[foundationMember@foundationJoin Date: 2005Post Count: 1,153]

January 23, 2008 - 5:51 am

mrdenn1s wrote:

foundation wrote:

Hey Mr D.

I'm thinking about your comment algebraically. If I can establish a limit for what is possible at a national level, and you can identify a small minority of properties that will exceed this limit of possibility, then the remaining majority of properties must perform below and not at this limit, right?

Bad assumption my argumentative friend.

There are thousands of good investments around Aus. Just like there are good and bad shares to buy.

So would it be the majority of properties in Australia can exceed the theoretical nationwide average growth limits?Your point was that even if there is a nationwide limit on how fast property values can climb over the long term, that some would exceed this limit, no? Surely you'd agree that it would have to be a minority?

Did you read my piece on rational expectations?

Cheers, F. [cowboy2]

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January 22, 2008 - 11:04 pm

Hey Mr D.

I'm thinking about your comment algebraically. If I can establish a limit for what is possible at a national level, and you can identify a small minority of properties that will exceed this limit of possibility, then the remaining majority of properties must perform below and not at this limit, right?

And flowing from this, if property investors are best at identifying these properties, every additional property purchased by an investor will dilute the overall performance of investment property, right?

Cheers, F. [cowboy2]

Oh, because we've got a bit sidetracked from the original post, some people might like to be challenged by the following. I called it my "Layman's perspective on an irrational market":

Quote:

Here's something I wrote. You can take it or leave it.

I recall one particularly rousing (read: fiery) debate I had on an internet forum with a gentleman named ‘sense’. His position was simple: that buying a house was always better financially than renting over the long term.

Each of us produced spreadsheets to support our respective positions. Each was able to show that for a given set of assumptions, our case was sound. The equation boils down to the assumptions and how well they reflect the reality of an unknowable future.

I don’t have those assumptions handy, but I believe they were approximately as follows:

• 8% interest rates
• 4% rental yield growing by 3% pa
• 3% inflation rate
• 4.2% net yield on invested savings.
• 10% house deposit
• 2% annual house ownership costs (rates/insurance/maintenance)

All these can be estimated with some degree of confidence. There remained just one further factor, the important one that swung the outcome either to the renter’s or the buyer’s favour: Capital appreciation.

The tipping point turned out to be (perhaps surprisingly) low. At somewhere between 4% and 5% annual appreciation, buying would surpass renting after some 20 years. At a higher rate of growth, the buyer’s financial position would exceed the renter’s earlier. At a rate slightly below 4%, the renter would be able to buy a house for cash before the buyer had finished repaying his mortgage!

The debate should have been simple to close conclusively at this point. After all, prices have grown at an average (though not continuously) of 8% per year over the last 30 years. So it is not unreasonable to expect them to grow at 5% or faster for the next 30, right?

Somehow, I don’t think it’s so simple. Incidentally, I seem to recall the debate ended at this point with an agreement that the final result depended on the assumption for capital gains. Sense’s view was that 5% growth was not far fetched (even a given?), so buying was the optimum choice. I’m still not so sure.

Efficient Markets Theory

It is a widely known fact that the stock pickers for managed funds are of little value. Over any a ten year period, somewhere around 85% (if memory serves) of actively managed funds will achieve for fund-holders a lower return than the index in which they invest. ‘Index Funds’ exploit this by emulating the gains (and losses) of the index.

How is it that a fund that simply buys a few of every stock available can most of the time outperform most of the funds that follow the expert advice of a team of highly intelligent, highly educated analysts who spend countless hours and days poring over countless numbers of company reports and accounts? Proponents of efficient market theory would unsurprisingly say that it’s because the market is efficient.

Basically, efficient market theory states (in an efficient market) that share prices always reflect all known information about the companies owned by those shares. Stock exchanges do their best to ensure this is true by mandating that listed companies provide all relevant information to all market players.

A stock analyst might determine that a company will return a bumper profit next year. Clearly, its stock are a ‘buy’. But the analyst will not be alone. Others will use the same information to reach the same conclusion and prices will be bid up. Meanwhile, the sellers will realise that their stock is underpriced and refuse to sell at such a low price. Very soon the price will hit a level where all the information has been ‘priced in’. The stock is no longer a bargain. It is fairly priced relative to alternative investments.

There is some debate about efficient markets, but this seems to be more about how efficient they are and how prone they are to behavioural anomalies of market players (see below), rather than the mechanics described above. So what has this to do with the housing market? Plenty.

