In Steve's booklaunch slides for his latest book "0-260+ Properties in 7 Years" he predicts that by December 2007 the property prices will be down 10 to 20%. This would then mark a downturn or cooling down in the overheated market.
Its now August and there is no sign that the insanity is anywhere near ending. Prices that are payed at auctions and through usual sales are reaching new records each day as buyers fall over each other and seem willing to pay any price.
Property prices tend to rise and fall in cycles of around 7-8 years all thoughout the world. Currently the US is having such a property correction (downturn) and it is an opportunity for investors to buy at lower prices.
Why do such cycles not occur in Australia? It seems that instead there is a 'ratchet mentality' here where prices can (and do) move only one way … and thats up or at the very worst – sideways.
As far as i'm aware the last time property values dropped in Australia was in the early 80's?Anyway, I guess what i'm trying to get get to the bottom of here is WHY is our market different to that in the US for instance in that there are no down cycles?
Why is the average mortgage now taking up 50-75% of the average wage earner's pay packet?
Is it because Australians are willing to pay much more for a roof over their head?
Is it perhaps because the government is dragging its feet in releasing land for development and thus causing a critical shortage of land thus driving prices up?
Or is it a combination of the the above?I find it particularly confusing since Australia is the same size as the US but has 15 times less people. Sure – a greater proportion of Australia is uninhabitable, but the net result is still that there is much more land available in Australia per capita than there is in the US which should surely mean that land in Australia should be cheaper than in the US. However, the converse is true. In fact, when measured against expendable income, property in Australia is a lot more expensive that in the US – even Europe!
I would like to hear your opinions on this.
Great post Neilvs.
Although my head is getting shinier, it's not quite a crystal ball (yet)
. To be honest, I'm surprised by the sustained growth in property prices and am a loss to explain what's been happening in Melbourne for the past 5 or so months. Incredible.Still, while I was wrong on the price growth, I was right on the interest rates. If people don't manage their debt, then we could see a lot of heat go out of the market if and or when there are more forced sales.
I still recommend staying away from the cheaper end of the market and doing quick deals rather than hanging in for the long-term. There is a lot of uncertainty around at the moment, and this will make investing volatile. I'm sitting on a fair wack of cash and using it to buy good deals that don't require speculation to be profitable.
I'm interested in hearing how others are making money at the moment, and what deals are being left on the table because of the uncertainty.
All the best,
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi neilvs ,
I think it also matters in which state you live,in W.A the resource
boom is still hungry for employees , higher paid people can afford
more.
Instead of banking or investing their hard earned dollars , many
are out spending ; a better home , filled immediately with
everything new .
Therefore demand pushing prices ( and inflation) higher.The resouces industry seems to be an endless pit at the moment .
Which in turn makes things very difficult for someone not on these
higher incomes.Yes I think you are probably right to say a combination of things
causing the current state of affairs.This latest rate rise will slow down the average family house buyer. Another rate rise next review will really slow it down for them.
But the higher end doesn't seem to have the finance restraints. I think it will also depend on the lending policies of the banks. If that gets tighter (as it has over here) then the slow down will increase.
Over here many banks are introducing 30% deposits, traditonal P&I loans only in most cases. Only the financially solid will be buying in months to come.
They are even introducing servicability restrictions over here to "make sure the buyers can afford the loan" (ABC News last night) shock!, horror!
I'm sure this climate will hit Aus sooner than later. Don't we always follow in this crazy country's footsteps?
I have to disagree with Steve about the lower-end of the market. With affordability so bad right now, the demand on cheaper housing must continue, as people still want to buy, but are forced out of the expensive areas due to this lack of affordability.
I think the areas where the housing near cities (within 1 hour commute) is under $200k will be a feeding frenzy. The rate rises will need to be another full point for this end to get stopped. Even at 8%, the cost of finance is still reasonably cheap.
Under $200,000 within 1 hour of a city. I shook my head but its was still there on the screen, goodness me.
There are $1 Billion reasons to stay away from the bottom of the market.
Affordability issues ($1 in $3 for housing) and share market volatility (down 4%+) all in an election year.
Uncertainty.
I do not think that the rate rise of .25 will have any great impact of the market at all. Interest rates mainly hurt the bottom end of the market. Most other people have equity in there homes so while they may lose a lttle equity it will not effect there affordabilty.
An interesting comparision is New Zealand. The prices in many parts are comparable to Australia rates are now at 10.55. There are some signs that the market is slowing a little. Keep in mind that when the market slowed in Australia it keeped going in New Zealand. There is a lot of pent up demand. Do not expect the market to move down anytime soon.Nigel Kibel | Property Know How
http://propertyknowhow.com.au
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Hi Nigel
I'd have to agree with you. NZ has been talking about a downturn for quite some time, with many investors sitting tight waiting for this massive slump. Unfortunately some have missed out on great deals nearly a year since the talk started . Whereas the market seems to have slowed – as far as time taking to sell a home – however the prices are still very much on the high.
I'm moving to sunny Australia in the next few months. From the comments i've seen recently do you think it's better to look for deals to add value and flick rather than buy and hold for now?
Whereas i've owned my own home – i'm a first time 'investor'.
Cheers S
. To be honest, I'm surprised by the sustained growth in property prices and am a loss to explain what's been happening in Melbourne for the past 5 or so months. Incredible.
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