There has been a lot of discussion recently by many on this forum about the certainty of a property bust. I for one see no certainty.
to add to our continual healthy discussion i would like to show reports out in todays press. Apparantly David Murray (top man at CBA) who has warned of an easing in the housing market has rethought his position (perhaps after reading our posts).
this is how the media reported it
“A former housing boom pessimist, now an apparent convert to the rational foundations of the boom, is Commonwealth Bank managing director David Murray.”
“Our analysis shows that customers want to build property assets and to build franked dividend (streams), and they are prepared to incur debt to build both forms of assets,” he said. “Until people have a view of a major slowdown in the economy, or a major shift in rates – 300 basis points higher than now – I still think that demand for that type of asset will continue. So for the time being, we’re still seeing maintenance of that momentum. We don’t know when this will change pace. But there are signs that any change might be 18 to 24 months off.”
no one knows for sure what will happen in the housing market so we all need purchase carefully, remember some people are still making Big money in this market.
Regards westansushi03Member@sushi03Join Date: 2003Post Count: 33
Just wanna add some thoughts to this. I am a plasterer working in the western suburbs in Vic. In the caroline springs, Deer park and Melton areas they have so many people lining up to buy new blocks of land to build on and sprc homes that they dont have a waiting list any more, what they do is they actually put all the names in a hat and pull out a lucky few. The demand is still there for people looking for homes. The builders we do work for have a huge backlog and they cant build estates quick enuff.
To me that doesnt seem like i bust is imminent.
People still wanna buy houses.
AlexcrashyParticipant@crashyJoin Date: 2003Post Count: 736
We havnt heard a peep from Adelaide, quite possible any boom there may continue.
re David Murray – lol good track record. been wrong for last 2 years, then switches tack at the top, classic contrary indicator. yeah, lets all keep buying based on his expertise.
The top of any market, whether it be shares or property, comes when the most conservative investors change their view. The smart people change first, then the greedy ones, till all that is left are the “doom and gloom” conservatives who are bitter cos they missed the rally. But if these people, these last possible buyers in the market give in and end up buying, who will they sell to? There is nobody else left. This is why sentiment always peaks at the top. So here we have David Murray, a conservative, defecting. This is the top of the market.
secondly, he is saying all this because his profits fell sharply, if CBA investors hear him say it can only get worse from here (housing boom has been major factor in earnings growth in recent years….if the boom is going so well, why are profits down?), his shares, options plus performance bonus will nosedive with the share price. so he is forced to be optimistic.
maybe he is urging people to get out there and buy, so CBA can increase their profits some more.
ALL BOOMS MUST BUST. how much more certainty do you want? The fundamentals no longer support property investment. Investors will chase the highest return, it may be stocks, property, funds, bonds or cash. At a yield of 2.7%, Sydney buyers WILL look for better returns elsewhere. OK lets assume someone is dumb enough to buy sydney property yielding 2.7%. Where are they going to sell? 1.5%? LOL. you can only take greater fool theory so far.
interest rates are on the rise (as I warned 3 weeks ago….and got shot down for lack of proof) and people WILL SELL not because they want to, but because they HAVE to. It will soon not be about wants and expectations, but about SURVIVAL.
When is the best time to buy property? When nobody wants to buy. When is that? When interest rates are peaking. Therefore, when is the WORST time to buy? When interest rates are bottoming! Which is NOW.
Im not saying areas like Brisbane or Adelaide cant grow, I am saying that as a whole, the property market is done. On average, Aussie property prices are at the top right here.
History, psychology, fundamentals and logic support this argument. Choose wisely.nugenMember@nugenJoin Date: 2003Post Count: 58
Heres my thoughts… If the property market peaks and interest rates rise, it will be hard for young people and battlers to stay or get into the market. I can’t see prices dropping much. Therefore the demand for rentals will push up yields. It might then be easier to find +ve geared IPs. If interst rates rise close to or above rental yields that could be scary. Either way I will tread carefully.SooshieMember@sooshieJoin Date: 2002Post Count: 974
This week (I think it was Friday morning) as I was driving in to work, I heard that people were still borrowing to buy as the interest rates were still low, but the rental yeilds have dropped and that investors were feeling the pinch.
