Finding the silver lining in this housing cloud

So much for property taking off when the sharemarket drops. Even in 1994 when they both went down together it was the sharemarket that was first to take off again. This time the best that can be said for home prices is that they're going nowhere.

Just as no two properties are ever identical, some areas will do better than others.

Mind you, it might be hard to tell the difference since the key forecasters are tipping price movements of only 1 to 5 per cent.

That's plus or minus, depending on where you're talking about.

Considering the devastation visited upon the prices of listed property trusts which is getting a bit too close to, er, home, that's probably more a relief than a disappointment.

Dugald Higgins, associate director of Property Investment Research, says: "Only really high unemployment would hit real estate values. This isn't like 1991."

Although unemployment is expected to rise, a natural floor is the huge boost to the economy from the resources boom.

Yet even real estate prices in the resource boom states are struggling.

Prices in Perth are drifting down, after a huge and apparently unsustainable run-up, it should be noted.

In Brisbane, a state budget cut in stamp duty for first home buyers from September will give a modest boost to the lower end of the market but that's about it.

HITTING THE CEILING

Yet in all the capital cities there's a shortage of housing, resulting in rocketing rents.

Michael McNamara, general manager of Australian Property Monitors, says: "A high gross rental yield attracts investors and also pushes renters into buying homes."

More here
http://www.domain.com.au/Public/Art...nding the silver lining in this housing cloud

 

Food for thought in this article and I consider it more balanced than others in it's predictions of 1-5% falls, rather than the hype we've been fed otherwise about 30% crashes. And, naturally, it's going to vary according to location.
I believe that correction is the better term for the phase we're entering and, with Oliver believing our Oz market to be 30% overvalued compared to other cities in the world, he may well concur that it's time for the tepid market to continue for some time, until time eventually catches up.

One thing is certain, however, and that is the continual rising of rental yields. Less demand from investors = less rental stock available = higher rents. Pretty simple really.

As for Darlington being "the place" to invest for yields, I'd seriously be questioning the average quoted. After all, Darlington is such a tiny tiny suburb, wedged in between Redfern and Newtown, that the numbers may not be sufficient enough to be relied on as a statistic.

Still, I second McNamara's opinion that Sydney's well located units are somewhat undervalued and representative of good value at this time. I've thought this for a while now and can understand why investors would be picking these as IP's over the more expensive and virtually unaffordable Sydney housing in the same locales. Investors have ceilings as well when it comes to affordability and the land tax that also accompanies NSW investments is a major turnoff.

 

Hi Bill,

Every cycle is different as the macro environment changes. We can't just assume that because shares are falling as global credit markets unwind, that property will take off. Here's an excellent article from Robert Gottliebsen which describes the macro environment in Australia and the likely direction for investment capital in the coming few years. Really worth a read:

Business Spectator - Housing will have to wait

This has also already been hinted at by Glenn Stevens. Basically, resource and infrastructure projects are going to explode over the next two years creating a huge fiscal stimulus for the economy. In that environment, rates have to remain high to avoid property also taking off and creating too much stimulus simultaneously. But project forward three years and imagine what the environment will look like:

Massive investment in resource projects completed creating significantly improved exports and terms of trade for Australia.

Massive civil infrastructure projects completed creating stronger state economies and better urban infrastructure.

Massive immigration to support this huge growth still in place but all the work has dried up.

A significant lack of economic stimulus means the RBA starts to aggressively cut rates to feed a property cycle.

Pent up demand for a period, in Sydney at least, of almost 10 years since the 2004 peak, driven by massive immigration and a significantly improved economy based on a once in a lifetime resources driven economy.

I think you'll see houses more than double when the RBA takes its foot off the brakes on the back of the ensuing massive infrastrucuture build. It might take two more years for this build to play out, but yields on resi property will continue to grow in the interim at a phenomenal rate.

I personally can't wait. 2012 is shaping up to be a bumper of a year for resi property investors. I aim to get my ducks in a row now whilst the RBA holds rates up and rents are exploding. When they ease, and they will, the market will absolutely explode. Hence the oft quoted "once in a lifetime" ensuing property boom.

Of course, all just my humble opinion. But I'm backing it with action and looking to kick off my Mona Vale development next year in all likelihood. Already got financial pre-approval in place.

Cheers,
Michael

 

Michael

Good article, I was actually listening to 2BL the other day and they were talking about people going to Karatha to work in the mines.

I don't know if you are aware but the mines provide onsite accomodation
so you don't have to worry about renting a place near your work but these places are often not suitable for a family so flying in and out is the way to go.

Anyway, this guy on the radio was saying that he was planning to rent a flat in Perth for when he has time off work every 2 weeks.

I thought why would someone pay rent to hold a flat which he will be using once every fortnight when for a few hundred $ he can fly home to his family in Sydney, Brisbane or Melbourne.

Cheers

 

Bill
Thats easy. Most of these guys have marriages on the rocks because they are away from home all the time. The flat is a safe haven!

 

Looking at the suburb I have purchased in 6 months ago, it has been going up each month.

 

Well done CRC, sounds like you chose a good location.

This is not all bad, unless you have a short term view of proprty investment. There is time to research and buy wisely, in the low, and higher rents will help offset interest rates. The silver lining comes when the Reserve Bank drops interest rates to stimulate house building as compensation for the infrastructure builds coming to an end. If true, that will create the next boom while building struggles to catch up the pent up demand.

The glass is half full! ... now if only I could get another deposit together, since there's not much equity growth ... Dave