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Is the correction over?

Discussion in 'Real Estate' started by Jacque, 1st Dec, 2008.

  1. Jacque

    Jacque Team InvestEd

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    From the latest desk of RPData...

    Nationally, property value growth is back in the black

    Claims that the Australian property market would in 2008 experience a major downturn have been proven incorrect based on the most recent findings of the RP Data-Rismark Hedonic Property Value Index, which in October again showed that Australian capital city property prices had increased for the second consecutive month...

    Rest of article here
     
  2. Chris C

    Chris C Well-Known Member

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    Looking past the fact that RP Data has somewhat of a vest interest in pushing being positive about the real estate market, I still think this statement is prety ballsy:

    “The fundamentals underlying the Australian property market are extremely robust. Investors need to take into account current supply constraints, infrastructure delivery, immigration, vacancy rates, rising rents and expectations that interest rates will continue to fall. These are the basics that should fuel capital gains for investors.”

    I think at this stage those factors are the things stopping capital losses, rather than will stimulate capital gains. Given that there have been virtually no gains in the last 3 months despite interest rates falling 2% in the last 3 months plus the increases in the FHOG says to me that housing prices are lucky to be where they are at, rather than are at the beginning of strong price growth.
     
  3. bella

    bella Well-Known Member

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    What do they mean by 'rising rents'?
    Does this mean rising rents in an absolute sense (eg. average or median rent the same way they measure house prices) or rising rents as in yeild?


    edit: I think they mean yeild, as every other reference they have they talk about 'cash flow positive' or yeild.

    But when I read a general news article about rising rents would they be talking about yeild? I always assumed they meant in an absolute sense.

    Of course yeilds will improve if prices are falling, unless landlords start cutting rent! It is like bank stocks that have huge yeild too at the moment.
     
  4. Chris C

    Chris C Well-Known Member

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    I think in the large majority of cases reports are referring to "rising rents" in an absolute sense, but obviously this increases yeilds as well holding property prices the same.
     
  5. Jacque

    Jacque Team InvestEd

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    Rising rents equates to better yields, and along with falling interest rates, contributes to growth stimulation, as more buyers (esp investors) re enter the market. Too early to tell, but I expect a kick along early next year, when 5%+ becomes the norm again and investors start to reconsider property as a investment class.
     
  6. Chris C

    Chris C Well-Known Member

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    You'd have to think that there will also be a strong movement in the first home owners market as well, with the FHOG being $14,000+ and rates expected to drop signifcantly lower in early 2009. Soon the repayments on buying your own home will be cheaper than paying rent.

    :eek:

    What is really scary is that my mate and I just settled on our first IP in mid November, which we bought for $537,500 and a couple of days ago we got a call from our real estate agent saying she received an offer of $600,000 for it. Not that I'm complaining, it is a very tempting offer considering that a big part of me wonders if we are currently headed into a period in the housing market that is equivilent to what August, September and November 2007 was for the sharemarket last year - the rally before the fall...

    I'm very confused about the whole property market - part of me recognises that housing prices are well above the long term trend, but at the same time with the fundamentals looking pretty good it is hard to see the pin that is going to pop this bubble? Anyone have any ideas...

    The only thing I see getting in the way of reasonably strong growth in 2009 is unemployment... how bad will it get?
     
  7. Jacque

    Jacque Team InvestEd

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    Someone must have wanted that property badly to offer so soon after settlement. However, you really wouldn't be better off selling. After REA comm fees (probably around the $15K mark, cap gains on 100% of the profit (circa $20K depending on income etc) and lost duties, soli fees etc (c$20K) it simply wouldn't be a worthwhile exercise.

    Confused? That's ok, because so are most investors. Who knows what's around the corner? Current economic crisis, rising unemployment, decreasing interest rates, wavering consumer sentiment- so many contradictory factors, it's small wonder it's difficult to know what lies ahead.

    What's important is that you can afford to hold the property, given the current cashflow (and allowing for rate rises and all realistic costs with the property ie: vacancy periods, maitenance, ongoings etc) know that you haven't overpaid for it IN THE CURRENT MARKET and are happy to hold it for long term (7-10yrs).
     
