Property outlook the worst in 30 years: Morgan Stanley

Thanks @Perthguy.

Remember we are the old f's who want to sell up in a few years, so interest paid for the next 28 years wont matter to us. We'll be too dottery to care about paying any bills by then

 

It's the masses (rather than experienced investors) who turn the tide in housing markets, but it's important to remember a good investor can't still do very well in a changing market. It might take adaptability, and a bit more effort, but it's definitely doable and always will be even in the worst of conditions.

When the tide's coming in, almost anyone can do well in investing by mere virtue of having invested instead of having sat on their hands. Almost everyone who has money in the game makes money. But as the tide goes out, there's no need to abandon ship. Shifting focus, reassessing, working on new strategies helps, but suppose we do see a "worst case scenario" market.

Realistically, that market is going to take down the very recent, over-leveraged bandwagon buyer who expected to just purchase anything and do well. It's going to affect people who buy in over-developed areas, where the construction of hundreds of identical assets is outpacing demand. It's going to hurt people who refuse to adapt, or consider shifting their focus from capital growth to cash flow, or people who over-stretched themselves. It's going to hurt the panic buyer, who ignores that markets recover.

I think people waiting for doomsday, even IF we see a sharp correction, will soon realise few people actually get hung out to dry in a property market crash. Even in Dublin the foreclosure rate was less than 10%, and affected mostly builders or buyers into fringe estates, which lost most of their value. The rest of suburbia chugged along, after a brief panic drop, and has returned to normal just like the economy.

 

Great post mate. Good wisdom . Cheers.

 

Meh. In that case I would consider asking the bank to recalculate and pocket the difference

 

$30,000 is almost impossible(Very extreme cases) unless you. Are in the most elite suburbs. The better easter suburbs and lower north shore. Up until this year also got $7500 fee credit from government.
Childcare centers lond day care 7am_6pm in Sydneys west cost $88 per day Nappies and food provided. So it was $13000 including government credit which is taken by the centre operater and balance paid by you.

 

From memory, our regular monthly costs were around $3500 a month in E Suburbs in Sydney with 2 young kids at daycare, that's before rent. Our lifestyle was not frugal but not extravagant; shopping at Coles or Woolies, middle or bottom shelf, lots of coffees and cafes, occasional date nights out. Various insurance products came out of that too.

But then we saw the local Westfield as a place where wealthier people shop, drove a 6yo Forester, and holidays were limited to trips back to the UK every 18mo (which are expensive in themselves). Many people in Sydney enjoy shopping and holidays, particularly in wealthier suburbs, and their living expenses will be higher. CTP, car insurance, depreciation and replacement, etc., are often missed but will add up.

The new figures do seem more reasonable, I would say, unless you're really on a shoestring budget.

 

My living costs come in at around $1500 per month for two adults. That's in inner Melbourne, and excludes rent. I think that a family of four could run off $3000, but it probably wouldn't have a lot of luxuries.

I'd possibly disagree with @highlighter's anecdotes about Ireland. This chart (from Ronan Lyons at Daft.ie) shows that the price per square metre in South County Dublin, which is the most expensive part of the county, being down by around 45%. Such falls aren't due to the odd firesale of a development.



I accept that I might be wrong here, and would be interested in hearing facts to the contrary.

Regardless of what happened, Ireland has regained most of the losses in the GFC. I think that headline prices are still down by 15 to 20% from peak, but they're getting back there.

 

Perth and large regionals are the obvious places where affordability exists, and therefore they are the only places with any realistic chance of growth under the new credit regime.

 

Prices dont need to go backwards in order to not go forwards.... there's this thing called a plateau. Otherwise known as "blah" . Borrowing capacity appears as though its going to get tighter following the RC, though. Living Costs and extreme scrutiny of customer spending habits will be the big thing I reckon... and that all adds up to one thing - lower Debt to Income Ratios , even if thats not what they specifically say they are after. It will be the result .

One very large positive is that rates are still low, as is unemployment, and this gives people reverting to P&I at least a fighting chance to make their monthly repayments . As long as that is well managed, its unlikely we will see a large correction. Rates may even be reduced further ( cash rate I mean) in order to ensure delinquencies - and therefore cost of funds- stay low.This would also ensure there wasnt a large correction I would imagine.

