I get the feeling now that the majority of people believe we are at the top of what has been a very good cycle.
My question is what next. Does a bust have to follow a boom or can things just bump along slowly for 5 or so years and then when household debt is down and wages up things will start to inprove again.
Can we have a reccesion if the ecconomy continues as is and the mining resourse boom continues or does the china etc fuelled boom have to stop to bring a reccesion on.I just feel with low unemployment, Mining continuing to bring alot of money into the country and peoples wages and a sound economy how can things turn real bad instead of just slow down.
Would the current condition suggest a softer slow down where prices stall instead of drop dramatically.
Look at my financial situation.
PPOR Worth $345,000 owe $200,000 (south coast nsw)
IP Worth $320,000owe $ 310,000 ( just purchased neg geared)
My plan if things look bad is sell a asset i have worth $100,000 put towards PPOR reducing it to $100,000 Thats fine
But if my IP dropes in value i have negative equity.
I feel i would just ride it out as our income is high($125,000 combined).
If the IP value stalls ,thats fine as i would like to start paying principal of once my PPOR loan is gone.
So in a nut shell
1# Does a bust always follow a boom
2#Must housing value drop and can it just stall
3#Will the mining boom postphone a bust or can you bust even with the china fueled mining boom.
4# Can a change in government really bring a bust or is it just a bad time to win.
I know its impossible to pick but the above thoughts are playing on my mind and i just want to have as much info as i can fact or fiction.1. who says there is a boom?
2. what asset class are you referring to?as I see it, shares have had a boom and will have a bust. Property is starting to boom and a bust is a long way off.
Umm ?. Wow i wasnt expecting that response. I thought everyone agreed that australia has expierianced a housing boom which ended recently.
devo76 – My opinion is Qld/Vic is halfway through a boom and NSW will be next. Just a WA perspective. Do you know of any good properties for sale in NSW – Good location, 10 yrs old or older newly renovated. Linda
I think Adelaide is looking good too.
1# Does a bust always follow a boom
2#Must housing value drop and can it just stall
3#Will the mining boom postphone a bust or can you bust even with the china fueled mining boom.
4# Can a change in government really bring a bust or is it just a bad time to win.It depends what you call a bust.In recent years there have been a few media reports of massive drops in house prices in isolated incidents, but the argument could be raised that there were a lot of idiots with a lot of expendable cash, equity or finance who paid too much for their properties during the boom, who got caught financially, had to sell and took a big loss. This happens all the time.
Personally, I think that generally there is a lull happening – not a bust.
A well purchased property in a good area will never bust. People have to live somewhere, and they want to live in good areas and pay a fair price. Find these areas, pay fair market value or less if possible, and you will be fine.
People only do badly in property when they buy under more speculative circumstances; off the plan, highly geared with high LVR, marginal loan servicability, less desirable areas with inflated rent returns, no due diligence, flippers buying at the wrong point in the cycle, financially illiterate, etc. These people are essentially gambling; not investing.
The mining boom is a little harder to predict, but my feeling is that with the continued requirements of the developing countries such as China, India, Indonesia – 3 of the biggest populations on the planet, there will be long-term demand for our resources (unless they run out) so the prices of real estate in those areas will remain steady or continue to grow. of course, apply above rules to speculative purchases.
Govt has tried to interfere with the normal cycles of property with terrible results; the abolition of neg gearing in the '80's was one such event. This caused a massive sell-off of property and caused a huge shortage of rental properties that saw rents rise extremely high.
The F.H.O.G has only added to the continuing problem of low affordability as new home buyers use their free money to buy property when they normally wouldn't have been able to, or possibly weren't able to buy a more expensive home, so the demand for housing kept on going and affordability has only gotten worse. Of course, this is partly due to the ever-increasing consumer debt trend as well; people are going further into debt and have less funds available to service a home loan.If you are looking for an answer on whether to invest now or wait; the answer is buy now and do a lot of research on the area and property prices, rent returns, expected cap growth etc before you buy. As soon as you are in a financial position to buy then you should.
Whether there is a boom or a lull, there are some areas that do well no matter what the state of the market, and there are always pockets that are booming when the majority of areas aren't.Quote:In recent years there have been a few media reports of massive drops in house prices in isolated incidents, but the argument could be raised that there were a lot of idiots with a lot of expendable cash, equity or finance who paid too much for their properties during the boom, who got caught financially, had to sell and took a big loss. This happens all the time.Turns out at least one of the high profile examples was almost certainly (is that ass-covering enough?) fraud related…
Still, bit of a bugger for anybody who pulled equity out of or bought a nearby house where the appraisal was based around fraudulently inflated comparable(s).
