Hi All
I too have a question that maybe able to be answered here .
I"m trying to get in front of the market so will need some sort of idea of what 'may' happen going forward
If we have high house prices , and what appears to an ever increasing interest rates , along with inflation ,what is the likely outcomes ….Houses become too expensive , so house prices stagnate or drift lower , but more renters ?
rents go up as less people buy houses, so have to rent putting pressure on rentable properties prices ?
Wages go up to cover inflation , giving people more money to rent , but less money to buy ,as interest rates increase giving subdued house prices ?
interest rates keeps any sort of property growth stagnate while waiting real wages catches up ?There is probably a myriad of things that could happen , only thing I do know is that with the US printing money to pay for the war it will produce inflation which they will try and quell with higher interest rates . The last time we had high interest rates we had low house prices which produced a property boom( 1985 ) ( before the bust ) , then we had lower interest rates which gives the ability to borrow more which increased house prices ,but this time I"m a little lost as to what may happen , so if anyone has any idea or thoughts I will be more than happy to take them on board and as always just see what happens
thanks in advance
stuart"OK Foundation.
I am really starting to think more about your opinions and have a question for you. The million dollar question.
When do you think things will turn for the worst.I have a five year plan to have my PPOR paid of and own half of my IP( Thus reducing my current debt from $500,000 to $150,000). This impending bust may throw a spanner in the works. I know there is no way of knowing but im guessing you are the kind of person who would have a very good idea of when this would happen and a exit stratagy for any of your investments that would be affected.Wanna share some info"To jump in and answer that with my crystal ball; I don't reckon there will be a "bust"; just a prolonged period of no, or very little, growth until affordability catches up and (personal) debt levels return back to more sane levels.
The historic averages of property price growth will probably not be realised during this time. You may see average house/unit price growth average percentages stay stagnant for up to10 years. I hope to be wrong.This is not a reason to exit the market unless you are saddled up with neg geared properties. Anyone with pos cashflow portfolios will be o.k as the rents will continue to rise.
A good tactic will be to reduce ALL debt; including investment debt, so that when and if there is a long lull, you can access a bit of equity to put into other investment vehicles that may be doing well at the time.
Of course; this is my preferred and recommended strategy in any case; I like my sleep and like a nice low LVR.
foundation wrote:"I am beginning to be swayed by your arguments."Don't be! Follow your own mind.
Anybody who'd listened to my argument 2 or 3 years ago would have missed out on a massive windfall if they'd planned to buy in Perth
Ah Foundation is at it again. I was one of the fortunate ones on this very forum I suppose who had the pleasure of listening to Foundation's excellently researched and most convincing high level economic theoretical arguments. Didn't believe a single word of it mind you, but it was most entertaining. You definitely missed your calling F….you really should of been a lecturer,
not a quasi- property investor. And I suppose you're right in some respects, the assets that the average smo' is investing blindly without thought or reason, and following the herd, TIC would be a fine example of this…..yes, they are likely to have problems in the future.As for us….since reading your theories in early '05, when you divested yourself of your IP's with the dire predictions as so well detailed above…..well we've magnified our portfolio eight fold. The wife and I now regularly compete against super funds, large institutions and big companies for properties. It's been a hoot. The next 4 years should see us quadruple again….I'll come back and give you a hoy then F to see how your theory has gone against mine.
foundation wrote:Follow your own mind, but be mindful not to blinker it by filtering out evidence or argument that doesn't conform to existing beliefs. Take it all in, then spit out the pips. I'd suggest to many propertyinvesting forum members 'it' should include books on finance and economics that don't contain 5/7/10 steps/ecrets/lessons on anything. And of course, any advice that includes predictions of house prices doubling every seven to ten years in perpetuity without qualification is a pip. Pfftooey!F. [cowboy2]
That's exactly what I did with your dire predictions and advice, spat it out like a pip and then rolled my sleeves up and got on with the task. It's been plain sailing now for quite a while. Wish me (astute and prudent investing)…….not luck.
Well i am kind of covering my self. I am currently investing in australias muscle car boom and have made a cool $100,000 tax free in the last year. And there is a lot more to be made. You guys should check it out. With housing a bit hard for some people without investing expieriance. Its a good option.
Hi, this thread has turned into that interesting Foundation theory all over again. 18 months ago, I was very nervous about the over supply issue in Adelaide/South Australia. I'm happy to report that I followed my guts that we build not just for migrants (in fact, we don't build for migrants – a lot of them here can't afford to buy their own homes).
More than a year has passed & our rental vacancy has hovered between 0.5 to 1.5% There's no question now that we're not in over supply at least not in metropolitan Adelaide.
However, I respect Foundation's formidable store of knowledge, really eye opening. The graphs provide good solid info but I hope that the crash theory won't eventuate until I'm well out of debt. Still, I will only go on 50-60% gearing myself.
