Forums / Property Investing / General Property / Property bust not here yet … worse to come

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  • Profile photo of gmh454gmh454
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    SHales wrote:

    I keep hearing this "rich people are selling…" claim.  Can you tell me what substantiates it as fact?  

    So my question is, how do you know rich people are selling now, what are they selling and what is there to suggest that this is proactive strategy rather than reactive damage control that any of us are capable of?
    S

    When a place at palm beach, a little weekender, bought for 5.5M with 100% finance no sales at a mortgagee auction, for 2.5m, the top end has tanked.

    Profile photo of gmh454gmh454
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    gmh454 wrote:
    jparry1 wrote:
    Predicting the downturn was a no brainer.  Lets see who is game to predict (guess) accurately what is going to happen in the next 12-24 months. 

    I'm surely not going to ………

    Cheers,
    JP.

    well actually it is no more difficult than 2005, a no brainer actually.

    lets see, a kabillion (trilion is too small and …well..a  zillion was what we used in infants, so can't go backwards can we) of liquidity has been lost out of the world markets.

    Right now every bank, government major company is issuing new shares and raising funds, (been going on for a while – this is a game in which no one wants to be last cab in the rank) only problem is there will not be enough to go round. Recently in Germany they had two large raisings that could not be fully met. Now Germany is thought to be best off among the major Euro players, so it is concerning when they find the cupboard bare.

    If there is not enough money to go round, then what will the boys do.

    They have two choices.

    1. raise rates to try to compete aggresively for the few Kabilion circulating,  raising rates will slow the recovery so we are in for a long hard grind (plenty of time to take on new values and find other ways to enjoy life)

    2. print more money – now this usually leads to inflation and other trading partners need to make an adjustment otherwise one country could print enough money to buy up all the assets with it 's trade partners, so the trade partners will sell the currency down
    – if they sell the currency down, you can print more money (see Zimbabwee) or you can raise your rates to counter the sell down.

    one of the buffers to this in the past decade was the huge crossinvestment round the world. As the drop in our currency has shown a huge amount of these funds has been repatriated, in the first few months of the crunch.

    So what am I predicting  – a long slow recovery, with increased rates significantly impacting on the hoped for quick recovery.

    Now I could be wrong, as I don't know all the pieces to the puzzle, including when will China actually pursue economic reform so that the people paid $1 an hour can actually buy the things it produces and sells to the west. If that happened we might get out of this faster, but hey that may mean the new Madarins have to drive Mercs instead of Bentleys so I am betting that will not happen.

    Had a meeting with the one client whose opinion I value, on the economy, and ran my above scenario by him. After a short pause he said there is a counterpoint, " what if every asset class is going down, wouldn't  2% interest be a great deal ???"

    Had not thought of that, ……what a relief, was worried for a while.

    Also echoed today by one of the world bank / IMF bodies about the UK borrowing "too much", placing deflationary pressure on the economy.

    Profile photo of gmh454gmh454
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    1Winner wrote:
    I find some of the comments amusing.
    There is an innuendo that "rich" people are somehow stupid for selling presumably at a loss having bought at premium price.. When that may be so in some cases, this is not exclusive of the (stupid) rich. Thousands upon thousands of (smart?) poor are selling below the cost at a loss. …..And many that sell, rich or poor today are doing so at a profit of sort, to upgrade in a buyers market.
    For the last 3 years I come across thread after thread in this forum that reflect some form of attitude against those who presumably more stupid than us, have made their fortune allgedly by chance, inheritance or dishonesty (see comment about palm beach holiday house and Mosman and bonuses) And I say this comments are amusing because whoever is into investing is in it to make money, the more the merrier. If you hate those who have made the money and are straining the gnat of their actions to highlight their shortcomings, you will never make it rich ever, and mediocrity is your glass ceiling.

    My opinion of course.

    Marc…..are you reading just a little too much into the posts, ….I don't waste my time here for any other reason than to bring joy to this colorless world….

    Rich is defined by anyone who has more money than you…ask Rupert Mucdoch if his is rich, and he will tell you he is well off, "…Bill gates though is rich"""

    my favourite quote is from Johnny Carson at the end of his career, when asked about his $1m per show and he replied "the only thing money gives you is the abilty to not worry about having money "

    Profile photo of danielleedaniellee
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    gmh454 wrote:
    SHales wrote:

    When a place at palm beach, a little weekender, bought for 5.5M with 100% finance no sales at a mortgagee auction, for 2.5m, the top end has tanked.

