All Topics / Help Needed! / What do you make of the most recent bubble talk?

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  • Profile photo of MikeMike
    Participant
    @mikesonthemic
    Join Date: 2008
    Post Count: 43

    Hey fellow property investors.

    Seems there has been an ever increasing amount of speculation regarding Australia’s property bubble and the imminent bursting of it.

    I’m interested to get some real world “feet on the street” comments and perspectives…

    I personally lived through the 2007/08 crash in the UK and subsequently purchased 5 properties in London that have has massive growth and return around $50k (depending on the exchange rate) profit per year. Looking back it was a golden opportunity to get into the market and perhaps it was my releative nievaty that allowed me to do so while there was so much blood on the streets and doom and gloom.

    Is Australia’s buying opportunity next? Or can it never happen in Australia?

    What’s happening right now in Sydney and Melbourne smells the same as the uk accept nothing has actually happened yet.

    This is not s doom and gloom post… I’m genuinely interested in what you’re hearing… Is financing harder? Is your due diligence more robust? Are you partners and colleagues concerned? Are you deleveraging?…

    Australia’s market has been about the burst for the past 10-15 years, but is it different this time?

    Will we see a sharp correction or a sideways meander for 5-10 years?

    Would love to hear your real world thoughts without cherry picked graphs :-)

    Profile photo of DeanCollinsDeanCollins
    Participant
    @deancollins
    Join Date: 2015
    Post Count: 376

    Lets say in 3-5 years from now interest rates got back up to 7% thereby causing a drop of 10-25%

    ok…..

    But if property goes up 3-4% every year between now and then (with the long term average being 8% then basically property over the next 3-5 years has gone up 9%-20% with the hope that it goes down 10-25% at that time.

    For any number of reasons we wont see a mass long term drop like the USA (mainly around job portability…..no way 50% of Orange is leaving Orange to move to New Castle or vice versa etc).

    My advice is buy smart now, low ball offers, if you get turned down….no harm no foul and bid on the next property you see. You could probably buy one to three smart purchases between now and when rates crash and build up equity to be used to buy smart in the ‘normalized interest rate hike’ crash….if and when it happens.

    Profile photo of stgstg
    Participant
    @stg123
    Join Date: 2016
    Post Count: 2

    I am finding it more and more difficult to conceive that the interest rates will normalize again. Lets face it, if the interest normalize to the equivalent of say 7%-8% that would cause catastrophic effects to the borrowers cash flow. For one, rents would sky rocket (bad), and in same cases would be foreclosure (worse). Lets keep in mind that the banks don’t want any property crash. Most investors borrow 100% of the funds so the banks and their insurers are actually at risk should there be a crash.

    The most interesting thing here is that when property was on the up side and was during the crazed period last year, everyone (the media) was attempting to slow the insanity down. You need to ask yourself why? Why would they want to dampen sentiment? Experience tells me that something else is coming the will drive house prices to astronomical levels.

    Remember the housing booms of not so long ago, the same sentiment would be around when house prices doubled? You would hear the attendees of an auction walking back to their cars uttering the words, “That was nuts!”, “Insane!”, “Are you serious?!”, “WTF is happening?” etc. Now, those prices that were so high back then (I’m talking about the the early 2000-2010) have now doubled again!

    Back to my question about what will drive house price up again. That answer my friends is simply this, interest rates are going down again! In my opinion, twice this year. Global interest rates are heading towards 0%. And in same countries, its negative. Currently the RBA is sitting on 2%, two cuts of .25% are coming to bring it down to 1.5%; and who knows where we’ll go from there..

    Keep your eye on inflation and unemployment figures.

    Happy investing.

    ##########
    Disclaimer: This is NOT investment advice. Please speak to your qualified financial adviser for investment advice.
    ##########

    Profile photo of Alistair PerryAlistair Perry
    Participant
    @aperry
    Join Date: 2004
    Post Count: 891

    I think the question of whether house prices are in a bubble is a very interesting one. My personal view is that they are, but I also do not think it will be popped any time soon. There are too many vested interests in their not being a correction, notably the banks and the Gov itself. Having said this, I have no doubt that at some stage this will all end badly I just don’t expect it will be any time soon as the Gov still has a lot of resources it can throw at any short term problems and would rather sacrifice our lifestyles than to have the financial system ruined.