I wait with real anticipation on the bet with Michael Yardney.
Good day all,
Kum YinSolon's warning to Croesus: Croesus, a very wealthy man indeed was perturbed that upon visiting and touring his palace, Solon appeared completely unimpressed by his wealth. "Who is the happiest man alive?" he asked Solon, clearly expecting Solon to pronounce him the wealthiest and happiest. "For thyself, O Croesus," replied Solon, " I see that thou art wonderfully rich, and art the lord of many nations; but in respect to that whereon thou questionest me, I have no answer to give until I hear that thou hast closed thy life happily."
And therein lies the rub. I’ll be made many times a fool by my proclamation (no matter how right or wrong) that the recent rate of house price growth is unsustainable. I can accept this. I cannot put a precise date to my estimate that the long-term growth rate of house prices will trend towards the rate of general inflation (best possible case scenario). Between now and then, perhaps many millionaires will be made through nothing more strenuous than the buying and selling of houses. This I can accept.
What I can’t accept is that I should make a short-term dire prediction on which others might act and become ‘fools’ themselves, nor to stay silent while people build 10, 20 and 30 year plans around false beliefs. Certainly, I have estimates and ideas of dates and growth rates, but that is not the point of my contribution here. I just like to see people thinking and planning realistically and taking responsibility for their own decisions, actions and outcomes. But remember when making 10, 20 or 30 year plans, that the outcomes aren’t judged at the 2nd or 3rd year, but the 10th, 20th or 30th. That is the message of Solon’s warning. Incidentally, I stole the warning from a superb book I read earlier this year, Fooled by Randomness: The Hidden Role of Chance in the Markets and Life by Nassim Nicholas Taleb. A ripper of a read. I’m looking forward to picking up his new book The Black Swan soon.
Cheers, F. [cowboy2]
PS – Please look to history. When did we last see such price growth in assets like art and Aussie muscle cars? And what happened next? Be very careful (not scared, just careful).
– – – – –
News roundup for the week:
* ANZ’s Saul Eslake told the Property Council of Australia that “Residential housing prices are likely to do no more than match CPI inflation, on average”, though I didn’t attend the luncheon, so cannot specify the period of which he spoke.
* “Louis Christopher, head of property research at Advisor Edge … predicts long-term property growth going forward of between 6.5 and 8 per cent.”
* “BIS Shrapnel director of building and construction Rob Mellor … forecasts long-term gains for three bedroom houses to be capped at between 5 and 6 per cent, or around 3 percentage points above the inflation rate”
* “Mr Matusik expects capital growth of between 5 and 8 per cent per annum over the next four to five years for houses and units.”foundation wrote:Solon's warning to Croesus: Croesus, a very wealthy man indeed was perturbed that upon visiting and touring his palace, Solon appeared completely unimpressed by his wealth. "Who is the happiest man alive?" he asked Solon, clearly expecting Solon to pronounce him the wealthiest and happiest. "For thyself, O Croesus," replied Solon, " I see that thou art wonderfully rich, and art the lord of many nations; but in respect to that whereon thou questionest me, I have no answer to give until I hear that thou hast closed thy life happily."And therein lies the rub. I’ll be made many times a fool by my proclamation (no matter how right or wrong) that the recent rate of house price growth is unsustainable. I can accept this. I cannot put a precise date to my estimate that the long-term growth rate of house prices will trend towards the rate of general inflation (best possible case scenario). Between now and then, perhaps many millionaires will be made through nothing more strenuous than the buying and selling of houses. This I can accept.
What I can’t accept is that I should make a short-term dire prediction on which others might act and become ‘fools’ themselves, nor to stay silent while people build 10, 20 and 30 year plans around false beliefs. Certainly, I have estimates and ideas of dates and growth rates, but that is not the point of my contribution here. I just like to see people thinking and planning realistically and taking responsibility for their own decisions, actions and outcomes. But remember when making 10, 20 or 30 year plans, that the outcomes aren’t judged at the 2nd or 3rd year, but the 10th, 20th or 30th. That is the message of Solon’s warning. Incidentally, I stole the warning from a superb book I read earlier this year, Fooled by Randomness: The Hidden Role of Chance in the Markets and Life by Nassim Nicholas Taleb. A ripper of a read. I’m looking forward to picking up his new book The Black Swan soon.
Cheers, F. [cowboy2]
PS – Please look to history. When did we last see such price growth in assets like art and Aussie muscle cars? And what happened next? Be very careful (not scared, just careful).
– – – – –
News roundup for the week:
* ANZ’s Saul Eslake told the Property Council of Australia that “Residential housing prices are likely to do no more than match CPI inflation, on average”, though I didn’t attend the luncheon, so cannot specify the period of which he spoke.
