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  • Profile photo of fWordfWord
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    -6.1% for Melbourne from Dec 2010 – Dec 2011. That's not so bad. I lost more money in shares!

    Profile photo of simplesimple
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    @simple
    Join Date: 2006
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    @ fWord
    Agreed, still it can send ‘grey masses’ in to the panic. While you an me can take 6% loss associated with calculated risk as OK, majority of people hammered by media will not.
    It’ is indeed a small loss, even if you add 3% CPI to it. It is the effect it can have and the trend. Say, yearly 9% (real term) loss for 5 year can be entertaining :)

    I am on the market for rentals, and getting 100K discount of 700K property is not that difficult any more…

    Profile photo of bumskinsbumskins
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    fWord wrote:

    -6.1% for Melbourne from Dec 2010 – Dec 2011. That's not so bad. I lost more money in shares!

    Depends really.

    There is a lot leverage in property.

    So if you looked at say $100,000 invested in Property Vs Shares.

    It might look like:

    Property (80% LVR)
    $500K – 6% = $470K, $30K loss.
    Loss on $100K Principal = 30%

    Since the person investing in shares probably had little to no leverage, their portfolio would have to have lost 30% to have the same effect.

    Which on average it probably did, so they are sitting about even.

    Profile photo of harbharb
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    bumskins wrote:
    Depends really. There is a lot leverage in property. So if you looked at say $100,000 invested in Property Vs Shares. It might look like: Property (80% LVR) $500K – 6% = $470K, $30K loss. Loss on $100K Principal = 30% Since the person investing in shares probably had little to no leverage, their portfolio would have to have lost 30% to have the same effect. Which on average it probably did, so they are sitting about even.

    As you said, it depends. Not every property investor is leveraged at 80% and not every shares investor has no leverage, then it also depends on the location or stocks they invested in and period of time they've been in these particular properties and stocks. Since this thread has been running since 2006 it would be interesting to compare the loss (if any) of particular properties against particular stocks , for eg.  compare a house which sold in 2006 and again recently against a stock like ANZ, BSL, RIO, TLS or WOW and then see if it looked anything like a 30% loss.

    Profile photo of fWordfWord
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    bumskins wrote:
    fWord wrote:

    -6.1% for Melbourne from Dec 2010 – Dec 2011. That's not so bad. I lost more money in shares!

    Depends really. There is a lot leverage in property. So if you looked at say $100,000 invested in Property Vs Shares. It might look like: Property (80% LVR) $500K – 6% = $470K, $30K loss. Loss on $100K Principal = 30% Since the person investing in shares probably had little to no leverage, their portfolio would have to have lost 30% to have the same effect. Which on average it probably did, so they are sitting about even.

    Likewise, people can leverage in shares. What's the 'usual' without incuring the equivalent of lender's mortgage insurance? 40% 'LVR'? 50%? We need to base calculations on these things also.

    Profile photo of emptyvesselemptyvessel
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    simple wrote:
    moxi10 Joined: 06/11/2010 EPI_Den Joined: 13/11/2010 xdrew Joined: 20/11/2010 Funny that, three persons all joined fairly recently, few days apart from each other and have similar view on the subject. Nick-names are not very creative to. I make no conclusion, let time and posters decide :)

    Dude, that is just paranoid. Remember, we see the world as we want to see it. This comment may reveal more about you than about them.

    Checkout EPI_Den here at Every Day Property Investing – I have been listening to their free podcasts recently. Seem like straight up investors just trying to make their way in this business.

    No way is xdrew related to EPI_Den, except that they post on the same forum, have an interest in property and might both be from the planet earth. IMO xdrew is one of the finest thinkers/strategists on this forum. Track back and read xdrews threads, you may learn something about formal critical thinking and logic. I know I have.

    No idea about moxi. But I do love his positivity.

    My prediction – I will be successful and retire early.