Imagine a house costs $100k. If this house will be worth $200k in ten years and the holding costs to a buyer will be $50k for ten years it is a bargain. We should all buy it if we can. Yet if it goes to auction or even a competitive private sale where just two people know that: a) Their holding costs will be $50k and b) It will be worth $200k, it will not sell for $100k and will not be a bargain. Its price will be bid up until one player decides he can get a better and less risky return elsewhere. The bidding will likely stop somewhere shy of $150k.

To expect otherwise, you’d have to believe that markets are not very efficient at all. That the only rational person was the buyer. That the seller, the real estate agent and the competing buyer (in reality, numerous competing buyers) were all clueless. That the only person who knew this house would double in price in ten years and was a bargain at $100k was the single buyer!

How likely is this? I mean, ‘everybody’ ‘knows’ that ‘house prices double every 7 to 10 years’, right?

Behavioural Economics

Some economists study something called behavioural economics. Among other technical stuff they notice that people tend to act in herds, buying (something) when others are buying it, selling when others sell. That people are moody, either unduly pessimistic or unduly optimistic. That market participants overestimate their own intuition/ability/understanding/knowledge. That people expect short term trends to be sustained for long periods even when this is highly unlikely or even impossible.

By acting on these behavioural instincts, market participants do themselves great harm. They buy overpriced stocks and sell underpriced ones. They sell great stocks which dip in price and buy crappy ones that are ‘going up’. They repeat past lucky moves that provided great results only to be repeatedly disappointed. They mistake rapid irrational upward moves for a ‘sure thing’ or a ‘trend’ and buy more and more at unsustainably high prices, making small gains on the way up that are far exceeded by losses on the way down as the market recovers its senses.

Of course there’s a problem here. If markets were totally efficient it would be impossible for such a person to do themselves much harm beyond incurring unnecessary trading costs. The shares they bought and sold would rarely be over or under priced. But a market where people behaved in such a way wouldn’t be very efficient! So which is it?

Probably a bit of both. Individual shares, entire markets or even whole economies never operate at their perfectly efficient optimum. They are either too high or too low, too hot or too cold. They fluctuate around the levels proscribed by efficient market theory, veering away from fair value sometimes for a brief period, sometimes for many years, but always return to trend. This is partly because information is imperfect or unevenly distributed and partly because people are irrational.

Back to houses. Supposing somebody did buy that house for $100k ten years back and now it is worth $200k. What does that tell us? Does it mean that house prices double every ten years? Heck no! At $200k that house is either fairly priced, overpriced or underpriced (the balance of probabilities is not with the former).

Suppose it is fairly priced today. That means that a decade ago it was underpriced at $100k and should have sold for almost $150k in a competitive market. In that case it should be implied that house prices rise 33% on a fair value basis over ten years. NOT 100%! If it is overpriced today, it should be expected to gain less than 100% over the coming decade. Could it have been underpriced at $100k and still be underpriced at $200k today?

Well… yes. But you’d have to be mad to bet on it, unless you had good reason. One such reason would be if its rental yield had risen so that holding costs had fallen relative to the expected gain. I’ll ignore this because it most certainly does not apply to the recent housing market!!!

So how can we apply this information to the recent housing market? Let’s look at rational behaviour. Consider the expectation that house prices will double every seven to ten years. This was a commonly held belief in Perth in 2005 (as it still is across much of the country). Fair enough, house prices had doubled over the last ten years and stood at $300k. Over the following year, house prices rose 50% to $450k. And guess what? Many (most?) people still expect house prices to double every seven to ten years! Irrational.

That means people expect house prices to hit $900k whereas a year earlier they were expected to reach just $600k. If the rule is true, and people are rational, they should conclude either that prices were 33% underpriced in 2005 or they are 50% overpriced today.

By and large, they conclude neither. They instead concoct a convenient, self-serving and frankly deluded explanation. House prices move in predictable cycles. Several years of slow growth followed by two or three of explosive growth. Over the long term this averages out to 7% to 10% per year. This provides comfort to those who bought in 2006 only to have prices flatten or fall. I say phooey to this.

For starters, efficient market theory tells us that rational players would take advantage of such an observable cycle. They would buy after several years of sub 7% growth and sell after a couple of years of 10% plus growth. Doing so would far exceed the returns offered by buying and holding. But if people did this, the ‘cycle’ would soon disappear. Prices would rise at a steady rate somewhere between 7% and 10% per year. But they don’t.

What if the fair value of a house does rise by 7% to 10% per year and ‘the cycle’ is simply a reflection of behavioural economics theory? That implies that most people are not rational and there is scope for a rational person to take great advantage of them. How? By buying a house at the cyclical low (+/- a few years), in other words, NOT NOW!

But what evidence do we have of this ‘cycle’? It’s true that in most parts of the county house prices have grown at a compound annual rate between 7% and 10% over the last 37 years. It is also true that they’ve sometimes been above and sometimes below this range. This does not prove the existence of a cycle.

