Do markets with lowest rental yields (e.g. Syd, Melb) have the most room to fall?

[believer117]

Sorry if this is an obvious question, but on the stock market, I'm watching that companies with low or zero dividend yields are being sold off massively (e.g. down 50-70%), while those with high dividend yields have only had minor corrections (e.g. down 10-20%).

I am wondering if the same might apply to the property markets? That is, the housing markets with the lowest yields have the most capital loss potential, while those with higher yields will fall less as interest rates rise.

 

[candies]

@believer117 My grandpa told me property price only go up

 

[philosopher8659]

@believer117 People have short memories, so yes the housing market does fall. Also returns on housing have fallen. Rents to property values is extremely low. Like 1 or 2%

 

[believer117]

@philosopher8659 I am not questioning whether houses can go down in price -- I am asking whether those with the lowest rental yield tends to fall the most.

 

[resjudicata]

@believer117 They would be the most interest rate sensitive.

 

[mottotom27]

@believer117 Rental yield is almost inverse to rental risk/vacancy. Regional yield is ways higher. Outer suburbs yield is always higher.

Rent often relies on what people earn, not the asset value.

I would say the opposite is true. High rental yield areas and properties present the most investor risk in a selling environment. Cashflow is important when scaling a business or trying to join the news.com.au manifestos, but became obsolete with property investment as soon as serviceability came in.

As long as yield is ahead of cash rate, no one is going to jump.

 

[believer117]

@mottotom27 Thanks, that makes a lot of intuitive sense. That also explains why the 'blue ribbon' suburbs that people think are the safest also tend to have the lowest rental yields!

 

[philosopher8659]

@believer117 That would make sense.

I remember in the GFC all the palm beach holiday houses were dumped by the ceos and executives. You could pick one up for about a 1/6 of the price they were selling for a year earlier

 

[suzanne123]

@believer117 The difference is that in houses you have owner occupiers, but in stocks you just have investors.

Yields are not weak because investors are going nuts bidding each other to the floor, it's because owner occupiers don't care about yield.

If people can afford the price and demand exists from owner occupiers in balance or excess of supply for a specific suburb it can stay elevated with low yields.

 

[jjddww]

@suzanne123 You've said a lot but essentially your argument is "Certain stocks have been selling off because they're unprofitable trash and investors have realised that (who were banking on capital gains), whereas property won't sell off despite low yields (unprofitable trash) because investors think they'll see capital gains".

You do realise that both groups have the same mentality and that one (stocks) are just further ahead at realising how objectively shit their investment is?

 

[suzanne123]

@jjddww My point is that owner occupiers don't care about yields.

Also yeh, maybe us property investors are behind the curve and are too dense to realise how shit our investment is

 

[jjddww]

@suzanne123

My point is that owner occupiers don't care about yields.

I've had too much beer today and completely missed the "owner occupier" part of your first comment.

Don't drink and reddit.

 

[suzanne123]

@jjddww All good mate.

 

[conniverouss]

@believer117 Out of interest, what companies have you seen that are down 50-70%?

 

[larktoons18]

@conniverouss Half of the nasdaq 100.

 

[jjddww]

@larktoons18 More than half at this point

 

[conniverouss]

@larktoons18 Could you share some examples? (Doesn't have to be all 50!).

 

[larktoons18]

@conniverouss Paypal, $81 down from $194 in Jan
Block 96 from 270 in Aug
Moderna 134 down from 456 in aug

Are a few of the more well known ones

 

[conniverouss]

@larktoons18 Thanks. It's these big drops which are really interesting.

 

[alchemist_jay]

@conniverouss I'd be curious as well. Here's 'Nasdaq 100 YTD Returns' sorted by performance. At number 50 you've got Alphabet, which is down 20%. To get to a company down 50% YTD you need to scroll right down to number 97 (docusign). So maybe by half the Nasdaq 100, they really meant 4% of the Nasdaq 100?