Forums / Property Investing / General Property / October 09 Property Crash Begins

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  • Profile photo of WJ HookerWJ Hooker
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    Lets be real. Property has been flat for last 3 – 4 years relative to inflation. Australian property is overvalued by at least 20% relative to the rest of the world.

    We have had 3% drop in interest rates, first home buyers bonus on bonus and stamp duty reductions, everything to make house prices "double every 7 years" So if its been flat then we are in for it now.

    Interest rates to rise ( November and December rate rises predicted ), first home owners bonus cut backs, unemployment to stay high, consumer inflation out of control ( rates, water, power, food, petrol, etc etc ). Government now needs to stop its stimulus package and then get its money back from us the tax payer. ( Indian givers ). World wide financial problems, consumers trying to reign in debt levels.

    Is it only myself that feel house prices are going to come crashing down over the next few months or years??

    Profile photo of j900j900
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    I'd say it's just yourself…. or the area you live in….

    Profile photo of LockymacLockymac
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    Yeah i feel positive about my area and Australia in general with the population expected to reach 45million by 2054.

    Profile photo of WJ HookerWJ Hooker
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    Perhaps I should have added a question mark ?? after the statement.

    This just posted.

    Just like a giant ponzi scheme, people have paid to join and will only realise profits when the next generation pays even more to jump on board.

    The problem that Mr Stevens is warning us about is that one day, perhaps not too far away, the next generation won't have enough money to buy their tickets.

    The only outcomes in that event are young people staying at home until they inherit it, homelessness surging or house prices falling sharply when people can't afford their mortgage payments anymore, or most likely a combination of all three.

    Either way, without action to increase supply and moderate further land price rises, the real estate gravy train is destined to derail in Australia, just as it did in the UK and US.

    As Mr Stevens himself said, "the prominence of household demand in driving the expansion from the mid 1990s to the mid 2000s should not be expected to recur in the next upswing" – and that inevitably must include house prices.

    Profile photo of Dan42Dan42
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    Unemployment is under 6%, and interest rates, even factoring in a 0.5% rise in the next few months are still low.

    The 'Steve Keen's' of the world were predicting 40% falls in house prices at various times over the last 12 months. It is starting to sound like the boy who cried wolf.

    Profile photo of ducksterduckster
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    I am reading a book about the depression ahead that is due in 2010 due to demographics.
    http://www.hsdent.com/tgca_pr.pdf
    It is a USA book but when USA sneezes we feel the effect here.

    Profile photo of Michael 888Michael 888
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    There are markets within markets and sub-markets within them.

    I don't see any further correction. Lower end with FHOG scaling back might soften or track sideways and then there is a case to be put forward that investors may pick up the slack.

    The higher end took a hammering with the stock market bear market and has since bounced back…….at least it has around bayside Melbourne where I live.

    As for the future, property has never ben afforable, particularly  if the prosepctive buyers have over-inflated expectations and must have it all now in exactly the location they wish to be, or they must have brand new McMansion with theatres and outdoor rooms lager than life. Many generations prior, people started out where they could and upgraded. So the instant gratifiers can either keep renting where they would like to live or buy somewhre else to get their foot in the door.

    Westill have a 70 % owner occupier rate here in a generic sense. In the UK and other parts of Euope, it is as low as 40-50%…..hence many more tenants. This may occur here also.

    Property is not only driven by investors, owner occupiers predominate and as it is a basic human need (and we are told that there is an under supply), I don't see the sky falling in.

    I am not suggesting it's blue sky and everything is roses, however fundmentally, we are chugging along fine. If interest rates rise and some over-etended FHO struggle, then there will be some nice IP's to pick up.

    I have read the book duckster refers to and the book title (The Great Depression Ahead) is far more bearish than its contents. Harry Dent does clarify that Austrlia is far better poised to emerge relatively scar free from the smoke and mirrors of the sub-pime mess and financial derivative products that were more akin to Ponzi. It is credit here (from that fallout) and ultimate development funds that are harder to source and yet we have a shortage of stock…………augurs well for upside to the suply and demand scenario me thinks

    His book is however interesting as far as demographics and cycles specially for share markets (sectors) and also job cycles.

    WJH, personally I cannot see a crash here in Australia………..perhaps softening in FHOG driven outer suburb fringes with little or no amenity that might see its purchasers struggle with rate rises whilst settling for a brand new (shiney) box and the obligatory high end Falcodores, and theatre systems whilst notching up plenty of credit card use. 