The first half of this period was dominated by high rates of inflation, which spent as much time above ten percent as below. Naturally, house prices grew rapidly in nominal terms but really didn’t go far in real (inflation adjusted) terms or anywhere compared to incomes. The first real peak came after the boom of the late 1980s. This was followed by a lull through most of the 1990s. Prices during this time (by most accounts) remained elevated in real terms relative to the 70s, 60s and beyond. Prices have been growing very rapidly since the late 1990s, though 2004 and 2005 were muted relative to the earlier and more recent boom years.

So where’s this ‘cycle’? We’ve had a peak, a trough, then one more peak. This is hardly evidence of a recurring cycle! Take a piece of paper. Draw three dots in random locations. Okay, you’ve drawn a triangle. What? You haven’t? If you draw lines connecting these dots we’ll have a triangle. Clearly your dots are in a triangular arrangement.

This is silly, right? Not as silly as looking at three dots and seeing a cyclical pattern, projecting it as self-replicating into the unknowable future and borrowing more money than you could ever hope to repay to gamble on this imaginary line’s existence!

Back to the original question of renting or buying. Remember how it only takes 5% annual capital gains for buying to beat renting (all else being equal, predictable, and static)? Surely that’s much more of a sure bet than prices doubling every 7 to 10 years?

Yes it is. In fact, a study by some clever university types in 2004 (Abelson and Chung) found that real house prices had increased just 100% over the 1970 to 2003 period, or an average of 2.1% per annum. So with the RBA mandated to keep inflation below 3%, 5% for houses sounds like a reasonable figure.

There are a couple of problems here though. The study authors noted the recent rise in house prices which was as much as 18% above annual inflation. They suggested that these rises might turn out to be temporary, in which case real returns would be lower. The precise warning was that the 100% figure would “give an exaggerated view of real price increases if, as we expect, there is a real house price downturn post 2003”. In fact, if we wind the bubble back to 1998 house prices had struggled to keep up with inflation for much of the preceding 28 years.

This poses a problem. We know that house prices today are either undervalued, fair value or overvalued. If we assume that inflation plus 2% is fair value growth over the long term (knowing this is a generous assumption) then when inflation is 3%, is the present fair value:

• Whatever price is offered today
• 5% per annum above the 1995 ‘trough’ price?
• 5% per annum above the 1990 ‘peak’ price?

Either of the latter options implies (due to recent growth well in excess of 5%) that prices are currently above fair value and future returns will be well below 5%. Renting would be better. If we take the former, we are saying that house prices have been grossly undervalued (that is, that every seller and almost every buyer has behaved irrationally) for every single year for the last 150 years or more.

Expectations are funny things. Manias* are just weird.

* Psst: You're standing in it.

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January 21, 2008 - 6:17 am

My thoughts? Wager only what you can afford to lose on short term movements. Understand the range of possibilities for the long term. Discard any advice that is based on impossible expectations. Invest on knowledge, not hope.

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January 21, 2008 - 5:45 am

Linar wrote:

At the risk of being a party pooper I'm going to give my thoughts to Phil on the question he originally asked: "Is property investing all it's cracked up to be?" (in case anyone else has forgotten what the topic was)

IN MY OPINION, the answer is Hell yes.

Oh don't get me wrong. I'm in the same boat (sort of). The vast majority of my wealth has come from buying and selling land. I just like to think I'm smart enough to realise the difference between a bubble and a boom and prepare accordingly (and to read charts without effort, and research history extensively). If you're developing, rather than just 'buy and hope', you may well be doing the same. However, collecting houses just because they "double every seven to ten years" is hopelessly optimistic at this point. In my not-so-humble opinion.

Cheers, F. [cowboy2]

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January 21, 2008 - 4:47 am

Jon Chown wrote:

When I began selling in 1980, I was selling brand new spec homes in Capalaba (an outer suburb of Brisbane located in the Redlands some 20k from the City) for $35,000. Now if you compound this out at 10% per annum (thats 15 – 5 for rent = 10) for 28 years you get $458,849 which if you go to Real Estate.com you will see is almost exactly what you have to pay for a reasonable second hand home in the area. New houses are listed in the mid $500's. I feel a little bit better now and have parked the car back in the garage.

Yep, it certainly has been an amazing 40 years. And historically unprecedented:

(Source: Nigel Stapledon Thesis)

And it's the result of debt growth:

Unprecedented, and unsustainable.

