‘Craziest’ market in 30 years: the impact of the global housing boom

not that i expect it, but....
Demand isnt the same as the ability to pay increasing prices.
Just because lots of people want a bmw doesnt mean everyone can afford the price of one.

 

Just because something is desirable doesnt mean people are always willing and/or able to pay crazy high prices. What could happen? Lots. Interest rates could go up. A return to 5% mortgage rates is still way below the long term average but wpuld be enough to stop current boom. High unemployment could occur. Long term covid could mean immigration is suppressed for the next 10 years, there are only so many returning expats. If capital gains dry up and yields are low then investors may disappear and fomo becomes fongo. Not saying this will happen, just pointing out that we have been kicking the can down the road for vthe last 25 years, covid stimulus is another can kick. How many more can kicks can we do?

 

Nothing serious then

 

Most houses are not BMW, they are Toyoa, Kia, Subaru....
However, unlike cars, where you can get a motorbike that costs fraction on the price (aka giving up the comfortableness on cars), you cannot not live in a house and switch it into a garden shade.

Compering houses to cars does not work cause cars are not basic need (public transport, shared commute etc).

Once again, same argument: people HAVE to live somewhere.
If they can't rent X they will have to settle on Y.
Y is not as great and X, but it's still a shelter.

Crazy prices are only due to free market and money that flows around.
Way before people will stop buying houses, you'll have to see a drop in purchases on non-basic products: technology, clothing, non-basic food, travel and holidays...
My argument is that if housing prices will drop, long term - it means the economy is so deep in the **** - it won't matter much.

Stock market will crash way before housing market it. Stock market is mainly backed by non-essintial companies. People will need somewhere to live even if there will be no new Intel chip....

For PPoR - that will put stress.
For IP - that will means increase rent rates.
I'm not sure it'll make a huge difference to many owners.

That will mean huge economical impact over everything all over the world.
Again, if we're in times where everything is in meltdown, then who cares if the real estate market going through meltdown?

 

People wont HAVE to pay current prices if mortgage rates double, because if new entrants cant afford it at 5% plus then prices will drop to the price point that more can afford it. And yes, shares and everything will be impacted, but assets with the greatest leverage would suffer the most. Wonder what asset that would be?

 

Possibility and probability, and reality, arent the same things.

betting that eventually it will peak, then fall long term, is very risky (ironically).

but.... you believe what you want to believe. Those who bought before the current boom dont care either way. Didnt look good then either.

 

I know that it's a common claim among many who think the real estate market is not fair.
Well, it's not fair, but it is what it is.

I'm under the assumption that the many of highly leverage properties are IPs - when interest rate goes up owners can do one of two things:
1. Increase rent.
2. Dump it, for someone else to buy it and increase rents.

Interest increase means less people can buy, leaving the properties in the market to those who can (have the cash), make properties a lucrative investment cause more people have to rent (again - basic need, demand never goes down as long as death/birth ratio is more then 1).
If it's an investment that leads to good return - it's price goes up.


I hear many people, mainly on WP calming that the Aussie housing market is crazy. They always seems to have very little (real) knowledge of other place on earth. They bring graphs and stats and whatnot.
I find it entertaining. I have family members and close friends spread across most of the Western world and I can tell you - it's exactly the same everywhere!
Prices are crazy, it's really really hard to buy houses, people are heavily leverage and in debt till their death.
Nothing in the Aussie market is unique.
Even in Europe countries that are much more rental heavy. Someone has to be the LL. My contacts are the LLs.

 

When will people learn that what seems 'crazy' to one person may be perfectly normal to many others.

This debate of property markets being crazy was going on since I started investing 20 years ago.

The only folks benefiting are the ones taking action based on their risk tolerances and financial positions.

Imho that's 80% of all you can do. The other 20% is learning how to maximise the probability that your buys may outperform long term.

Anyway this discussion will go on for the next 50 years I'm sure. And once again, those who take risk measured actions will have the best chance to do well. While everyone else watches from the sidelines.

Same story everytime.

 

This.

 

Increase the rent? Just like that? The renters also have to be willing and able to pay as well.
And how does it being the same everywhere make it less risky? It just shows everyone is on low interest rate high debt cool aid. That makes it far worse.

 

Increase interest leads to increase difficulty to purchase + increase cost for investors = renters will either pay or move somewhere cheaper => most of the time further away.
Renters from closer / more expensive areas will move into that area.

I've heard this "renters willing to". Renters never set the price. Owners as a market sets it.
Very simple equation: no investor will rent for loss. Not for the long run.
Two options (again):
1. Owners will increase rent to cover for shortfall.
2. Owners dump, only for other investors with deeper pockets to buy and increase rents (as they will be a majority).

