Is It Time to be Cautious?

I would say a safe/conservative LVR is 50pc .
I went through the Bank's LVR calculation and the safety range is 50pc to 80pc (note this is mix of residential and commercial)
More important they said is your cashflow ie the interest cover
Net rent to interest .....
Over 2 to 1 (Net rents to interest) is generally considered healthy

 

Cautious where we put the hidden cameras?

 

I have heard Northern Beaches doing well at the moment?

 

I wouldn't be too surprised if it was tbh, though it's not a market I'm actively following so really I wouldn't know Marisa.

 

I remember fixing a rate I think it was at pretty close to 9% in 2008 on a property as at that time we were worried the variable rate may be going higher!

It went completely the other way when GFC hit and rates dropped.

I am no expert on picking how wider economic influences will impact rates/market activity/capital growth etc etc... But there always seems to be an "event" or surprise around the corner that no one sees coming.

I tend to Beleive that the property market in Australia is so emotionally driven that logic sometimes just gets chucked out the window....and that overanalysing the "stats and facts and figures" and the what ifs of the doom and gloom are just waste of precious mental energy.

Be cautious but don't be fearful, we live in the lucky country after all!

 

Get ready for 2017 RBA rate hikes, says OECD

The Reserve Bank of Australia is being urged by the Organisation for Economic Co-operation and Development to prepare the nation for official interest rate increases in 2017 to avoid a housing market blowout.

Lamenting the Turnbull government's failure to be more bold on tax reform – including by widening and raising the goods and services tax - the Paris-based rich-country think tank says there is a growing need to unwind house prices and other financial distortions caused by ultra-low official interest rates.

With the US Federal Reserve widely anticipated to hike next month and again next year, the OECD suggests the Reserve Bank will be able to respond by tightening policy without fear of driving up the Australian dollar.

... read more

 

Not sure what your point is... I said agree but slowly. As in I can't see us returning to rates of 7% in less than 5 years. As in maybe 50 basis points in 2017. Nothing in your post contradicts this.

 

I think the whole "Median income to median house price" theory is very flawed though.
I think it works on the most simplistic levels and cannot take into consideration all the variables something like this needs to in order to be relevant.

I would take it against the median house price (an actual known statistic) with a grain of salt!

Furthermore are we even talking about median income against median house price in the actual suburbs or against the entire state or worse yet country?
The 9-10* multiplier works in crazy overprices suburbs like say Glen Waverly in Melbourne but fails to recognise that it is not Australians causing this ridiculous multiplier, it is overseas Chinese money that has caused this.
Look at other suburbs not influenced by overseas money and you will see the multiplier quickly drop down to reasonable levels of around 5-6* and again I think people tend to earn more than what any statistics will tell you.

90% of the self employed workforce earn more than their tax returns will ever show, that I can guarantee you!

 

Ah, this post made me feel a lot better than i was reading the rest of this thread.

 

Exactly why statistics can't be your only form of research. Need to get on the ground and form your own opinions as well.

 

I don't pay too much attention to stats either

I pay attention to -

TIme frame - how many years has this market been booming?
What is driving this boom/market?
Who is buying?
What are they buying?
What will stop the boom or slow it down?


This is why I started the post because I am pretty damn sure cheap money has in part been driving this boom and market sentiment at the moment is very strong. If we start seeing interest rates rising then fear may set in and market conditions may start to change because investors become cautious and sit no their hands and then we see more supply come onto the market but buyers have falling off...... boom/bust cycle, supply vs demand.

Also with property cycles from what I have seen the highest growth is close to peak because people lose their heads as they fear they will miss out with the belief that prices will continue to soar. The bigger fool theory....

I am not saying everything is doom and gloom far from it but things are changing and when markets turn it happens very quickly and sometimes you don't even see it coming unless you are paying attention to the warning signs.

MTR

 

No point other than the article being relevant to this discussion, I just hit reply on your post.

 

5609.0 - Housing Finance, Australia, Sep 2016
The average loan size for all owner occupied is $367,600.

If rates rose 2% that would be an extra $100 a week to service a P+I mortgage. Even if rates rose by 2% they would still only be paying an interest rate of around 6%, which is below the historical average. Westpac has just raised its fixed rate loans by 0.6% and depending on what Trump does in the US the interest rates could rise more suddenly than a lot of people predicted.

 

I was always taught that it's always time to be cautious......always buy factoring in a rate rise and have a buffer.

 

As quoted by Dr Micheal Burry "Home prices are a function of income and the leverage applied!"




We currently have wage growth at its slowest in decades. My personal opinion is there are always head/tail winds to the economy, and there is never a perfect time to invest, just don't over leverage and bite off more than you can chew!

 

I will update this post when I get home and I can find/post the link but I remember reading an investment site yesterday, which had median house price figures of some Adelaide suburbs in 2009. Davoren Park had a median of 215k...Most of the other suburbs that it featured in its yield section, such as Salisbury North and Smithfield are at similar levels in 2016 as they were in 2009. Inner and middle ring suburbs of Adelaide have performed a lot better, but there's always markets within markets. I guess when total full-time employment hasn't increased in SA since 2007 that's inevitable though- Pete Wargent blog: Jobs - where and what?

 

Yeah this has played a huge factor, also just through my own personal experience job security has also weighed in a lot. I was employed for 12 years with the same employer within the car industry and after being retrenched have gained employment in a service industry, where contracts are constantly renewed and revoked.

As Quoted in a RBA article:

"Wage Growth and Unemployment It has been widely observed that, in the short run, lower wage growth is associated with higher rates of unemployment (Phillips 1958; Fuhrer et al 2009). Firms experiencing subdued demand for their goods and services will seek to contain costs, including labour costs. Wages tend not to adjust quickly to lower growth in labour demand, so firms initially seek to contain their labour costs by laying workers off, reducing hours or reducing hiring.3 As slack in the labour market rises, employees become more anxious about their job security and become willing to accept lower wage growth as there are fewer opportunities for alternative employment and more competition for any given job vacancy. As labour market conditions fluctuate over the business cycle, the economy moves along this so-called Phillips curve (Graph 4).4 The decline in wage growth since late 2012 appears to have been unusually large relative to the increase in the unemployment rate"

Link to full article:
http://www.rba.gov.au/publications/bulletin/2015/jun/pdf/bu-0615-2.pdf

 

No, it wouldn't.

As the world gets more messed up (quakes, trump etc) the only good place to live is Australia so house prices would continue to increase, Australia's population would increase due to immigration and demand for property will only grow.