Property bust not here yet … worse to come

At the risk of sounding stupid,

Why are we minutley discussing some random people who may or may not be losing money. Does this last 10 years portend the immentnent crash of the whole Australian property market? I think not.

 Once again if people have lost money in the last 10-5-2-1 years by investing in property you have to ask yourself how that happened. If they have been given bad advice or bought the wrong thing via emotion or greed then they are probably not viewing property as property investors. If they still work full time and have one property I don't think I would class them in with investors who have multiple properties earning them an income.

So has anyone worked out whether the property market has gone bust yet? No?

D

How about if  you bought it and rent it as it was, or if you demolished it and put 2-3 basic homes on the block ? If its an investment you would hardly go for marble baths or solid gold bathroom fittings. As we all know (or should know)  its the land that appreciates in value while the improvements (the building) is usually depreciating in value. 
 
Which is why I was intrigued by gmh454's comments that he had clients who bought 9-10 years ago and are bleeding.  But now that you posted that I could see how someone who bought 10 years ago and knocked down the old building, built a very expensive mansion then had a full reno done every 2-3 years could be bleeding and would have problems recovering  his costs.  But that sort of mistake would be more likely made by some overenthusiastic new investor and not the type of educated investor using financial advisers and accountants like gmh454's clients would be.  That's like the  P-plater spending $20k plus hundreds of hours of labour  tarting up his $3K and 10 year old Hyundai then wondering why he is having no replies to his ads  when asking  $20k for it.  lol

That is exactly what some of us have been telling the bears for years now, only they keep pointing to upmarket mansions and call them unaffordable because people on Centrelink benefits can not buy them. 

I'm sure you are , probably wish you went something like this
http://www.allweirdthings.com/hongkongs-100-gold-bathroom/

because now Instead of a depreciating asset you'd have a building that has appreciated at the same rate as the land beneath it. LOL

Hang on a minute, have you built them to profit from selling them ?    800k is a lot of money for a house even in today's dollars, go to http://www.avjennings.com.au and you can get 4-5 homes built for that amount in today $$$ 
Instead of spending 800 on a building you could have gone for a 200k home and use the remaining 600k to buy 2-3 more existing houses which would have gone up 2-3 times in price since then. Of course hindsight is always 20/20. 

Of course if one overspent on the building and built the house to satisfy his/her wants rather then needs  like some of these more extreme examples did  http://design-crisis.com/?tag=gold-toilet   then they should complain about their house not doing as well as some of the low priced homes around them. :p

I think its probably because while everyone needs shelter not everyone needs to live in the top end of town so when the economy suffers the top end gets hit more.   Of course when people go silly and build an excessive number of homes like they did in some parts of US even the low end suffers until population increases takes care of the oversupply. As the economy eventually recovers and the rich recovers with it , the number of wealthy increases the top end will recover as it did in previous recessions. Expensive houses are more about status then comfort so unless the GFC has caused a major shift in human nature I don't expect the wealthy to start slumming it with the peasants in low priced basic shelters. I believe its only a matter of time before the top end recovers as the wealthy feel the need to flash some of that wealth and upgrade to more expensive housing. After all what is the point of being filthy rich is nobody notices your wealth  ? LOL   

Interesting conundrum you present Harb.

If the rich are downgrading, this would put more pressure on the lower end right? If there is more pressure on the lower end you suggest an OS of lower end property could arise like it has in the US (except that isn't how it happened there – the OS was apparent before the GFC, just not admitted in all circles). Anyways, the top end places must be a hard sell or empty now because of the downgrading. Fair enough, no-one is debating this – its been that way since 2008.

But, if the low end is so under pressure, why haven't more of the lowest income earners been pushed out onto the street?

I believe there is an OS in most places already (especially apartments) but lets just say there isn't. When the rich recover, as you foretell, and move back into more expensive pads, surely this will leave some of the bottom end empty and thus create an OS in that end?

Hi harb,

I would like to talk to you or meet you in person I am in Sydney but travel extensively where do you want to meet.

Kindest regards
Philip Sigglekow
LREA author

But are they downgrading or just staying put which is causing the lower end pressure?

I believe the low end is under pressure most of the time, if not from low income earners  spurred on by boosts to FHOG then investors. Rather then being pushed onto the street  the lowest income earnest are being pushed towards the new outer suburbs, houses on smaller blocks of land and apartments.

Lets say it is,  given a choice the majority of people prefer to live in houses rather then apartments there is always going to be an OS in apartments ahead of free standing houses.