    Profile photo of stgstg
    Participant
    @stg123
    Join Date: 2016
    Post Count: 2

    There is one key difference between Australia and say the USA, a country that experienced the devastating housing bubble burst. That difference is population rate. Australia is said to be growing by an equivalent of 1 new person every 91 secs. Whereas in the US for instance, the (official) growth rate is slowing down considerably.

    So that’s roughly 350,000 people per year for Australia. These 350,000 people need a roof over their head! Wow! Also, people tend to forget that Australia is an infant in terms of its age since the first settlement, so we have tonnes of potential and growth to do.

    I agree with the fact that this bubble(I’m reluctant to call it a bubble) ain’t ending any time soon, however, I will dare to say that it wont end at all(given the population growth and borrowing interest rates to remain at current rates or better). We will continue with the usual ebb and flow of any economic cycle, but I doubt that there will be an armageddon style implosion in the Australian housing market (especially in Syd/Melb)

    Profile photo of MikeMike
    Participant
    @mikesonthemic
    Join Date: 2008
    Post Count: 43

    Hey Alistair,

    When you say:

    the Gov still has a lot of resources it can throw at any short term problems and would rather sacrifice our lifestyles than to have the financial system ruined

    What are you referring to and why will it be effective at alleviating short term problems? What is short term in your view?

    Profile photo of Alistair PerryAlistair Perry
    Participant
    @aperry
    Join Date: 2004
    Post Count: 891

    Hi Mark,

    Primarily they can reduce interest rates which would most likely have a positive impact on property prices. A significant drop in property prices would have a dramatic effect on the stability of the banking system, so while they want growth reduced and are actively seeking this through various policies they do not want prices going backwards.

    In the context of quote above I was referring to anything that happens in the near future i.e. next few years. I probably should have said “problems that occur in the short term”.

    Regards

    Profile photo of CattleyaCattleya
    Participant
    @cattleya
    Join Date: 2008
    Post Count: 121

    Hi Alistair,

    Agree that RBA will reduce interest rates to defend the economy. However, at 2% it is now, there is not enough ammunition to go round. As a comparison, just before the GFC the interest rate was 7.25% and the RBA reduced interest so rapidly – 6 times in a year – to get to 3%.

    Mervyn King, the ex Governor of Bank of England, predicted another financial crisis and this time most governments do not have much ammos. We are now heading into negative interest rates where the banks pay for the privilege to put money in the Central Bank. Euro Zone and Japan already have negative interest rates and last month Alternative Bank Swiss (ABS) became the first bank to pass on this negative interest rate to its retail customer ie. the bank charges fees for customer savings. http://www.thisismoney.co.uk/money/news/article-3329324/Swiss-bank-ABS-hit-savers-negative-rates.html

    What I am saying is, sure the RBA will reduce interest rate to defend the economy. But soon, it will impact the other companies and retail customers leading to redundancy, bankruptcy, unemployment, etc. If the economy is not healthy, there is no way house prices will be stable let alone going up.

    Also, Australia is a small economy (rank 12 at US$1.4bil) such that if the big economies sneeze, Australia gets pneumonia. It seems like 3 of the top 4 might be sneezing very soon.
    – Euro Zone as a whole is the biggest economy in the world, followed by US, China and Japan. Of all these 4 powerhouses, only US seems to be getting better. Euro Zone and Japan are already in negative interest rate, there is Brexit referendum in June, refugee crisis in Europe.
    – China is weakening as well.
    – Oil price is weakening – impacting Russian and other oil producers’ economies.

    I am not scaremongering, but depending on what happens in the next few months there might be another financial crisis. Might be bigger than the last one because it will be a sovereign default where the central bank cannot bail themselves out. Earlier this year, Deutsche Bank was in trouble and still is. And if it is another crisis, RBA with only 2% ammo will not be able to save the day for property prices. Might be a good buying opportunity, though. In the meanwhile, cash is king.

    Fingers crossed nothing bad happens,
    Catts
    Here to learn the ropes of property investing, not trying to sell anything.