  8. 02bsure

    02bsure Well-Known Member

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  9. AsxBroker

    AsxBroker Well-Known Member

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    O2Bsure...

    I just read that article and was going to post it up...
    (Great minds think alike...)

    Cheers,

    Dan
     
  10. Chris C

    Chris C Well-Known Member

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    Well I think it is more the fact that the guy wanted to buy the neighbouring property, which is listed for $699,000 (though it is slightly bigger townhouse than ours) and that owner won't budge off $699,000. Either way my mate and I are thinking that we'd need the offer to be inexcess of $630,000 for it to be worth our while.


    I'm not so certain that the future of Australian property prices are looking so bright at the moment...
     
  11. crc_error

    crc_error The Rule of 72

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    take the money and run.. you will find another suitable investment property down the track.. if someone really wants it and wants to pay a premium for it, take it.. its a quick $50k in your pocket.
     
  12. Chris C

    Chris C Well-Known Member

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    Well the place is pretty much positively geared at the moment, with a LVR of around 80% as we were able to get a better weekly rent than we had hoped at $600 per week. So part of me questions whether it is really necessary to sell at this stage given it is positively geared with interest rates looking like dropping further in the next 3 - 6 months.

    The only real underlying risk, as 02bsure pointed out, is falling rents, which in turn may lead to falling property prices, but I'm yet to see if this will be a major factor in the Brisbane property market in the short to medium term.

    I can appreciate that the "wait and see" approach may result in us ending up selling in a more unfavourable market, but with high transaction costs associated with buying property as well a the property market being somewhat slower moving than the share market I'm somewhat inclined to hang onto the place until things become a little clearer, as we don't want to sell what to date has proven to be a good investment property worth holding. Though with that said as investors, my mate and I are both more than willing to sell if the price is right (ie $630,000+).
     
  13. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Since when did the Eastern Suburbs and Lower North Shore become representative of the entire Australian market. Unless you've been living in a vacuum, you'd have noticed that the finance markets are in a bit of a pickle. Wouldn't you know it, but a lot of those formerly rich merchant banker types live in the Eastern Suburbs or Lower North Shore of Sydney.

    I'd be very careful about reading a headline like "rents tumble" and extrapolating it into some national trend. I'd be more likely to group this rental correction with the price correction also occuring in this merchant banker strip.

    There will always be isolated segments which perform in a different way to the greater market given their specific dynamics. This segment is one of those, and is driven by a very different dynamic than the rest of the Australian market.

    If I had a bit more spare cash I'd be shopping in those two strips for my next IP to become a future PPOR. But, alas, I'm saving my pennies to develop my Mona Vale MUH site next year. But once its done and my cash flow is significantly improved and heaps more equity "built" in, then I might yet go shopping in Mosman! :D

    Cheers,
    Michael
     
  14. Chris C

    Chris C Well-Known Member

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    I don't think 02bsure or the journalist was implying that it was a Nation wide issue, but it highlights the ability for rents along with house prices to rapidly recline as we start to enter recession and I think that this article just highlights that given the banking sector has lead us into this recession, but it will be far from the only sector that will hurt during it.

    (and yes I appreciate that we are not in recession yet, I'm just starting to join the growing number of people who are feeling an Australian recession is now unavoidable)
     
  15. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Hi Chris,

    Fair enough, we all have to do our own due diligence and make decisions we are comfortable with. But are you aware of what happened to house prices during the last "actual" recession we had in the 90's? They actually went up about 2% over the period. And I'd argue our underlying demand/supply fundamentals today are stronger than back then. And I personally don't think the coming economic downturn in Australia will result in a recession, and if it does it will likely be a mild one.

    But as I said, we all have to do our own DD! :D

    Cheers,
    Michael
     
  16. Denis

    Denis Well-Known Member

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    I would be very careful about stating "stats" as above and comparing one period against another. When you live it - it is very different.
    I can speak from experience of owning millions of dollars of property in 1990 with Sworn Valuations from Bank Approved valuers, only to see those properties revalued to 30 to 50 percent of the original value in 1992.
    These were Blue Chip Melbourne properties.
    In relation to comparing periods of underlying demand, the world has been decimated by a basic form of fraud and manipulation of all markets with the support of governments. I don't think the world is coming to an end, but this form of systemic meltdown can hardly be compared to minor events of the past twenty to thirty years.

