- Originally posted by gmh454:Originally posted by simple:
.
Economy cycle up and down every 7-10 years.Sorry but can’t help myself. When was the last time Australia had a 7 year property cycle.
Terry
Come on …if the market doubles up every 7-10 yrs, it can’t be that hard to find out when the last “7 yr ” boom happened ??????
It seems I have read this so often, it must be a fact..
Someone please put me out of my misery..
Terry
This is what i based my asumption on:
http://www.rba.gov.au/ChartPack/graphical_summary.pdfThanks, but open question now to anyone, when was the last housing boom that was seven years from peak to peak ????
Come on now, we all know it is part of the mantra…
When…………………………??????????????????????
Please explain….
The average wage in Australia in 2006 is approx. $56k p/a.
(http://144.53.252.30/AUSSTATS/[email protected]/Lookup/6302.0Main+Features1Feb%202006?OpenDocument )To purchase a home @$350k with a loan $275k (LVR@80%) Deposit ($70k) + costs ($17k) paid by purchaser from savings, the income required to qualify for the loan is approx. $60k p/a.
Assuming property doubles in 7-10 years;
Same property is worth $700k
Income required to qualify for a loan of 80%LVR = $120k p/a
Savings required for 20% deposit + costs = $175kWill the average wage also double in 7-10 years? If not what will be the effect on the property market?
If there are less buyers in the market wouldn’t this lead to less demand > keep prices down?
In 20 years will the same house be worth $1.4mill???? What sort of income will be required to service a loan of $1.1mill????
There is no way property can continue to double every 10 years!
Does anyone support or oppose this view????
[confused2]
James
Actually the average wage was around $42,500 at my last check. You can’t look to average-full-time-male-earnings when a large proportion of the population is neither male, nor employed full-time.
Currently rising at 4.4%pa. In 10 years this totals a 54% increase, although subtracting inflation (as other costs will rise), more like 0.9%pa / 9% over a decade. Assuming the economy stays strong, despite reports from the gov’t & rba that “growth is moderating” (read – the economy will be weaker in the future than it was in recent past).
Does anyone support or oppose this view????I certainly do![tongue]
F.[cowboy2]
Hi, James
I agree with some of the views, in that paying $300 per wk to hold over a million in property is not too bad. Just need to figure out creative financing methods to balance the cash flow.
As for property prices rising every 7 – 10 yrs, that is like saying computer processing power doubling every 18 months (Which is not true, or else most people would have a super computer in their home by now.)
Like Steve mentioned, with each doubling in property pricing, it takes longer to double again. Salaries and wages cannot keep up at the same rate as property inceases. Eventually, there could be a ‘plateauing’ effect (That is my view).
Regards
Daniel [specs]In the current climate I feel that it is important to purchase an IP with good yield since the capital appreciation is uncertain (at least for the next few years).
What is your minimum requirement on the yield before you even consider buying the property.?Ohmmmmmmm
Property doubles every seven years
Ohmmmmmm
Property doubles every seven years
Ohmmmmmm
Property doubles every seven yearsThat’s better, think I am ready for the next boom now.
(Always best to sit with legs crossed, …..incence or rocking back and forth are optional)
lol[biggrin]
I will ignore the entertaining 7-10 year argument as it doesn’t interest me today….. which is strange. oh well..However to get back to your original question james of the selling the houses.
Don’t, just find a way to pay for them. There is always a way.
I know the area you mean. I think that the H&L packs were never going to have the astronomical growth of inner melbourne suburbs as they are out in the sticks. I do beleive they will stay close (a bit under) the median house prices for Melbourne.
However the benefits you do get are depreciation, low maintainance costs (this can be a real killer in the old inner melbourne houses), great yield, good rental demand, however the real bonus you get is the STABLE low holding cost.
In fact for a low income, you couldn’t really have picked a better type of investment (only i would not have bought straight from a developer in these estates as they are rip offs.
You are just experiencing a bit of a down because the price the h&l developer extorted from you is kicking in and that area is never going to be a real boomer in capital gains as there are many many suburbs similar and with similar demand.
