Originally posted by kram:Dudes, Listen.
We run our spreadsheet at 6% capital growth.
It seems that this is the average metro rate and gives a great picture of your future
That ‘picture of the future’ would require Australians to increase the debt owed on housing by around 13-14% per year, indefinitely.
Look at it like this:
– current housing debt = $850 billion
– current interest rates = 7.65% (average)
– current annual cost = $65.0 billion per year (interest alone)if this figure grows by 13%:
– 2007 housing debt = $960 billion
– 2007 interest rates = 7.65% (average)
– 2007 annual cost = $73.45 billion per year (interest alone)The more switched-on investor will have noted that the 8.45 increase in interest cost will have much the same impact on our economy as a 1% hike in interest rates ($8.5 billion).
The next year, the same again, but this time the total burden will equate to IRs rising from 8.64% to 9.77%. The third year, to 11.04% and so on. Year 4 12.47%, year 5 14.09%.
Imagine if the RBA decided to raise interest rates to 14% over the next 5 years. Would you expect everything to remain peachy? I wouldn’t.
The impact of 5 years of 6% house price appreciation would be the same on a broad scale as 5 years of massive interest rate hikes. The debt servicing ratio would obviously have risen too, with mortgage interest eating up an extra 6% of our gross household incomes (even allowing for 4% wage inflation and 1% population increase). In just 5 years!
Just one more way to look at the big picture.
If this is all too much for you, take this one statement.
House prices can not indefinitely continue to increase faster than incomes.
There can be no argument about this point. It is simply a fact. Sure, they’ve done so over the last 10 years (and much of the last 35 years), but only because of our insatiable appetite for debt. Household debt has grown from about 30% of our national income (GDP) in the mid-90s to almost 100% today. This is what has enabled you to form an opinion about “average metro growth” and the “picture of the future”.
You can’t have one without the other. If you’re expecting a repeat of the last decade’s house price appreciation, you can expect a repeat of the last decade’s unsustainable pattern of debt accumulation. And then some, given we still need to take on another $1.6 trillion dollars in debt before the last bubble will have fully worked its way through the system.
I’d still love for somebody, somewhere to back up their claims about future growth with an estimate of what it will mean for future debt, and how this level of future indebtedness will not force our country into a long dark recession. It doesn’t have to be based on sophisticated models, guesstimates are fine providing they’re within the realm of possibility.
Cheers, F. [cowboy2]
[edit] Here’s a chart showing household debt growth. Remember, a repeat performance of the last decade (housing % wise) would require a repeat of the debt accumulation. Repeat of magnitude, not size.
http://www.debtdeflation.com/blogs/wp-content/uploads/2007/03/US_v_Aus_HHDebt2GDP.png
[/edit]Originally posted by kram:Dudes, Listen.
We’ve been playing the game since the mid 90’s and have a 3.5 mil portfolio and net worth of about 1.6mil.
Certainly not big players but for humble peasants it’s been a no brainer.
All you gotta do is do it.
You can’t catch a wave sitting on the beach!
Blessings
MARK[Thank you for making my point EXACTLY-you have only been in the property game since the mid 90’s, so all you have known is increasing property prices, therefore dont you think your opinion, or ‘educated wish’ that cap gains will continue @ 6% is a little biased, or even niave?
Not trying to be a doomsdayer-hell I even just bought another townhouse in Kensington, but I am also rational enough to be prepared for a turn in the market and am not so niave to think property prices will just keep going up forever….
i dont get it – do I have to read back on the last 42 pages to do so?
why does it have to go up 13%? not all median house price increases have to be funded by debt… it only takes one house on the street to sell for an extra million dollars and you have created $200 miliion in value
Originally posted by AUSPROP:i dont get it – do I have to read back on the last 42 pages to do so?
why does it have to go up 13%? not all median house price increases have to be funded by debt… it only takes one house on the street to sell for an extra million dollars and you have created $200 miliion in value
Sigh.
No AUSPROP, you’ve created $200 million in perceived value. And that’s just the problem. Everybody feels richer, but it’s not until every house has been sold at the higher ‘value’ that the new price is confirmed. And once each house has either been resold at the higher price or the owners have cashed out the equity, the new level of equity (net wealth) will be:
$200 million minus the debt
Which will equal whatever amount of equity they had before house prices went up and everybody ‘got richer’!
A change in pricing level that is 100% funded by debt makes us worse off than before on aggregate! The total impact on the economy is a net loss of wealth because we end up with the same amount of equity but paying much more in interest on the loans!
Pre-boom we had ~$900 billion worth of houses with ~$300 of housing debt. Now we have $3.4 trillion of housing with $850 billion of debt. See how we’ve turned $550 billion of new debt into $2.5 trillion of perceived wealth? That’s the same as your example. So far, a relatively small proportion (20-25%) of all houses have been sold or borrowed against at their new ‘values’. We have decades left to pay for the last boom (by taking on more debt) and in the end the current $850 billion of housing debt will have risen to around $2.8 trillion!
Why $2.8 trillion you ask? Because the current percieved value of all Australian residential real estate is $3.4 trillion.
Pre-boom it was $900 billion, versus $300 billion in housing debt. We have not REALLY added $2.5 trillion in value to the housing market, we’ve just inflated it with debt. Because the change in ‘value’ is the product of debt, our final equity will remain at around $600 billion (if the house of cards remains standing), so we’ll have $2.8 trillion in debt and $600 billion in equity.
Say interest rates stay the same, $2.8 trillion dollars of debt will cost $218 billion per year in interest payments alone. That’s equivalent to housing debt staying at $850 billion and interest rates rising to 25%. Not that I’m claiming this will happen, I’m just putting it in perspective.
Now if you’re still following, understand that that is the situation if house prices stay at their current level, not even rising by the inflation rate over the next 20 years. If you’re betting on another boom of similar magnitude to the last, you can triple all these figures.
Sure, wages will go up a bit, but not nearly enough to negate the rising costs. And certainly, as we enter the near-inevitable deflationary spiral, interest rates will come down, but then again, so would house prices…
And finally, remember that even for house prices to remain flat this year, housing debt will have to rise by $90 to $100 billion. The cost to the economy, and our collective wallets will be around the same as a 1% increase in interest rates by the RBA. We all know how the piggies squeal at the thought of just a 0.25% increase…
F. [cowboy2]
PS – 13% because it takes an average of 15.7% increase in housing debt to achieve a 7% increase in house prices.
but the $600 billion isn’t set in stone – when the first indonesian walk down from up there the value was nothing, so you don’t say the pre pre boom value was nil. The $3.4 trillion is real asset value – real because we do not live in a closed exonomy and much of the sales are to external overseas entities. I would also argue that not everyone goes out and refinances to splurge, in fact I doubt that that many do. Your argument seems to be that because say gold sells one day for $1000/oz you still can’t say gold is worth that because the entire stock of gold hasn’t been sold at that level to prove that worth.
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