All Topics / Help Needed! / Baby boomer RE glut

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  • Profile photo of CHIS

    The big winners have been the baby boomers. They gained significant growth in their real estate values over the last 20 years and have bought many investment properties. As they start to retire over the next 5-10 years and start to sell off their property portfolios to downsize and pay for their round the world cruisies and mounting medical fees like hip replacements and chemotherapy, will a glut of houses come on the market. Is real estate investment for growth dead in the water?

    The last boom and interest rate hike + an expected glut of housing over the next 10 years may mean real estate is not a good investment? Unless of course you can get positive cashflow real estate.

    Where is the next party? Shares?

    Profile photo of ummester

    We all reap what we sow…

    Property can only stagnate or downturn from here.
     
    Rent is increasing so much as it is the only way to create investor profit. Trouble is, the bottom end of the rental market has peaked and tenants are going to start missing payments, putting the investors under stress to sell. Trouble with selling is, the only one's looking to buy can't afford what the investors paid and the market is already flooded.

    See the fine, circular mess this bubble has the country in? Investors are going to have to take a hit of around 25% on thier bottom end residential properties to start sorting this out.

    Profile photo of Scott No Mates

    Well that's the first that I've heard of the rental market slowing down. Vacancy rates are still at all time lows, yields are still increasing (as prices drop) – I just don't know if I would be buying in some sectors at the moment however there is some value to be found in areas which have suffered the 20-30% price drops.

    Profile photo of Scott No Mates

    Well that's the first that I've heard of the rental market slowing down. Vacancy rates are still at all time lows, yields are still increasing (as prices drop) – I just don't know if I would be buying in some sectors at the moment however there is some value to be found in areas which have suffered the 20-30% price drops.

    Profile photo of kathlynvkathlynv
    Participant
    @kathlynv
    Join Date: 2007
    Post Count: 6

    Last night I attended a Property Investment group in Blackburn Melbourne (the one run by Troy and Bec who I think feature in one of Steve's books) where one of the regular presenters illustrated the 3 main cycles of all economies – property / business / cash.

    eg: property grows in value because debt is cheap so we all jump in, it increases in value due to demand, and so interest rates go up … finally an event occurs which causes doubt / collapse (in this instance it was the sub-prime debacle but if you trace back through histroy you will find similiar events) … and then property prices take a hit so people move their money into shares … and in this instance shares took a huge hit … so people move their money into cash (cash in the bank 8.5 %). Then the next BIG thing is interest rates start to drop and pressure eases off and after 5 or so drops people start to say "gee property looks good and so they buy an investment property or a home and it all starts again. Cyclic economics!

    What he was saying made sense (though economics was never my strong point)

    So (in answer to your question) the next party actually is in property but it may not start for another 12 months. Wealth which comes slowly is every bit as good as the fast stuff, in the end. (in fact it is better because it teaches you stuff along the way)

    Want to jump out of the rat race and ignore all party goers?  Then buy into property for  a 7 to 10 yr timeframe and DON'T SELL until after at least one boom!! There is always a boom, eventually : )

    regards kathlyn veronica

    Profile photo of Scott No Mates

    Yes, but there have been simultaneous corrections in equities, property and hybrids coupled with (relatively) low interest rates (historic lows overseas), 20+ year highs for the AUD/USD and other horses in the race as well.

    Which one do we grab as the 'next big thing'?

    Profile photo of ummester

    Scott No Mates – I wasn't suggesting the rental market is slowing down. Quite the opposite. Rentals are overpriced and hard to come by because 1) landlords need to cover interest rate increases 2) alot of people are trying to sell. What this has done to the rental market is squeaze the bottom end out almost entirely. 4 beddys cost only slightly more than 3 beddys to rent which in turn are only slightly more than apartments (near me) now. But bottom end tenants on minimum wage or facing redundancy wont be able to afford the rent increases and this will put pressure on some landlords to sell as they wont have the cashflow to keep all of thier investment properties. The only people to sell to, however, wont be able to afford any thing close to the peak of 2007 speculative value. Entry level homes and apartments will have to take a 25% price drop to sell in the next few years.

    I recon the only big thing at the moment is investing in bank shares or depositing cash but even that will be shaky for the immediate future as all the biggest banks are eyeing all the others of for takovers.