You speak of prices in 1980. Refer to the AMP real house price index I posted earlier. Notice that between 1980 and the end of the 1990s, real house prices had not risen much (if at all – depends on source)? Most of the growth during this period was sustained, and sustainable because it represented a change in the value of a dollar, not an increase in real house price. The recent decade is something entirely different. It is not supported by inflation (which has been low) or wages (which have grown slowly), it's only been possible because people have been taking on ever larger mortgages. Surely you see that this cannot go on forever?

Cheers, F.[cowboy2]

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January 21, 2008 - 3:38 am

Cattleya wrote:

4. many other things, but basically refuting a lot of what Foundation foresees.

Really? Which bits? I love that Luci Ellis report, I often refer people to it when they argue that the house price boom is not a credit-financed speculative bubble! So yeah, do show me which bits refute my hypotheses. And while you're there, perhaps a quick 'laymans' rundown of the section on mortgage-tilt. It's one important factor I believe oft overlooked by investors.

Quote:

Interesting theory and statistics. Interesting does not mean anything if the data is unreliable. Would you please tell us your credentials, where you got the data from etc… etc… so we know whether to believe in you.

Sure:

• The real house prices are from AMP, as seen in Olivers Insight here: http://www.arrive.com.au/files/Articles/Olivers_Insights_House_Prices_080605.pdf
• I used CPI data from the RBA to inflate these data to nominal prices.
• I overlaid a 2.35% trend line derived by myself over the first chart.
• I overlaid a 7.35% trend line over the following 3 charts, choosing this figure to pass through points t=1926 and t=2003 and to comply with the theory that nominal house prices "double every seven to ten years".
• The final chart was linked directly from the RBA's website.
• The real depressions of the 1890s and 1930s (and associated real estate busts) are a matter of public record. More information can be found at the RBA, thanks to their 2003 conference: http://www.rba.gov.au/PublicationsAndResearch/Conferences/2003/index.html
• More great reading on the 1890s bust can be found in M. Cannon's excellent book 'The Land Boomers'.

Anything else you want? Oh yes, my job. Top secret.

By the way, contrary to your claims, the RBA have repeatedly expressed concern about the housing market. I'm sure you're right, they're not going to (aka "gonna") try to "make it come down". But they're inevitably going to reach a point in the not-so-distant future that is often referred to as 'pushing on a piece of string'. There is a limit to how much debt we can take on as a nation.

Cheers, F. [cowboy2]

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January 21, 2008 - 12:46 am

Tysonboss1 wrote:

Remember the housing density does not have to double to double the value of the land, alot of areas will go up in value as the become more sort after because alot of people don't want to live in apartments.

I get you, but if we accept the basic premise (and I believe we must) that over the long term the amount of money people pay for housing will be limited by the amount of money they are able to pay for housing, we arrive back at dwelling prices being linked to incomes over the very long term. Sure, some highly desirable areas will be able to breach this tie and grow faster via increased living density. Other areas will become the target of high-income earners and hence prices will be linked to the incomes of these people (which may or may not rise faster than ordinary workers’ income).

But neither of these leads to a conclusion that the median price would rise faster than income.
 

Quote:

A combination of some areas staying low density where high income people are willing to pay the extra to live in such low density and other people/investors just sitting on there low density property holdings without developing will squeeze the other areas into higher density.

But it’s not “some areas” staying low density. The vast majority of city land is taken up by single, detached housing! This isn’t a small minority that can be monopolised by a small number of high income people, it’s ordinary land where ordinary people live! And as I said before, the current rate of city boundary growth is entirely adequate to house the growing population without any increase in overall population density!

Sure, some areas will be/become more desirable, this will cause a rise in price per unit of land. Some areas will see increased living density, also causing/enabling a rise in price per unity of land. But the vast swathes of middle and outer suburbia will only grow over the long term at a rate commensurate with incomes. That is, the rate of inflation plus a bit. That is taking it back to absolute fundamentals. Meanwhile there will be wild swings, deviations, bubbles and busts. We’re currently at or near the peak of the biggest bubble in history, with prices further departed from income metrics than ever before. For this reason alone I expect price ‘growth’ in the future to disappoint (but don’t discount possible short-term madness).

But beyond this, as I said earlier, there lies the debt issue. This is what will ultimately bring down the 10% per year dreams of so many. You have been warned.

Cheers, F. [cowboy2]

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January 21, 2008 - 12:16 am

Oh and ps, refer to my third to last chart. Our population grew between 1930 and 1950 (by 26.5% or a CAGR of 1.2%pa, similar to today). We built insufficient dwellings to house this population growth, so living density (people per dwelling) rose. Yet prices fell by some 60% and took 20 years to regain their former nominal price level.

Coming soon to a town/city near you.

Cheers, F. [cowboy2]

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January 21, 2008 - 12:05 am

Tysonboss1 wrote:

I don't think the price of land is linked to incomes as you would suggest.