It's all going back to the fact that people have to live somewhere.
Unlike a new Xbox, where someone can say "it's too expensive, I'll wait 6 months for the price to drop", with rentals "too expensive, I will wait until price drop" means living in the car.
When renters are priced out, they move further away and others, with better ability, moves in (cause they were priced out of where they are).

Safety in numbers.
Same way it's better move in a large school of fish then being singled out.
Sure, some fish gets eaten, but you are more likely to survive.

If the whole world goes through the same process, it means people cannot solve their problems by moving away. They have to stay and find a way to survive.
All this interest rates and debt is all funny money. Numbers in a databases.
If the whole thing goes down - everything goes down. Banks will never recover their money if they call loans when hundred of thousands cannot repay.
They will end up with hundred of thousands properties that not only worth nothing, also costing them taxes. Nothing they hate more then real estate.

Even countries debt is funny money.
Look at Greece. Oh... We'll just erase all this money. Everyone knew you cannot get blood out of stone and Greece could never ever repay.

At the end of the day - the only real thing is people and real assets: land, water, knowledge, skills.
When this "big meltdown" people are talking about and weirdos are preparing for in the hills up in the US - it's gonna go back to basics: eat, drink, sleep and survive.

I personally don't think we will get there, but anything on the way there means things that are less needed, less basic - will go first. Crypto, Instagram models, Onlyfans, fake tan, crispy cream and mink coats.
It's a long way till it'll hit real-estate.

 

So by your logic rents must be plummeting now due to lower int rates. Hmmmm

 

I don't know where you got this idea from. Rents are set due to supply/demand. If you've got twice as many looking for a home, than there is homes available, rents go up. If vacancy rates are very high rents go down.

 

Might, if it allows more renters to become owners, leading to less demand for rentals.
However, higher demand for buying increase prices, making it less affordable to buy, meaning renters cannot buy - hence needing to rent.

I rest my case. Renters are not the ones who set the price, it's the market. Vacancy rate is not something renters (as individuals) set.

If anything, the only factor that sets rent price - is how popular an area is.
Just like any other product: a more desirable product - cost more.

Not because it cost more to produce, but because there's higher demand.

Now, going back my claim, given a place has a constant demand, due to many factors (school, transport, jobs, life style etc) and there's increase in interest, making it deeper for the owner, what exactly stops owners (as a group) from increasing rates?
The reason I refer to owners as group and renters as individuals is that owners, as providers, look around and set their own value based on how the market behaves around them.
Owners, as a group, act as static market (real estate - cannot move anywhere)

Renters are dynamic consumers; if a renter moves away, given the real estate has the same benefits as before, and the fact that the movement happened across the board - a different renter will come and fill up the vacancy (cause they were priced out from their previous location).


I reckon the CBD apartments is a good example for that.
They had nothing going for them apart from life style. Life style is not a basic need.
As soon as life style was gone, those apartments became useless and lost their value.
Renters who lived in those apartments moved away to look for other value, and found (or rather re-found) that free standing costs the same and provides them other life style proposition.

My own investment choices are always based on trying to accommodate for as close as possible to basic needs. I'll never invest in CBD apartment, or any apartment for that matter.
I will also won't invest in "hyped" areas.
I'm a huge believer in land. Land represents a basic need (you need it to be able to have shelter) and as such I'm into acreage, in areas I believe will be in high demand due to their distance from the major urban hub (in my case Melbourne).

Hype can come and go. Land value will always stay.
To go to great length - if all goes to the sh***, you can produce food with land. Again - basic need.

 

Great ranting thread! I might contribute my 2cent too. When it comes have property investment, don't over think. Over analysing every dataset, trends and movements can get in the way of taking decisive action in a timely manner. I got to know a couple of friends who both have missed the golden boat precisely because of that. Don't get lost in the nitty gritty stuff, if you are a young fella put youself in the big picture of 20 or 30 years time frame when you want to achieve and use historical data to support your decision... Once you have that perspective, you won't sweat at the little stuff like pay 10k or 20k to secure a good property, that extra 5k that will get reputable buyers agent or slight layout issue that can be fixed up...
After all, if all predictions fails, you can almost always count on real inflation to go in your favour...

 

For me this really sums it up...as someone said.."DO SOMETHING"...be it property or shares.....just do it.

 

Anyone paying attention to supply?

 

supply vs demand….. that simple

 

Supply of....?
The supply on the basic ingredient is finite and limited (land), so that's that.
Then there's supply of shelter, in the form of higher density living, but then you go into much more complex variables, such as what people "feel" about dense living (some love it, some hate it).

 

Referring to stock coming to market in response to topic of this thread

We already know there is an over supply of apartments