I think that you would never forgive yourself if you sold. When the house prices increase due to increased demand, you will be kickin yourself/.,
I think Melbourne is set to have a boom as the population growth is set to increase more than any other place in Australia.[thumbsup2]
Live, Learn and GrowLifexperience
Where we have bought, inner 5km ring Brisbane, property has doubled around 7-10 years for the past 27 years I have been investing and for years before that when I was too young to invest, but my parents house purchase prices from 1959 bear it out. Actually, their first home bought for about $3K in 1959 happens to be worth about $1.5M now. Don’t know about other places, but surely my houses aren’t the only ones!!
I think everyone will have to agree to disagree about the 7-10 thing. Each to their own belief.
Wylie.
ok i’m in.
the 7-10 year argument is not a guarantee that you should bet on your mothers life with.
I do think that property appreciation in general is too often compared with “how can wages get that high so quickly” mentality.
I believe property (like all assetts) appreciation is more closely linked with supply and demand.
They are not making any more land, and it is a slow and expensive process for governments and councils to create the infrastructure needed to support new townships.
I can quite easily see the prices in Sydney or melbourne doubling in 7-10 years from now.
(although i wont bet $5000 against it Foundation….. brave call)
I base this on a population increase and a positive economic outlook.
There will be more demand for existing housing as a result…. prices up.
I still use it as a general rule of thumb, call me what you will..
Live, Learn and GrowLifexperience
Originally posted by lifeX:I believe property (like all assetts) appreciation is more closely linked with supply and demand.
They are not making any more land, and it is a slow and expensive process for governments and councils to create the infrastructure needed to support new townships.
Supply and demand eh?
Let’s look at some facts. Taking 1998-2003, a 5 year sample. Nominal house prices rose by 76% at a national level. During this period:
– the average rate of net natural population increase (births – deaths) was 120k per year
– the average rate of net migration (incoming – outgoing) was 117k per year
– the average household size fell from 2.7 to 2.5 persons per dwelling…that should cover pretty much every source of underlying demand growth I can think of. So, at 2.5 persons per household, natural population growth demanded 48k dwellings per year. Net migration demanded 47k dwellings. Shrinking households demanded 55k dwellings per year. A total of 150k dwellings total additional demand per year (in round figures).
And the building industry constructed… an average of 157k dwellings per year.
Supply exceeded underlying demand. Evidence of this can be found in vacancies, which rose strongly over the period.
The more relevant supply-demand equation occurs at point-of-sale, and is largely unrelated to underlying demand. On one side, we have house sellers, on the other, house buyers. This supply-demand equation is much more prone to imbalance, which is why house prices don’t move in a linear fashion for very long.
Demand (buyers) come in 3 forms:
– First time buyers (FTBs)
– Movers
– InvestorsHistory tells us that a balanced situation resulting in involatile prices generally consists of 20% FTBs, 60% movers, and 20% investors on the demand side. On the supply side are 20% who move to retirement homes or pop their clogs, the same 60% movers, and 20% investors. These figures are approximate, and subject to small variations based on demographics, changes in incentives for investors, public housing etc. But basically, it’s a balanced equation. It may look out of whack, because ‘surely 20% of people don’t go to nursing homes or die each year?’, but it’s important to remember that only 5% of the total housing stock is turned over in a stable (non-boom) year.
In other words, roughly 1% of the population die and are replaced by newborns, 3% move house, and 1% buy an investment property.
So how did this supply-demand equation change over the 1998-2003 period?
Demand side:
– First time buyers fell from 17% to a low of 10% of buyers
– Movers fell from 58% to 44% of buyers
– Investors rose from 25% to 46% of buyersSo clearly if a demand-side imbalance had occurred, it was driven by investors. Also interesting, but hard to define, is the Mortgage Equity Withdrawal (MEW) effect. MEWing for property investment adds to the demand side, without adding to the supply side. This imbalance alone, given the high number of investors doing it, is enough to push prices higher, and consequently increase the equity available for further MEW… while rising prices make most home-owners less inclined to sell for fear they miss out on further capital gains.
I agree, it’s all about supply and demand.