    Do you realize that in 1920 there was a terrorist attack on wall street? Then, in 1925, property went through the roof as everyone was investing in something solid. Everyone knows what happened in 1929 – safe as houses became a furphy. This pattern is strangely familar, is it not?

    Profile photo of CHIS

    If it costs roughly $200K to build a basic 3-4 bedroom home and anything from $150-$200K for a small suburban block, can houses really fall below the cost of building them? I expect 5-10% is certainly possible but can they really halve in price? I suppose if the cost of the land itself decreases this is possible.

    I have been to a few property investment seminars. Everybnody assumes property will always double in value every 7-10 years. This is the whole premise for negative gearing. I'm not convinced this will happen in the next decade. I believe the boomers will flood the market and prices will at best stagnate and at worst suffer significant price drops.

    This is not of course relevant to highly sort after locations like Sydney Harbour forshore etc. Location location location will always hold some value.

    Houses in the burbs may not appreciate much. Rural houses will decrease as these economies decline and the houses age and fall apart.

    It may return to positive cashflow country. Watching, waiting

    Profile photo of harb
    ummester wrote:
    But bottom end tenants on minimum wage or facing redundancy wont be able to afford the rent increases and this will put pressure on some landlords to sell as they wont have the cashflow to keep all of thier investment properties. The only people to sell to, however, wont be able to afford any thing close to the peak of 2007 speculative value. Entry level homes and apartments will have to take a 25% price drop to sell in the next few years.

    25% drop ?That sounds like wishful thinking on your part. I'm sure they'll either find a way to afford rent increases, move somewhere cheaper on the outskirts or buy their own properties. The ones on a very low income are getting government rent assistance anyway so its up to the gov. to make sure they can afford rent or provide some for them. 

    Quote:
    I recon the only big thing at the moment is investing in bank shares or depositing cash but even that will be shaky for the immediate future as all the biggest banks are eyeing all the others of for takovers.

    You are kidding, right ? Until the full exposure to the US market gets revealed and inflation gets under control the only relatively safe place to park money in Australia is quality properties.

    Profile photo of ummester
    harb wrote:
    25% drop ?That sounds like wishful thinking on your part. I'm sure they'll either find a way to afford rent increases, move somewhere cheaper on the outskirts or buy their own properties. The ones on a very low income are getting government rent assistance anyway so its up to the gov. to make sure they can afford rent or provide some for them.

    Or it's up to the govt to make sure asset value decreases enough so that the available low income assistance is sufficient.

    The current fed govt isn't making descisions that give people more money, it is working out how to take it away with truancy clauses and the like. It was the Howard govt that persisted in bailing the overleveraged out, not this one.

    Maximum govt rent assistance runs at about $150 FN and it isn't going up to my knowledge.

    harb wrote:
    You are kidding, right ? Until the full exposure to the US market gets revealed and inflation gets under control the only relatively safe place to park money in Australia is quality properties.

    Large inner city blocks will maintain value, I don't deny that. Nothing else will.

    Profile photo of hbbehrendorff

    I like to call the business cycle farming because thats what it is to a select few, what people need to do is research for themselves why markets rise and fall, booms and busts… Is it just part of life or is it all artifically created by the powers that be ? The professionals will all tell you that it all comes down to Supply and Demand,  but is it really that simple ?

    As this is a site dedicated to Investment and Money in general I'm going to try and explain some simple facts about our monetary system, the facts that are distorted to make you think otherwise

    First of all where does money come from, who owns it and who decides at what charge this money is lent out at ?

    Originally the monopoly started in 1911 when the Australian government passed legislation allowing the central bank to come in and start there plan,  at this point there powers where not as substantial,  though thoughout the 19th century they have subsequently increased, there role has been to facilitate "central banking functions" So what are these functions that they have ?

    The functions that the Federal Reserve bank carry out are the complete control of monetary and banking policy,  They control the intrest rates of Australia and the expansion of the money supply,  Unknowingly to most Australian's,  although the purposeful deceit in it's very name the Federal Reserve Bank of Australia is neither Federal or has any Reserves,  The Federal Reserve is a private entity controled by the Elite Banksters of the world,  further more the Australian Government has no control over this organisation or any policy's they may pursue.

    So where does this Central get its money from and what do they do with it ?

