Is property investing really all its cracked up to be?

That's a real knee slapper!

Oh wait, you're not serious about Ed Chan and Michael Yardney are you? If so, apologies; it might look as though I'm mocking you. I'm not, I really thought you were joking.

Cheers,
F. [cowboy2]

Well, here's a 'for starters'. I'm not sure who is more disgraced by this article – Michael Yardney or the so-called journalist, Ben Langford.

http://www.news.com.au/story/0,23599,21426161-421,00.html

The sickest thing is that people will actually read this and believe the numbers as given. Some will no-doubt make financial or investment decisions based on this and other bubble-speak. Ugh.

He did a similar thing for (I think) Adelaide and Brisbane…

F. [cowboy2]

This is closer to theology than to economics.

Make no mistake, the capacity of the punter to buy property is a function of the preparedness of someone else to lend the money. That particular money-pump is slowing at a significant rate and both the price and availability of credit in now and for the next 12 months will be very different from the circumstances of the last 5 years which have driven demand.

There is no magic pudding.

Well if you want to talk about foresight, didn't Steve sell all his property a short time ago?

From my calculations, the article stating Darwin prices to hit $8.36M in 30 years, based on 8% growth and median price of $385,000 is WRONG.

Based on 8% growth over 30 years, the price would be $3.87M, and after 40 years, $8.36M, after 100 years $846M,

If inflation is 4% per year for 30 years, at the risk of sounding like a moron asi have absolutely no qualifications in this field… from what i calculate, 4% inflation based over the next 30 years, would make this $3.87m property in Darwin, hypothetically worth $1.13m in todays currency. 

Based on rent yields of say 4%, to rent this property would in todays dollars, be rented for $875 p/w.

Don't get me wrong, i just cant see how people will be be able to afford this unless wages increase dramatically or if inflation increases drastically.

If i change the inflation to 5%, the value of the property in 30 years in todays value is about  $831k, still with a 4% yield, rented at $639pw, i'd argue it's still unaffordable for most people in todays market.

So what has to give?

I understand the concepts and the power of compounding investment…

What i dont understand is how people will be able to afford property in 30 years time, on the basis of 8% average growth for 30 years, take Darwin as an example used before:
Annual Average Growth 8%
Annual Inflaction 4%

Median price today is $385,000
Price in 10 yrs –    $831,186
Price in 20 yrs – $1,794,468
Price in 30 yrs – $3,874,122

Based on 4% inflation per year, the figures in todays dollars would look something like this (unless i have stuffed up the calcs)
Price in 10 yrs –    $552,599
Price in 20 yrs –    $793,159
Price in 30 yrs – $1,138,440

Wages will increase which will provide some compensation, but I don't think it will be enough to cover the amount.

Loan Amount House in Darwin
Morgtage Payments on $385,000 @ 8% – P&I are: $2824 per month

Loan Amount House in Darwin @ 8% in 10 years
Morgtage Payments on $831,000 – P&I are: $6097 per month

How can we afford to pay such high mortgages for property 10 years down the track?

If prices do rise to that level, and people can't afford it, more people will rent, but want rent can we afford? 5% Yield for a $831k property is $41550 a yea, or about $800 p/w for rent.

I cant see how the current trend of captial growth can continue for the next 30 years? Can anyone enlighten me?

OK, back to the initial post…welcome blah blah blah have a good time blah blah blah and so on …first and foremost, as your first post in a "property investing forum" I think the question is a bit loaded…

Anyway, you forgot to think about rental income, as well as using the CG to buy another property, depreciation  etc…
 
Bye bye…

Gosh, let's see… Nope, this is rubbish too. You can't say 10% per year (implying compund growth) if it hasn't been following that exponential trend. Refer to my picture – the playskool ™ one.

Furthermore, 10 years is not 'long term'. I've researched property prices all the way back to the very first subdivisions of Melbourne and going back over 100 years in Sydney. I know my stats.

Growth has not followed an exponential trend in over the long term. And house prices have not risen rapidly in real terms for the bulk of that period. Which makes sense, because that would be impossible.

Cheers, F. [cowboy2]

Well Phil, perhaps property isnt for you. A local managed fund linked to China is currently returning 107% PA……….

Bingo! The fact that the maths are wrong and the prediction a whole order of magnitude to high should flash great warnings. But that's far from the only problem with the article and predictions. I haven't read Mr Yardney's book. Perhaps I should do that.

Yes, you can, but I won't answer you! Let's just say I value my privacy and my field is very sparsely populated. My job doesn't relate in any way to the housing market, but I deal with data, stats and predicting the future using information from the past. I'm not an economist.

I've given a rambling explanation of my concerns over using simple extrapolation of recent trends to predict house prices over long-term over on this thread as part of a debate with one of our most prominent property analysts. Let me know what you think. My proposition is that house price movements are driven primarily by debt, that recent trends in debt are unsustainable, and beyond a certain limit further price increases will rely on income growth. This is why it doesn’t make sense to expect house prices to forever grow in compound fashion at a faster rate than wages.

Cheers, F. [cowboy2]