I heard this piece on ABC Newsradio yesterday. Tried to track down the original source from ABN Amro , but couldn’t find it .
While I know BIS are regular profits of Doom , I’d be curious if anyone knows what these guys track record is like .
http://www.abc.net.au/news/newsitems/200506/s1385867.htm
By Edmond Roy for PM
Financial analyst ABN AMRO predicts house prices in Australia will fall in real terms for several years.
In their latest report on house prices, analysts at the investment and banking service provider say the only good thing to come out of the downturn is that interest rates may stay steady for some time to come.
“The fundamentals for house prices suggest that prices are way out of line with where they should be, based on incomes and rent,” said Keiran Davies, one of the authors of the report.
“History shows that when you’ve had the sort of run-up in house prices like we’ve seen in the past few years, you often see a long period where prices, at best, do nothing.
“I think it will take a long time [to catch up], I think housing markets always move more slowly than other asset markets.
“I think it’ll be a very slow, drawn-out process as people gradually wind back their expectations of quick capital gains and as wages slowly catch up to where prices are.
“I think [five to 10 years] is right. If you look at the history of prices though, that sort of period is not unusual.
“Keep in mind, what you often see with the housing market is brief bursts of growth like we’ve had recently and then long periods where prices do nothing.”
The report goes further, saying the decline is likely to be larger than the decline seen during the recession of the early 1990s, and is close to the post-World War II slump.
It says the only good news is that interest rates should stay put for some time.
Different take
But if you listen to other economists, even that good news may be short-lived.
BIS Shrapnel has been analysing the housing market and has a different take on its future.
Angi Zigamonaus is the author of the BIS Shrapnel report on housing prices.
“From our point of view, we’re still expecting prices to hold up over the next 12 months while interest rates remain low in a long-term sense,” he said.
“But throughout the course of the next 12 to 18 months we are expecting interest rates to begin to rise.
“This will be driven by increased business investment which will in turn underpin the next leg of economic growth and will also underpin declining unemployment rates.
“With that, we expect to see stronger wages growth, stronger inflationary pressures which ultimately will lead to higher interest rates and that will have a more negative effect on residential property prices than what we’ve seen already.”
Price drops
Prices in Sydney and Melbourne fell 3.4 and 1.7 per cent respectively over the year to March, with some analysts predicting a further fall of up to 20 per cent in these markets.
Still, other capitals such as Perth and Adelaide bucked the national trend, with both cities showing growth over 8 per cent during the year.
Despite the ABN Amro report, Ian Wells, president of the Real Estate Institute of Australia, is optimistic.
“I would have to say that there are varying reports, via columnists across Australia at any point in time, that make predictions,” he said.
“Some are right and some are wrong. You would particularly need to have a glass ball to be 100 per cent accurate.
“However, I think that economy is still looking fairly strong, interest rate movements appear to be stable, employment is still high.
“So consequently, what we’re seeing is probably the normal, cyclical nature of property and other forms of investment, if you like.”
See Change
Do you think there is any consistancy with all these so called experts, or are they just submising other sentiment.
Some say 4 others say 7 and i am getting dizzy, can any of them predict the bottom.
resiwealth
I agree with resiwealth, all these stories and articles on the cycle and what will or want happen is making my head spin.
I just hope what’s going to happen will just bloody happen, so I can continue to watch from the sidelines and stay broke[biggrin]
If you look at previous housing cycles in Australia a boom is followed by an extended period (5 years or longer) of flat or slowly declining prices. This is what happened after the housing booms in the early 80s and late 80s, and there is no reason to think that things will be different this time. Indeed, the “flat to down” period my be longer this time because the boom was longer.
Regardless, we are now in a very different market to the boom of 1997-2003 and anyone expecting double-digit capital growth anytime soon will be sorely disappointed.
Originally posted by dmichie:If you look at previous housing cycles in Australia a boom is followed by an extended period (5 years or longer) of flat or slowly declining prices. This is what happened after the housing booms in the early 80s and late 80s, and there is no reason to think that things will be different this time. Indeed, the “flat to down” period my be longer this time because the boom was longer.
dmichie
We have had a longer boom time this time, but , the flat down period before this boom was longer than normal , so one could argue that the long boom was a result of the long flat period before hand.
As to how long the flat or ( dare I say it ) down period will be I don’t think it really matters unless you’re planning on living off equity ….
I’ll be watching for when the cycle starts and then start buying then ( with the possible exception of a couple of bargain hunter style buys in Sydney ). I’ve done well enough by picking up on the last third of the current cycle , so with more equity and experience , I think I will do ok in the next one .
See Change
Originally posted by SeeChange:
We have had a longer boom time this time, but , the flat down period before this boom was longer than normal , so one could argue that the long boom was a result of the long flat period before hand.Of course it was actually a very short period in terms of inflation growth…
Between 1977 & 1983 (a period of declining real house prices in Melbourne) consumer price inflation was up 100%.
Between 1990 & 1998 – up 21%.Cheers, F.[cowboy2]
Originally posted by foundation:Originally posted by SeeChange:
We have had a longer boom time this time, but , the flat down period before this boom was longer than normal , so one could argue that the long boom was a result of the long flat period before hand.Of course it was actually a very short period in terms of inflation growth…
Between 1977 & 1983 (a period of declining real house prices in Melbourne) consumer price inflation was up 100%.
Between 1990 & 1998 – up 21%.Cheers, F.[cowboy2]
Good point foundation
See Change
How much did interest rates play in this equation?? i remember in 1997 (please help me) that interest rates went under 10%.
resiwealth
How refreshing to see yet another spiel about Melbourne and Sydney residential markets dressed up as “house prices in Australia”.
