ABS says house prices have fallen

[wylie]

So far you've told me your son debt financed a brand new car he couldn't afford and had to sell and got in over his head, then you bailed him out so he could go into more debt and buy a house he shouldn't be able to buy and can't really afford (especially without depending on a boarder).

Right...

Whatever happened to saving ?

Uh..... no. He borrowed for a car that he could easily afford. It turned out to be a lemon. He has it for sale and has bought a demo model "sensible" vehicle. He CAN afford both of them at the moment, but once his mortgage payments kick in, he needs to expedite the selling of the first.

Please show me where we "bailed him out"????

And your idea that he should not be able to buy a house without a boarder is just ignorant. No wonder you are still renting (or living with mummy).

And I'll say it AGAIN...... are you paying attention...... he has no "savings" because he has been paying off his car at a much higher rate that if he had a "regular" loan. Had he known he would be wanting to get a loan, he could have kept his car payments at the level expected, and saved some money in a bank account.

Do you understand, or would you like me to explain it again?

 

[Sunfish]

has no "savings" because he has been paying off his car at a much higher rate that if he had a "regular" loan.

Love your definition of "Savings".

No banker I've met believes "Not as far in debt as he might be" is a plus.

 

[Sunfish]

Years ago, while most of you would still have been pooping your pants, the FIRST "investment guru" I ever listened to said that you can't get rich on "income". You must leverage it. 'Twas a little late for me because my income was waning, I wish I'd met him years before.

THERE You always thought I was anti leverage!

This guy believed in the investment clock though which (simplified) said that NEW investments should be according to this clock. Decades later I still believe he had it about right.

 

[joanmc]

well in my neck of the investing woods they certainly have fallen. There are a few houses that would now be giving close to 7% gross return on the market. rents are still climbing (slowly but surely) and waytown has dropped about 20% from a high of 250k to 200k (3 br on 400m).

I think it is bottoming out though as the houses that have dropped seem to have stopped dropping. I think there is always a point where, barring desperate circumstances, the vendor would rather keep it than sell.

 

[wylie]

Love your definition of "Savings".

No banker I've met believes "Not as far in debt as he might be" is a plus.

If somebody needs to pay $50 per week off his car loan, but is paying $250 per week instead, do you NOT consider that as being able to save????

Just because his saving is locked in a loan doesn't mean it is not saving.

If he had even thought he would be able to borrow now for a unit, he would have instead "saved" it into a separate account and paid tax on it. That would have been clever, right?

ADDED: Just thinking about this again. Perhaps this is the difference between "clever" debt and "stupid" debt. I KNOW our son has been paying his car loan off much quicker than necessary. Perhaps if it was your son Sunfish, you would tell him to wait a bit longer to buy his own place until the time he could show the bank his "savings" in an account as opposed to a quickly reducing car loan.

Or would you have said to your son, "you can ride a push bike into work every day and around town to your open houses?" His job demanded a car, he had no choice but to buy one. His choice was to be sensible the first time and not make a stupid decision on his fancy 8 year old European "lemon", but he won't probably make that mistake again.

Perhaps that is why our son at 22 has his own place. He (and we) thought outside the square. We didn't let the bank dictate to him whether or not THEY thought he had enough savings to get him over the line.

By him pouring all his spare cash into his car loan, it has meant that to get him over the line he would have had to borrow another $6K for LMI. I see that as a TOTAL waste of money that is better poured into his mortgage. So instead, we signed a few papers to guarantee him for one fifth of his loan, until such time as his value rises enough to release us, if we wish to be released, down the track.

He STILL could have got over the line though. Just shows that where there is a desire to do something, you FIND ways around obstacles put in your path.

I still cannot believe that you cannot see that paying off a loan, whilst not "provable" to the bank (as the loan is from a family trust, not a bank) is actually "savings"???

 

[Token Funder]

Years ago, while most of you would still have been pooping your pants, the FIRST "investment guru" I ever listened to said that you can't get rich on "income". You must leverage it. 'Twas a little late for me because my income was waning, I wish I'd met him years before.

THERE You always thought I was anti leverage!

This guy believed in the investment clock though which (simplified) said that NEW investments should be according to this clock. Decades later I still believe he had it about right.

A good general point around leverage SF, but unfortunately, newbies tend to forget that it works both ways (plus some). Leverage is simply a magnifier of a given result. Leverage delivers magnified gains and losses, but promoters tend to discount the latter.

