Again, I'm no expert, but I was listening to an interesting piece by Paul Clitheroe on the ABC the other day. He made the comment that (in his opinion) house prices will slow, but on the other hand, they won't. It depends on HOW you look at it.
The example he gave was of a $500,000 house.
Assume that the market goes nowhere for the next 5 years. If that happens, then the house will still be worth $500,000 in 5 years. The question he had for the presenter was this: Has the house lost value?
He then went on to say that most people would say no. They still have a house worth $500K and they've lost no money whatsoever.
But – to an economist, if CPI is running at 4%, the house *should* be worth around $610,000. So, houses have actually lost 20% of their value in the 5 year period. It just depends on how you look at it.
Personally, I think house prices will stagnate or come back and slow for a while. But, capital growth will come back over the long term – if you buy decent properties in good locations.
In Canberra when I first bought my PPOR, I paid $130K. Two years later, it was worth around $105K, maybe $110K if I was LUCKY. For 2 or 3 years after that, I hardly saw any growth. It was about 6 years before the house got back to what it was worth when I originally purchased it. But then we got a sudden growth spurt and 20 years after purchasing it, it's worth around $500K.
Annual compound growth of 7%. If I'd chosen NOT to buy, I could have saved money – but had I waited until the "bottom" two years later, I would not only have risked missing buying at the bottom, I might not have been in a position to buy it.
Anyway, that's just my 2c.
naughtyj wrote:If I'd chosen NOT to buy, I could have saved money – but had I waited until the "bottom" two years later, I would not only have risked missing buying at the bottom, I might not have been in a position to buy it.Anyway, that's just my 2c.
This is why perhaps, some people say that 'time in the market' is as important as 'timing the market'. It'd be great to be right on both counts however.
People can sit around waiting for the crash to happen. But when it does, the vast majority of them will be making water in their pants rather than going out and buying. Public perception always lags behind reality when it comes to investing.
naughtyj wrote:Assume that the market goes nowhere for the next 5 years. If that happens, then the house will still be worth $500,000 in 5 years. The question he had for the presenter was this: Has the house lost value?He then went on to say that most people would say no. They still have a house worth $500K and they've lost no money whatsoever.
I tend to think the main point is that really most investors who buy a $500k property would do so as negatively geared, which can quickly add up to a lot of money with no capital gains to offset in that 5 years.
I consider myself "in the market" at the moment, but I'm in no rush, and looking for something that can be either neutrally geared or close (I expect rents to grow at a fair rate the next few years, even if values don't). The last thing I'd want to do is commit to something pulling $5-10k p/a out of my pocket if its going to sit stagnant for a few years. I can think of better ways to use money.
emptyvessel wrote:Small adjustment in perception for you my learned bear;
My reference to "black hat" was the Edward De Bono type described in "Six Thinking Hats"; http://en.wikipedia.org/wiki/Six_Thinking_Hats#Black_hat_.E2.80.93_Being_CautiousI have a tendency to wear the blue and green hats by nature. When I am "down" I tend to wear the "black-hat" too much.
The economic world is a set of intertwined chaotic systems. All very, very imperfect and largely unpredictable except in terms of long-term trends. Much like the weather. I am very happy in your belief that you understand this game. I do not believe in your belief. The game doesn't seem to care.
Just for a bit of fun I tend to wear the blue, green and yellow hats in my own though process but am often wearing the black and white hats when it comes to main stream ideas.
As to the bull and bear comments – Being in the bear category on this forum, I don’t really care to argue points tooth and nail but I think I am right (if I didn’t I would change my opinion) and just make it know because I don’t want people to loose money.
Also it adds a bit of colour to a somewhat bullish forum.
The market is not crashing. It will be fine. End of story.
emptyvessel wrote:The market is not crashing. It will be fine. End of story.Thats what they were saying in USA, Spain, Portugal, Ireland, UK etc before their markets crashed in the past few years and before that, Japan in 1990s. The common theme between all of these countries is high levels of debt financing the property bubble, just like in Australia.
mattnz wrote:emptyvessel wrote:The market is not crashing. It will be fine. End of story.Thats what they were saying in USA, Spain, Portugal, Ireland, UK etc before their markets crashed in the past few years and before that, Japan in 1990s. The common theme between all of these countries is high levels of debt financing the property bubble, just like in Australia.