L.A Aussie wrote:1# Does a bust always follow a boom
2#Must housing value drop and can it just stall
3#Will the mining boom postphone a bust or can you bust even with the china fueled mining boom.
4# Can a change in government really bring a bust or is it just a bad time to win.It depends what you call a bust.In recent years there have been a few media reports of massive drops in house prices in isolated incidents, but the argument could be raised that there were a lot of idiots with a lot of expendable cash, equity or finance who paid too much for their properties during the boom, who got caught financially, had to sell and took a big loss. This happens all the time.
Personally, I think that generally there is a lull happening – not a bust.
A well purchased property in a good area will never bust. People have to live somewhere, and they want to live in good areas and pay a fair price. Find these areas, pay fair market value or less if possible, and you will be fine.
People only do badly in property when they buy under more speculative circumstances; off the plan, highly geared with high LVR, marginal loan servicability, less desirable areas with inflated rent returns, no due diligence, flippers buying at the wrong point in the cycle, financially illiterate, etc. These people are essentially gambling; not investing.
The mining boom is a little harder to predict, but my feeling is that with the continued requirements of the developing countries such as China, India, Indonesia – 3 of the biggest populations on the planet, there will be long-term demand for our resources (unless they run out) so the prices of real estate in those areas will remain steady or continue to grow. of course, apply above rules to speculative purchases.
Govt has tried to interfere with the normal cycles of property with terrible results; the abolition of neg gearing in the '80's was one such event. This caused a massive sell-off of property and caused a huge shortage of rental properties that saw rents rise extremely high.
The F.H.O.G has only added to the continuing problem of low affordability as new home buyers use their free money to buy property when they normally wouldn't have been able to, or possibly weren't able to buy a more expensive home, so the demand for housing kept on going and affordability has only gotten worse. Of course, this is partly due to the ever-increasing consumer debt trend as well; people are going further into debt and have less funds available to service a home loan.If you are looking for an answer on whether to invest now or wait; the answer is buy now and do a lot of research on the area and property prices, rent returns, expected cap growth etc before you buy. As soon as you are in a financial position to buy then you should.
Whether there is a boom or a lull, there are some areas that do well no matter what the state of the market, and there are always pockets that are booming when the majority of areas aren't.Ok so does a bust always follow a boom or is that just poor managment from the government and it can be avoided?.
If say a reccesion was going to happen, could it happen while we a riding China, India etc mining boom or would that have to end first?
I guess what your saying with properties is the higher quality,better located ones should hold up but the poorer c grade properties would suffer more.No, a bust does not always follow a boom. Sometimes the market simply stops going up.
To someone who thinks that the market continually keeps going up, then I suppose they would call that a bust.Don't confuse higher quality with higher price either. Many investors think the brand new half a mill apartment off the plan in a swanky CBD postcode is a great investment. Look at Melb apartments 2-3 years ago. I think they are starting to approach their initial sale prices now – or not.
But you're right; better quality, better positioned and well bought on your part will be better than a marginal property that might have a great cashflow and no amenities nearby etc.
The safest (and often best) investments are properties in high rent demand and high buyer demand areas, cheaper than the median price (in the cheaper end of the range in that particular suburb), well located in nice streets and near amenities and so on.
These sorts of properties are the ones that everyone can afford to rent or buy, are in areas where everyone would be happy to live, schools are good/close by, transport is also near, so is employment etc.
These sorts of properties never really suffer in price corrections; they are virtually recession/correction/bust proof.The properties that seem to get affected the most are the ones where people come in at the end of the boom after seeing all the hype, they leverage themselves too high, pay too much for the property, interest rates often go up near the end of a boom as well to slow the frenzy and slow down inflation so these people struggle with repayments.
So what happens then is you have an investor (or home owner) who now has a property that they can't afford to hold, the buyers have disappeared, and they are forced to sell at any price to get out. The market wasn't at fault; they were. Had they bought at the start of the boom, bought at a safe degree of leverage, factoring in a few interest rate rises into the repayments as well, they would have no problem. Add to this the decision to buy and not sell then they are totally safe. The inexperienced flippers, renovators and traders are the ones who also get killed in a cycle downturn. They miscalculate the end of the boom, or pay too much, or go over budget on the renos etc. They are now stuck with a property that has not performed and need to sell to free up funds.
High end price range houses also are affected a lot in corrections. Quite often they are purchased by people trading up to keep up with the Joneses, or the executive who gets a pay rise and wants to upgrade as above, or they are in an expensive house to begin with, which goes up in value a lot during the boom, so they use the increased equity to trade up. They may lose their job suddenly, or leverage themselves very high to get the "postcode" house, and then when the rates go up they are stuck and have to sell. Because the house is at the high end anyway, there are fewer buyers and it may be harder to sell the property, so the price drops more than the norm.
