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Have we bottomed out?

Discussion in 'Real Estate' started by Jacque, 5th Mar, 2006.

  1. Jacque

    Jacque Team InvestEd

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    Interesting article in today's FR Investor section of the Herald. Latest Dec quarter house price index figures show that prices went up in every single capital Australian city, Sydney included. Albeit Sydney's rise was only 1%, but still possibly significant after the falls recorded from 2005 figures.
    Experts in property are still divided on whether or not this actually means we have reached the bottom of the cycle, or perhaps we're in for a stagnant period of growth instead.
    The most pessimistic view came from AMP Capital Investor's chief economist, Shane Oliver, who said "Australian housing remains 20 per cent or so overvalued, it is amongst the world's most expensive, housing affordability remains poor and (still) low rental yields will keep investors away for some time. Even if prices look like re-accelerating it will only invite another interest rate rise by the Reserve Bank"
    There is going to be a featured special in next week's AFR Investor which is being promoted as a round-up of the country's hotspots, the lowdown on the easiest ways to buy with other people, how to invest in the stock market and information on the newest home loans.
     
  2. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Jacque,

    IMHO, we've hit "a" bottom, but not "the" bottom. In any sliding market there is the occassional dead cat bounce. I think we're seeing evidence of this in the Sydney property market now. Prices have come off so far that some sentiment had to turn positive. We're seeing this with a marginal recovery in median prices. Once that sentiment is exhausted I think we will continue to see the slide through the next couple of years. Prices are still well above their long term trend based on affordability and have a fair way to come off yet.

    Just wait until Winter and then you'll see what the true market sentiment is like. I also believe that the RBA will move on rates in the second half of 2006 and this will have a significant impact on property market sentiment.

    I don't expect a sustainable boom in property prices to be possible for at least another three years. Fundamentals just can't support prices too much above where they presently are.

    Cheers,
    Michael.
     
  3. Nigel Ward

    Nigel Ward Team InvestEd

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    Michael, what do you think the Fundamentals are?

    (I haven't reached a final opinion on this yet I might add :D )
     
  4. Glebe

    Glebe Well-Known Member

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    I think a strong economy will provide some support level. People shouldn't be defaulting on loans etc.

    But I wonder if the continual tax cuts will see reduced demand for negatively geared properties.
     
  5. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Nigel,

    Dollars... It all comes down to affordablity as a percentage of take home pay as well as yields from an investment attractiveness level etc etc.

    Prices are at unsustainable levels and something has to give.

    1. PPOR buyers: Mortgage repayments are at too high multiples of take home pay. Any upwards shift in interest rates and they'll lose their home.

    2. Investors: Won't buy as the yields are crap and prices can't go anywhere because of point 1.

    Either prices need to come down or yields need to go up. Until you can see yields in Sydney equal to or higher than the prevailing interest rates on mortgages, then I reckon there's little scope for growth. For everything there is a season, and its mid-Winter for Sydney property right now. Maybe I should patent that analogy and write a book about cycles and make a motza, I hear its easily done! ;) Seasons beat clocks anyday!!

    Cheers,
    Michael.
     
  6. Jacque

    Jacque Team InvestEd

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    I'm with you on this one, Michael. Seems you and I think alike :)
    Rental yields, though slightly improved, are still a long way off the long term Australian average of 4%. 2.9% is just miserable, if you ask me.
    Making judgements based on the results of one quarter isn't sufficient, as statistics can all too easily be skewed or misinterpreted, as we all know.
    And you make a valid point about fundamentals such as wages, Michael, as the average price for all Aussie capital cities remains at 9.5 times annual income, as opposed to the historical average of 6.5 times.
    I just hope that the govt doesn't do anything silly like increase the FHOG to further stimulate housing prices that really just need to cool off for a while.
    Quite frankly, there aren't as many investors in the current market to indicate that the market is turning upwards again. Yes, there are buying opportunities out there (if you have the time and inclination to go searching) but unless the numbers stack up, and you ensure you buy in the right areas (high demand, popular for home owners, consistent cg record over last decade etc) I believe that time is indeed on our side in this part of the cycle.
     
  7. perky

    perky Well-Known Member

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    I am of a similar opinion to Jacque and Michael. I cannot see price rises happening until at least next year or the year after.
    In the last few months the economy has slowed somewhat - led by NSW which has the slowest rising economy in OZ. With a possible chance of an interest rate rise later in the year, and too many taxes in this state (esp the Land Tax) , prices will probaby remain stable (and may drop more in outer western areas) over the next 12 - 24 months. Eventually increasing rental yields will catch up - and stimulate the investor market. But not yet.
     
