Is It Time to be Cautious?

There is only one problem with this theory, booms don't last forever, if you don't believe me just look at past 30 years.

MTR

 

25 years without a recession says otherwise

 

We may be blessed to live in Australia...but we have had many property cycles where markets have corrected in all States in Australia during this period.

 

This. Where I live we're having a major one right now. A little bit of caution would have gone a long way if you bought in the peak......

I'm a newbie but feel very lucky to have watched this unfold. One hell of a lesson.

 

Hi hammer,

Where is this correction and how much are house price falling ? How long has the fall been happening ?

 

Perth for a start. Some areas are already down 30%. Some areas have been falling since Dec 14/Jan 2015.

 

I think that even though Aus will likely have a (national) recession in the coming years, this does not mean / go hand-in-hand with ALL property markets utterly crashing! Firstly, I define a crash as a current Perth-like and Darwin-like event whereby majority of postcodes' dwelling values go BACK sustantially.

For those who have bought well, a recession will still be a difficult period based on your own personal job security etc. However, those who buy well may simply experience flat-to-minimum growth in your portfolio during what is typically a 2-year difficult time (* average duration of an actual, national, recession).

Those who bought well will likely still experience rental demand meaning they at least have a tenant during this difficult period. If interest rates shoot up, that will be a challenge to manage, sure, but the likelihood of national recession AND mega interest rates happening together is very very unlikely.

Look at the 91 recession. The 1987 interest rate peaks were crazy-high, but these came down sharply before the full recession then hit.

So - for those who bought well/smartly; tgier worst case scenario is probably just a couple years of zero growth (not backwards, but zero) whilst likely having a tenant paying their way throughout the period.

That ain't too bad in my book.

 

IMO as soon as the RBA raises the rate for the first time we will finally see a tapering of the boom.
I know some people will point to other drivers for the boom but I am unsure any single person can argue cheap credit is by far the largest cause of this.
Ask any broker on here, 95% of people, all they want to know is "how much can I borrow? What would my repayments be".
APRA has stopped investors from growing massive portfolios, it has slowed lower and to an extent middle income single earners. It has not stopped dual income earning emotional home buyers and these are one of the major causes of the boom. And why is this? It's simply they have cheaper repayments NOW. Their is no foresight going on here, no care for future rate rises, it's what they will pay now and going to an auction loaded with this information they continue to bid up and up.
The fact the lender "assesses" someone at 7.5% is irrelevant. If rates however were 7.5% you can bet house prices would plummet. That's simply a fact.

Now what does the rising fixed rates tell me personally? It likely tells me banks are preparing themselves for another RBA cut. If this occurs and even if the banks don't pass anything on, I predict the boom to keep on keeping on.

 

Darwin. Been happening for 3 years now. Prices down about 30 percent. Similar story in Perth I believe.

No one believed that the boom would ever end. It was like the city was untouchable....

So, so glad I didn't buy in the boom. My friends who did all are down 100-200k....

Anyway....it can and does happen. It's happening right now in parts of the country. It could just as easily happen in Syd and Melb too.

Trying to predict it though is best left to experts and alpacas. Alpacas tend to be more accurate.

 

Did I say I like taking profits from the table

 

I don't know whether Australia will have a recession?? however one thing I do know is that blue chip is absolutely not bullet proof, when markets correct blue chip also corrects.

Managing debt is probably one of the most important factors, its very easy to lose your head in boom times and continue to take on debt, problem is no one rings a bell when the market peaks and this is where investors can and do get caught out.

 

On 26 years without a recession (a record for Australia and near record for the world) - here's something I heard the other day. If you're 90 years old, past your usual life expectancy, people will probably start noticing you're old. They might start to think "wow, that guy's going to croak soon". But suppose you're a really healthy guy, with great genes and general good fortune. You live till 110, shocking everyone and pulling off a rare feat. You outlive them all. Were those people "wrong" when they said you were going to kick the bucket? Well sort of - they certainly underestimated you. However if someone now makes the same prediction, are they less right? Does the fact you've lived an astoundingly long life bode well for your ongoing longevity?

The fact this country has enjoyed a record run is strongly predictive of an imminent recession, and it all but rules out the possibility of another long boom. Of course the housing market and economy aren't a 90 year old man, but things have a natural lifespan limited by realistic factors. Debt, rates, lack of wage growth, high prices, lack of business investment, oversupply, slowing population growth - these are all things limiting further growth in this economy.

Australia has been a "miracle", the "envy of the world" - but so was Ireland, and that didn't prevent reality catching up. Nothing lasts forever. In the end, Australia's boom will die a natural, inevitable death.

 

A lot of regional Australia seems the same. Albury, Wagga Wagga, Lismore - all down considerably, Bendigo down too, Cairns, Mackay, Rockhampton, Gladstone, Townsville all way down, apartments also down in Hobart, Canberra... it's certainly spread well beyond mining towns.

 

I was notified about changes to QBE LMI tighening alot which has really screwed up my next acqusition and need to go at 20% deposit.

 

Keep in mind too recessions tend to push up rents (as fewer people can afford to buy). Good news if you're holding a decent asset. For friends in Ireland, rapid rent rises served as a sort of stop gap that helped them along with though prices dipped, and prices are now rising again.

 

Anyone who is accumulating debt rather than paying it down right now is crazy in my opinion.

 

Absolutely, nothing to crow about at the moment... the smart money has already taken profit off the table or has accessed equity or both..... Market sentiment can be a game changer, just as interest rates increasing...... and not crystal ball stuff, these are facts.

This is not about doom and gloom but a heads up......

Source - Money and Markets (2 December), David Scutt
extract only, link attached

Only three months after celebrating 25 years without experiencing a technical recession, second only to the Netherlands in terms of an uninterrupted period of economic growth for a developed nation, growth looks set to slow sharply, or worse, in the September quarter.

Retail sales volumes, dwelling investment and business capital expenditure all contracted during the quarter, seeing expectations for economic growth scaled back substantially.


Australian economic growth looks set to slow sharply

 

Not much choice for new starters

 

There are other assets. Every couple of months there are huge buying opportunities in the share market. So much volatility.

 

Every time is a time to be cautious. Every purchase needs to be smart and get you towards your goals regardless of the market cycle and lender landscape.