Best advice : Don’t invest into property : The australian market is CRASHING.

Hi Scamp.
Is it safe can i come out of my bunker and invest yet (sarcasm)  Wheres the kboom???

I think the funniest thing with this little thread is it started in 2008.

Since then the properties in my area have added another 28% to their market value. And people are STILL quoting doom and gloom.

There are two real possibilities for the near future ..

Firstly in 2012 the world will end in a fiery blaze as predicted by the Mayans and this will seriously depreciate the values of my properties. Not only the end of the world .. but a decreased capital value !!!

Or .. the world still remains wholesome and lush .. more people are born .. more properties are made and i have to continue making and re-assessing my portfolio.

I prefer the second scenario somehow. Not only does it mean i get to keep my properties but i'm allergic to hellfire.

People require accommodation, crash or no crash.  End of story. 

Perhaps we should all sell all of our properties (I'm not sure who to – since if there is a crash then there won't be a single person in the country buying property) and kick the tenants out and have them live in the street looking at the said empty properties.  Yes, that's the way forward.  Everyone in the country should live on the street, and all the houses should be empty and without owners hehehe

Surprisingly there are still many areas to invest where property prices are not nine times average wage and certainly not 9 x local wage.  Still we are all likely more prudent after the US and UK experience.  

There will always be ways to $$$ in hard times. In fact most people who make large somes of money will make it in these times before another boom happens.

I believe the properties are over valued at the moment and they may come down in price just a bit more. But i agree with most there are allot of people who make daily excuses.

My wife and i are going into a new venture who knows if it will work or if we will get finance.

But hey i would rather try and there are heaps of options out there.

Cheers

Well, I enjoyed reading that one. And yes, I enjoyed reading both sides of the debate.

In early 2008 we were “enjoying” the rise in Interest Rates that followed newly-elected PM KRudd famously saying “The inflation genie is out of the bottle”, prompting the RBA to start raising interest rates as the rest of the world were madly cutting theirs (think GFC) !!

Also in early 2008, I had the good fortune (?) to have some of my Fixed loans come out of 6.49% to be hit with 9% variable. A 2.5% increase? Nope, it was a 50+% increase. Things did get quite tight for me (and COULD have seen all of Australia become a buyers market quite quickly, except that the rates then got SMASHED later in the year when the RBA realised they had got it wrong).

So I do recall WHY some of the gloomers were saying what they were, with 50% drops in values, etc.

They also used the US as a mirror of what would happen to Australia. But the US uses mainly non-recourse loans – you can take the keys to a house to the bank and walk away from any mortgage. WE can’t do that here. Thus, our market would never be subjected to the wild swings tht their system makes possible (in my humble opinion).

And the comments made about “house costs equal to 9 times wages”? Yes, we do see spikes now and then (it was similar in late 80’s wasn’t it? I recall values doubling almost overnight) but a comment today from Steve included this :-

Of interest, RBA Governor Glenn Stevens recently made this comment about a possible Aussie property bubble:

“You can never be 100 per cent sure. But the price to income ratio has been around four times … for about 10 years, so a very long-running bubble, if it is a bubble. Most do not last that long.“

Steve’s article is now off the front page of the forum, but you can read it all here :-
https://www.propertyinvesting.com/heading-property-crash/

If the long-term cost is around “4 times earnings”, then a sudden doubling in price would quickly become “8 times earnings” – until wages caught up again.

I just wanted to bump that old thread. Times change, and it is always useful to keep a weather eye on developments in real estate, so I appreciate threads like this one. Certainly, along with the raw emotion, there were some very pertinent comments made therein.

Benny

Hi Long John,

You talk as if the threat is over and everything is honky-dory again…

We are seeing a “cycle” as we have seen over decades. And yes, there are peaks and troughs. I believe we will see harder times, and easier times. And we will see decisions made by Govts that help, and others that don’t help.

If, as Glenn Stevens says, we are at “cost equals 4 times earnings” for the most part, where’s the bubble? I don’t know exactly what this figure is today, but it will rise and it will fall from time to time.

Keep in mind, if houses screamed up 100%, it only takes a 50% drop to have them back where they started – so talk of a 50% drop is HUGE – and some here were talking 60% drops!!

