The Psychology of Declining Markets....

Discussion in 'Investor Psychology & Mindset' started by sash, 28th Jan, 2016.

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  1. Gockie

    Gockie Life is good ☺️ Premium Member

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    I tend to think Sydney still has it over Melbourne for jobs though.
     
  2. sash

    sash Well-Known Member

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    Hey Omni spot on...this is what people don't realise....the other side of the equation is the deflation in wages whilst inflation is being exported from China as things get more expensive.

    It will certainly be an interesting 3-4 years for Sydney. The other factor is the impact of Chinese money leaving Sydney..where it is more pronounced.

     
  3. sash

    sash Well-Known Member

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    Gockie...lets say that I am in the consulting circle....if you see what is going to happen to jobs in IT, Accounting, and other Professional/Financial Services over the next 3-7 years...you might be surprised. Sydney's the largest Professional/Financial Services hub....why do you think is going to happen..also the cost of doing business in Sydney is very high!

    A lot of the Sydney talent is moving to Melbourne as there is a similar market for skills...but cost of living is lower..so wages are lower. Have a look around you in IT...companies like Wipro, Infosys, and Tata are bringing in loads of PS people for 80-100k instead of the silly rates of 120-180k. What do you think is going to happen when this happens?? What is also taking hold...companies like KPMG, PWC, Deloitte, and EY are now doing a lot of work offshore via a BPO model...it is going to the Phillipines and India..and other countries.....

    There seems to be a lot of emotion around the Sydney market...people..I have 4 in Sydney...what benefit is to me to talk it down...it is just the facts. A normal part of the cycle. Have a look at what has happened over the last 100 years...this cycle was not unlike 1987 to 1989...then the big recession came along. This time it might not be a recession...but maybe something else. People need to be prepared otherwise people will lose their shirts.
     
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  4. euro73

    euro73 Well-Known Member Business Member

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    I hope you've counseled her wisely on putting that dormant equity to work?
     
  5. WattleIdo

    WattleIdo midas touch

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    Let's face it, if you didn't get a bargain in 2012, you might be waiting quite a while for the next best opportunity. We all know that the next 5-7 o'clock will present in around 3 or 4 years' time - so why so many threads? I think it's anxiety.
     
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  6. Sackie

    Sackie Well-Known Member

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    I'm banking on it. Then when the deals come up to buy places that can be knocked down, increase the yeild of dwellings and sell for profit regardless of any market growth..thats the game right there imo.
     
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  7. sash

    sash Well-Known Member

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    No anxiety...just excitement..have bought in Brisbane..and Melbourne last year. Already bought one in Adelaide...settles week after next. Working on Perth......but Sydney I think if all goes well is the jewel in the crown....if what I think is going to happen comes off.

    Here are the warning signs:

    1. Development sites are not selling..and the ones which you thought are being developed are not proceeding.
    2. Sales have slowed significantly...prices have stopped rising...in some areas the rents are moving downwards.
    3. Agents are now cluttering my emails with house opens all of a sudden. This did not happen 6 months ago.
    4. When you talk to agents..and say look I will want a minimum of 50k off they don't laugh in your face....they are willing to present offers.
    5. Tightening of movement of money out of China is having an impact.
    6. Immigration as slowed.

    Here is what I think is going to tip things over:

    1. Negative media stories will affect the psyche of buyers...the urgency to buy and thus the demand will drop off.
    2. With the number of off the plan and other developments coming on line...supply particularly in the Western suburbs should end up in a small over supply. There will be pull back on rents.
    3. I feel that a lot of new developments will not value up..and as banks have tightened...some people will default the negative publicity will make people even more gun shy.
    4. IR cycle will turn up...probably from 2017 if this is rapid...it will hurt even more.

    Here is what I am doing:

    1. Going to Cash and Cash Flow is king ...principle..did this during the GFC.
    2. I am starting to fix some loans and spreading out when they expire.
    3. I have taken mostly 10 and 15 yrs IO only loans....if you have not now...there is high likely hood that 5 yrs with reassessment every 5 years will be the norm soon. WBC, STG..have quietly stopped offering 15 yrs IO. To people who have retired with a view to living off rents how does this affect your ability to do this if you come off paying 15 yrs IO...do they realise they will have to almost double the principal payments to finish paying off the loan in the loan term???
    4. As per a previous post ...have you stress tested your portfolio for IR increases...etc??
     
  8. WattleIdo

    WattleIdo midas touch

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    I fixed IO @ 4.09 8 months ago and got an equity release 18 months ago.
     
  9. sash

    sash Well-Known Member

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    Great...how about the IO only cliff??