    Is that the 40% drop that Assoc Prof Steve Keen was predicting about?

    Regards
    Daniel

    Profile photo of WJ HookerWJ Hooker
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    daniellee,
                      I was reading Steve Keens posts, I think he said a 10% drop this year and next, and is taking inflation etc into account, so he is on the conservative side. I would still expect maybe 40%over two years – allowing for inflation and probably only for higher end properties. FHOG is proping up the low end at the moment, but its only temporary not sustainable.

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    Quote:
    Rich is defined by anyone who has more money than you…ask Rupert Mucdoch if his is rich, and he will tell you he is well off, "…Bill gates though is rich"""

    my favourite quote is from Johnny Carson at the end of his career, when asked about his $1m per show and he replied "the only thing money gives you is the abilty to not worry about having money "

    The definitions of rich and money can be a nice side topic however are not my point at all.
    I can attempt a definition of rich by saying that the measure of richness is the lenght of time one can stop working without dropping one's standard of living.

    Definition of money? well there are a few good ones.
    Money is the means by which a creative person finds the way to invoice another.
    I like this one better: Money is a vehicle to express appreciation in creation.

    As for my previous post, the point I make is very simple. The virulence/ anger/ bias/ resentment/ general bad vibes or ridicule expressed by some be it  directly, indirectly or by elevation against "rich people" (regardless of the definition in the person's mind) is, in my view, a handicap to success if success as objective has in any of its parameters, earning good amounts of money.

    In other words, if you think that "money stinks", that "money does not buy happiness", that "you don't measure success by the size of bank accounts or assets", that "there is more to life than money", and also that "rich people are inherently dishonest and poor are inherently virtuous", you are not alone. You are one of the majority.

    Not that there is nothing wrong with that !  (Seinfeld)  

    If, on the other hand you admire Bill Gates or Murdoch or anyone you like that has a few billions under his hat and would like to be like him in all aspects and do not automatically think something is wrong with "those people", then you are in a selected minority and you will probably be like your mentor or hero and are probably on that way already.

    The reason for that can be found in the very nature of the process of  making choices but that may be a topic for another time.

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    daniellee wrote:
    gmh454 wrote:
    SHales wrote:

    When a place at palm beach, a little weekender, bought for 5.5M with 100% finance no sales at a mortgagee auction, for 2.5m, the top end has tanked.

    Is that the 40% drop that Assoc Prof Steve Keen was predicting about?

    Regards
    Daniel

    well if it had sold it would have been 54.5%, but as it did not, who knows……it couldn't get any worse ??????   could it ???

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    1Winner wrote:
    Quote:

    As for my previous post, the point I make is very simple. The virulence/ anger/ bias/ resentment/ general bad vibes or ridicule expressed by some be it  directly, indirectly or by elevation against "rich people" (regardless of the definition in the person's mind) is, in my view, a handicap to success if success as objective has in any of its parameters, earning good amounts of money.

    Marc again I cannot see that in my posts, so I am a little irritated by the inference.

    I see humour, okay black and maybe bad, but hey at least I try…..

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    No need to be irritated, since this is not a criticism. I don't refer to any of the usual values as "good" or "bad", right or wrong, You are wrong I am right kind of thing. I said I was amused, not offended or irritated. Plus this thread has 28 pages. Yours is just one post of many. Plus I read between the lines or like you say "too much" into it.

    My observations are that in general people tend to have conflicting values when it comes to money and riches, and those conflicts surface in the expressions they choose to use and not intentionally.

    Yet think for a moment, imagine a writer who believes all famous writers are idiots, or a musician who hates the guts of all from Mozart to the Beatles.
    Hard to imagine they will succeed.
    Yet when it comes to money it appears that it is OK to think wrong of those who have succeeded, and to lable as greed anything that goes over our own comfort zone.
    I once conducted an experiment and asked an audience to write on a paper how much they think is "OK" for a person to earn, and how much is "wrong". Interestingly people wrote down about twice as what they earned themselvs, with answers that considered "obscene" to earn 10 times their own salary.
    I find this fascinating since it demonstrates that our own set of preconditioned values determines what we are actualy able or rather allow ourselvs to earn.