* “Louis Christopher, head of property research at Advisor Edge … predicts long-term property growth going forward of between 6.5 and 8 per cent.”
* “BIS Shrapnel director of building and construction Rob Mellor … forecasts long-term gains for three bedroom houses to be capped at between 5 and 6 per cent, or around 3 percentage points above the inflation rate”
* “Mr Matusik expects capital growth of between 5 and 8 per cent per annum over the next four to five years for houses and units.”Yes i believe right or wrong your info on here as made me wiser.Thank you for that. And as for the muscle car boom etc. I am watching it very closely.I plan to jump ship as soon as things dont look good.I hope its a while yet as if it keeps growing at current rate i will own my PPOR outright in 6 months which will set me up to handle a recession in the following years.
Hey BJ. Just a personal comment only……Forget about everything other than getting your loan LVR on your own home down – you certainly don't need an offset account (unless you are considering 'converting it' into an investment property in the future!) but on 90k per year you should be able to rip right into your PPOR loan, while paying only the minimum (preferably interest only for now) which is what at 45yo makes sense. Remember, you can always 'redraw' funds if needed for both deductable and non deducttable expenses…..and even 'restructure or refinance' your loan in future to suit whatever needs you may have – but as has already been alluded, without totally depriving yourself, any spare you get (or make) need sto go off your own mortage el pronto – personal opinion of course. hey, all the best – and congrats on having a nice portfolio.
Hi BJ
A lot of the discussion on this is very interesting. I have been investing in property for years and have done very well. I have done some calculations on your situation based on the kind of modelling I used for my own situation. I am just providing some feedback but of course you need to get formal financial advice before you make a decision on what to do next. I do not like the high debt ratio you currently have of around 80% and the pressure on your living costs. If you stay on this path and your properties do increase in value by 50% over the next 6 years and you can pay off your home loan by an extra 10k per year reducing your net income to live off of 40k per year then it can be done. I actually put all your stuff into a spreadsheet but not able to copy it (copies but does not align) here so if you're interested then let me know if you want me to send it to you.Based on fairly rough calculations on what you have provided your equity might increase by 425k based on a 50% increase in property values over 6 years and your debt ratio might come down from a very high 80% to about 50% (home loan goes down from 82% to 39% simply by paying an extra 10k per year). Your out of pocket costs over the 6 years has been 120k for the investment properties and an extra 60k for the home property (hence equity increase taking these costs into condsideration is 245K). It seems to me to be ok if you are able to live on a very tight budget of around 40k. If not then you might want to consider parting with the property that is least likely to grow in value and put more into paying off your home as your top priority. I do not know where your properties are located but realistically in today's terms can they keep growing at the same rate they have over the past 8 years?. I have very good properties in a capital city area that are now worth 2.5m (debt ratio 20%)and they have doubled in value over about 6 years but there is no way in the world do I think they are going to double in another 6 years so my view is that one should be a bit cautious with their levels of debt particularly on the family home. Also Tax rates are falling so much now that the benefits of negative gearing are not as profound as they once used to be on property investments. Anyway all the best BJ.
CarpeSome interesting discussion here.
If I may I would like to throw my hat into the ring.
A couple of people have said that they don't think house prices will double within the next 7-10 years, as has been the trend over the last 25 years or so. The argument given is that affordability will prevent prices from growing any further.
I agree that affordability is an important issue affecting house prices, but in reality it is only one among many forces driving the market. On the other side, driving prices upwards, we have stable economy, and growing population. Most people want to live near a major city, where land is scarce and prices are already high. Unless this situation changes considerably prices will continue to grow as they have in the past. Prices do seem high now but I'm sure back in the 80' and 90's there were times when, without foresight, they seemed high then too.
F.
I think your theory needs to look at the global macroeconomy. 1929-1933 was a deflationary depression and house prices went down. We are currently in an inflationary situation. Property prices will increase exponentially if we go from inflation, high inflation to hyperinflation e.g. Zimbabwe property prices and stock market. The price of all asset classes are rising globally (check out the price of commodities). Do you recall how much your bus fare, food, medical insurance et. al. was last year and how much it is this year? I worked out that it was higher than the faux CPI index published by the Aus Government. Personally, I believe that the reason house prices in Australia have not crashed yet is because the RBA is priming the M3 monetary and credit pumps. I recall M3 went from 10% in 2005 to 14.5% in 2007. Those with large housing debts may be able to inflate it away but I doubt if your rents will be able to keep up with the inflation. However, after hyperinflation is deflationary depression.
not a quasi- property investor. And I suppose you're right in some respects, the assets that the average smo' is investing blindly without thought or reason, and following the herd, TIC would be a fine example of this…..yes, they are likely to have problems in the future.
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