Property bust not here yet … worse to come

-6.1% for Melbourne from Dec 2010 – Dec 2011. That's not so bad. I lost more money in shares!

Depends really.

There is a lot leverage in property.

So if you looked at say $100,000 invested in Property Vs Shares.

It might look like:

Property (80% LVR)
$500K – 6% = $470K, $30K loss.
Loss on $100K Principal = 30%

Since the person investing in shares probably had little to no leverage, their portfolio would have to have lost 30% to have the same effect.

Which on average it probably did, so they are sitting about even.

Likewise, people can leverage in shares. What's the 'usual' without incuring the equivalent of lender's mortgage insurance? 40% 'LVR'? 50%? We need to base calculations on these things also.

What it has always been. That the market is overvalued relative to national incomes.

Why are you so sure? Perhaps it will result in less spending on inflated prices. Look at retail. Do we need new consumer items all the time? Probably not – that's why people are buying less. Likewise, do we need bathroom makeovers as often as we have them, or do we just need bathrooms that work? One way to get a guaranteed working bathroom without having to worry about paying for it is rent.

That's not what is happenning ATM. I agree there is no desperation to sell yet but no-one is prepared to pay more either. There is an OS – 300k places up for sale nationally and rental vacancy increasing. 22 mil  people, living an average of 2.5 people per house, means the country requires around 8.8 mil houses. We can round that to 9 mil. 3% is for sale and another 3-5% is up for rent. If all of those places are needed, there should be about 1.7 mil displaced residents. When massive genocides occur in a place like Africa, you end up with that many displaced peoples and the UN is called in – I don't see them here?

If the bank will extend the credit to them. I agree that people are sheep and they will blindly follow the flock as they have in the era of easy credit and increasing house prices. These sheep aren't sobred enough by drops yet to not borrow if buying gets cheaper than renting but that is still a long way off. And, if it were to happen, the bank would have to be willing to lend to them. As we have seen recently and as I have preached for a while, the RBA and our banks will decouple totally. A 5% hit on property values like we have seen over the last year isn't enough to scare the sheep but it is enough to make the banks cautious of lending. For each percent values decrease, the banks will want roughly that as a deposit – they have to protect themselves.

This is a bigger cycle, it is a cycle that defines the cycles within cycles you mention. Demographic pressure and unsustainable credit expansion across the whole western world will force it to contract. Things will pick up again, when the contraction is deep enough for sustainable growth to resume.

My analysis was far less wafty than yours?

Yes, you can sell your peas if there is demand and funded customers. Pretty hard to move them if the cutomers can't pay.

Welcome to the market cycle. You see … if they arent paying ….. you dont fill places. If you dont fill places you REDUCE your rents to a level where the place will be filled. So if the rents are extraordiarily high .. and yet there are people out there who are MEETING the rent payments on a regular basis .. and there is a low vacancy rate, wouldnt you say that the market is doing what it is intended to do?

No wafty stuff needed. Thats whats happening. And if you feel in your part of the world that the market isnt doing that .. then you gotta ask why. Cos if your rents are at the right level .. and you got the right product for current demand .. then you got a tenant .. dont you?

source: http://www.allenrealestate.com.au
Not what you call a massive collapse by any means but, adjusted for inflation 15% loss from the top ever reached

Just advise your friend that there could be tax implications come time to sell. But I suppose if she was weighing it up between being able to live under her own roof versus not at all, then renting out part of the house to others is pretty much a given.

It'd be interesting to see what the population growth was like in absolute terms (ie. from 2 million to 3 million) rather than relative terms (ie. a percentage figure like is stated in the charts).

For example, a 30% population growth from 200,000 people to 260,000 (an increase of only 60,000) is not as great as a 10% population growth from 2 million people to 2.2 million (an increase of 200,000) within the same number of years.

It will be alive and kicking until the ineviatable return to long term price vs wage ratios are again met:)

What changes a market .. and IS currently changing a market is the availability of flush capital to stoke the market.

The trends .. the norms .. the variables .. all base themselves on the availability of funds to make the project happen.

At the moment the markets I was talking about locking up earlier on in the thread HAVE done just that. So .. the good properties .. the FHB specials .. the land in good position .. has all left the market .. awaiting a better price. Its just not available.

To bring it out again will actually require not only a decent price .. but a higher price. The vendor now sees that only a better price will get him to bring his property out to market again. The vendor now believes that its worth more to hang onto his property rather than realise a current cash price for it. Cash for him just doesnt hold the value it used to.

So in monetary terms .. its a bust. And it means that for a lot of people they just wont have cash reserves because their cash purchasing power will have dissipated.

Note the sudden movement in planning permits on land .. the developers are hedging their bets with what they can build and profit on in yesterdays dollars.
 
Is the price now too high? Who has the correct gage for that? You can quote graphs .. trendlines .. statistics .. but at the end of the day its always the willing consumer/purchaser of the goods that makes the final decisions. And he makes those decisions based on what he can borrow .. at what gearing level .. and what return he can get on that.

I would be going with the idea that inflationary pressures will push this market like a cork out of a champagne bottle. Thats NOT good, as it means that money and savings rapidly becomes … a lot less. All those years worth of saving just disappear in an inflationary rocket .. that shouldnt be good for anyone.