    They don't get it from anywhere,  they magically create wealth out of this air,  If you or I where to create money we would be jailed,  they and they only have the sole right of the issue of Australian money,  you could almost say the Central bank owns all Australian money,  Not the Government. The RBA issues money and then lends it to the Australian Government as a loan to build roads and bridges,  which the Australian people pay for through there Income Tax. Thats right, have you ever wondered how the government gets into debt and where the money comes from ?  The privately owned business who owns all those plastic peices in your wallet you work so hard for.  I challenge one clinically sane person to tell me how a Central bank is in the Interests of the Australian people ?

    Would you play a game of monoply where the Banker gets to make all the rules and prints as much money as he wants ? who would win ? Why are we playing this game every day of our lifes ?

    Now if you want to understand the business cycle and how the market works imagine this theoretical game of monopoly.

    The banker decides interest rates shall be 3%,  debt is easily obtained and people start the mass purchase of property, there wealth vastly increases and they loan again to purchase even more property, the artifically caused cycle manifests and causes more investors and other speculators to enter the property market,  this causes a spiralling effect causing more demand, increased prices and in general an increase of wealth for the common person.

    The banker has observed his plan is working wonderfully, he starts increasing intrest rates slowly,  he is making increased profits,  he offers "Flexible" soultions where more money can be borrowed against "Equity"

    Once everyone is taped into the debt machine the banker raises interest rates more and more untill they are unbearable, People work all week for there paycheck, 30% straight to the government, A certain percentage of this money will go straight back to the RBA. Then you spend the majority of what you have left on loan repayments, you are practically working for the bank, or the Elite Bankers whom own these huge monopoly corporations

    So why would these Banksters put interest rates so high that people can't pay there repayments ?

    All you have to do is look at the housing market in America today,  There is a major depression in the property market,  More houses are sold as bank reposessions then private sales. Remember,  Wealth is not destroyed, only transfered. So basically you could say the cycle works like this,

    1: Middle class work, purchase property, cars ect ect  Slowly increasing there wealth, or the inflation of the bubble
    2: Banksters reap in massive profits as bubble inflates, bubble bursts, mass repossesions, destruction of middle class wealth,  Increase in Elites total wealth.
    3: The business cycle starts again.

    Basically we are all living in a corrupt society and the majority are none the wiser, This post may even be deleted for reasons of special interest,  Naturally I expect to get criticism from the more apparently "Educated" who will try and put bullet holes into my argument,  Or I will just get the whole your a Conspiracy Theory Idiot,   The fact is I probably already know what the main points of rebuttle will be put I simply did not address these points, Not because I can't but because these post could have become a book long,  Its hard to put years of research into one post,  I have simply tried to put the basic facts into a nutshell for the people who may wonder how and why things are how they are.

    Profile photo of ummester

    hbbehrendorff – then what determines the bubble size? The one America currently has is only comparable to 1929. Why has there been no bubble that big in between? If we were controlled by a ruling elite, surely they would suffer the middle class with more frequency?

    I mean, the best way to collect middle class wealth would be to do it as often as possible. Generate massive 1929 style bubbles every 20 odd years. Why doesn't the elite do this, if they are so in control?

    I agree with your basic understanding of how banking cartels are operating but do not believe they had a plan with the longevity you suggest. The banking cartels, like all of us, react to global forces beyond their control in an opurtunistic way.

    For instance;

    http://www.news.com.au/business/story/0,27753,24291697-14334,00.html

    Beyond any control of the main cartels in Europe, Westpac and Commonwealth are no doubt planning to take advantage of this situation (probably mean higher rates for everyone). Our banks, like the European cartels are prepared to eat each other if the opurtunity presents, negating any unifying conspiracy that any one may think exists.

    Profile photo of hbbehrendorff

    Why ? the answer is simple, They do not want to be know, they hide there identity. History has show that when people knew what was going on they where thrown out of power.

    The usa was founded on the principles of keeping the central bank out of power, they came to be and have been throw out of America more then once before, you can research these times yourself. When the Elite Bankers where exposed for what they where doing in the past they said they would cause a huge depression if the people tried to stop them,  They didn't lie, Many depressions have been caused.