    Not that there is anything wrong with it!

    Profile photo of ummesterummester
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    1Winner wrote:
    Yet when it comes to money it appears that it is OK to think wrong of those who have succeeded, and to lable as greed anything that goes over our own comfort zone.

    Not that there is anything wrong with it!

    It's OK to think wrong of those that make money in non productive or speculative means. It is wrong to think wrong of those that make money out of useful invention or productivity.

    And there is nothing wrong with that.

    mattnz
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    I was at a property auction this evening in Sydney's lower North Shore. There were 5 properties for sale.

    3-4 bidders on the properties which sold for under $700k, not one bid on the other 3 which would have been over $1 million and were passed in.

    Seems to reflect what I am hearing, bottom end of the market is booming, top end isn't selling.

    Profile photo of hbbehrendorffhbbehrendorff
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    Money is a token for the purchase of future labor… that's it, nothing else…. or you could think of it like a promise for labor to be carried out in the future.

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    ummester wrote:

    It's OK to think wrong of those that make money in non productive or speculative means. It is wrong to think wrong of those that make money out of useful invention or productivity.

    And there is nothing wrong with that.

    Suppose that you took a loan and bought a house then 20 years later you decide to sell it. Is it wrong to sell if for more then you paid for it, eg. cost + interest paid over the 20 years+ rates ? Would you have bought this house if you expected to sell it for less then you paid for it or did you speculate that you could sell it for above what you paid for it ?
    Should we think wrong of you if you did any of the above  ?
    And if I did the same but added a water tank and built a garden shed in the backyard then sold at a huge profit would it be wrong of you to think wrong of me ?

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    harb wrote:
    Suppose that you took a loan and bought a house then 20 years later you decide to sell it. Is it wrong to sell if for more then you paid for it, eg. cost + interest paid over the 20 years+ rates ?

     

    No. Zero sum, balance is maintained.

    harb wrote:
    Would you have bought this house if you expected to sell it for less then you paid for it or did you speculate that you could sell it for above what you paid for it ?
    Should we think wrong of you if you did any of the above  ?
    And if I did the same but added a water tank and built a garden shed in the backyard then sold at a huge profit would it be wrong of you to think wrong of me ?

    Yes. Imbalance is created and correction is required.

    I guess individuals allow themselves to be individaully selfish when they are not looking at the bigger picture, doesn't mean that in the interests of keeping overall level of balance it is not wrong.

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    ummester wrote:
    harb wrote:
    Suppose that you took a loan and bought a house then 20 years later you decide to sell it. Is it wrong to sell if for more then you paid for it, eg. cost + interest paid over the 20 years+ rates ?

     

    No. Zero sum, balance is maintained.

    Quote:
    Why not, you have not produced anything and speculated that the price would go up and/or that repayments will one day be lower then renting. Otherwise you would have just rented the place.
    Besides, if you add the costs, rates and interest over some decades wouldn't that make most of the older properties underpriced ? 

    harb wrote:
    Would you have bought this house if you expected to sell it for less then you paid for it or did you speculate that you could sell it for above what you paid for it ?
    Should we think wrong of you if you did any of the above  ?
    And if I did the same but added a water tank and built a garden shed in the backyard then sold at a huge profit would it be wrong of you to think wrong of me ?

    Yes. Imbalance is created and correction is required.

    So really what you are saying is that as long as you are the one who makes a profit everything is in balance even if you were not productive and speculated that prices will rise but if someone else tries to do that by improving the property and making it more efficient then a correction is required? So what happened to your comment a few post earlier , "  It's OK to think wrong of those that make money in non productive or speculative means. It is wrong to think wrong of those that make money out of useful invention or productivity."  Was that just a load of bull because you are in the market for a property  ?

    Profile photo of ummesterummester
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    harb wrote:
    So really what you are saying is that as long as you are the one who makes a profit everything is in balance even if you were not productive and speculated that prices will rise but if someone else tries to do that by improving the property and making it more efficient then a correction is required? So what happened to your comment a few post earlier , "  It's OK to think wrong of those that make money in non productive or speculative means. It is wrong to think wrong of those that make money out of useful invention or productivity."  Was that just a load of bull because you are in the market for a property  ?

    Both of my statements were consistent.