2-3 years into the regulatory changes it seems my early predictions (widely criticised here by the usual suspects) that this would not be short lived, that it would not be temporary, that post APRA cycles would not be like pre APRA cycles, and that the result of all of this would be that a recalibration of attitudes towards higher yielding , lower growth properties would start occurring as investors ( especially newer ones with PPOR debt and immature INV portfolios) started to realise that debt reduction and holding costs would need to start being higher on their wish list than growth potential ..... are proving to be correct.

And we havent even started with Basel 4 yet

 

assuming this is a genuine question, Minack said housing was 40% overvalued in August 2010 (or 35-50% depending on source of quote).

Morgan Stanley on OZ Real Estate - MacroBusiness

they do have a new 'model' now, though!

 

The boats that go up with the tide, also go down with the tide.There's no sugar coating it.

If we're talking worst case scenario it's not realistic at all to suggest it will be the inexperienced, "unsophisticated" investors who will mainly be affected.
In fact, I would suggest that it is some of the "best" investors who have played the game so well in the expansionary credit environment who are now at most risk.
I agree investors need to adapt to the changes , but once the tide has turned it's too late to start paddling harder.

Willy

 

Not necessarily true in my opinion. Often the average/newbie investor and experienced investor can for example, do well in a rising market however they are usually not 'structured' the same way. The average investor may have no buffers, paid too much for the asset, bought an inferior type of dwelling, no add value potential etc. Contrastingly, the more experienced investor would have considered all those additional factors and positioned themselves in a safer, more robust position. This of course isn't always the case, but I believe it's generally accurate.

 

So should this change the weight you put on there predictions now?

 

In a slight correction or flat market I would agree but the point was worst case scenario.
I suppose it depends on the definition of worst case scenario but if we see a significant correction in Sydney / Melb it will be more than just the newbies that get burnt.

As an aside, it's funny how human psychology works.
With regard to the property market, people will readily accept that a rising tide lifts all boats but will look for all the reasons to assure themselves that the same thing doesn't work in reverse.
The same way they are making money when the sharemarket goes up but when it goes down it's only a paper loss.

We tend to only accept what we want to hear.

Willy

 

There are thousands of markets in Sydney and Melbourne. Assuming (and I don't believe this will be the case) the majority of markets had a 40-60% correction then I would imagine many investors may be affected. But this scenario is too far fetched/unlikely imo to give meaning to 'all boats that go up will come down'.

If we look at this concept across a more common/realistic market volatility, when 'all boats are lifted', they are often not lifted to the same heights with the same amount of risk factors attached to each boat. That is why some boats can fall harder than others eg oversupplied OTP, while other boats may not budge in price eg higher demand OO stock.

 

Probably the same doom and gloom back in the GFC- maybe even worse given the whole “worst financial crisis in 50 years” thing.

 

The interesting thing about the GFC in the US is that few people thought it would happen. Even when they were warned by the voices in the wilderness they did not believe anything bad would happen to them. Most regulators ignored the unpopular minority opinion of a looming crisis. Most people who lost money did not think it could happen to them right up until it did.

 

Not advice, DYOR etc...

They've invented, I think, a model with 6 indicators and reverse-engineered it to make it work, an exercise in curve-fitting.

It's already blown up since they first introduced it - they previously predicted 200,000 construction jobs would go and unemployment would've risen to 6.5% by now - then the gov kicked in with massive infrastructure spend, construction employment & jobs growth increased to a record high & unemployment fell.

Maybe they were just early.

It's been OK for national house prices, so far.

The problem from an individual's perspective as always is that, say, Geelong house prices have been fizzing along, while other markets are in decline.

It might prove to be alright for macro, if they can predict what APRA does.

 

Also because these banks are very heavily weighted to Sydney and Melbourne. Both of those cities are coming off their peaks so ofcourse the article would carry some weight in that view.
These banks don't f*** around much in markets like Brisbane, Adelaide. Perth etc so their exposure and view is limited.

 

I would assume that these are investment banks and their reports are based on data. It doesn’t have much to do with if they are active in any retail mortgage markets. Correct me if I am wrong.