In a market downturn how much of a property’s real value is lessened?, if at all.
How long is a piece of string???
TMA
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First Home Buyer WebsiteDuring the last recession, declared in Nov. 1990 by Paul Keating, I was working in a bank and I saw forced sale values of residential property in Melb.(mortgagee auctions by the bank) that received around 20% to 30% of 1989 valuation (the peak of that cycle) figures held on file.
Commercial and industrial properties generally fell around 30% to 50% back then, but that was a severe recession and bank lending rates were around 20% pa. The unemployment rate rose to around 11.5%.
The effects of that recession lingered for many years and it took until 1997 for properties to gradually make the climb up in prices. The rise in prices started getting serious in 2000 when the tech wreck in shares occurred (investment money went into properties) and the govt. changed CGT and bank lending became easier.
Intrinsic Value –
This is what worries me a little.
How can a young couple getting married afford to buy an average house for $350k. Well thats what you need in surburban Melbourne.
Not only do they need to afford the interest payments but they also need to save the deposit. I cannot imagine having a mortgage of $250 to $300k.
That to me is intrinsic value.
Prices will fall slightly or at best remain where they are over the next 3-5 years.
So I still see property prices falling.
How can a young couple getting married afford to buy an average house for $350k. Well thats what you need in surburban Melbourne.…which may go some way to explaining:
Bankruptcies rise by 10 per cent
July 08, 2005
From: AAPWHILE key indicators point to a booming economy, the latest bankruptcy figures show a rise of almost 10 per cent.
The insolvency and trustee service department today released the provisional bankruptcy figures for the June 2005 quarter which revealed there were 5,649 bankruptcies in the quarter, up 9.7 per cent on the same time last year.A young couple can afford a $350k house because their combined income allows them to?
Seems the obvious answer. Prices are only as high as people will pay. If the prices say the most common price paid for a house in suburban Melbourne is $350k then the most common amount people can afford must be $350k.
A young couple on a combined income of $100k could afford that without too much drama and still invest as well. Now if you are talking a “traditional” young couple with only one partner working and on the minimum wage or close to it then obviously they don’t buy suburban Melbourne houses or they don’t exist! I’d say they do exist and buy the smaller outer region new houses that go for closer to $200k or they buy an older smaller place that needs to be “done up” for around the same price.
I keep hearing that houses have become unreachable for the “Aussie Battler” but fail to understand who these “Battlers” are and why they are trying to buy expensive homes in fancy pants suburbs. I don’t go looking in Toorak for a neat 3br house when all I can afford is a 2br cottage in Sunshine.
I think as more unskilled work goes overseas Australia’s workers will take on more skilled jobs and earn a higher wage for greater productivity. Does anyone seriously grow up hoping to be a production line factory worker in a textile mill for 40 years then retire? More likely they will be a factory robot technician or outsource liason officer or such.[biggrin]
The intrinsic value of a home is less than the perceived value of the location and size of the home. I could live an hour out of Melbourne in a small cottage built in the 20’s and have a happy full life and work in the city earning big bucks, but I perceive greater value in an East Melbourne apartment I can’t afford to buy! Such is life.
Oh, and no I don’t really know what my point is either.
[confused2]
Economic downturn affects the perceived value, not the intrinsic value. Intrinsic value remains relativley constant in that it is the value one places on having a home. Perceived value is all the other stuff like prestige, convenience, luxury etc… That’s the stuff people don’t want when they have a shrinking budget.
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