    Profile photo of ummesterummester
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    xdrew wrote:
    ummester wrote:
    Well, it's 2012 now. Let's see what happens. I think, of all things that could happen, growth like has been seen for the last 15 odd years (that property doubles every 7 years tripe) is the least likely. Flat is a safe bet because it also covers little bits up and down if spun correctly. Down 15% or more is a riskier bet but, I feel, more likely than up.

    And your basis for either suggestion is .. what?

    What it has always been. That the market is overvalued relative to national incomes.

    xdrew wrote:
    We got two main pressures on us now. One is the big overbloated debt scene overseas. If we think it wont affect us in the hip pocket .. we are mistaken. The other is encroaching inflationary pressure .. brought on by feeding stimulus money into a depressed economy. It does nothing but revalue money. Thats going to pan out as inflationary pressure reflected in increased prices for housing materials .. tiling .. bathroom accessories .. etc etc.

    Why are you so sure? Perhaps it will result in less spending on inflated prices. Look at retail. Do we need new consumer items all the time? Probably not – that's why people are buying less. Likewise, do we need bathroom makeovers as often as we have them, or do we just need bathrooms that work? One way to get a guaranteed working bathroom without having to worry about paying for it is rent.

    xdrew wrote:
    Do we have the desperation of NEED TO SELL yet? Thats the type of thing where prices plummet. Outside of that .. people just hold on .. property gets harder to get hold of at any price. So the people out there looking for a property are prepared to PAY more to get it.

    That's not what is happenning ATM. I agree there is no desperation to sell yet but no-one is prepared to pay more either. There is an OS – 300k places up for sale nationally and rental vacancy increasing. 22 mil  people, living an average of 2.5 people per house, means the country requires around 8.8 mil houses. We can round that to 9 mil. 3% is for sale and another 3-5% is up for rent. If all of those places are needed, there should be about 1.7 mil displaced residents. When massive genocides occur in a place like Africa, you end up with that many displaced peoples and the UN is called in – I don't see them here?

    xdrew wrote:
    There is no magic bullet that will stroke this market. The market is .. a market. The same as if you went out to the local grocers market and asked for beans and peas. If there is ready supply you get a good price. If there are issues with supply you may pay a different price to what you are USED to paying. The leader will be rentals. If people decide to stop renting and move into property due to low rates .. the whole property cycle takes off again. With less demand for rentals .. and less rental pressure. But .. more demand on existing housing supply.

    If the bank will extend the credit to them. I agree that people are sheep and they will blindly follow the flock as they have in the era of easy credit and increasing house prices. These sheep aren't sobred enough by drops yet to not borrow if buying gets cheaper than renting but that is still a long way off. And, if it were to happen, the bank would have to be willing to lend to them. As we have seen recently and as I have preached for a while, the RBA and our banks will decouple totally. A 5% hit on property values like we have seen over the last year isn't enough to scare the sheep but it is enough to make the banks cautious of lending. For each percent values decrease, the banks will want roughly that as a deposit – they have to protect themselves.

    This is a bigger cycle, it is a cycle that defines the cycles within cycles you mention. Demographic pressure and unsustainable credit expansion across the whole western world will force it to contract. Things will pick up again, when the contraction is deep enough for sustainable growth to resume.

    xdrew wrote:
    It really is that simple. No need for wafty analysis .. or trying to use the paths of the stars to judge where we will be in 2020. If there is demand and customers .. you can sell your peas.

    My analysis was far less wafty than yours?

    Yes, you can sell your peas if there is demand and funded customers. Pretty hard to move them if the cutomers can't pay.

    Profile photo of PaulliePaullie
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    All I know is, when driving to work the roads here are so much more congested compared to even 2 years ago. Where are these people going to live?

    Profile photo of xdrewxdrew
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    ummester wrote:
    Yes, you can sell your peas if there is demand and funded customers. Pretty hard to move them if the cutomers can't pay.