Picture the price of land in sydney CBD,… it was affordable housing as 1/4 acre blocks 200 years ago, but valued at $50million a 1/4 acre block is defiantly not affordable there now,…. But if you build a 60storey apartment building then it does become affordable, so comparing the price of land to incomes doesn't give you a true value.

A 1/4 acre block might seem affordable in the 50's but over time as land becomes increasingly expensive it may be subdivided and two dwellings placed on it,…. then years later 4 town houses,… years later three storey apartment block,…. etc.etc.etc.

This is the alexlee (of somersoft) theory of increasing income density, no? Basically, the price of the same amount of land will infinitely rise but the number of dwellings/people living on it will increase? In contrast to your suggestion that price is not therefore linked to income, this is actually placing income (as it should be) at the driving seat of prices. It falls down in one small (but absolutely defeating) regard – the population growth that would be required to support real 'median' dwelling (even if the definition changes) prices doubling every 12 years (8% pa, 3% inflation, remainder population based) would be impossible to achieve and impractical to maintain.

To put it simply, to double Melbourne dwelling prices in real terms without increasing the individual (per person) cost (in real terms), you’d have to double the living density of all areas in Melbourne. That would require growing the population from 3.6 million to 7.2 million persons without adjusting the city boundary. That might actually be achievable, but at the current rate, over 50 years, not 10 to 12. And more problematically, the current rate of urban growth is sufficient to house the current population growth without requiring any increase in living density at all!

The simple fact is that our present house price bubble is the product of increased lender ability and willingness to lend, and increased borrower ability and willingness to borrow. It’s not sustainable on the debt front. It’s not sustainable on the population front. It’s not going to last. The willingness and ability of both borrowers and lenders is cramping up as they always had to, and the results are equally as predictable.

Cheers, F. [cowboy2]

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January 20, 2008 - 11:20 pm

On a lighter note, I still haven't forgotten our little bet of 18 months ago:
https://www.propertyinvesting.com/forums/getting-technical/finance/24327?#comment-130528

Amusingly, the $5,000 of gold I set aside for the wager would sell today for $6,300. I know, small fry compared to leveraged property in Melbourne, but I'm happy to be a turtle.

Meanwhile APM reported Melbourne's median at $435k for Q3 last year (most recent release), which is just 18% growth over 2003 levels, or a CAGR of just 4.2% pa for the last 4 years. At this rate, Melbourne's median will hit $736k in, oh, around 2020.

I suspect the recent rate won't be maintained that long though (see previous post).

Cheers, F. [cowboy2]

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January 20, 2008 - 10:55 pm

MichaelYardney wrote:

Boy in Blue – you are right – the figures are wrong .
A junior journalist misquoted me over the summer holidays almost a year ago.
What is correct is the basic principals of compounding growth and leverage.

And despite all the arguments to the contrary of why it can' happen and how simplistic my argument is, a recent study by Massy University in NZ showed that since 1920 Australian property has returned an average of about 15% per annum – made up of capital growth and rental return.

I'd argue the opposite. Regardless of whether you or the junior journalist mussed up the final estimate by throwing in an additional doubling of the figure, it’s the principal you’re applying here that is wrong.

I’m sure you’re aware of inflation, and how it affects prices, including house prices. The period of highest growth in house prices (if we excluded the current price bubble) coincided with the highest period of inflation. By expecting house prices to continue to indefinitely exponentially rise at the rate set down by a period that included this nominal growth but almost no real (after inflation) growth, you must either expect inflation in the future to return to extraordinarily high levels or house prices to completely detach from incomes to the point that they will be absolutely unaffordable to almost every single person in 30 years!

Rather than using the “since 1920, Australian property has returned an average of about 15% per annum” etcetera line to justify this irrational extrapolation of nominal prices, let’s consider real house price growth since the 1920s. The following chart data comes from AMP. It shows real prices since 1926 (I also have real and nominal prices going back to 1860, but this is a good place to start). I’ve placed over it a trend line of 2.35% per annum. That is, the trend adds inflation plus 2.35% each year.

A few interesting points stand out from this chart. The two previous times that house prices vastly exceeded (60% to 100%) the trend, during the late 1920s to early 1930s and the mid 1970s, were followed by extended periods of negative real growth. In fact, after the peak in the early 1930s, prices did not regain these levels in real terms for 30 years. Prices in the late 1990s were lower in real terms than they had been in the early 1970s. So the 2.35% trend should not even be extrapolated and projected from peak levels. And today, prices are significantly above trend, just as they were in 1930 and 1973.

What does any of this tell us? That a rational expectation based on extrapolation of historical trends, should be much lower than 7% to 10% per annum in nominal terms if inflation remains low.