There are still ways to make money in a bear market. I’m not predicting here just surmising. I don’t believe we are in a bear market. The future is anyones guess/opinion.
I guess it comes back to the saying ‘Another man’s trash, is another man’s treasure’.
There will always be deals. It might be harder to find but waiting and watching generally won’t hurt you (and in the mean time prepare for Serendipity… Heard that before people??? ) Mike said (as I’m typing this) that that’s not being proactive. Well, just like with music and dancing, it’s all about the timing. Jumping in when there is no safety net, might not help much.
I believe the media manipulates what we hear for their own purpose. The more interest in what the media says, the more money they make. I beleive their vested interest is in shares moreso than property.
Okay, Mike thinks I’m seeing conspiracy theories..LOL what do you think?
Just a thought
“small steps make the journey” (SAS)
“At a yield of 2.7%, Sydney buyers WILL look for better returns elsewhere.”
yeah, it’s called ‘capital gains’ – while negative gearing like mad all the way. The way I’m working this particular market as a Sydney-sider is by renting someone else’s negatively geared nightmare at a calculated 1/3 of the price of an interest-only loan to buy the house we live in – even at today’s relatively low interest rates!!! So I’m buying elsewhere for +ve casflow where the yields are higher and prices are low.
If by this ” Sydney buyers WILL look for better returns elsewhere” you mean regional areas, then they’re not strictly speaking Sydney buyers any more are they???
Also remember that the residential real estate market is 92-94 percent owner-occupier-driven.
Miss Sooshie –
“waiting and watching generally won’t hurt you (and in the mean time prepare for Serendipity”
-not that I’m advocating rushing in unless you’re confident about what you’re doing (Gahd knows it took me a seminar, many tapes and CDs, countless books, and running the numbers past some very tough nay-sayers to feel good about it- whatever happens – which took me quite a few months-) at the same time, it’s like buying a computer. At the time you buy you get something great and then a few months later it’s obsolete already, but you stick with your new computer for a while, or, as long as it takes you to afford to upgrade again, and then you’re back on the spiral in a different spot….
i think property is the same. Anyone that’s ever sold in Sydney in the last ten years has probably wished they hadn’t at some point…
“On average, Aussie property prices are at the top right here.”
wouldn’t that statement be true at most moments in the last 50, 100 years?aussierogueParticipant@aussierogueJoin Date: 2003Post Count: 983
sure the boom will probably continue for a while – why wouldnt it. i noticed however he never said there would not be a bust!
if the market levels out for say 5 years, to me that is the same as a 30 pct bust in yr 1 and then average grwoth fro 4 years.
especially when yr getting level or no real returns when other nvestors mught be getting 10-20 pct. Just like if you had shares now instead of property.
lets see anyway. in truth i have exposure in a few markets (property, equities, gold etc).
cheersSooshieMember@sooshieJoin Date: 2002Post Count: 974
Mini, you’re right about the waiting. Why do you think I don’t have any fingernails? (I know, disgusting habbit )
I posted this a while ago, but since it happened agian, I thought I’d re-mention it. A friend of the family who does property developments in Victoria, saw me and we chatted and he said “Everything I’ve been building has been sold within days of release”. This person has been doing developments for 20 years.
For what it’s worth.
“small steps make the journey” (SAS)maximusMember@maximusJoin Date: 2003Post Count: 189
Lets just hope that David Murray is correct in his assumptions and that the current boom continues a while longer. I also hope the interest rates stay low a while longer.
MartyajwansParticipant@ajwansJoin Date: 2002Post Count: 45
I disagree, a bust sooner would be better.
Cheaper property prices and higher rents.
I guess I’m biased as my rates are fixed
so a rise in interest rates won’t affect
me for quite a while.