    Cattleya

    Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

    Profile photo of DeanCollinsDeanCollins
    Participant
    @deancollins
    Join Date: 2015
    Post Count: 376

    @cattleya not sure the USA is doing that bad. Very positive jobs number today and oil is back up (ridiculous as means speculators raking it in…..consumer not benefitting at all).

    After today’s results I think Yellen is a shoe-in to raise rates in June.

    Profile photo of CattleyaCattleya
    Participant
    @cattleya
    Join Date: 2008
    Post Count: 121

    @dean – I said 3 of the top 4. The 3 are Euro Zone, China and Japan. The exception is US. I did say “..only US seems to be getting better.”
    ;)

    Having said that, at 0.5% there is not much ammos either before US get into negative territory like the Euro zone and Japan.

    Cheers,
    Catts
    Here to learn the ropes of property investing, not trying to sell anything.

    • This reply was modified 7 years, 11 months ago by Profile photo of Cattleya Cattleya.

    Cattleya

    Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

    Profile photo of CattleyaCattleya
    Participant
    @cattleya
    Join Date: 2008
    Post Count: 121

    Another worrying article from BIS (=Bank of International Settlement aka the Central Bank of all Central Banks)

    http://www.telegraph.co.uk/business/2016/03/04/debtor-days-are-over-as-bis-calls-time-on-world-credit-binge/

    Quote: “…This provided a “telltale” sign that the financial conditions were reaching an inflection point, accompanied by large depreciations in emerging market currencies and slowing domestic growth.

    “It is as if two waves with different frequencies came together to form a bigger and more destructive one”, said Mr Borio. …. But “confidence in central banks’ healing powers has – probably for the first time – been faltering” said Mr Borio. ”

    Claudio Borio is the Chief Economist of BIS…

    Hope this helps in determining your short term strategy,
    Catts
    Here to learn the ropes of property investing, not trying to sell anything at all.

    Cattleya

    Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

    Profile photo of DeanCollinsDeanCollins
    Participant
    @deancollins
    Join Date: 2015
    Post Count: 376

    Yes I think people are over leveraged…..(personally we are about 10% more than comfortable at 65% with 1.3m outstanding in V+F mortgages) but do you really see a snap back for global borrowing costs within the next 2-5 years?

    I don’t mean Australian borrowing eg vampires charging as much as they can over and above any RBA moves.

    What I mean is globally will NIRP and ZIRP all disappear within the next 2-5 years as borrowing costs tighten dramatically like BIS seem to suggest?

    My main concern at the moment is don’t be too under leveraged as otherwise Australian rising property prices will eat you up. I’d be happy for a downturn…..but don’t think its happening until rates rise sharply.

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    We see periods of rises, periods of falls and periods of flat trending prices. Currently in Australia there are markets doing each of these.

    I can’t see any systemic changes which will cause a major crash – just more of the same. Much as the previous Sydney peak in 2003, I can see the prices tempering there and values moving sideways until inflation and wage growth creates yet another ‘affordable’ time.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of Jason StaggersJason Staggers
    Participant
    @jason_staggers
    Join Date: 2006
    Post Count: 61

    @deancollins I’d say the recent jobs report is mostly smoke and mirrors – many of those new jobs are low-paying and part-time in hospitality and retail. Don’t see another Fed rate rise coming myself.

    Jason Staggers | JasonStaggers.com
    http://jasonstaggers.com
    Email Me

    Profile photo of Alistair PerryAlistair Perry
    Participant
    @aperry
    Join Date: 2004
    Post Count: 891

    Hi Catts,

    I don’t disagree with your assessment of the world economy, although I don’t believe the US is in very good shape at all. The major difference between now and pre GFC is that a large proportion of the risk lays with Governments and Central banks, most of whom have large debts denominated in their own currencies. Countries that issue their own currencies can only become insolvent by choice, as they have the option of creating more money (printing). For there to be a major crisis with Central Banks there needs to be a loss in faith in currency, such as we have in Venezuela at the moment or the Weimar Republic pre WW2, I think we are a long way from that occurring although I feel it is inevitable.

    Regards

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