Housing Bubble Prediction

My thoughts too. If interest rates were to rise ( not saying they will anytime soon) those that are highly leveraged will feel the pinch.

 

Interesting to see what would cause interest rates to rise in what appears to be a global deflationary environment...perhaps if the RBA intervened if the AUD got smashed below 50c. At this point in time hard to see triggers in inflation from wage growth requiring RBA action.

 

Depending on marginal tax rate, the real after tax impact of a 1% interest rate hike on a $500,000 loan isn't $5000.....on the top marginal rate it would only be $2750 hit to the hip pocket....assuming that the interest is deductible.

 

Fair point, but remembering the rental income is also gross before tax. Putting tax aside, the interest rate has far more sensitivity on holding costs.

 

Agreed, but I think there is more likely a chance of the cash rate going to 1.5% than there is of an increase anytime soon. APRA will do its best to stifle any excessive new lending with "phase 2" of its tightening of regs. But we will see lower rates before we see higher in my opinion.

 

I agree, the interest rates are heading into a QE faze and this will have more of an impact on property prices than rental vacancy. This is why I mentioned in an earlier post I don't foresee significant reductions in capital value for Perth.

 

Hence, the reason why most of the experts here are against OTP property.
But yes, it only affects the non-deep-pocketed investor or owners. Those people who already got high income or downsizing will not be affected since they are mostly purchased outright, same with the overseas Chinese investor. Usually the rich ones bought it outright so not a problem for them during the IR hikes.

 

So you reckon the apartment market in these areas will cause the housing market all over these cities to tank?

 

They will be the major force!

 

Can't see how such a small segment of a market could influence the whole market. I haven't seen it before but I haven't seen many things..

 

I believe the units/apartment is the major market in the CBD, especially all these new units are popping up I see no sign the CBD will survive if there are panic selling due to poor investment return.

However with the tightened lending policy imposed by most major banks now it might slow down the speculation a bit, however I'm more worried for those people that bought OTPs earlier and are now facing the challenge of 1. Getting a good valuation and 2. Getting a loan.

 

But you named an area 40km from Sydney CBD. The apartment market is a tiny part of the housing market in the outer suburbs... Why would apartments affect house prices? OTP units is such a tiny percentage of the overall market in Western Sydney

 

OTPs will affect the outer ring mainly because of the increased supply causing these over priced old houses struggle to rent.

Tell me how do you justify paying $650k to $850k for a house in these area and only attracting a rental income of $450 to $650 per week?

And when majority of the investors are earning an average income (60k to 80k pa), negative gearing will cause much more harm then benefits to them, now how do you justify for these people to continue hold on to these properties? Unless they are willing to really cut down on their essential living expenses in order to maintain these heavily negative geared properties. It probably work for single persons but imagine they got a family to feed?

 

hey sumterrence, so you think Brisbane will go bust before sydney ?

 

According to Pete Wargent, yes there are a lot of apartments being built but also a helluva lot of people moving into to Sydney.

http://petewargent.blogspot.com.au/2015/07/housing-shortage-or-housing-glut.html

 

I think before we see Brisbane CBD go bust Syd is still relatively safe

 

That's true if we only focus on population growth figures vs dwelling completion figures, but try link these data to average personal salary and average personal expenses, and compare these data with housing prices.

Just because population are increasing due to more new born and immigrant, it doesn't mean they are equally wealthy to be able to purchase properties in today's market.

If our average income rate doesn't catch up with property price rate how is it possible for these populations to push the price up?

 

And to be honest, i'll be careful when reading articles that published by companies that also involve selling as I see they are all bias.
I'd trust data from say RP Data and do your own analysis.

 

oh I readily concede I am no property economist but also know that there is more to property prices than average income, especially when there is foreign investment, bank lending, SMSFs etc in play. Places like Singapore, NYC, London and Sydney have shown there is a 'wealth effect; as well above and beyond median income levels as well. Not everyone creates wealth through income.

Pete is a buyers agent, so not a seller but yeah of course he has skin in the game. I admit I know Pete and just like his way of thinking. I could be wrong but not sure if RPdata cross-correlate with population growth data

 

Try $1.2million purchase price for a $600-650pw rent.