I am intrigued. Please compare and contrast these debt levels. I would like to see the quantification of "high debt" levels in this comparison so I can make an objective analysis. I am keen to see if the following feature in your comparison for the Australian market;
1) Proportion of low-doc, no-doc loans with a large proportion of lending to people that were never able to service the debt at any interest rate.
2) Non-recourse loans. How much did these feature in the markets you mention? Particularly the largest, the U.S. How much did they feature in Australia?
3) The "catalyst" for turning a moderate market correction into a full-blown catastrophe: Unregulated sales of extremely complex financial engineering instruments to individuals, corporations, 401k's, and entire sovereign nation funds. All of which were underpinned by the "fundamentals" created by (1) and (2).
4) Which one of these comparison countries was experiencing an economic boom (driven by resources, manufacturing or otherwise) at the time they collapsed?We all desperately want to look at all economies and see commonalities that can be applied as rules and trends for other economies. This is what very intelligent expert economists think about all day everyday. The problem is, with all this knowledge, almost all their predictions are plain wrong. Most didn't see the collapse coming. Those that did, most had been proclaiming it for so long that it tells us more about their negative view of the world than it does about objective. Most didn't see the upswing that came in the stock market after, despite the fact that it has happened after every single collapse. In this case they ignored their own trending of history.
emptyvessel wrote:The market is not crashing. It will be fine. End of story.you need to add "imho"
and if everyone's opinion is the same as yours , …. then you are right, ….if however everyone's opinion is otherwise, then down we will go (not arguing about the gradient of the slope here) , but down it will be, for how long …well that is my opinion
it all lies in perception,
forget loans, earnings, returns, unemployment rates it is all in the expectation ," imho"gmh454 wrote:emptyvessel wrote:The market is not crashing. It will be fine. End of story.you need to add "imho"
and if everyone's opinion is the same as yours , …. then you are right, ….if however everyone's opinion is otherwise, then down we will go (not arguing about the gradient of the slope here) , but down it will be, for how long …well that is my opinion
it all lies in perception,
forget loans, earnings, returns, unemployment rates it is all in the expectation ," imho"Wrong. I don't "need" to do anything. It wasn't an opinion, it was meant as an absolute. Now, we could get all existential, but what would be the point? (Get it?)
That said, I do understand completely what you are saying. And do agree with you.
Tired of the D&G and trying to put an end to it. Just gets tired and boring. More interested in how we can help each other create wealth. Even though sometimes I get swayed by the negativity more than I would normally like.
Nothing good can come from being negative. Nothing.
gmh454 wrote:emptyvessel wrote:The market is not crashing. It will be fine. End of story.it all lies in perception,
Actually, I am not so sure this is true.
Example; My general "sentiment" or "perception" of the market may be negative. However, my technical and fundamental analysis of the market (or a subset of it) gives an "upwards trend" trigger based on rules that I set well before I had formed any perception of the market. The result of the trigger is that I "buy". The trigger doesn't care what my perception of the market is. Isn't this the "utopia" of the ideal investor? Completely unemotional, buys only good businesses using hard facts and rules?
This happens in the vast majority of stockmarket buy/sell decisions everyday. All run by AI, no human perception involved. Of course, you could argue that it is still a type of perception…
Residential property is more subjective, but the likes of RPData and DSR scores are steps in the same direction. Albeit a long way off from the AI extremes of the stockmarket.
'Perception' usually lags behind 'reality' when it comes to reading market cycles. That is, we could perceive the market to be 'rising' when it has already 'peaked' or is in the process of 'correcting'. Or we could perceive that the market is 'crashing' when it has already 'bottomed' or beginning to 'recover'.
In retrospect this would all become crystal clear. But at the time itself things are always a bit more murky. And when large sums of money are involved and the asset being discussed is considered an 'essential', things do get heated indeed.
emptyvessel wrote:Nothing good can come from being negative. Nothing.So housing that is more affordable isn't good?
Sentiment drives buyer confidence in many cases. Negative sentiment will deter buyer confidence, sell less units, lead to price declines and make housing more affordable.
IMO (just to clarify) cheaper houses are better for society as a whole. So negative sentiment around specific things can generate positive outcomes.
ummester wrote:emptyvessel wrote:Nothing good can come from being negative. Nothing.IMO (just to clarify) cheaper houses are better for society as a whole. So negative sentiment around specific things can generate positive outcomes.