While ever people talk at the extremes, their words will be challenged. As someone earlier pointed out in this epic, somewhere in the middle (between “boomers” and “gloomers”) is where the truth lies.

Benny

Hi Long John,

You should be a poly Benny. You’re talking a lot without really saying anything or committing to any position. That usually indicates one doesn’t understand the problem or have an inkling of which way things are going.

Well if you think that, you either didn’t comprehend my words, or you choose to continue to promote your personal bias and take a shot at anyone who puts an opposing view.

Anyway, for the sake of others who might have thought I “wasn’t taking a position”, let me share a very interesting link (showing “house cost vs Income ratios for 2014” – for the whole world !!!!) Let me preface it with this quote from my earlier post:-

If, as Glenn Stevens says, we are at “cost equals 4 times earnings” for the most part, where’s the bubble? I don’t know exactly what this figure is today, but it will rise and it will fall from time to time.

http://www.numbeo.com/property-investment/gmaps_rankings.jsp

Now, I know what that figure is – and Glenn Stevens wasn’t far off…

There is good ol’ Aussie, with ratios of 3 or 4 in most areas, but with capital cities a bit higher (Sydney and Melbourne in the 8’s – gee, it must be a bubble… :p) No, they have had a recent climb in values, so it will take a while to taper and/or allow wages to catch up. I guess they may never quite get down to 4 like less popular cities, as immigration and overseas investors will see to that.

If you want to see real pain, click on some of the Red paddles. Now THEY have a problem. Probably where it takes three generations to pay off a home?

And my position? I’m a “middle of the roader” – I’m not bullish on property at all times. I endeavour to take a balanced view, but to retain the ability be a “swinging voter” as times and circs dictate. Right now, warm on property.

Re the world situation, well hey, I am not in any position to be able to influence anyone except myself, so the best I can do is to do my best. If it all goes to hell in a handbasket, I guess I won’t be alone, and hopefully better prepared than many.

Since LJ put a burr under my saddle, I went looking for information to either back his POV, or mine. I found both types, but for ME, this one makes a whole lot of sense, and probably explains why LJ, Scamp, et al have been posting what they have :-

http://australianpropertyforum.com/blog/entry/3174279/8081

Seems like some “Demographia survey” has been widely quoted as saying Australia is unaffordable. Well boys, read THAT link, then see if you feel the same way. It sure put my mind at ease, ‘cos frankly, I just couldn’t see the doom and gloom that you were belting us with !! That link shines a very bright light on what may have been a massive chunk of mis-information.

Benny

• This reply was modified 10 years, 8 months ago by  Benny.

Beny you’re a good guy who means well but some of the stuff you write is ..well ….rubbish. For example;

 But the US uses mainly non-recourse loans…Thus, our market would never be subjected to the wild swings that their system makes possible (in my humble opinion). 

Well no it’s not. last time I looked;

National Consumer Law Center (NCLC), at least 10 states can be generally classified as non-recourse for residential mortgages:

Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon, Washington

Recent legislation also makes Nevada non-recourse in most cases for residential purchasers for mortgages obtained on or after October 1, 2009

10/11 out of 52 States??

Note that some states like Florida which are full recourse actually got smashed the hardest. The Atlanta FED debates the recourse Vs non recourse research with researchers of a paper about their findings with regard to types of mortgages and how they affected the crises.

Did nonrecourse mortgages cause the mortgage crisis?

The US housing market collapsed because of the way derivatives (MBS) where developed, packaged, sold and other derivatives (CDS) where used to bet against them. While subprime loans are another product that is often named as cause of the crash that’s not correct either. Subprime default rates where in line with trend. The market lost confidence in MBS and the price crashed triggering massive CDS volumes that swamped Lehman’s and AIG.

 The rest is history as they say. The US and Australian markets are as different as chalk and cheese. To make comparisons and try to cross link causal affects is to not understand either market or its fundamental dynamics.

The affordability debate is a red herring. Affordability realistically only affects <13% of wannabe property owners. They’re price takers not price makers and have little to no discernible impact on the market.

The fundamental drivers of Australia’s market is credit availability (bank liquidity), investor sentiment (do they feel there is a viable safe market) and foreign (particularly Chinese) buyers. Mess with any one of those and the market is in trouble.

• This reply was modified 10 years, 8 months ago by  Long John.