MEDIAN HOUSE PRICES DOWN 2%

I agree with Blogs, and when someone writes this up after the final washup, we will see a convergence of factors never seen before.

Not just the halving of rates and the speculation referred to but the deregulating of the market meant any homelss drunk could get not only 100%+ finance but a cheque for many thousands on top, a whole industry of people , brokers, spruikers, bankers, agents and not to be left out TV, with the Block, Hot Property location location, all created an unreal world, where assessment of investment, rate of return, became meaningless.

Back in 2004/2005 the biggest profession setting up self managed super funds were not accountants, solicitors or financial planners but real estate agents.

I am an  accountant and when people would tell us what they were buying we would ask what is the rent and calc net rate of return, which sometimes was as low as less than 2%. When we would advise them of this we were always comforted by the client's confidence that the capital gain would make that return immaterial. Could not loose, can't fail….

Once on this board someone chided  foundation on his negativism, explaining to him that property had to double because interest rates halved………..wonder what he will tell the people who bought in recent years as rates have ow gone up over 58%.
(9.36 -5.9 = 3.46 = 58.6%).

We have several clients who have haemorrhaged their retirement plans, not looking forward to the next conversation..

The very same article was posted in Somersoft, and the general feeling was…. so what? 11k price drop in median price is rather small.

Yes, I think it is important to retain a degree of scepticism though remember that property prices are driven by a number of factors – including net immigration of 50k+ professionals per year with high salaries, the flow on effect of outer suburb prices allowing residents to upgrade to inner suburbs and push up that price, the fact that we have continuing salary growth in Australia (albeit at risk right now), and that investors will begin to enter the market as rental yields become more attractive. With the lack of confidence in the stock market right now, there are no doubt a stack of investors keen to look for safer investments. Real estate has typically been the safest investment to date, and I see little chance of that changing. 

Our rental vacancy is at a record low (in NSW). There is talk of rents continuing to rise well into 2011. Builders will not commit to building new properties if there is no economic return for them. So if I were to assess the relationship between rents and capital gains crudely – i would suggest that with the current rental crisis – yields will continue to rise until such point as they lure builders to fix the rental crisis by adding more properties. Either way, I see realestate as a relatively safe investment in the current economic environment.

Just to add to that – if you are buying a piece of land and adding capital value to that land through renovation, rebuilding or subdividing, your profits are in a sense buffered by the value YOU are personally adding to the land.

Loz