Interesting theory. Are you able to elaborate in more detail how you came to this conclusion?
emptyvessel wrote:Interesting theory. Are you able to elaborate in more detail how you came to this conclusion?Simple. If less is spent on housing more can be spent on other things – investment in productive assets, invention, science, arts – whatever.
ummester wrote:So housing that is more affordable isn't good?What exactly is considered 'affordable' in the year 2011?
Consider the following:
1. Distance to CBD (eg. Melbourne or Sydney, NOT a major regional center)
2. Distance to schools, shops such as food, cafes, shopping strip or shopping centers, transport, employment (ie. walking, cycling, driving distance and if so, how many minutes)
3. Distance to parks, beach/ water's edge or other open space
4. Distance from busy main roads, commercial or industrial establishments and train lines (but NOT train station)
5. Size of the house (ie. single/ double storey, detached, townhouse, terrace, unit or apartment, number of bedrooms, bathrooms, living areas both inside and outdoors, study, type and size of kitchen, garage or carport, swimming pool, tennis court)
6. General state of repair of the house (ie. well-maintained, in need of renovation or in need of detonation)
7. Size of the land on which house resides (ie. land size in square meters)
8. Crime rate (ie. in terms of crime statistics as listed on RACV. For example, crime rate of 35 means one in every 35 houses is burgled each year, and crime rate of 75 means one in every 75 houses is burgled each year)
9. Street aspect (ie. tree-lined, quality of neighbours, general state of maintenance of houses)
10. Price range (include an explanation of why this price range is considered 'affordable')Not a 'complete' list by any stretch, but consider the above for a start.
ummester wrote:bardon wrote:I used to think this way but what I have found is that when it comes to property, time in the market is far more rewarding than timing the market. In 25 years time the theoretical 5% that you may think that you have saved ( and it is a theoretical number and doesn't include the rent you are paying whilst you find this market beating bargain) will look like peanuts. The market is very forgiving over time so much so that you could pay well over the odds and still come out ahead. I had to do some old records for tax recently and when I looked at my first purchase, its value and repayments I couldn't believe how small both were . I also remember at that time everybody warned me that I had paid to much and was overcommitted to the extent that I believed them when in fact with the benefit of time these comments and felling were totally inaccurate.Overall I agree with you. But house prices since the mid to late 90s (especially since the early 00s) have been an aberation.
.My parents first home cost them 3150 pounds in Blacktown in 1960 which they sold for $13000 in 1971. They bought a bigger home up the coast for $14500 which they sold for $99,000 in 1990. In 1967 they purchased a block of land on the central coast for $500 and sold it in 1990 for $2000 to a relative. It subsequently sold for $18000 about two years later.
I was in perth in 1987 and the lovely townhouse we rented was up for sale for $35,000 and was sold for double that 2 years later. (hindsight is a cruel thing) We came back to NSW and the cheapest homes were selling for $35,000 withing 2 something like 18 months the price had doubled. We in 1989 we bought a quarter acre block and built a small brick home for $70,500 which we sold ten years later for $145,000. The prices skyrocketed after this.
Oopsy, the block of land was sold in 1970 not 1990.
ummester wrote:emptyvessel wrote:Interesting theory. Are you able to elaborate in more detail how you came to this conclusion?Simple. If less is spent on housing more can be spent on other things – investment in productive assets, invention, science, arts – whatever.
Ok, I am listening. Can you give me a few examples of how the money an investor in property now can access those investments in the other assets you mentioned? I imagine that there would need to be some sort of financial incentive for the investors to choose those particular investments. Like, say, a return for the risk they take with their capital.
Or are you suggesting that the government should be redirecting more tax dollars to those productive assets? The government doesn't have a good track history with any of these things. What are you proposing to change this? More dollars is not the answer, neither is more centralised control of how those dollars are spent.
I am happy to work with you here. But you will need to go beyond a few one liners and some platitudes to convince me. And I am easy to convince. It's the majority out there that chase trends that you really need to get on board.
//The common theme between all of these countries is high levels of debt financing the property bubble, just like in Australia.//
I heard the same – like I mentioned earlier, from a recent Think and Grow Rich seminar – but they didn’t give figures for those who DO own their own homes, or at least those who have nearly paid their debt. I hear we have a greater proportion of home owners in Australia then a lot of the other countries who have gone bust?
I think you will find that in a housing crash, rental returns are much higher just because the house price is so much lower. The nominal rent however doesn't change much. Good point. Furthermore, Matt should write a book with all the predictions in the first post and get it published. It'd be a bestseller when these predictions start to play out. Thanks for sharing…
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