Seriously – with such broad sweeping statements – is any single individual investor actually making any money from reading this dross.
All of these economists and analysts and experts, what are these guys qualifications, other than working for a firm who advertises alot ??
Hehe, so called ‘analysts’ can be a great indicator to do the exact opposite of what they are saying. I am personally quite upbeat on WA provided that interest rates stay low.
Has anybody else noticed though that you can pick the top of a cycle by the number of Today Tonight articles talking about a share or property boom?
In my opinion they are the best indicator of all!As soon as they start doing agribusiness I’ll sell my stocks!
EZ-Rent. The freeware tax and cashflow simulator for Australian property investors. Version 2.5 out now!
http://www.ez-rent.comI tend to agree about all these analysts predictions. The old saying always seems to hold true…If these guys know so much about economic trends and what the future holds why are they working as analysts?
I’ll also subscribe to the ‘Today Tonight’ theory. Forget about the fundamentals just find out what the crowds are up to and adjust investment strategy accordingly!
If you plan to capitalise on this “TT Theory”, I’d suggest you wait untill the sheep have reacted rather than beating them to it.
In other words, if TT or similar manage to convince the amateurs that house prices are falling, not only will many more be inclined to sell, but they will also be more receptive to low offers. The whole thing will snowball…
My point is – if you’re playing the contrarian investor game, try to oppose your thoughts to the masses, not the mass media.
Cheers, F.[cowboy2]The following was in The Australian newspaper today. It is interesting how The Age newspaper got caught in a loss of $595K by running a competition: (I am not involved in any way)
“MELBOURNE has suffered its most high-profile apartment project collapse as the inner city’s high-rise market continues to unravel.
The $120 million project, planned by former high-flying businessman Gavin Muir, is likely to leave more than 100 buyers out in the cold.
Among the investors were Battlestar Galactica director Michael Rymer and Aussie rules legend Ron Barassi. Touted as bringing a touch of high-class apartment living to once working-class Port Melbourne, luxury apartments in the Bay Street project were sold for up to $800,000 after going on sale, off the plan, in mid-2003.But that was in better times for the now troubled Melbourne inner-city apartment market, albeit still at the tail end of an apartment construction boom unrivalled anywhere in Australia.
As one agent said yesterday, they would have “sold in a heartbeat” two years earlier. He said a combination of high construction costs and lack of buyers was responsible.
Yesterday, the cleared Bay Street site where Teac Australia – a company controlled by Mr Muir – had its offices, was empty.
After the builder left earlier this week, without striking a hammer, the only activity was a painter erasing telephone numbers of selling agents.
A spokeswoman for Teac Australia Pty Ltd, which is in voluntary administration, said Mr Muir could not be contacted.
Apart from more than 100 buyers who paid 10 per cent deposits, the crisis has hit Melbourne’s The Age and The Sunday Age newspapers, which ran a competition in 2003 in which the winner received a $595,000 apartment within the Fender Katsalidis-designed complex.
The Age has been left few options other than to offer the Nunawading couple who won the prize an apartment of equal value, or $595,000 in cash.
The Muir is set to become Melbourne’s highest-profile apartment collapse. The Halifax Bank of Scotland won’t comment on any pending action, but is expected to take possession and offer the site for sale for up to $15 million. “
One of the best pieces of advice I ever heard was from a very successful american investor. He said it in about mid 1999 and said “I know its time to get out of the stock market when I go to dinner parties and all people talk about is how much money they have made and are making in the markets”.
I think this is very true. I think the end of a boom can sometimes be told when the not so smart people are throwing money at something or when people start saying crazy things like “This time is different” or “You can’t lose money in property, it always goes up”.
In my experience everything goes in cycles.
Reverting to earlier in the topic, rent returns are often quoted as a reason for real estate prices to fall.
This may not be the case in the continuing low interest rate regime we now live in.
Rent returns of 6% net which applied ten years ago were achieved in in a much higher interest rate environment.
Now you can get about 5.5% at call, not 8%. So rents return about 3,5 to 4% net now. Investors have to become used to the lower rates simply because nothing much is available that is significantly higher.
Originally posted by enduser:Rent returns of 6% net which applied ten years ago were achieved in in a much higher interest rate environment.
Now you can get about 5.5% at call, not 8%. So rents return about 3,5 to 4% net now.
Investors have to become used to the lower rates simply because nothing much is available that is significantly higher.
Share are, I beleive, 3% franked with Cap Growth, and no agent tennant headaches so should not property be higher ?????????
Cap growth on shares? I have never seen it. in my experience the volatility of shares (and usually in a downward direction!) makes the dividend a negligible consideration. am i bitter???
http://www.megainvestments.com.auJohn Carroll
Originally posted by AUSPROP:Cap growth on shares? I have never seen it. in my experience the volatility of shares (and usually in a downward direction!) makes the dividend a negligible consideration. am i bitter???
Hmmm… wasn’t there something like 26% capital growth in the all ords in the past 12 months?
really? wow. I suppose if I had invested in the entire all ords I would have done ok. Unfortunately I had the likes of coles, david jones, telstra, amp, fleetwood. prior to that were the real dogs such as annaconda and erg and a string of other losers. I made a little on the ups and downs of bhp. oh well, i have a nice fat capital loss that I can write off against my property gains.
This all comes down to sticking to what you know and more importantly, what you can control and influence. I’ll leave shares to the market makers and experts. If shares is your thing good luck. I will take further passive investments in shares though by equity draws against property appreciation. Just thinking about it, maybe I should reconsider that idea given my track record!! I think you hear all the hype and think you should be exposed to it?
http://www.megainvestments.com.auJohn Carroll
In my opinion they are the best indicator of all!
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