The other implication from my own experience with borrowers is that that they fail to understand the asymmetrical nature of the speed of the knock-on effects of leverage. That is, when leverage is working against you, the speed at which the world can implode is greater than that at which leverage allows your world to expand.

Zero to hero is generally linear. The reverse tends to give you whiplash.

 

[tom32]

A good general point around leverage SF, but unfortunately, newbies tend to forget that it works both ways (plus some). Leverage is simply a magnifier of a given result. Leverage delivers magnified gains and losses, but promoters tend to discount the latter.

The other implication from my own experience with borrowers is that that they fail to understand the asymmetrical nature of the speed of the knock-on effects of leverage. That is, when leverage is working against you, the speed at which the world can implode is greater than that at which leverage allows your world to expand.

Zero to hero is generally linear. The reverse tends to give you whiplash.

Excellent post.

It is a bit like building anything. Get it wrong and it can come down a lot faster than you can even build it.

 

[Wunderbar]

Actually if you check any finance book it shows you that leverage increases Return on Equity at a linear rate. It's just that the gradient of the line is much steeper than your normal unleveraged scenario.

 

[Wunderbar]

Fine effort. Both No true Scotsman and burden of proof logical fallacies in one post.

And fine effort with that magnificent grammar, making your words incomprehensible and mere gibberish

 

[tom32]

Actually if you check any finance book it shows you that leverage increases Return on Equity at a linear rate. It's just that the gradient of the line is much steeper than your normal unleveraged scenario.

Thats not what TF meant

I suspect he meant market values build slowly and often linearly. Indeed those people specialising in going long on markets have a much easier job of picking a trend than those who go short who have a far shorter time horizon to make their money.

As markets build in value (a stock, a house, fine works of art even) they build over time. The propensity for them to suddenly collapse is far higher than the propensity for them to suddenly go up in value over night especially when you talk across an entire market.

Markets can collapse suddenly and catastrophically, they do not often double overnight.

 

[Wunderbar]

Yes I know that - but he is overemphasising the negative effects of leverage. If it pays off, making money off leverage is not linear at all. More like exponential. The downside case is asymptotic because generally whether you're bankrupt with $100m in debt or $5000 you're still worth nothing anyway.

 

[tom32]

Yes I know that - but he is overemphasising the negative effects of leverage. If it pays off, making money off leverage is not linear at all. More like exponential. The downside case is asymptotic because generally whether you're bankrupt with $100m in debt or $5000 you're still worth nothing anyway.

Yes which is the moral hazard of having access to vast swathes of government backed funding we have all grown to know and love...

I know what I would be doing with a government guarantee as you point out you don't lose much if you get things wrong.

I reckon I would be hitting the casino with a 5bn dollar bet and putting it all on black. If it loses I'd try again when I come out of bankruptcy. If it wins I would be giving them back thier 5bn and keeping the spoils...

I suspect this is why I have never been offered a government guarantee. Sometimes I wonder whether our banks are worthy of them though.

 

[Wunderbar]

Nah only government lobbyists get free govt money to gamble with

 

[cloudyday]

Houses are too expensive these days, even for someone on nearly 7 figure/annual salary. I bought a few properties around 2001 that has since gone through the roof. No way I could repeat that these day. Anyone buying now ain't getting good bargains because for $800k capital, you could put that into a business that would net you $300k per yer profit, rather than fetch you $30k/year in rents (this is before deducting interests, council fees too).

People need to invest outside of Australia, there are many countries where property is booming, much like it was in Australia around 2000. Example was China, bought 2 over there that has since tippled. Go find bluer waters.

 

[Aaron Sice]

yeah but sao paolo in brazil needs mafia money to keep it safe which erodes your return.

 

[craigb]

Houses are too expensive these days, even for someone on nearly 7 figure/annual salary. I bought a few properties around 2001 that has since gone through the roof. No way I could repeat that these day. Anyone buying now ain't getting good bargains because for $800k capital, you could put that into a business that would net you $300k per yer profit, rather than fetch you $30k/year in rents (this is before deducting interests, council fees too).

People need to invest outside of Australia, there are many countries where property is booming, much like it was in Australia around 2000. Example was China, bought 2 over there that has since trippled. Go find bluer waters.

CLOUDYDAY you could put 800k on the lottery too! but its still no gtee of a profit, if its to hot get out of the kitchen .