    Welcome to the market cycle. You see … if they arent paying ….. you dont fill places. If you dont fill places you REDUCE your rents to a level where the place will be filled. So if the rents are extraordiarily high .. and yet there are people out there who are MEETING the rent payments on a regular basis .. and there is a low vacancy rate, wouldnt you say that the market is doing what it is intended to do?

    No wafty stuff needed. Thats whats happening. And if you feel in your part of the world that the market isnt doing that .. then you gotta ask why. Cos if your rents are at the right level .. and you got the right product for current demand .. then you got a tenant .. dont you?

    Profile photo of ummesterummester
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    xdrew wrote:
    ummester wrote:
    Yes, you can sell your peas if there is demand and funded customers. Pretty hard to move them if the cutomers can't pay.

    Welcome to the market cycle. You see … if they arent paying ….. you dont fill places. If you dont fill places you REDUCE your rents to a level where the place will be filled. So if the rents are extraordiarily high .. and yet there are people out there who are MEETING the rent payments on a regular basis .. and there is a low vacancy rate, wouldnt you say that the market is doing what it is intended to do?

    No wafty stuff needed. Thats whats happening. And if you feel in your part of the world that the market isnt doing that .. then you gotta ask why. Cos if your rents are at the right level .. and you got the right product for current demand .. then you got a tenant .. dont you?

    I was talking more about sales of houses, not filling rentals.

    Rental wise the vacancy rate is lowish but growing larger, just about everywhere, as far as I know. Cheaper rentals are in high demand and have been that way for the past 10 years, where as more expensive rentals have less demand. This suggests to me that people still need somewhere to rent with a greater demand for lower prices. Either way, it's still a shedload cheaper than buying, the property upkeep is someone elses problem and there is no risk of the asset depreciating.

    But yes, rentals under 300-400 PW (location dependant) will still be tenanted quickly. People can afford that. Beyond 450 PW and rentals start moving into a space where average wage earners find it difficult to pay – not saying a nice place geared up for a high wage earner in a big city can't still be rented, just making an average assumption.

    Profile photo of simplesimple
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    brisbanescoreboardjan12.jpg
    source: http://www.allenrealestate.com.au
    Not what you call a massive collapse by any means but, adjusted for inflation 15% loss from the top ever reached

    Profile photo of casanovawacasanovawa
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    Paullie, if your wondering where all the people are, or are going to be, I imagine many more people are going to be happy to co-habit with others from now on…  In 2009 i moved in with a friend and lived with him in his place for about 18 months, going from a rent of $400/week to $130/week put an awful lot of money in my pocket….  I eventually moved out about 6 months ago and am back up to $400/week but would now consider having someone move in with me to my rental….

    Similarly i know a female friend who had bought a 3bed/2bath unit…  She now has two other people staying with her which is helping her bottom line considerably…   The fact that people might reduce their minimum living requirements i don't think was factored into all thos equations that you have to either buy yourself or rent yourself and that there would be this massive undersupply of housing and getting worse every year…  

    People will adapt and find new ways when the market is crazy or they are caught in a trap where they can't afford to buy or rent and live a half decent life…   In the older days it was move back home and live with parents, these days you can't hardly go past a notice board without someone renting out a room or being willing to share a house with a student/stranger…

    Profile photo of fWordfWord
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    casanovawa wrote:
    Similarly i know a female friend who had bought a 3bed/2bath unit…  She now has two other people staying with her which is helping her bottom line considerably…

    Just advise your friend that there could be tax implications come time to sell. But I suppose if she was weighing it up between being able to live under her own roof versus not at all, then renting out part of the house to others is pretty much a given.

    Profile photo of simplesimple
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    melbourne house prices

    source: http://upload.wikimedia.org/wikipedia/commons/0/00/Real_Melbourne_House_Prices_1965_-_2010b.JPG

    Nice summary going back a long time! Would be good to see 'affordability' plotted against wage/price ration….
    The way the chart stands, it represents one-sided view,  expensive house may still be affordable IF say interest rates are low. So we need to also see how much % of the wage take up repayments, not just wage/price ratio….