    This is disaster waiting to happen......the govt in their infinite wisdom are now viewing this as a indirect means to lowering the borrowing limits. Some on this forum may not be aware of this cliff:

    This is how it goes:

    Let say Mr SmartyPants Investor bought 10 properties between 2011 and 2014 on 5 years interest only. Lets say the total value of these properties are now 900k with a loan of 2.1m.. Lets say they they earn 90k and have 155k in rental income. The cost to service the loans is currently 95k in IO payments and 60k in expenses.

    If all their loans convert to IO at the same time...they could be up for another 15k odd in repayments. If interest rates rise another say 2% between now and 2019. They will be dealing with 55k in additional payments. Something to think about ...the biggest risk is Sydney as this is where the stress will be most pronounced!!
     
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  10. sash

    sash Well-Known Member

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    Well Sonny...if you only made some wealth multiple properties in Sydney....then it would seem you did not make enought capital gain.

    This cycle...just two bought for mid 2s....gave me close to 700k in gain...guess what...they weren't in Sydney. The Sydney ones were more like 350-400k each..most were very close to the city!

    I have a simple philosophy....100-150k per property every 5-7 years will do! Work the numbers on that and you have a money making machine. The excess cashflow and depreciation are icing on the cake.

     
  11. sash

    sash Well-Known Member

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    ...and your point is??

    It might be good to be light on Sydney at the moment...diversification is the key...give it time..lets have this conversation with people with all their properties in Sydney in 2018-2019...it will be a world of hurt.
     
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  12. euro73

    euro73 Well-Known Member Business Member

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    Yeah, look.. all possible, and I have written often of the I/O - P&I transition issue that awaits many people in the next 2,3,4 years...

    But I'll tell you what Mr and Mrs banker will do to stop that sort of mortgage default crisis pummeling their loan books too much, and to soften the blow somewhat in Sydney, which is where 35% of their funding is sitting ... they will turn off , or at the very least make it next to impossible to access I/O lending in Adelaide, Perth, Darwin and Brisbane ( ie the cheaper markets with much smaller average loan sizes) so they can renew I/O terms on the bigger dollar loan sizes in Sydney, and to a lesser degree in Melbourne

    Cash flow will certainly be king - but I think you're underestimating how clever the banks will be to stop too much bleeding from the I/O cliff.

    And I suspect the RBA would cut rates significantly if that were to occur.. If you were to run your scenario on 2.5% or 3% P&I rather than 5-6% P&I, you'll find it's reasonably comfy...but with assessment rate floors at 7% -8%, the RBA could get away with that without inflating borrowing capacity or house prices in any way, and while engineering a significant transition of debt from I/O to P&I ....
     
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  13. Kangaroo

    Kangaroo Well-Known Member

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    Did a bit house hunting in SW sydney and interestingly two different sellers were moving to Melbourne, as told by agents. Why not Brissy ?
     
  14. WattleIdo

    WattleIdo midas touch

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    :rolleyes:
    May I refer you to some threads where this was recently discussed? You may get a more rounded picture of some of the other memers here if you vary your post content and visit a few other threads.
    I have a range of loans - some are P & I, the new ones are IO. One of the IO's is a grand total of 118K. The other is the equity release sitting pretty close to the top and being used for renos. Thanks for the lecture, though.
     
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  15. WattleIdo

    WattleIdo midas touch

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    Jobs.
    It'll happen soon though.
     
  16. sash

    sash Well-Known Member

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    Yes...I have a friend who was an Exec at CBA and quit to move to Melbourne...

    Why not Brissie...Melb and Sydney have similar paying jobs and calibre. Brissie does not have a large professional services sector or financial services sector. This is where the well paying jobs are...for the moment. But this is about to get hit as more of these jobs move offshore.


    Lets revisit in a couple of years......
     
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  17. Omnidragon

    Omnidragon Well-Known Member

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    Haha this stuff always gets emotional.

    Lots of guessing and normally it's quite hard to see beyond 18 months. Though markets are always cyclical - without fail - so the general likely outcomes is pretty easy to predict in near-term.

    Happy investing as always.
     
  18. Omnidragon

    Omnidragon Well-Known Member

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    Yea I used to go Brisbane a bit for work. The coal and LNG sector has completely killed the employment space. I'm not convinced there's that much jobs there.

    And certainly not the level of recognition on a global scale as far as things like Asian money is concerned. A lot of my Chinese friends have never heard of Bris.

    Both of which were big reasons I stayed away from it.
     
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  19. sash

    sash Well-Known Member

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    Yes agreed....emotion and investing do not go hand in hand.

    Agree about the cyclical nature of markets....
     
  20. WattleIdo

    WattleIdo midas touch

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    Everyone is in furious agreement about opportunities presenting within a few years. I hope you're not going to say that everyone was disagreeing with you.
     
    Last edited: 1st Feb, 2016
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