    Not posting here as much these days, however I have been sounding like a broken record when I caveat that one needs to keep portfolio LVR's conservative moving forward. Now is not the time te be an uber-bull and max out LVR's and servicibility…….those days will come however not right now.

    mattnz
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    Robert Kiyosaki also wrote a book which outlines the impacts of demographics which will cause a huge sharemarket crash as the baby boomers are forced to withdraw their investments to live off. From memory it was around 2014 that it would start as in the US they made it compulsory at a 70 years old you must start withdrawing your money from your 401k plan.

    I think the Australian government’s policies have been a huge reason for people not wanting to have a gradual entry into the housing market and instead buy the dream home you could raise a family in. Your first home gets all the concessions, no stamp duty, in NSW at least, or if building your dream home, you only pay stamp duty on the land. To buy a home and then later upgrade to another, you are looking at $50k+ in transaction cost.

    As land costs have gone up extraordinarily, while building costs haven’t increased at the same rate, why not pay $500k to get a house twice the size of a $400k house and never have to move again.

    Profile photo of sonyasalsonyasal
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    If you don't plan to sell your property then you may be in a great position to benefit from future generations who can't afford to buy into the housng market. They will more than likely then have to rent a home, perhaps one that you own.

    If you do your research  and buy well with the intention to buy and hold, I can't see how you can come out backwards, just my thoughts. cheers Sonya

    Profile photo of devo76devo76
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    I am know expert and do not pretend to be but these days i tend to zone out when i hear a claim . " property will drop ##%  in the first quarter of 201? " Sure someone may get it right eventually but most will not. I think you have to think about the area you are investing in yourself more than anything. My area for example is still well below 2004 levels. Dont tell me about a price correction because i am still in the middle of one.

    I think the comparison to other propertie markets can be an unfair one. Sure we are highly priced compared to the US and UK but they are in deep s##t.When these areas recover do we expect there house values to stay low or would you expect an upward correction. This may be in bad taste but i bet if you compared the current  tourist levels visiting Samoa to that of Fiji it would look like Fiji  Is the best bet. It is the best ATM for obviouse reasons but Samoa will recover and return to normal as will Property overseas.

    having said that i do agree Aussie property is pricey but lets compare oranges with oranges. Will we have a correction. Probably. Will we have a 40% correction Australia wide. No way. That would put my PPOR and many othere on the east coast at well below replacement cost of the building alone. It aint going to happen across Australia as a whole.

    5% 10% 15% years of no growth. These are all possible but property is still my direction for long term wealth.

    Profile photo of Sailesh CSailesh C
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    How do you measure affordability and peoples basic need for shelter.

    It was only a mere 20 odd years ago that you could have purchased a run down old Queenslander in Bulimba for $60k the same property today would sell for around $550k. The person who purchased the property would have borrowed a large percentage of the purchase price to get into the property and based on the wages at the it would have been a struggle. Wind the clock forward a person buying the same property will have the same struggles and the person who purchased the property 20 odd years ago.

    Therefore, I believe property prices are relative to the time we live in and we should accept that prices will continue to rise and will not fall back to where they where in the past.

    Markets correct themselves in the short term therefore it is not a good idea to buy in the tail end of a boom. If the market has been stagnant for a few years then it is always a good time to jump in as soon as there are positive signs.

    Profile photo of 1Winner1Winner
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    WJ Hooker wrote:
    Lets be real. Property has been flat for last 3 – 4 years relative to inflation. Australian property is overvalued by at least 20% relative to the rest of the world.
    ……………
    Is it only myself that feel house prices are going to come crashing down over the next few months or years??

    I don't get this obsession of quoting "overvalued" RE market. What is overvalued? Who is this misterious conspirator that overcharges the buyer? Prices are the reflection of demand and unlike Cuba we have a relatively free market. Relative I say because  every man and his dog who owns a dog kennel tries his best in fanning some influence on the market be it by krying poor, krying foul, assuring that the sky is falling as we speek or that prices will double next year.

    Prices have been flat for the last 3 years? Not really, prices have gone down for 3 years and are now slowly and patchy on the way up again.
    When the current governemt credentials are probably the worst we ever had, no rate increase or halving of the first home buyer's grant will "crash" the market.
    There is something much more sinister to keep watch and protest against at the top of your voice, and that is the "emmissions" trading scheem. (I don't know why but the word emmissions invariably reminds me of passing wind)

    As far as RE market, I think that the last year has been a golden year for investors and the next one to 2 years will be just as good. The influence of the unemployment figures will pale when compared to the population boom from birth and migration, and Sydney gets most of it.
    The specter of the baby boomers retiring and moving all to the Gold Coast has been done to death. Yes there will be a trend but it will not change life as we know it.
    We will have to go back to early 90ties to find a time of opportunities like today and it will probably take another 10 or 15 years to repeat itself.
    If you don't like the market as it is now, try Dubay. They are selling at 50% discount. Tell me when are you ever to see this again?