Here’s what happens if we take your tack and simply ignore the inflation based growth and imply an exponential trend from nominal prices over the same period (ensuring the trend passes through the first point in the series and most recent peak):

Sure, it looks like the “doubling every seven to ten years” holds true over the long term. But let’s look a bit more closely. The scale of the previous chart has hidden enormous deviations from this trend (7.35% pa). Let’s look at the same data in two parts, 1926 to 1965 and 1965 to 2006:

Clearly the first 40 years didn’t achieve the 7.35% pa benchmark. Not by a long shot. This growth has been a relatively recent phenomenon, and includes what I can only describe as the unprecedented price bubble of recent times. This growth has been enabled by an equally unprecedented and absolutely unsustainable trend in debt growth, specifically, mortgage debt that is growing much faster than either individual or national incomes. Here’s a quick chart from the RBA:

Something that is unsustainable, must by definition ultimately stop. In fact, it will reverse, just as it did in the 1890s and the 1930s. And when it does (believe me, this will be much sooner than 30 years in the future), not only will house price growth fall far below the optimistic “doubling every seven to ten years” expectation, they will fall! They will fall in real (inflation adjusted) terms, and unless something extraordinary (such as massive wage inflation) prevents it, they will also fall in nominal terms. Regarding that chart, the periods of extraordinary debt growth during the 1880s and 1920s were both associated with extraordinary periods of fast rising house prices. They were associated with unsustainable economic growth (based on rising indebtedness rather than sustainable growth). They both resulted in economic depressions. The situation and conditions today are set up precisely for a re-run of those post-boom periods. The only question remains "have we learned enough from the past periods to allow us to come through this one unscathed"? Given that our excesses this time have been far greater with no attempt made to prevent them, I suspect not.

More later…

Cheers, F. [cowboy2]

Quote:

What stopped many others was over-analysing and missing the big picture by getting caught up in the detail.

And what stopped some of us was the knowledge that missing a little gain now is preferable to locking in catastrophic losses in the years ahead.

[foundationMember@foundationJoin Date: 2005Post Count: 1,153]

January 10, 2008 - 7:49 am

Hi test7875,

Buy Allan Staines books:
– The Owner Builder & Renovator Manual
– The Australian House Building Manual
– The Roof Building Manual
– Decks and Pergolas Construction Manual

They're very good, with detailed drawings of every little how-to you can think of. Read all about it here:
http://www.skillspublish.com.au/BK13-04.htm
http://www.skillspublish.com.au/BK13-39.htm

You can get them here (cheaper than the RRP):
http://www.timber.net.au/bookshop/

Cheers, F. [cowboy2]

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January 7, 2008 - 1:57 am

L.A Aussie wrote:

simple wrote:

OK, bright part of Aussies have elected the Labor party to rule the country. I hear that they are
Labor is a party that looks after the down-and-outers and favours hand-outs to the masses; looking to keep them happy at the expense of longer term national economic activity and investment. Noble; but not necessarily good for the Country. They take away incentive for people to get off their ar$es and work to keep the economy ticking over.

Liberal is a party that tends to look more to encouraging and supporting business, investment, economic endevours first, the hand-outs for the sheep are second. The motivated get rewarded; the others don't – as it should be.

But it was the Lib's who decided to tax unproductive speculation at less than half the rate of actual productive activity, right?

F. [cowboy2]

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January 5, 2008 - 11:53 pm

My guess would be none. I don't think any "areas" of suburb-size or larger will increase by 76% over the coming 5 years. I reckon there are some areas that will spend time falling by a similar annual dollar value within that timeframe.
Could be wrong though.

Cheers, F. [cowboy2]

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January 3, 2008 - 10:16 pm

Yep, Florida sure seems to be a great place to invest at the moment. I've heard it commonly described as 'ground zero' by my friends in the US…

Cheers, F. [cowboy]

Seriously folks, don't even think about it. Not until you've read up on the Florida/California/USA state of play. Some links from the last few days alone:

Quote:

Robert Shiller, a Yale economist who co-founded the widely cited Case-Shiller index of housing prices, said in an interview with the Times of London that housing prices in California and Florida could fall 35%. "There is a good chance this housing recession will go on for years," the newspaper reported Monday.

According to the Case-Shiller index, prices in 20 U.S. metropolitan areas have already fallen 7% since their peak in 2006. Los Angeles and Orange County prices have dropped 9% from their September 2006 peak, according to the index.

http://www.latimes.com/business/la-fi-homesales1jan01,1,6641073.story?coll=la-mininav-business&ctrack=1&cset=true

Quote:

St. Petersburg, Florida — Brad and Stephannie Sharp love their two bedroom home, but they're trying to sell it, so they can relocate to Minnesota.