Hehe, you make it sound like I look into crystal balls to foretell the future. Since  cavemen times humans who could afford it would show off their wealth by residing in better caves, dwelling, manor houses, castles and in recent times exclusive estates and suburbs. No need for crystal balls to know that when people can afford it they will start upgrading once again. In Australia its harder to create an oversupply at the bottom end of the market then say US because our developers develop land and when they do build an  apartment block they only start work on it after the vast majority of apartments have been presold. Compare that with US developers who turned cow paddocks into new suburbs without having presold a single house and the left investors take the losses when they were forced to sell below replacement cost or ran dozers through partly built homes because it was the cheaper option . Also if you look at our bottom end (new homes in the new outer suburbs) competition between builders keeps prices reasonably low and the price of land is also only slightly above cost. I believe that having the cost of building new homes in new suburbs so close to replacement costs is helping to regulate the OS in our market. Any falls in the existing low end market is causing the new homes to be uncompetitive and reduces the number of new starts removing the OS and putting a floor under the prices. Combine the self regulation with the fact the entrants into the bottom end market are FHBs , investors and the odd people who refuse to keep up with the Joneses there is no reason to believe we will ever end up with oversupply at the low end of the market. These people would not normally go out and buy or build a more upmarket property unless they sold or rented out the current one.  

Inflation is 3.1% at the moment….not the 6-7% inflation that was previously quoted.

Awww, Australia didn't even get a look in……

Guess we'll have a problem when coffee gets to $6 bucks a cup! That could be the new affordability indicator!

D

Geez thanks Phil,  you think I' m ready to write a few get rich quick books and hit the personal development circuit to flog them to suckers looking for the magic secret to wealth and happiness ?  You sound alright too, from your blog page it  looks like you picked up a thing or two from all that money invested in  Tony Robbins and Tom Hopkins tapes and seminars. 

As far as the number of houses I built go what does it matter if I only built  20 new houses or  200 ?  And would the 20 homes built on my own count for less then someone else's 30 who had to go into JVs with professional builders to complete them  or had others manage the projects?  Lets just say I built a few IPs,  I did a few small renos, a few larger renos , took me 5 goes to get my PPOR just right and have acquired the skills to build a complete home on my own if I wanted to do so.  

An then there are the people playing monopoly with other people's money. 
Real life IS playing Monopoly. Some people play it, some people who can't play teach it and some are like bunnies frozen in the headlights watching others playing it but too scared to make a move.

Blah, blah ,blah, the same old fallacy the bears have been pushing as to why prices HAD to crash 40%  a few years ago.
Putting aside the fact that since 1980s our wise and illustrious leaders have been deceiving the masses with dodgy CPI numbers and ever changing contents in the "inflation basket"  to keep the lid on the working class wages how can you compare today's basic new house with the 80s basic house ? Where will you find a builder prepared to build you a 3×1,  75sqm dog house with a single carport , like they were building in the 80s ?  And if you were to find one where will you find a council willing to approve it ?
If you were to compare apples with apples and take today's blue collar tradesman earnings and use it to build a home of the same dimensions and specs as the 80s home on the city's outskirts it doesn't cost you that much more now then it did in the 80s.

I was wondering when you were going to bring up Japan's property crash . 
And yet despite the crash there and declining population prices in Japan ares still relatively high.  Even if we were to take the 8x earnings pushed by property bears (which I think is BS) prices are still low when compared to a lot of other countries where the ratio goes well into double digits.  To justify the claims of  our property being overpriced "the experts" are using the price/rental income ratio which in Australia is affected by Negative Gearing keeping rents too low. .

People are flooding to USA because the spruikers are pushing USA properties the same way the spruikers were pushing dodgy Gold Coast investments in the 80s and dodgy self help tapes and various courses costing as much as a house at the  "free" seminars run by  "life coaches " and "super salesmen" in the 90s.   Prices that are cheap  in USA are "so cheap" for a reason so anyone thinking of buying there should do his own research and take everything being told by the spruikers with a large pinch of salt.  Just wondering why have you brought up USA , are you planning to invest there yourself or begin selling USA properties to Aussies  ?
 
The markets may not be static but nobody can be sure of how Steve and Dave's strategies would work out today anymore then they would have back in 2000 but one thing that we can be sure of is that doing nothing would have resulted in achieving nothing.  I do remember some of the "experts" flashing their qualifications around on TV and claiming that properties were overpriced back in 2000 and that  we have reached the peak and property prices were due for a correction. In hindsight they were of course wrong and they could also turn out to be wrong today but only time will tell.  

Unlike yourself I'm not into educating others and have no intention of pushing my views onto others.
I have no advise to give to others other then to tread carefully and don't believe everything they read on websites, be wary of offers of "free"  seminars, books ,etc. because  nothing comes free and may end up costing them tens of thousands or more and  always remember the old saying ' if it sounds too good to be true it probably is' .

Hi Guys, anyone have any data on how we tracking with RE last two weeks? I have been away…
Side thought: If Asussie goverment start printing currency like mad, we may not actually see RE crash as currency devaluate faster
Anyhow, RE is becoming attaractivly chaper since 2005 if you play gold/silver VS RE game. Same use this tool to create major wealth according to Michael Maloney "guide to investing in Gold&Silver".