I would say it is the difference between property Investors and property Traders. Investors have a long term focus and traders try to 'pick the market'.
One thing for sure is that the availability of credit will be a big factor in the performance of the property market in the next 36 – 60 months.
You would have to be crazy to expect rents to increase just because landlords overpaid for properties.
Rents reflect the supply and demand for accommodation and what the average household can afford to pay for it. The significant premium of 8% per annum holding cost vs 3% rental return of the average house reflects SPECULATION that a greater fool is willing to pay even more than you did for a poor investment.
When the USA market dropped in 2006-7 everyone on this forum was saying “its different in the USA, they have non-recourse loans”. Since then we have seen collapses in Ireland, Portugal, Spain, UK, all markets that have full recourse loans. Don’t forget that Japan in 1990 had house prices that were higher than they are 21 years later, due to property speculation, the same as is currently happening in Australia.
NAB’s subsidiary BNZ recently advised that they were aware that NZ house prices were overvalued by 30% in 2008, based on a house price to income ratio of 6 in NZ. You have to wonder what NAB are saying behind closed doors about the even higher ratio in Australia, which must reflect closer to 50% overvaluation.
If you think that house prices in Sydney are realistic, have a look online at what you could purchase in a similar sized US city like Houston. It will really put things into perspective of what a gamble you are taking, loading up with debt on overvalued “investments”.
QLD Buyers Agent wrote:I would say it is the difference between property Investors and property Traders. Investors have a long term focus and traders try to 'pick the market'.One thing for sure is that the availability of credit will be a big factor in the performance of the property market in the next 36 – 60 months.
Yes. Which leads perfectly into the next comment.
mattnz wrote:You would have to be crazy to expect rents to increase just because landlords overpaid for properties.
Rents reflect the supply and demand for accommodation and what the average household can afford to pay for it. The significant premium of 8% per annum holding cost vs 3% rental return of the average house reflects SPECULATION that a greater fool is willing to pay even more than you did for a poor investment.
Connect the dots. Housing specualtion has run rampant everywhere (not just down under) because of easy credit.
Only difference here is that it has gone on longer, created a bigger bubble and thus far had more government support than elsewhere.
I love this part:
Quote:I must confess that I smile when I read about land scarcity in Australia. I am writing this from the 60th floor of an office tower in one of the most crowded places in the world. If Australia were as densely populated as Hong Kong, it could accommodate all of the world’s people seven times over.I have a vested interest in property prices remaining high, but I must admit that I am of the opinion that in the long term, properties are overvalued significantly, particularly the land component cost. There is a huge surplus of land in Australia that is not available to the public, and simultaneously, various zoning laws/strategic planning force developers to reduce density and underutilise what land they have.
Building a property is obviously always going to require materials and labour, but I am personally sickened at seeing naked blocks of land in new outskirt subdivisions released by government of a mere 800m, with dinky little streets, sell on the open market in excess of $200 000, in the name of "affordable housing" no less.
I also think that there is far too much speculation built into the market, with many people over leveraging recklessly.
I dont think that we will see a crash, but a softening out and perhaps mild correction in some areas in the market, certainly.
First of all. 56% blah blah. That would place many properties across Australia at below their replacement cost.
Secondly why must there be a crash from here. I agree that values are way high. But i also believe that a few years of flat growth will sort this out. yes we are pricey compared to many countries. many of these countries are in the toilet so not really a fair comparison.What about when these countries recover. Do we honestly expect there values to stay where they are.
Yes values are high. yes a correction is probable. But a nationwide crash of 40-50% unlikely.
At the end of the day unless you are trying to make a quick buck, what you can afford to pay and finance today should be what you are looking at and not if price "might" got up or down, in the long term they will always go up regardless of short term rises and falls. If you can afford it today, you can still afford to hold it tomorrow, even when it goes down in value, however if it spikes in value permanently can you still afford it? If you will be driven out of the market due to price increases, and they never come back down wouldn't you be kicking yourself for not getting in sooner? However if you get in now and your property price drops by 5-10% for a couple of years, even in 10-20 years I can all but guarantee it will be worth substantially more than what you paid for it (unless the end of the world was upon us).