    Everyone who owns property should make (more or less) profit equal to the interest they pay on the loan over a long term loan period. This generally equals wage inflation over the same period and everyone, including the banks, remains comfortably in business.

    You buy a house in '95 for 150k and, by the time it's paid off in 2020, you have ended up paying the bank 450k for it but, by then, it is worth that much. That is balanced.

    If you buy a house with cash and sell it down the road, you make a clean profit. There is nothing wrong with that as you are not using the bank for a service. You either worked or saved hard, so good luck to you.

    And I have said this before Harb, I don't mind paying extra for houses that have been genuinely improved with well made decking, pools, looked after grounds etc. This is not the kind of speculative value I'm talking about and you know it.

    We have just had 20 years of housing inflation squeezed into under 10 and anyone should be able to see it is not sustainable. Average wages can not afford last years house prices until (provided wage inflation is reasonably linear)  2020, so the prices either have to stagnate from now or drop and then rise again.

    This isn't about me. If house prices drop, I buy. If they stagnate, I keep saving and retire to a country town with some future growth potential for the kids. Either situation can happen from here – Japan or America – doesn't bother me either way. I have secure and slightly above average income so rent can not possibly rise above a price that is affordable for me to pay and save.

    This is about my children and every other child their age having the same financial oppurtunities in their future as my parents and people their age had. Don't care if I go without for that balance to be restored and, as the Boomers die, it will be but it is the road from hear to that point that is uncertain. Bottom falls out now and boomers learn to live on dogfood. Prices stagnate and a lot of mortgaged gen X & Y get used to financial mediocrity. Either way, balance will be restored eventually.

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    Interesting post.

    The point I am interested in is not the moral or ethics of real estate investing. We have enough religious wars as it is to add yet another one. The only point I am interested in is to show that we, or rather our set of values determines what we allow ourselves to achieve.

    If someone considers selling a property at a large profit "speculative" and the meaning of such word in his mind is morally corrupt or unethical and in anyway wrong, will the person be able to make big profits in real estate?
    Answer no.
    Furthermore the person will equate in his mind and probably not even consciously, success in RE as synonym of unethical or morally corrupt. And that is precisely my point. The masses primed by teachers, parents, religious leaders, media and assorted friends have in the vast majority set in their mind this concept that rich is evil and poor is virtuous.

    Now one can do two things: First, debate how this is wrong and bring up scores of examples of very good rich people and very bad poor people, or vice versa.
    And this would archive nothing.

    The other thing to do is much more interesting. Consider what is the effect of believing the above premise.
    The result of adopting the above anti-value reflects in every single action the person takes. Every time a person needs to make a choice it will make the choice that takes him away from becoming corrupt and morally objectable like those evil rich people. THis is inevitable and is at the root of the functions of our brain.
    So our acquired values determine what we achieve or lack to.

    The practical person would immediately realise that if we can change our set of values we would change the results in our life just like changing a program in our computer.
    This is of course easier said then done.  To do that it is necessary to understand how did we acquire those values and for what reason. Exploring those remote origin will usually bring us to the conclusion that many of the values we keep dearest and that we believe to be essential to who we consider ourselves to be, are in fact not serving is to achieve the purposes we seek.

    That is why I said it was interesting to see people who seek success in RE burdened by values or rather anti-values that would be their worst enemies to achieve such success….and lets it be clear that in no way I express value judgement like it is wrong to do this and wrong to do that. Only exploring why things happen.

    This days you can buy foreclosure properties in the US for a fraction of their value. $10,000, $5000 and $1000 are not uncommon.
    Would you buy this properties?
    If not why not.
    If yes why?

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    Personally, 1Winner, I only ever want to own one residential property at a time – a house in which to live. I have a belief that residential property is for the shelter of members of society and not investment. Of course landlords need to exist but they should either be a governement body or heavilly regulated. I know this view is more socialistic than most. The flipside is that I have nothing against private individuals or enterprise investing in commercial property. If I had that kind of money to park, I would consider it as an option.

    I would disagree that society is still being taught the concept that rich is evil and poor is virtuous. We were until around the 70s, when we still had majority Christian values (not that I am trying to promote them, I'm happily agnostic) and since then individualism, consumerism and capitalism have become our new faiths. Out of the frying pan and into the fire.