I’m with Crashy on this one.
He is putting forward facts, coupled with his opinion. Its a literal truth that Doomsayers speak prior to markets falling otherwise they wouldn’t be doomsayers!
Everything moves in cycles, all the indicators suggest the Aussie property boom is at, or near its peak.
The saying is that when your next door neighbour and taxi driver are giving you stock picks its time to get out of the equity market. I would suggest that when everyone is leaping in to the property market, and conservatives like David Murray are saying the boom is sustainable – it ain’t!
Minimogul your statement that 92-94% of the property market is owner-occupier driven may be true in total, but I read, I think in API, that 30%+ of new borrowings on property is for investment not PPOR.
My view – move forward, but warily, with in-depth research and making sure the numbers still work, and are serviceable, in a tighter environment. Now is not the time for unbridled enthusiasm and a ‘she’ll be right’ attitude.
CheersHousesOnlyParticipant@housesonlyJoin Date: 2003Post Count: 167
Well said brianc. Time to be careful.
As far as David Murray’s comments are concerned-well, talk about vested interests, share options, performance bonuses, share holder sentiment, etc.
On the weekend a group of Australia’s leading business people got together in Hayman Island. Those present included Billionairs, three State premiers, and leaders of Banks and Business.
These are some comments reported in the press
“On a housing bust, National Australia Bank chief executive Frank Cicutto said NAB had done all its modelling and was well prepared, but he did not think there would be a collapse.”
“Saul Eslake, ANZ’s chief economist, said the housing market wasn’t yet a “bubble” because prices weren’t being driven up just by speculative investment but more by the halving in interest rates in recent years and consistently rising net incomes.”
In summing up
“Michael Roux, chairman of the Australian Davos Connection, said the generally optimistic scenarios outlined at the conference were a positive sign.”
i write these posts because i would think twice about getting out of the market, as some are constantly suggesting. People that make money in Property are those that are in for the long haul. Its a different market to stocks. you should not adopt the same approach to properety that you have to shares. Sure prepare now for interest rates rises as they may happen in 2 years who knows. But property generally moves in cycles sure this has been a long one but does it really matter if property slows to say 3% growth over the next five years, because when the next upswing happens prices will double in the next 5 years. If you have cash positive properties and enough of them you will still do well.
>but I read, I think in API, that 30%+ of new borrowings on >property is for investment not PPOR.
this is interesting, I just got the latest API but haven’t read it yet. It certainly might make sense if amongst the 8 percent investors are the odd Bradleys and McKnights. Also makes sense if 30 percent of the population rent. (see below)
and now something random off the net…
“New Options for Affordable Housing?Ê (added 24 April 2003)
The amount of affordable housing in Western Australia is falling. Over the last four years:
* The median house price in Perth has increased from $142,500 to over $200,000. As a result, the income required to affordably purchase a median priced home in Perth increased from $52,168 to $71,299 between 1998 and 2002.Ê
* A shortage of low rent private rental housing stock has developed at the bottom (affordable) end of the market, while supply is more than adequate at the top end. Affordability is therefore likely to get worse for people on low incomes, whereas people on higher incomes are likely to pay less rent in the future.
* Due to falling funding and the policy of targeting, social housing (Homeswest and community housing) is now an option for a significantly smaller proportion of West Australian households. Between 1997 and 2002, social housing in WA fell from around 6.5% to around 4.7% of total housing stock.ÊÊ”
“In June 2003, a Perth family required an income of $80,643 to affordably purchase a median priced home. This compares to $68,388 in June 2002 and $49,357 in June 1998.Ê
* While family incomes have risen, the increase has not kept pace with house price rises. In June 1998 a median income family would need to increase its income by 8.8% in order to affordably purchase a median priced house in Perth. By June 2003 this ‘affordability gap’ was nearly six times greater at 52.3%.Ê
* The group most severely affected by the fall in housing affordability was low to middle income families. In June 2001 there were 49 suburbs where a family earning at the top of the second income quintile (currently around $45,795) could afford to buy a median priced house. By June 2003 the same family could only afford to purchase a median priced house in 24 Perth suburbs.Ê
* A 1% rise in interest rates would put 5 of these 24 suburbs out of the reach of low to middle income families. A combined 1% interest rate rise and 10% house price rise would leave only 8 suburbs affordable to these families.Ê”
I wouldn’t think that Perth would be any different than anywhere in Aus. House affordability going down, gov’t housing going down, tells me, renters and investors going up.
