What's going to happen to the property market?

Replies to This Discussion

Permalink Reply by Matthew Reader on August 6, 2008 at 11:05

I actually think the media has largely ignored problems for housing and are loathe to write anything negative about property - largely because they all own property themselves and don't want property to fall in value.

Bandwidth is right, there's always an "expert" predicting the next boom or bust and this tends to get coverage, but not so much a bust with property.

That said, property is a little out of control when simple houses in the suburbs of Sydney are going for more than $1m and apartments in the Brisbane CBD for $5m.

As the economist Steve Keen said on ABC Lateline the other night:

"Property is only worth as much as someone is prepared to pay for it."

With access to credit getting tougher, an economy slowing from full capacity and mortgage repayments as a percentage of income at an all-time high, there's really only one way for property prices to go - and that's down by quite a margin.

IMO, once the panic sets in for the boomers who hold all this property, there will be blood on the floor as they all start selling.

[will that get some headlines ;)]

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Permalink Reply by Bandwidth on August 6, 2008 at 13:07

Interesting views

The prices quoted are exceptions as opposed to the rule. We can always find cases that support our arguments.

The feeling I am getting from your writing is that you are on the sideline waiting for prices to fall. :-)

All generations hold property not just baby boomers.

When looking at a percentage of income we need to be a bit carefull. Is it before or after tax income being used as the numbers

I posted an article below that looks at some differences in the numbers

Having lived through a "recession" I am used to the messages of panic and as I say above remember chicken little

Should prices drop such is life as rent is rising and interet rates will turn and rents normally do not recede to far.

BTW most of the boomers you are waiting to panic are receiving enough rent to cover the cost of their outlays and have a buffer to ride the storm

Smart investors are not interested in headlines only cspitalising on opportunies

With property I agree there will be some price adjustments but given there is very little housing being funded by the govt rather than the private sector I don't think the blood letting will be wide spread

Time will tell

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Permalink Reply by Bandwidth on August 5, 2008 at 20:33

Here is another view

http://www.matusik.com.au/

Re/Max Australasian Convention - Gold Coast - July 08

Attachments:

• Matusik Presentation 20July08.pdf, 863 KB

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Permalink Reply by Bandwidth on August 7, 2008 at 19:47

This is a linkt to an RBA speech which may be relevant here as well

http://www.moneyconfessions.com.au/forum/topic/show?id=2081871%3ATo...

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Permalink Reply by Kbot on August 7, 2008 at 21:16

This is the conclusion to that RBA speech for those of you who want a summary:

4. Conclusion

While household debt levels in Australia and the US are broadly comparable, the composition and distribution of the debt is not. The sub-prime market is markedly smaller in Australia than it is in the US. Moreover, a number of features of the US sub-prime market which have contributed to its current problems are not present in Australia, including large teaser rates, a marked decline in lending standards, and an originate and distribute model where the originator has a reduced incentive to care about the quality of the loan written. As a result, arrears rates are significantly different in the two countries.

While the Australian financial system has had minimal direct exposure to the US sub-prime market, it has been affected by the global credit turmoil, particularly in the form of higher borrowing costs. However, the strength of the Australian banking system relative to those in a number of other countries, particularly the US, and the strength of the domestic economy more generally, has meant that the impact of the global turmoil has been relatively muted.

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Permalink Reply by Bandwidth on August 8, 2008 at 9:31

A recent press report on house prices with some interesting observations

Building prices spiral



New home buyers will have to find at least $11,000 more to build a home than they did at the same time last year as the cost of materials and labour continues to spiral. And predictions are that the latest round of increases could see it quickly jump a further $5000 to $8000. Devine property group manager Ross Grant now predicts that new homes are about to become even more expensive. He said that steel costs alone had gone up 35 % this year, concrete was going up between 8 and 10 % and even insulation had gone up 7%. Mr Grant said anything associated with raw materials or petroleum was being hit with price increases and fuel levies. That had to eventually filter through to home buyers, he warned. The news was a double whammy for those trying to enter the market after it was revealed this week that units in the Brisbane CBD had jumped in price by 23% in the March quarter to a record high of $894,000.