"It's been brutal that's the best word I can use, is brutal, not a lot of hits, just a couple," according to Brad.

Their house has been on the market since March, so they recently put an ad on Craig's List and other internet sites. The couple is also willing to give up items like their couch and television in order to sell their home. "You have to have that special nitch, you have to have that one thing that other people don't have."

Realtor Ed Gunning says the housing market isn't as bad as it seems.  Gunning adds, "It's a buyers market and if the sellers are realistic on the prices of their homes, they can sell their home."

Real estate agents like Gunning predict, Tampa and St. Pete will do well in 2008, but outlying areas in Polk and Pasco Counties may have a harder time. "You always want to be a head of the curve if you want to sell a home. In general Tampa, is holding out better than most of the state of Florida," says Gunning.

He goes on to say, homes are about 20-percent lower than they once were. Gunning advises a person not to sell if they don't have to. But it is a great time to buy a home.

Sharp's home is appraised at 170-thousand-dollars.  By dropping his price to $164,900, he hopes to finally sell it.  "Time will tell, I hope so, we both hope so. It's disheartening," says the hopeful homeowner.  But he believes an opportunity to sell will eventually open up.

http://www.tampabays10.com/news/local/article.aspx?storyid=70948

Quote:

November offered no hint of a housing recovery in Palm Beach County. The median price and sales of existing homes fell again, as they have in each month during 2007.

"The story is still the same one we've been dealing with," said Mike Larson, an analyst with Weiss Research in Jupiter. "Southeast Florida is one the toughest housing markets in the country right now."

Analysts say the housing slump will worsen early in 2008 as more adjustable-rate mortgages reset higher, sending homeowners into foreclosure and adding to the glut of properties for sale.

Some experts see improvement beginning later in the year, while others say that might not happen until 2009 or 2010.

Palm Beach County's median price for homes sold in November was $345,700, down 7 percent from $370,400 a year ago, the Florida Association of Realtors said Monday. Sales declined 13 percent, to 459 from 525 last November.

The county's existing condominium market also was hit hard, with the median price of $177,400 falling 19 percent from $219,800 a year ago. Condo sales dropped 17 percent, to 347 from 420.

Many condo owners were short-term investors who bought at peak prices during the past several years. With an oversupply of units for sale, owners now have to slash prices if they have any hope of selling.

http://www.sun-sentinel.com/business/sfl-flzhousingpb0101pnjan01,0,3665711.story

Quote:

Palm Beach County's foreclosure rate skyrocketed to one for every 45 households in 2007, figures from the county clerk's office show.

That's nearly three times the foreclosure rate of 2006, when there was one foreclosure filing for every 128 households in Palm Beach County, according to the county clerk's figures.

"The economy is tough," said mortgage broker Jim Sahnger, vice president of Palm Beach Financial Network in Sewall's Point.

For comparison, the most recent U.S. foreclosure rate is one for every 617 households, according to Irvine, Calif.-based RealtyTrac.

In Palm Beach County, the clerk's office recorded 13,962 foreclosure filings in 2007, compared with 4,831 in 2006, an increase of 189 percent.

The high number of foreclosures is attributable to several factors, analysts say, including the disastrous result of adjustable-rate loan resets, the mortgage market meltdown and tightened credit and falling home prices.

The combination left many Palm Beach County borrowers "upside down," meaning that they owed more than their houses were worth, making it impossible to refinance or to avoid foreclosure by selling.

"House prices were greatly inflated by issuing millions of nontraditional, poorly underwritten loans to borrowers who could not really afford them," said Doug Bibby, president of the National Multi-Housing Council in Washington, D.C.

http://www.palmbeachpost.com/business/content/business/epaper/2008/01/03/a1d_foreclose_0103.html

[foundationMember@foundationJoin Date: 2005Post Count: 1,153]

December 20, 2007 - 11:14 pm

Wow, J.D. You're right. Your new neighbours won't like living next door to you. Nobody in their right mind would – you sound like a right 'Cousin Eddie'… click here if you've forgotten who I'm talking about. But in a civilised society, it would not be they who are unreasonable in objecting to you, your family, your noise, the poo-throwing and rotting carcasses. It would be you who is simply an uncivilised, backward, antisocial type.

Have a think about it.

Other people have a right to purchase property and expect not to have their lives turned to misery. You seem to think that this expectation will bring an unfair burden on your lifestyle. What??? You somehow have a god-given right to be allowed to behave like an animal? And this is supposed to give you grounds to object to developments? Jeebus.

I hope you have a miserable christmas.

F.