    Profile photo of fWordfWord
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    simple wrote:

    Nice summary going back a long time! Would be good to see 'affordability' plotted against wage/price ration….
    The way the chart stands, it represents one-sided view,  expensive house may still be affordable IF say interest rates are low. So we need to also see how much % of the wage take up repayments, not just wage/price ratio….

    It'd be interesting to see what the population growth was like in absolute terms (ie. from 2 million to 3 million) rather than relative terms (ie. a percentage figure like is stated in the charts).

    For example, a 30% population growth from 200,000 people to 260,000 (an increase of only 60,000) is not as great as a 10% population growth from 2 million people to 2.2 million (an increase of 200,000) within the same number of years.

    Profile photo of bardonbardon
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    What a resilient thread still alive and kicking. I guess like a broken clock the thread title will be right some time.

    I think the only crash that we had was in the commercial sector and that appears to be in recovery right now.

    I haven’t caught up on all of the previous posts on what everybody is thinking about a crash. I guess some are still predicting one sometime in the future though?

    Profile photo of ummesterummester
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    It will be alive and kicking until the ineviatable return to long term price vs wage ratios are again met:)

    Profile photo of bardonbardon
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    According to Chris Joyce and the RBA set, those long term norms with respect to income to prices are back at trend again after all the creep that we have had with disposable income in recent years.

    All that aside, I don’t think that some notional belief that mortgages must be 3 x dads income is some kind of benchmark that has ever really existed or is some kind of Max’s Headroom with respect to house prices. Its more like one of those folklore tales that we all love to tell over the camp-fire with a few beers to the younger set of the group in between slapping mozzies.

    Profile photo of xdrewxdrew
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    What changes a market .. and IS currently changing a market is the availability of flush capital to stoke the market.

    The trends .. the norms .. the variables .. all base themselves on the availability of funds to make the project happen.

    At the moment the markets I was talking about locking up earlier on in the thread HAVE done just that. So .. the good properties .. the FHB specials .. the land in good position .. has all left the market .. awaiting a better price. Its just not available.

    To bring it out again will actually require not only a decent price .. but a higher price. The vendor now sees that only a better price will get him to bring his property out to market again. The vendor now believes that its worth more to hang onto his property rather than realise a current cash price for it. Cash for him just doesnt hold the value it used to.

    So in monetary terms .. its a bust. And it means that for a lot of people they just wont have cash reserves because their cash purchasing power will have dissipated.

    Note the sudden movement in planning permits on land .. the developers are hedging their bets with what they can build and profit on in yesterdays dollars.
     
    Is the price now too high? Who has the correct gage for that? You can quote graphs .. trendlines .. statistics .. but at the end of the day its always the willing consumer/purchaser of the goods that makes the final decisions. And he makes those decisions based on what he can borrow .. at what gearing level .. and what return he can get on that.

    I would be going with the idea that inflationary pressures will push this market like a cork out of a champagne bottle. Thats NOT good, as it means that money and savings rapidly becomes … a lot less. All those years worth of saving just disappear in an inflationary rocket .. that shouldnt be good for anyone.

    Profile photo of bardonbardon
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    A few nails hit on the head there. One of the low risk situations of the property market is that you are either an owner or a renter. Unlike the stock market you cant leave. So the majority of owners decide not to sell and wait until they get a better price equates to a concrete floor in the market.

    Personally speaking I think that due to the unprecedented easing polices of the big boys there is Tsunami of inflation building up. Once unleashed monetary value will be debased overnight, savers and pensioners will be punished, prices and wages will rise. Debt levels will not increase and debt repayments will seem like peanuts in comparison to before inflation hit. Hard assets including houses should also inflate in this scenario. Inflation always has been a trusty 24/7 servant of a leveraged property investor eroding debt level and increasing asset and rental values.

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