F.[cowboy2]
Thank you Foundation, it is nice to have some numbers to play with.
Interesting you mentioned MEWing, I recently refinanced, and found that the lender of my choice would not go much past $500,000. that was fine because it met my needs, but I was puzzled as my income levels we at their highest ever.
Commented that I was surprised by this and puzzled at the low income owners with their million dollar property portfolios all covered by debt. He smiled and commented that all accountants are not as honest as mine, and between low doc loans and fake tax paperwork, people can basically get what they want. (brings a new meaning to the “need a investor savy accountant” threads we often see.)
Compare this with the 1980’s where you had to give the bank your first born boy, before they would give you 70% of 95% (their value).
The explosion of easy money, the rise of the spruiker, the media bandwagon, HOT BLOCK BACKYARD WHATEVER, and the suspension of common sense, has provided for a very interesting time. The real fun time is yet to come. Problem is if you actually know any of these poor people it somehow looses the humour.How would you fair if the market in your area DROPPED 5%? Do you have the funds to cover any margin call by the banks (unlikely but possible).
What is the outlook for the area over the next 3-6 months?
If you sold, where else could you invest in an UPWARDS market (Perth at 30%+ in a lot of areas)? Move sideways to go UP! [strum]foundation,
I was hesitant to engage in this discussion as I knew it would get quite involved. My attention span and patience is short.I do appreciate the many figures you have supplied. It makes for interesting reading.
I wont even have a shot at you using a small piece of the pie in terms of property prices in Australia that ended with the peak of a boom
The figures you quoted are true but do not dispute my point.
This is because the desirable areas (suburbs close to the CBD for work and lifestyle for example)are not really increasing at the rate that your figures indicate.
The big kicker which you haven’t allowed for in your figures and analysis is that most of these extra houses were built for new home owners in the outer outer suburbs of “it’s nice but I wish I was closer to the action ville”
You also had an excessive amount of highrise apartments in Melbourne for instance that were built and now sit virtually empty because no-one wants to live there.
My theory that the prices increase because the ratio of people vs. the number of “reasonably desirable” houses still stands.
As with any generalisation or rule of thumb, I do admit that there would be a variety of figures that one could find to tear it apart.
touche’
Live, Learn and GrowLifexperience
Love nothing better than a few good theories to play around with. This post has given me the most entertaining and informative afternoon I have had in a while.[biggrin]
I have been pondering the answers to a lot of these questions and getting bombarded with the Media Hype and canvassing brokers for a year now.
We have one PPOR ( house) and one IP ( unit ) in the south of Brisbane (Outer fringe CBD) and are in a pretty good position to buy again. So it has been interesting to see how the experienced investors are marking the current changes.
I feel more confident in sticking with our buy and hold strategy now
as the doubters were starting to get to me too.
Our two properties are in the same area and the prices here are still reasonable and with good rental yeild. I remember reading on a post though that you should be careful not to purchase too many properties in the same area.
Any thoughts on this.
Sorry to change the subject but I was so entertained by the post I thought that you guys might help.[happy3]Originally posted by eden:
[br.. I remember reading on a post though that you should be careful not to purchase too many properties in the same area.
Spreads risk, evens out returns. Not the most aggressive strategy but one I am comfortable with when I get tucked in at night.
We actually try to stay in the same inner 5km area because we are too lazy to do any research and we know this area like the back of our hands. There are streets I would not buy into and streets I’d rush to buy into.
Wylie.
^ ^ second to that. But we wondering around Wynnum/Manly Brisbane
[biggrin]Originally posted by gmh454:Originally posted by simple:.
Economy cycle up and down every 7-10 years.Sorry but can’t help myself. When was the last time Australia had a 7 year property cycle.
Terry
well i bought a place in chelsea VIC for 110k (1997) and sold for 260k (2002) I’d say that was a boom [exhappy]
i also did well on a phillip island unit (i sold early for family reasons) and made a tidy sum in 18 months..
it will happen again. my dad was a bank manager for 30 years – he still tells me when times were tough in the property market people would always question the 7-10 year thing, BUT hey it still happens.
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