As you can see, many casualties in property cycles are self-induced. As I said; if you are an investor and do thorough research, you don't have to worry about cycles – other than not to buy right at the top of a boom. Most good investors know when this is anyway and put the cheque book in the drawer for a few months or so until things return to normal, or the desperate sellers start to appear. A lot of investors who have been cashing up since the boom ended are dusting off the cheque book about now. It's time to go shopping again.
The few times that the Govt has interfered in the property market there has been problems; like in the '80's when they took away the neg gearing benefits, but this affected the bad investors; and the ones who were in it just for the tax deductions like lots of doctors, lawyers – higher income earners. Running a portfolio of neg geared properties, especially if they are highly leveraged, is asking for trouble.
Many times I hear of people buying very neg geared properties in "blue chip"areas because they expect good growth. That's fine if you can carry the neg cashflow, but you can't rely on just cap growth alone. This is also cyclical and if you buy at the wrong time you may suffer through years of no or low growth (like during a bust), then a spurt of good growth and copping a severe hit to the hip pocket all the while. And quite often life gets in the way for these people and they are forced to sell quickly for some reason, so end up with a loss or, at best, no cap growth and a neg cashflow for all the years that they owned the property. If you buy for both cashflow and growth this is extra insurance against any correction or bust.
Things like the China and India factor will affect properties in mining towns first and hardest probably, but if you research these factors and assess the likelihood of a slowdown affecting your area you can make an educated judgement about whether you should buy in those areas or not, or if you do; make sure you buy the best type of property for that area.
I have properties in mining towns, and if the mining boom stopped tomorrow and the values dropped by 30% overnight (they won't) my properties would still be worth more than I paid for them and they are pos cashflowed. There is no risk for me.So, in a nutshell; It all comes back to you; do lots of research on the market, the neighborhood where you want to buy, buy an in demand property, make sure it is a pos cashflowed or neutral cashflowed one, pay the right price, don't leverage too high and you cannot go wrong – no matter what happens.
Hi Devo.
This question doesn't have a simple answer. Business cycles are pretty much inescapable, but the causes (and therefore the remedies) are debatable. Some economists believe that the boom/bust cycle can be managed through reserve bank intervention and governments running budget surpluses during the boom then deficits during the downturn. They believe that consumers can always be encouraged to spend the nation out of a recession. Our RBA governor Glenn Stevens appears to be one of these people, and the US Federal Reserve's Ben Bernanke certainly is (see his comments about dropping money from helicopters – he's not called 'Helicopter Ben' for nothing)!
Other economists, such as those who follow the Austrian school, believe exactly the opposite. That so long as governments and their proxies interfere with interest rates rather than letting the market set the price of money as would happen where money is fully backed by a limited commodity such as gold, the boom-bust cycle is unavoidable. And given that the cycle is unavoidable under today's fiat based system, the prescription is for recession is to do nothing. To let the excesses of debt and malinvestment be liquidated in the most efficient way, then get on with life.
I don't know. I certainly think that when you give people too much control (ie th RBA) they will eventually undoubtedly screw up. And I think human nature has a tendency to malinvest – the whole greed/fear motivation. I don't know how else I can explain people thinking that capital gains on assets will always exceed holding costs (eg. the "leverage is good, leverage is always good, and more leverage is even better than good" meme). That very expectation is likely to lead to malinvestment of the worst kind – investing large proportions of a nation's wealth in assets that don't produce a material, salable good. Worse would be borrowing from overseas to bid up the price of such assets within our own borders! This would increase our debt to the rest of the world and although making us feel richer give us absolutely no increased capacity to repay the foreign debt! I think you've probably guessed what I'm getting at here…
Wikipedia has a great introduction to business cycle theory here:
http://en.wikipedia.org/wiki/Business_cycle
You can link from there to more detail on the various alternative theories, such as the Austrian theory:
http://en.wikipedia.org/wiki/Austrian_Theory_of_the_Business_CycleCheers, F. [cowboy2]
Ok thanks for the reply,s. The general ldea i am getting is a half decent investment property may suffer a period of low or no capital growth not nessisarily go down. I believe my property falls in this catergory ( 200 mtrs to cbd,high rent demand, unique property)My PPOR should be paid of in the near future then allowing me to get the IP loan down and look for other properties.I guess im just worried that my IP would drop from $300,000 purchase price to $200,000 in a ressesion affectivly wiping out the gain i have in my PPOR. Hopefully this does not happen.
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