Property bust not here yet … worse to come

Bardon I’m not sure if you’re willingly delusional or simply don’t know.

Total Housing Debt $1.2T

Owner Occupier Debt $840B

PI Debt $400B

In the last 10 years we’ve seen a surge in PI activity unseen previously. 80% are Joe Average (earn less than $80k/yr)

– According to the ATO, there were 1,751,679 property investors declared to the ATO in 2009-10 – representing one in seven taxpayers – an increase of 59,235 from the 2008-09 financial year.

– Of the 1,751,679 property investors recorded by the ATO in 2009-10, 63% or 1,110,922 were “negatively geared”

– Of these negatively geared investors, nearly three-quarters earned less than $80,000 in 2009-10, and the average loss was $9132 per negatively geared investor, or $176 per week.

– According to the 2009-10 Australian Bureau of Statistics (ABS) Household Wealth and Wealth Distribution, nearly three-quarters of Australia’s investment properties by value were held by individuals aged 45 and over, with Australia’s Baby Boomer generation (45 to 64 years-old in 2009-10) holding just over 55 per cent of these homes.

The idea that cash flow is getting better is a furfy. The problem with the majority of investors is that they are poorly skilled at investing. You have a large chunk of investors in the middle aged sub $80k/yr bracket. They tend to be skittish.

My guess is (and its only a guess – no data to back it up) is that a fair chunk of current selling pressure is investor driven. It won’t take much more pressure to push more into selling as they; fear for their retirement, struggle with delinquent tenants who loose jobs, run into income pressures of their own, worry about declining asset values etc.

If just 1/10 (170 000) PI’s start to panic she’s all over red rover. And if they start to go more will follow.

The Freckle

Rents rise while home values fall by 2.7 per cent in 2011</font

http://www.rpdata.com/research/rents_rise_while_home_values_fall_by_2.7_per_cent_in_2011.html

Can’t see a winner here.

………”No delusion, no spin, just the facts.”

The Freckle

                             http://www.youtube.com/watch?v=QsinCoRnAic

Yes that’s it, thanks for confirming.

And if rents rise then your cash flow improves.

Bardon are you a successful PI or is it just blind luck.

Click on the graphic for the full report

Bardon you make wild claims with nothing to back them up other than we should take your word or something.

It’s patently clear to the dottiest of people that rents go both up and down. Rents in fact don’t track inflation they track income specific to their area on average.

During the 30’s rent dropped 40% to come into line with incomes – fact of life. You can’t rent something to anybody unless they have the capacity to pay for it. So if we see a decline in living standards and an increase in competition for renters expect to see rents drift down. Sydney on average is experiencing that now.

I expect to see a growing demand for rentals as investors exit the market in growing numbers. While rental vacancy rates may be squeezed I don’t necessarily expect rents to rise. In fact if unemployment trends up I expect to see rents decrease as PI’s try to hold onto their tenants. Remember 63% are negatively geared and (PI’s) over 45.

What will change is yields. As property values decline provided rents remain about the same yields will increase for new entrants. Something akin to the current US market.

I think that you will find that when it comes to rent reviews then the outcome is that they rise which is hardly a wild claim. Happens all the time and I doubt there would be many investors that are keeping up their maintenance that would not be seeing continual rises and I would be gobbsmacked if they were dropping their rents.

So as I said, you can do your sums on cash flow before buying, if it works for you then you buy and then watch the cahsflow improve.

Yes I am sure that you have bucked the trend with the prevalent rent increases over the last ten years mainly because you are smarter than the average bear. As for future drops, dream on.

Hmm, I think that may have more to do with either a naive PI who feels they are doing the right thing as you were such a great long term tennant, or they are receiving poor advice from the PM.

I asked my dad why his rent was so low, was renting to tenant for 3 years and rent went from $300 to $330 in that time. A quick look at rentals in the area, he realised rent for that house should have been $400. Fired agent on the spot, their explanation "they were such nice people". Now renting for $420 (went from negative to positive geared).

Incomes are increased by inflation rates every other year, I read somewhere, average house rent can be up to 30-35% or the persons average income. So if incomes are increasing, then so are rents.
Thoughts?

NGH. You have to remember that the majority of landlords are as the ATO infers around the middle age and older. The property I rented in Artarmon in the early 00’s was owned by an elderly lady who was interested more in stability. Another $20/wk was less important than lost rent and additional agent costs to get a new tenant who would be an unknown quantity. The next place we rented in Willoughby North. Same thing. We dealt direct with the owner who has a tool servicing business just around the corner. We paid around $100/wk less than ppl across the road who had a smaller place.

Prior to moving to Artarmon we lived at Umina on the Central NSW Coast. We moved back to the North Shore because rents dropped around $50/wk after the Olympic frenzy. Without that drop we wouldn’t have moved.

I ran a removals business on the North Shore for 8 yrs. Areas went up areas went down.

You need high demand and competition to push rents up. When there’s a swing up it’s not uncommon for rents to overshoot the market. You then get a correction. Sydney is seeing a mean drop in unit rentals of 2.2%. That suggests there is increasing competition between suburbs for renters. If the mean drop is 2.2% then if only 10% of the market is adjusting then rents in those areas could be dropping by 10% or more.

I’ve been a renter for years and will be for many more. Even though I make a truck load of money in resources that hasn’t always been the case. I still see anything over $300/wk as expensive. There are lots of people like me who see no value in paying top dollar for places simply to live in something flash. We accept less (quality, location etc) to spend our doa on more interesting things.

There’s a fine line between how much you can get for a place and how efficient that rental is. The majority of landlords are conservative and tend to undershoot maximum rental potential to ensure regular tenants.