    On the financial scale there will always be rich, poor and those in between. Some will make it fairly, some will cheat, some will keep it and others will loose it. That is not an issue for me. So long as there is an overall balance. My issue is with a debt bubble in a particular asset class (which I believe should be restricted for societys well-being anyway) that has been allowed (even promoted by the banks and the governement) to get out of hand. So far out of hand that we are creating future debt to try and keep it from bursting. We don't have more rich now- we just have greater speculative equity and all it has done is made average joes get delusions of wealth.

    The housing bubble was allowed to happen because the banks and the governments of the Western world were too scared to face a recession in the early naughties brought on by the tech bubble crash and 911. Instead of a few years of pain, society was steered on a path that will probably end up in depression. Gutless.

    Underlying all of this, of course, is the fact that there is an ageing population bubble that we have no idea how to support. They are going to live longer than any other generation of humans before them. Without massive future debt, how do we finance this? I don't know but am sure that premature speculation isn't the answer and that is why the bubble is bursting.

    So, in summation, I have nothing against real rich people. The deluded rich are another matter. And I wouldn't buy one of those American pads unless I was going to live in it.

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    Marc, I have had the privilege as a public accountant to get to know in enormous depth the lives and business practices of maybe over 1,000 clients, in 35 plus years.

    In my practice alone I would say there is not one sucessful client who has not broken the law. That breach may be as small as lying about there financial affairs when applying for a licence, to as high as buying a surgeon a 220k Merc, because he pedals a product that my client sells. I cannot say the surgeon performed needless operations, I don't have that info, but will say he sold 90% of all the product we sold nationally, and after his death, the national sales of the product slumped. Apparently not all specialists had his moral values. Though one other specialist did comment after a operation " very good procedure doctor….but where was the cancer "

    My first eye opener was a public company director who was no 4 in [email protected]  What struck me was his sucess as a share trader. Starting with a very small inestment he built up a small nest egg of $200k (early 80s) , he was exceptional, he always bought his shares weeks or even days before before a bonus or rights issue. I am sure the directors on the boards of companies he shared also bought [email protected] just before such evernts as well. All great investors.

    Now the kicker with the pub director was that in the early 80s he bought two Gold Coast properties off the plan for $160k each. By time of settlement he could not unload them for $80k. Basically blew all that he made by investing in something he did not know, or maybe he actually beleived he was a great investor.

    Now withn the doctor, the thing that makes me wonder about a god, (unmester please take note) is that this doctor died from the very "illness" that he was a specialist in. Dead 6 mths after diagnosis. Too busy making bucks to read his own symptoms till it was too late, and the night before he died he tallied up the last sales and sent off an "invoice" closing out his secret commisions at around 10pm, and was dead before morning.

    and I wish I was making up that last one but it is true, and as the Jute importer said to the piano teacher (Peter Cooke and Dudley Moore)  "no-one has talked to me like that in 20 years, you have integrity…..and that is something I am willing to pay for.."
    put a big enough bag of money on the table and even I will even put down the names,  4 corners could work off my stuff for years..

    Marc you may probably see me taking some form of joy from the downfall of these hardworking individuals, ..holding them out to ridicule, but me, I see it as Karma, and it renews may belief that there may be a god……I think his name though may be Loki…

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    gmh454 wrote:
    Marc, I have had the privilege as a public accountant to get to know in enormous depth the lives and business practices of maybe over 1,000 clients, in 35 plus years.

    Over the years we had seen a variety of breaches of ethics, morals and laws.  Mind you it is mainly through joining the dots, and making assumptions.

    My first eye opener was a public company director who was no 4 in [email protected]  What struck me was his sucess as a share trader. Starting with a very small inestment he built up a small nest egg of $200k (early 80s) , he was exceptional, he always bought his shares weeks or even days before before a bonus or rights issue. I am sure the directors on the boards of companies he shared also bought [email protected] just before such evernts as well. All great investors.

    Now the kicker with the pub director was that in the early 80s he bought two Gold Coast properties off the plan for $160k each. By time of settlement he could not unload them for $80k. Basically blew all that he made by investing in something he did not know, or maybe he actually beleived he was a great investor.

    Marc you may probably see me taking some form of joy from the downfall of these hardworking individuals, ..holding them out to ridicule, but me, I see it as Karma, and it renews may belief that there may be a god……I think his name though may be Loki…

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