  8. Tropo

    Tropo Well-Known Member

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    Jacque,

    I heard on Nat.TV that houses which cost few millions each are selling right now like hot rolls.
    Does it try to tell us anything? :confused:
    :cool:
     
  9. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Tropo,

    Nope. The top end of the market are "luxury" goods and not "normal" goods under the old economic definitions. So they behave differently. There is certainly a fair bit of wealth that has been built up through the last boom and I'd suggest a few of the ones that benefited the most from it are now showing off just how much they made by buying the most prestigious PPOR they can.

    The other 99% of us are still in the sub-$2M houses and rely on our monthly salaries to pay off the loans and not our multi-million dollar asset portfolios. I'm trying to get into category 2 but aren't quite there yet.

    Cheers,
    Michael.
     
  10. Tropo

    Tropo Well-Known Member

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    Michael,
    You may well be correct.
    I wonder why big money (smart money) is buying right now ?
    I guess-they are buying for quite some time, if we can hear about it now on Nat TV.
    So - does smart money know something we will learn in the near future? :eek:
    "I'm trying to get into category 2 but aren't quite there yet" = you are not the only one ... :cool:
     
  11. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Dude,

    I guess the key point is that the smart money isn't buying IPs now. They're buying luxury PPORs now. Big difference. If they were buying bog standard IPs en masse then I'd see this as a big lead indicator. The fact that the luxury market is bouyant just means that there was money made in the last boom and still a bit of it flowing around.

    Not much of it, if any, is going into investment properties right now. Smart money is working hard in other vehicles with much better than 3% yields.

    Cheers,
    Michael.
     
  12. Tropo

    Tropo Well-Known Member

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    Dude,
    That's fine, but do you remember dot.com era?.
    Well....in the end of the dot.com boom smart money was buying million dollar houses in Melb, Syd etc...
    The same story is happening right now...
    I think that having enough equity in say 4 mil house you can get few IPs in the one go.
    The time is not right yet, but smart money's current move is telling me something.
    :cool:
     
  13. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Gotchya,

    Thanks mate,
    Michael.
     
  14. Simon

    Simon Well-Known Member

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    How do you know it is smart money?

    Surely only hindsight will tell us that?
     
  15. Tropo

    Tropo Well-Known Member

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    Unfortunately, only hindsight will tell us the whole story.
    What is happening now (if this info is correct) reminds me what was happening at the end of dot.com boom.
    At this stage it sounds like speculation. But I think it's something to think about.
    :cool:
     
  16. Sean

    Sean Member

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    Another thing worth pointing out is that "smart money", if that is indeed who is buying, do/does not move with the masses, but well before.

    It would also be interesting to know where these buyers are coming from. Are they locals or international investors? If they are predominantly OS buyers it may be because our market is still good value when compared to the rest of the world. I recently heard (can't remember where, radio I think) from someone living there, that London is extremely pricey. More so than gets reported, quoting a figure like 3mil to 7mil quid for an average house in the city. :eek:
    I'd like to know how accurate the claim is because that really makes Sydney look cheap. It's easy to see how attractive Sydney is to cashed up OS buyers. If only the pathetic infrastructure (sight rail, roads and water supply) could be brought up to world standards.
     
  17. Tropo

    Tropo Well-Known Member

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    You are right. If you can hear recently this kind of info on Nat TV, it means that "smart money" is buying for quite some time.
    I am not sure if you can compare London with Sydney, but Sydney is not the only place in Australia where "smart money" would spend few mil per house.
    As always - time will tell. :cool:
     
  18. Sean

    Sean Member

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    Well I'm not sure that this is the case in Sydney. It's just a Kyosaki teaching that came to me when I read your post.

    But back to the point, "Has the market bottomed?", man who knows. The question is, to hit the bottom do we need a crash as has happened in the past? If so, then we haven't hit the bottom because we definately haven't had a crash in prices. A plummet usually only comes when people start mass selling due to the inability to service debt, among other things.

    Perhaps it won't happen, the RBA and our government are smarter :rolleyes: these days, and even property buyers for that matter.
     
    Last edited by a moderator: 8th Mar, 2006