    PS
    Who was that genius that teaches economics in some university who sold his property after the boom 3 years ago and predicted that the proerety would lose 50% of its value in a few years and he would be able to buy a better house with the money he is keeping safely in the bank?
    Pure genius!

     

    Profile photo of kum yin laukum yin lau
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    Hi, is this Australia you're talking about? Property prices have been flat for 3 years? Where oh where? Can you name some suburbs please? I'm under the impression that even a hole in the ground has gone up in price. My PM actually said that someone might need it for a rubbish tip. And he's right. The holes in Wingfield have gone crazy in price.

    KY

    Profile photo of AUSMaverickAUSMaverick
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    ……………………"Lets be real. Property has been flat for last 3 – 4 years relative to inflation"  ??   

    Flat prices-where in Australia/when ? – Novice investors should not believe sensational media hype headlines, Australia is NOT just ONE property market each state & city is in it's own part of it's own cycle.        Just to prove this point Darwin (where I live) growth for last 12 months.     medium house price growth is 17.3%  & medium unit price growth is 19.8% & ……..no it's not a mining town !   SO IP investors what's all the current doom & gloom about? – dare to be different & get out of your comfort zone.
     
    michael888 & 1winner – great input & comments, I am not an incureable optimist however I agree with what you have both said.

    "the same kind of thinking that got you to where you are, will not get you to where you want to go"

    Profile photo of keikokeiko
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    If the goverment did not do the fhbg then I think property would have gone backwards very quick in the middle of this year, It will be interesting to see what happens after christmas, we seen the top end market take a good hit and i am thinking we may still see the cheap stuff under 500k drop in value over the next year or two and then be flat several years after before taking a few small climbs then flat then a big blow out again.

    But I don't care either way realy, there should be more deals to be had.

    Profile photo of jmiellejmielle
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    Profile photo of Dan42Dan42
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    jmielle wrote:

    Most of what is said in this Youtube rant is garbage, and nothing is backed up with any hard evidence. It sounds similar to the doom and gloomers that were on this site about 6 to 9 months ago. Most of whom, incidentally, are no longer here.

    Profile photo of AUSMaverickAUSMaverick
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    Joel,

     ""a pessimist is someone who complains about the noise, when opportunity is knocking at the door" 

    "the same kind of thinking that got you to where you are, will not get you to where you want to go"

    Profile photo of jmiellejmielle
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    Dan, I’m still a property investor as we speak today, in fact I bought a property 2 months ago and looking at developing 3 units. But the data is there to back up my (Garbage Rant as you put it), outlining how over inflated our properties really are, people, couples with good jobs, nurses, teachers etc. cannot afford to buy a house. Something is wrong. Our prices are much dearer in Australia than what they were in US before the crash. We have further to fall. The only reason we haven’t crashed yet is due to the population explosion the country is undertaking, and a quick fix injection of funds, with no long term prospects. If the Real Estate Market doesn’t crash within 12 months, at best it will just stand still, but forget your 10% yearly increase in property, those days are well and truly over. Renos and developments will still bring you profits, but capital gains?

    Profile photo of Dan42Dan42
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    Are you telling me a couple of teachers, earning $55,000 a year each can't afford a house? They might not be able to buy where they want to buy, but they could buy in plenty of suburbs in capital cities.

    If the Real Estate Market doesn't crash within 12 months, at best it will just stand still, but forget your 10% yearly increase in property.

    I don't think many people are predicting 10% increases at the moment, but in your post you were predicting a FALL. Are you backing away from that now? 

    I also don't buy that the FHOG has boosted prices by the 20% figure that you plucked out of thin air. First home buyers make up less than 10% of the market, and yes, they probably did help the lower end of the market. But I'd like to know how you came up with 20%.

    Other reasons we haven't suffered the price crash of the US is we have such a small minority of 'subprime' loans, our overall economy is in better shape, and our unemployment rate is about half of the US.

    Search some of the archives on this site and you will see that there were many similar posts about 6 to 9 months ago, saying exactly what you are saying now.

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