    One event that really concerns me that Australia is in deeper trouble is when a PM hands out money to the most vulnerable, to help them to survive, and then pressures through the media to spend that money immediately.What happens to the poor people in January after all their money is spent?
    Somebody is very worried about Australia's financial strength.Politics aside, it is unimaginable to imagine Howard or Costello making the same demands on pension recipients. This leads me to believe something major is happening that governments are extremely worried about.
    Regards

    Denis:)
     
  17. Chris C

    Chris C Well-Known Member

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    I had just start primary school back in the early 90s, :p, but I was lucky enough to do an assignment on Australian asset price bubbles for my economics degree which included a review of property price in the early 90s. So, I agree that the downturn in residental property was relatively mild in the early 90s, but commercial property got absolutely smashed.

    Also I think it is prudent to point out at this point that there was barely a statistically significant residental housing bubble present in early 90s as opposed to today. This graph that has been used on these forums a bit, depicts it nicely:

    [​IMG]

    Another interesting graph that I recently came across that I think depicts the US housing bubble well prior to its collapse. It doesn't take a very imaginative person to see the correlation between Australian house price growth to US house price growth from 1995 onwards, and we all know what direction that US graph has gone in the last 24 months.

    [​IMG]

    In the context of the global economy, I tend to agree with these remarks, the minor recessions of recent decades will pale in comparison to this recession when all is said and done. I originally was optimistic about everything (being young and dumb - still am), but now I realise I was just naive about just how dire the situation is. I'm reasonably confident that this recession will be one of the worst, if not the worst recession since the great depression.

    Yeah I can't get my head around this principle either, and here I was clearly under the false impression that pissing my money away on pointless consumer items is part of the reason the world is in the position it is in.

    :eek:

    When will the day come where a government with a backbone will step up to the microphone and say, "the solution to the problem is everyone needs to work harder and smarter, spend less money on pointless consumption, and invest the money they save as a result in strong, productive investments based on good fundamentals rather than speculating on making a quick buck."

    :rolleyes:

    ... but unfortunately it would seem I will have to concede that democracy leaves us with the predictable response of government in opting to give handouts whilst shouting "spend, spend, spend to help your country" which when reading between the lines translates to "piss your money away on anything and everything so businesses can record positive growth in this tough period so we don't have the black mark of "recession" associated with our party's name, otherwise the next time we go to the election the ignorant people of the nation will think it was our fault and we'll get voted out".

    In addition to this the government will simultaneously try to avoid increasing governmental expenditure on good investment projects too much such that they can avoid running the budget into deficit when the country needs it most because they fear the opposition would again use it against them come election time.

    There is definitely some very nervous politicians and reserve bankers watching this global economy like their jobs depended on it... oh wait; their jobs do depend on it!

    :D

    That said at least the RBA ain't going to die wondering, 3% in 4 months, at least it shows they have the balls to take unprecedented measures to do what they can to prop up this, now clearly struggling, economy. I only wish now that the current government would get off their political soapbox and do more to not only stimulate this economy but address some of the long term issues going forward.

    I can't imagine just how pleased old K Rudd and Glenny Stevens were to see growth of .1% in the 3Q, that gives them at least a bit of breathing room as the tax cuts, interest rate cuts and handouts kick in before the media start to hassle them about the big question on everyone's lips, "can Australia still go into recession in 2009?"
     
    Last edited by a moderator: 9th Dec, 2008
  18. Chomp

    Chomp Well-Known Member

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    I'm not sure that low interest rates helped the price of housing go up in America recently, when something is over priced already the amount of interest you pay once you have purchased it would seem irrelevent?

    But then again you would still have to rent right?

    Something has to give?
     
  19. Chris C

    Chris C Well-Known Member

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    We are definitely balancing on the top of a hill at the moment, and it is hard to tell which way we are going to roll. There are strong arguments for both sides.
     
  20. Sacko

    Sacko Well-Known Member

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    If we are balancing on the top of a hill - the next roll must be down!:confused: