House price decline from peak... so far

Discussion in 'Property Market Economics' started by TheSackedWiggle, 5th Feb, 2019.

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  1. Gockie

    Gockie Problem solver Premium Member

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    That's the usual scenario. Around my area though, it was the Chinese money coming in that caused my local area to boom stupidly high. We have a high percentage of owner occupiers and also a very high stable population who have lived here a long time. But when something sold they tended to trade well beyond expectations because of the Chinese factor. This pushed the medians way high. Median in Epping got to nearly 2.1mill which is just stupid.

    Now the Chinese factor is gone, its probably back to where it should be or there maybe more drops. But the frothiness stemming from the Chinese money has gone. Now its more a matter of can (domestic) people afford to buy full stop. Screenshot_20190206-091706_RP Data Pro.jpg
     
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  2. MTR

    MTR Material Girl Premium Member

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    no, not so.
    Perth experienced a boom cycle 2013/14, nothing to do with inflation, there is a thread on somersoft forum regarding this, I posted this thread some time ago

    We went from 12,000 normal volume down to 7.000.... boom.. I am sure many of the Perth investors @Westminster will know about this cycle as they were also playing in this market.
     
  3. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    Perth peaked in 2006,
    though there was a boom from late 2011 which peaked in late 2014 early 2015, not sure if this peak by passed the earlier peak reached in 2006 (do you think it did? asking)

    from realestate.com charts, looks like many suburbs experienced some sort of mini boom but seem to lost all/most of that gain by 2019, many now are under even 2010 price which was not the peak (RE.com doesn't show data beyond 10 years :() .

    do you have suburbs in mind which you think are above 2006 peak?


    upload_2019-2-6_11-22-53.png

    if someone invested in perth at 2006 peak and price in 2019 is still the same (whatever ups n downs happened in between) and one is not paying tax on rent yet) means just due to inflation investor has lost 29% in real terms.

    on top of it if you add
    • YOY net loss due to holding cost (if not paying tax on rentals yet),
    • Opportunity cost
    • Buying cost,
    • Selling cost
    loss becomes really REAL

    Apply this to any market which has stagnated for a while and the picture in real time is not pretty.
    makes you wonder about
    "just get in mate buy it any time in the long run property always makes money"
     
    Last edited: 6th Feb, 2019
  4. MTR

    MTR Material Girl Premium Member

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    Your right about gain lost after boom of 2013-14, thats why I say no one went broke taking profits
     
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  5. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    come 2025 and one would be making similar comment on sydney/melbourne's real losses from peak.
     
  6. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    That is the weirdest graph that I am certainly struggling to understand. I get that it's taking inflation into account, I'm just not too sure what it's trying to portray. Is a $1 today worth less than a $1 five years ago across a lot of Australia which is influencing the graph everywhere?

    Anyway, yes, I was surprised it didn't say the downturn was from 2014 for Perth and used 2006. The 2014 boom was quite widespread in Perth (just not high end stuff) and due to quite a few factors. Massive immigration (OS and interstate) coming to work for the resources/construction boom dramatically reduced supply as they bought, it was cheaper for FHOG to buy than rent so they bought and rents where sky high so investors bought in. It created a perfect storm where the listings dwindled down the 7000s with massive under supply.

    Of note for people looking at Perth supply figures, something screwy happened at REIWA and without any explanation they changed the total number of listings at the beginning of the year so what looked like steadily falling supply in 2018 now has more in it (approx 12% more!!) which is messing with everyone's head that follows that indicator
     
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  7. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    Its real data not a point of view,
    and inflation adjusted losses are real for someone who has bought in respective peak and still holding,
    not sure if its wise to call it utterly nonsense just because it doesn't suit us or our biases.
     
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  8. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    did 2014 peak crossed 2006 peak?
    charts of many of the perth suburbs are now showing they have lost most of that 2014 gains.
     
  9. Codie

    Codie Well-Known Member

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    Can i ask where you found that Metric of inflation from 07 to today?
     
  10. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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  11. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    They certainly have lost most of those gains - I totally agree with that. I was just puzzled and curious how making 2006 the peak for Perth would impact the calculations when inflation is taken into account for 12yrs vs 5yrs.
    Statistics 101 was 25yrs ago for me so I don't always understand the nuances of the stats behind such graphs so tend to absorb the reports that go with such graphs better but that wasn't included - do you have a link?

    I can't find a decent graph that represent Perth medians that encompasses 2006, 2014 and today but this one shows 2006 and 2013 (with 2014 being a bit higher)

    [​IMG]
     
  12. kitdoctor

    kitdoctor Well-Known Member

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    This thread is about house prices in real terms not nominal houses prices. It is then also very general by capital city. I think you could be talking about the growth in your specific IPs have experienced in nominal value. See Real versus nominal value (economics) - Wikipedia

    It's a disgrace our politicians don't understand this.
     
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  13. Sackie

    Sackie Well-Known Member Premium Member

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    lol you should have seen the 'real data' before Sydney and Melb took off last pre boom.

    My point is how the data is presented and the value or lack of value it has for investors. Imo its mostly nonsense .
     
  14. Sackie

    Sackie Well-Known Member Premium Member

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    Not disagreeing. But as an investor looking at those stats i find it very misleading for what it means in terms of building wealth with real estate which is really all i care about .
     
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  15. Marg4000

    Marg4000 Well-Known Member

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    According to realestate.com.au, our Brisbane suburb has gone up 50% in the last five years, or 8.5% p.a. compounding.
    Marg
     
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  16. HUGH72

    HUGH72 Well-Known Member

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    Definitely the case in certain suburbs, our Sunnybank property's value increased by a similar about.
     
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  17. kitdoctor

    kitdoctor Well-Known Member

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    @Sackie Worldwide many countries including Australia are already on the slippery slope where using real estate as a long-term strategy for growing wealth is being undermined e.g. increasing IP compliance costs, stagnating wages and hence rents, low capital grow, taxes targeting investors (e.g. land tax when IPs are held in trusts), mortgages penalising investors, tax policy that penalises investors and savers (e.g. superannuation restrictions) etc.

    Eventually a major turning point is reached where there is rapid and dramatic deflation (i.e. money and credit restriction) much worse than occurred in Australian in 2007-2009 and even now (think Great Depression from 1929-1933ish scale). This is when the value of assets including real estate values plummet - not simply undergo a correction as we are currently experiencing in property values. None of us have experienced a deflationary event of this scale, so it is beyond our comprehension. These global scale turning points occur cyclically every 50ish years. The last two turning points occurred in 1929 and 1981. After 1929 investment capital favoured public investment i.e. government bonds. After 1981 investment capital favoured private investment e.g. equities, real estate, currencies, commodities, corporate bonds etc. All of us IP investors have been riding that cycle that started in 1981. It is expected to end in 2032. If this interests you I suggest you read Martin Armstrong's free blog. He is not easy to understand but if you persist it gets easier.
     
    Last edited: 6th Feb, 2019
  18. Sackie

    Sackie Well-Known Member Premium Member

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    I appreciate your pov/take on markets mate. Its just not a philosophical paradigm that I share, as an individual investor building wealth.
     
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  19. Rex

    Rex Well-Known Member

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    Real values are interesting, especially to give some context as to how housing has performed against other things you could do with your money such as equities or cash in the bank.

    But of course very few investors buy property outright, so that's not a fair comparison. Most are leveraged to perhaps a factor of 5 (80% LVR) when they purchase. In this context, any % gains to the asset value are effectively increased by a factor of 5 when measured against the capital invested. So a property value just keeping up with inflation (say 2.5% P.A. for example) is actually a 2.5x5 = 12.5% P.A. nominal return on investment, ignoring holding costs and revenue. Let's call it a 10% real ROI. So if your rental income at least comes close to balancing your holding costs (neutrally or positively geared), a consistent 2.5% P.A. increase in value actually translates to a decent return on your capital, even if the asset may not be increasing in 'real' terms. Of course if you are negatively geared then you're probably going to need a bit more than that.
     
  20. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    Yep and
    sprinkle it with a bit of CG and return is amazing that Is the beauty of cheap and margin call free leverage which RE offers.
    on that other hand leverage being a double edge sword, NGed asset with stagnant growth for many years, even if price remains same,. compounds the losses equally fast with chances of negative equity really high.

    I have heard this a lot
    "don't time the market just enter any time you can, as in the long term you will do well with RE", but how long is long term?
    Perth has proved if timed incorrectly one could have bought in close to peak and may have been sitting in an asset which is NGed and price stagnant(if lucky) even after 12 yrs.

    I guess there is no silver bullet when it comes to any investments, you go with your intuition, pat yourself if its successful and keep quiet if you are not.

    All those talk of adding value aka fresh paint/fresh kitchen giving 50k on top of invested capital works well when the tide is rising, try it in a downward/stagnant market and the risk just amplifies.
     
    Last edited: 7th Feb, 2019