Can’t see any bust for investors in sight….especially if interest rates rise.
More quotes to back this up –
“Q: What if the demand for rental properties decreases?
A: The facts are that 95% of Australians have rented at some time. Approximately 30% of Australians still rent and the percentage is increasing. We live in an ageing population with more and more Dinks (Double income no kids) appearing in society. As property prices outstrip the inflation rate then they also outstrip rises in wages and salaries. The affect is that increased demand is put on the market for rental properties.Ê And the prices of properties go up as they become less affordable. The result is that the winner in the long term is the owner of the property and not the person paying rent.
MiniMogul I read the above with interest and I take the point about the landlord benefiting more than the tenant.
However, given government is reducing its contribution to low-cost housing for low income earners how can such housing be provided?
In order to charge an affordable rent, the prerequisites are that you, as owner, have purchased a property at a low price. If the cost of land and building and established homes rise and you, as the new owner, still want to make a profit you have to charge a higher rental.
If people who would typically rent a property of the type you own cannot afford the rent, it will stand vacant until you drop the rent (take a loss) or resell the property at a loss, allowing the new owner to charge a lower rent because his investment is less.
The only other alternative is for people in a higher economic demographic to drop their sights and rent your property, because they cannot afford to rent a property of their choice. But there is excess capacity at the high priced property end of the market and rentals are under pressure, so this is also unlikely.
In those circumstances, I cannot see how price levels of property can continue to rise at either end of the market? Unless the economy grows to such an extent that everyone benefits and has significantly more income – and I don’t see that right now.
I may be missing something and would appreciate alternative arguments.
Cheers.stargazerParticipant@stargazerJoin Date: 2002Post Count: 344
what should people do with negatively geared property
-take the money now and reinvest in positvely geared
-sit it out and wait for the next boom
alot of people that have bought into property investing have done so at prices that due to rents being what they area the properties are negatively geared.
alot of the mums and dads have bought into the borrow against the equity in the ppor, and have borrowed the lot plus costs etc 110%
got interest only loans
fix for 3-5 years at todays rates eg 5.95% fixed
i feel that a combination of these factors can be setting people up for a fall.
If you think about it some people are paying out of there pocket now after the tax incentives it may not be much but this is in a climate of low interest rates.
lets go forward 3-5 years fix rates reach there time and the interest rates are now 8-9%.
because the loan amounts havent changed and are the same as when they bought the monthly repayments would have a significant effect.
also the depreciation factors which were relied upon have eroded by this time.
Seems like a time bomb to me. i may be wrong
what do you all think
I’m inclined to agree about the negative Gearing senario. Certainly this person would need to reduce their risk by fixing interest rates and looking at their serviceability. if they are already struggling to make it then you may be right and they should sell. However one other factor to consider is rising rental incomes which may help. The great thing about positive properties is if you buy right you can absorb interest rate rises. Everyone seams to be sure rates will rise. I’m not so certain, the US is not out of the woods by a long shot, its a thickled world and anything can happen. Interest rate rises will certainly harm our economy and that of the US.
People who are over exposed ie negative gearing at 110% finance are taking a big risk. It’s all about risk and reward the rewards are not there in that situation.
cheers Leigh for this link
The above link to the BIS Shrapnel report was very interesting. They may be right, but then again???
I am just making the point that caution should be the operative word. If you see a good property investment, do the numbers, if they work buy by all means.
But, like Crashy, I would tend to put surplus cash into equity markets right now. A low fees, indexed fund would be my choice.
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