Don't listen to the doom and gloom, they probably don't want you to buy so they can get in on the good deals that you would of otherwise got before them.
devo76 wrote:First of all. 56% blah blah. That would place many properties across Australia at below their replacement cost.Secondly why must there be a crash from here. I agree that values are way high. But i also believe that a few years of flat growth will sort this out. yes we are pricey compared to many countries. many of these countries are in the toilet so not really a fair comparison.What about when these countries recover. Do we honestly expect there values to stay where they are.
Yes values are high. yes a correction is probable. But a nationwide crash of 40-50% unlikely.
Hey devo,
Don't really disagree with anything you posted here but am interested to know why you now find a correction probable?
If I remember correctly, in 2009/2010 you thought it was unlikely.
Also, not sure that home values now are signifigantly more than they were (nation wide) in 2007. 2008 took some value of most places in most markets, don't forget and the 2009 FHB boost only took them a little above the 2007 peaks (5% or so) and the median has continued to rise since by upgraders endowed with the extra lvr from 2009.
It's kind of a classic double peak – which is bad in stocks.
ummester wrote:devo76 wrote:First of all. 56% blah blah. That would place many properties across Australia at below their replacement cost.Secondly why must there be a crash from here. I agree that values are way high. But i also believe that a few years of flat growth will sort this out. yes we are pricey compared to many countries. many of these countries are in the toilet so not really a fair comparison.What about when these countries recover. Do we honestly expect there values to stay where they are.
Yes values are high. yes a correction is probable. But a nationwide crash of 40-50% unlikely.
Hey devo,
Don't really disagree with anything you posted here but am interested to know why you now find a correction probable?
If I remember correctly, in 2009/2010 you thought it was unlikely.
Also, not sure that home values now are signifigantly more than they were (nation wide) in 2007. 2008 took some value of most places in most markets, don't forget and the 2009 FHB boost only took them a little above the 2007 peaks (5% or so) and the median has continued to rise since by upgraders endowed with the extra lvr from 2009.
It's kind of a classic double peak – which is bad in stocks.
I can’t recall all my posts but I have always felt that a correction would happen but not a crash. My last purchase in 2009 was with the expectation of minimal gains in the short term. Turns out it went up thanks to the double peak you mentioned.
To me a correction of 10% or so is to be expected after a good run.I just don’t buy into the crash . My backyard is still relatively affordable having had minimal growth since 2003( you could say a long slow hiss instead of a pop).and where you invest is where it matters.
Actually I would be quite happy with a slight correction as I am far from my borrowing limit and want more properties for my portfolio.
I know cycles have ups and downs and a knew that the down side may come into play with my 2009 purchase. I have 20 years minimum before I cash in so it was and still is well within my risk profile.
So in a nutshell a correction of 10% or so is calculated and allowed for.
A crash is unlikely but also survivable.
But with cashflow, a buffer and time on my side. I see nothing ahead that is out of the ordinary within the bigger picture.devo76 wrote:To me a correction of 10% or so is to be expected after a good run.I just don't buy into the crash . My backyard is still relatively affordable having had minimal growth since 2003( you could say a long slow hiss instead of a pop).and where you invest is where it matters. Actually I would be quite happy with a slight correction as I am far from my borrowing limit and want more properties for my portfolio. I know cycles have ups and downs and a knew that the down side may come into play with my 2009 purchase. I have 20 years minimum before I cash in so it was and still is well within my risk profile. So in a nutshell a correction of 10% or so is calculated and allowed for. A crash is unlikely but also survivable. But with cashflow, a buffer and time on my side. I see nothing ahead that is out of the ordinary within the bigger picture.So time is on your side – that is good for you.
Either long stagnation or a slow deflatory correction will be better for the country in the short term – though it could produce a stagnant economy in the long term (aka Japan).
A loss of more then 25% in a small space of time (less than 2 years say) will be bad for the country in the short term – though it will allow more growth when the dust settles.
I have no idea how it will play out – just interesting to see that some of the less fanatical bulls (like Steve and yourself) are open to the prospect of reasonable correction now.
And yes, for investors, owners or potential buyers that haven't been too greedy, market conditions will move into their favour over the coming years. If your lvr or equity spending is low, or you have some cash in the bank, you'll be fine.
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