    But if huge ecconomic unstability where caused every 10 or 20 years people would start looking for real answers, the 1929 crash that was caused by these bankers is long forgotten, but if it dosent come very often it is just publicly accepted as the "business cycle"

    I suggest people research the great depression, the mainstream view is that everyone suffered equally, but this is totally false, the truth is that the Social Elite's wealth increased enormously, Like I said in the previous post,  wealth is not destroyed, only transferred,  The banks called in all there loans,  they contracted the money supply by over 50% and what happened when the stock market crashed ? The rich bankers bought all those worthless stocks of everybody.. Morgan, Rockerfella, Rothwells….. theses are the familys who own your local bank,  your country's central bank,  the oil companys  and are the same people who stop Alternitave energy sources and technology

    Profile photo of harb
    ummester wrote:
    The current fed govt isn't making descisions that give people more money, it is working out how to take it away with truancy clauses and the like. It was the Howard govt that persisted in bailing the overleveraged out, not this one.

    Maximum govt rent assistance runs at about $150 FN and it isn't going up to my knowledge.

    [

    Krudd copied Howards policies so except for some names nothing else really changed at the last election.
    Rent assistance goes up with the CPI but there is talk of larger increases to make up for above inflation rent increases.

    Profile photo of ummester
    harb wrote:
    Krudd copied Howards policies so except for some names nothing else really changed at the last election. Rent assistance goes up with the CPI but there is talk of larger increases to make up for above inflation rent increases.

    Krudd copied how Howard refused to say sorry to the aboriginals did he? Krudd copied the luxury car tax models? Krudd copied the Iraq policy? I am not offerring opinion on any of these things, just proving a point. Krudd lied a bit to get in. Pretended he was more liberal/conservative than he really is. He has a much more socialist agenda (Howard couldn't even say socialism without crying:)) and the longer he is there the more it will come out.

    Rates are here.

    http://www.centrelink.gov.au/internet/internet.nsf/payments/rent_rates.htm

    A 10% CPI increase on rent assistance of 100 P FN makes it around $110 P FN. Last 6 months rent has increased far greater than the CPI as landlords struggle with interest rates. hardly equitable.

    The only other thing I have heard of in the Labour pipeline is the rental subsidy, where the landlords get some kind of concession for going under market value and I bet to qualify the landlords will have to accept a value set by the government and not by the market.

    Profile photo of hbbehrendorff

    Perhaps one day government will be run the way it should, but i doubt it.

    All they do is cause more and more problems, more regulations, more laws, take money here, spend it somewhere else, our whole sytem of government is retarted

    What would be best for the Australian people ? less regulation, less laws, less probition

    The federal law books should all be burnt and replaced by a few simple rules concerning personal rights and libertys, for that is the only thing government should be protecting

    Apart from that all laws should be decided from a local level,  this promotes freedom and competition between the states as one can move to the state with laws that best represent the indivituals ideals

    The prosperity of a nation comes from the freedom of the people,  prosperity is not a result of government controls,  the more free the people are,  the more prosperous the country becomes

    Just imagine for a minute if federal income tax was abolished along with most of the usless leeching bureaucratic bodys that come with it along with the tax department, The only purpose of the federal government was to act as a rep for our country, uphold a few simple rules written in the constitution and provide only limited administrative and control functions to essential bodys of the Australian national goverment including intelligence, defense and relations.

    Taxes would be collected through local levels of government and the federal government would recieve a minimal percentage of what is collected at a local level

    A system like this would be so much more efficient reducing government leeching jobs and bureaucracies,  while increasing production and prosparity because of the increased freedom and reduced entanglement

    If your local government passes laws the local people dont like or has taxes to high, they get voted out at the next local ellection or they move to another place with better laws.

    A system like this would certainly work but would never happen because everyone is brainwashed that they need millions of central government agency's, laws and politicians to be able to live but this is not true ! People can look after themselves !

    How must wasted money would be saved if we didnt have all these thousands of federal servents,  usless bodies like the tax department, how many billions of dollars would the people still have if we didn't have a war on drugs ? how much would fuel cost ? $1 a litre