(Source: The Courier Mail)

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Permalink Reply by Bandwidth on August 8, 2008 at 19:28

This is a site I found with some good reports. It has a 21 day free trial and the subscription prices look reasonable

http://www.eurekareport.com.au

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Permalink Reply by moonbuggy on August 11, 2008 at 10:41

Hi Bandwidth, I wouldn't go near this one - it is no good at all. I just ended my subscription there after being bored out of my mind for a year with self-serving articles about nothing. $300 is a rip-off when you can get this kind of stuff for free. Besides, there's a company called Wiley behind this report who has interests in listed ASX companies. They had an interest in the sale of Qantas and last year the report was advising people not to sell Qantas because it was worth lots more (without declaring the interest they had in it). Well, the deal fell over and the share price fell and lots of us lots heaps of money. I only found out later the connection, but it was too late.

It's not the poor advice that made me lose money that is bad here - it's the dodginess of having an interest that they didn't declare, and that they tried to force readers to do something that would benefit them!

Besides, the main writer has gone off and started another site, so the stuff they give you has steadily got worse. STEER CLEAR!!

Better off going for free ones - which are independent and much better too - like CompareShares - you can get the twice-weekly free newsletter here:

Free CompareShares newsletter

And the major media sites have anything else you could want:

News.com.au
TheAge.com.au
etc.

moonbuggy

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Permalink Reply by moonbuggy on August 11, 2008 at 10:43

Oh yeah, and magazines like Your Mortgage Magazine are a wealth of info too, although be careful of some of the articles about the direction of the market...bullish articles tend to outweigh bearish ones, no matter the state of the market - but that's true anywhere ;)

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Permalink Reply by Lisa on August 11, 2008 at 21:08

Personally, I think these investment magazines themselves are responsible for some of the boom suburbs - whether temporary, or permanent. Yes, there is a lot of merit in the information they provide but if left to their own devices, it would take the average magazine reader a lot longer to research independantly and come up with the same answer/suburbs - even in the information age.

They certainly create a frenzy, as I have no doubt that both investors and home-buyers alike would consult the mag's. Having said that, I make no apology in heeding them myself... why would I put myself at disadvantage?!

I find that most research (whether on the net, or in magazines/newspapers) as to specific suburbs is usually consistent across articles and media, but you have to be a bit more vigilant and opinionated when it comes to the general direction of the market. Day in and day out, yet another conflicting article is published.... most annoying!

The vast number of economic variables when it comes to the property market leads to different opinions by both economic schools of thought the sources of the information. The banks and real estate agencies are obviously going to read the market quite differently (ie, those behind the bullish articles you refer to, Moonbuggy) That's where the economic understanding and education of the reader shines.

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Permalink Reply by Bandwidth on August 11, 2008 at 21:45

Put 10 enonomists and 10 real estate agents in a room and ask a property question you will get 22 different answers.

BTW the share market is no different.

The one thing I always remember is that real estate agents only make money if there is buying and selling activity, the same as brokers. So it is in their best interest if there is conflicting views in the market place.

The other thought I hold is that the media make money by selling "news" and as such they also benefit from differences of opinion.

I find that because I trade the share market and am in property investment I can find interesting links in what I see in both asset classes.

Where magazines can generate the interest in a given suburb I feel the boom is driven by other supply and demand factors.

My view is that the press lags the market rather than lead it. The property lag is 6 to 9 months the share market lag is 6 to 9 weeks.

One of the teachings in share trading is that without differences in opinion there is no market. Any market relies on the buyer and the seller having a different purpose and or opinion.

Sounds like you have it all sussed out Lisa

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Permalink Reply by Lisa on August 11, 2008 at 23:00

Thanks Bandwidth, support is appreciated! ... of the 10 R/E's and 10 economists, getting 22 different answers, I dare say that at least 6 would sit on the fence (to varying degrees!)

The boom suburbs... I agree there is a lag, but do you concede that the property mags accelerate the booms? Investors are usually in more of a 'pounce' stance at the time, having performed research and are waiting for up-to-the-minute research.

... in the same vein, I think that Rene Rivkin was kinda responsible for a plethora of roller-coaster rides for share prices in the '90's.

Kinda related... do you know of any legal cases where people have been successfully prosecuted for insider trading... are you're about to google it ! :-)

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