[foundationMember@foundationJoin Date: 2005Post Count: 1,153]

December 19, 2007 - 12:50 am

Scott No Mates wrote:

With the shareprice having taken a tumble over the past 48 hours due to concerns about refinancing their short term debt for the US investments, is it worth taking a punt on CPT on the prospect that they are able to refinance in 2 months time by the deadline) and stand to make a killing on the increase in the shareprice?

Did you make that play, Scott No Mates? If you did, then wow, CNP up 44% to $1.16 currently… you'd have made nearly $50k already! All they need now is a bit of good news, and… well, we'll see!

F. [cowboy2]

[foundationMember@foundationJoin Date: 2005Post Count: 1,153]

December 17, 2007 - 11:12 pm

Rents have tracked CPI inflation over the last almost 40 years according to ABS data. At times they rise faster until they are above the CPI trend then they rise slower until they return to trend.

There is a very simple logical reason for this. Rents have to be paid from wages, and wages generally rise with CPI (or a little above during periods of economic prosperity and a little below during slow economic periods). It doesn't make sense to expect, for example, 10% annual rent increases and 5% annual income growth. It might happen for a short time, but ultimately it is unsustainable.

Consider that some 50% of renters are currently paying around 30% of their disposable income in rent (more or less depending on which survey you read). Some of the sillier predictions of 40% increase in rents over 2 or 3 years seem ludicrous in this light. A 40% increase would translate to 30% in real terms and leave 50% of renters paying more than 40% of their net income in rent.

Quote:

For someone who is about to embark on the purchase of their first IP this prospect is a bit daunting given that I will already be hightly negatively geared.

Slow rental growth won't make you more negatively geared (unless you're mad enough to capitalise interest), so why does it trouble you? Are you concerned about the length of time until your investment starts showing a positive return? That's fair enough. A 4% gross yield will take 31 years to increase to 10% if rents grow in line with inflation and inflation remains at 3%pa (above the RBA's comfort zone). 5% will become 10% in 24 years. In contrast, 5% annual rent growth would result in 10% yield (on purchase price) in just 19 and 16 years respectively.

What rate of rental growth would you like to see to make this an attractive investment?

Cheers, F. [cowboy2]

[foundationMember@foundationJoin Date: 2005Post Count: 1,153]

December 16, 2007 - 11:17 pm

"How To Stop Developers?"
Buy the land yourself. You've bought your property, you should get to decide what happens on your property. That's called ownership rights. Somebody else bought the other properties. They should get to decide what (within reason) happens on those other properties. That too, is ownership rights. You shouldn't get to decide what happens on their property (outside of reasonable limits, and residential housing in a residential area isn't unreasonable), otherwise your rights are being unfairly extended while their rights are being unfairly impinged.

I think the whole NIMBY movement is disgraceful. People are pushing the view that they 'own' all the beneficial 'externalities' that surround their properties. Things such as views, quietness, other people's vacant land etc. Yet they don't (and won't) pay for these externalities (despite implicit acknowledgement that they are/have benefited from them), they only bitch and moan when they are threatened. You don't pay, you don't own it.

Cheers, F. [cowboy2]

[foundationMember@foundationJoin Date: 2005Post Count: 1,153]

December 10, 2007 - 11:06 pm

No, not business as usual forever. All my efforts to understand the situation have led me to conclude that oil is in finite supply (at least over the timeframes we're concerned with) and will become scarce and valuable in the future. I don't think we will ever completely run out of oil, it will just become too expensive to use/waste as we currently do. I've also noticed that oil and its value-added offspring are currently very cheap. I expect over time everything that relies on oil or plastics for manufacture, cultivation or transport will become more expensive, but I think there is scope for such products to increase several fold in price before society breaks down into some mad max kind of scenario! This should enable us to produce alternative sources (I know, that's the wrong word) of energy and restructure our societies and economies to cope with a post-cheap-oil future. See how much of an optimist I am!?

As for peak oil, I think it's very likely that we are somewhere near the peak of oil production, perhaps +/- 10 years. That really doesn't overly bother me. I'd be the first person to support petrol prices of $3 or $4 per litre (or above) on environmental grounds, and the scope for technical innovation in alternatives would be huge at that level, given the enourmous profits that innovators could make.

Hey Luke (topic starter), given your extensive reading/research into peak oil, have you gleaned any insight as to how you can profit from it? I'm not asking you to share investment tips or secrets, just trying to prompt you to think about it. Information/knowledge is one of the most valuable investing tools a person can have, particularly if this information is not widely shared. If you can profit from advantageous knowledge, do it. Whether by applying this knowledge to the relative value you place on the location of your investment property or simply to a share investing strategy, make it work for you.

Cheers, F. [cowboy2]