    Profile photo of CHIS

    Thankyou comrade Stalin
    I share your frustrations with politicians however, in order for a society to function, someone has to make rules to abide by so we can all get along. There has to be ways of negotiating disagreements as we don't all believe the same things or share the same visions. Someone also has to build roads, public utilities, shopping centers, schools, universities, community centers…….hence the formation of government. If you think left wing politics is successful, compare Eastern Europe to Western Europe (although there has been significant changes since the fall of communism).
    Unfortunately, your comments about central banking are unfounded. Without a lender, everybody would live in mud huts. Yes, banking is a business but a strong central bank has enables most Australians to attain a very high standard of living, sadly of which most of us take for granted. Unless you inherit vast wealth or somebody buys you a house, you need to borrow money to get started in life or live at home for 30 years after school to save for your own. Banks are a necessary evil. Lending people large sums of money carries enormous risk. Would you lend someone you don't know $500, 000? Why would you do it unless there was something in it for you? Banks are businesses. They make profit. Without them where would we be. They are a necessary evil but the relationship is win win. They make money and we get what we want in life. We use each other.
    Capitalism and business comes in for a lot of criticism from left wing romantics that think the world would be a simpler place without laws, rules and money. I direct you to the African continent for evidence of countries with weak monetary policy and the poverty it brings. Entire countries were sent to the brink of collapse by communism. If you think China is the perfect example of how to run society, then you are kidding yourself.
    Neck up. Buy a house and thank your bank for the opportunity.
    It is smarter to work out how the system works and to make this work in your favor. History is littered with the corpses of the rebellious. A system as good as Australia's isn't worth dying for. It isn't perfect but try getting 20 million people to agree on something. You need a government to arbitrate and to build a civilisation

    Profile photo of ummester

    CHIS,

    Stalin was a socialist or communist (i guess it depended if the motherland was at war or not).

    hbbehrendorff claims to be an anarchist but isn't really because if he was he wouldn't be blogging or trying to convince anyone of the NWO, he would rather being trying to crash this site, hack the planet and set whatever he could on fire…

    Back to houses – in a much earlier post you suggested that:

    Quote:
    If it costs roughly $200K to build a basic 3-4 bedroom home and anything from $150-$200K for a small suburban block, can houses really fall below the cost of building them? I expect 5-10% is certainly possible but can they really halve in price? I suppose if the cost of the land itself decreases this is possible.

    There is a bit of over-specualation and markup for salesmen and developers in those prices, which will fall off more and more as things get tighter. Average house costs between 150 & 200K to build – agreed. The going rate for suburban blocks is currently between 150 & 200K – also agreed because of undersupply issues. The land rate, however, will change as state governments release more (as they are currently in the process of doing) and make outer suburban blocks worth more in the vicinity of 100 – 150K. Combined with difficult to get credit and needy sellers, this will eventually bring the bottom end down to a total of 200 – 300k for house and land, 25% under last years peak of 300 – 400K for the same end of the market.

    Quote:
    I have been to a few property investment seminars. Everybnody assumes property will always double in value every 7-10 years. This is the whole premise for negative gearing. I'm not convinced this will happen in the next decade. I believe the boomers will flood the market and prices will at best stagnate and at worst suffer significant price drops.

    When the boomers all start selling up to move into retirement homes or become grey nomads it will really effect the prices in the inner suburbs. I agree that after the bottom of the market reaches the 250K mark, that end will stagnate for around 10 years. During the course of the boomers selling, the middle of the market will lower. A 4-5 bedroom place within 10km of a city centre will not see price drops until the Boomers start selling their PPORs.

    Quote:
    This is not of course relevant to highly sort after locations like Sydney Harbour forshore etc. Location location location will always hold some value.

    True, to a point, though even esteemed locations will have some price drops. They will still be out of reach of the greater population, so does it really matter?

    Quote:
    Houses in the burbs may not appreciate much. Rural houses will decrease as these economies decline and the houses age and fall apart.

    Houses never appriciate – they are like cars, always depreciating. Only land appreciates and that is not always and not consistant over the short term. Last 8 years in Oz, especially the last 4, there has been so much greedy specualtion from all angles that housing prices have been thrown totally out of wack. Everyone had a get rich quick scheme (and some did). Capital gains, renos, negative gearing on low IRs, increasing ones portflio and a herd mentallity that sucked half the country in… in the end too many of us tried to get too rich too quickly and it is unsustainable economically. Call it a crash or a correction but it has started and I can't see there being another boom like the greedy naughties (our version of the roaring twenties:)) for atleast another 15 years – more likely it wont be till 2070 or so:O

    Oh, here is an article on the thread topic

    http://www.abc.net.au/news/stories/2008/08/15/2336027.htm

    Can't really blame the Boomers though, it's not their fault they are going to live too long with lifestyles that cost too much.

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