They can if they bought wisely 20yrs earlier and have a small debt on it.
No, FHB's can't buy it - oh well, tough t!t!@$! In 20yrs time, there will still be hundreds of thousands of dwellings way under that $2M figure.
Forecaster tips house price rise of 40 per cent in five years
- Thread starter Gools
- Start date
They can if they bought wisely 20yrs earlier and have a small debt on it.
No, FHB's can't buy it - oh well, tough t!t!@$! In 20yrs time, there will still be hundreds of thousands of dwellings way under that $2M figure.
They can if they bought wisely 20yrs earlier and have a small debt on it.
In 20yrs time, there will still be hundreds of thousands of dwellings way under that $2M figure.
You are talking a specific house. I am talking the market. We are on different planets.
But gives us something to do I guess ...
No, we're talking about thousands of properties right now that are valued over $1M in any capital city. Do you really think they all have 80% debts on them?
Just purely hypothetical figures. In a capital city right now, there may be 400k house that are considered unaffordable to the majority (on median wage etc), and there are 900k that are considered affordable. In 20yrs time - half or even 3/4 of those 900k houses that are affordable now may move into the unaffordable category. But, in 20yrs time, there will be another 600k houses built (assuming demand exists) that are affordable.
Summary:
2008: 400k unaffordable 900k affordable.
2028: 850k unaffordable 1050k affordable.
Show me the median wage today only having increased 50% from 20 years ago?
It was not an actual figure. Illustrative figure.
The point is if property outstrips income then the gap has to be plugged somehow. So far we have had dual incomes come into the picture, we have had relaxing lending standards, far higher debt ... but these just plug the hole. Eventually you hit a point (I think we have hit it) where there just aint any more money!
Did you mix up some unaffordable / affordable words there? I read it twice but missed it. Have to duck out but will try and read it again when I get back.
If it is the "city spread" argument then that is fine but the median would also spread further out and be constant. It has infact risen though.
Read it again, you're right - it doesn't exactly roll off the tonuge, but the idea is there.
Point I'm trying to make is medians and higher priced houses can go up as far as you care to predict - that doesn't mean there won't still be affordable houses in the future. If people choose not to buy these - that's a completely different issue.
The median can go to $1M for a city (which it already is within areas of cities) - doesn't mean that there won't be houses elsewhere in the city that are around the $350k level.
PS YM - that's why I don't use Median figures etc. to look at these sorts of issues.
Just becuase Sydney's median is $500k+, who cares? There are still houses available for under $300k in the western suburbs, and units for around $200k or just under (from what I've read from Sydney people).
People (and the media) shouldn't use median price if they want to talk about the affordibility issue. They should use the cheapest dwelling prices available in the city they are referring to.
Just becuase Sydney's median is $500k+, who cares? There are still houses available for under $300k in the western suburbs, and units for around $200k or just under (from what I've read from Sydney people).
People (and the media) shouldn't use median price if they want to talk about the affordibility issue. They should use the cheapest dwelling prices available in the city they are referring to.
That's ok. I enjoy my naivety. I have been living off my naivety for a quite a few years now and am able to for the rest of my life so I guess that naievty has served me well.
I will give a rough outline of why I don't think it's naive, not for your benefit of any newbie's reading. I am fully aware that tyring to convice you that there is any chance that any property investor is correct is as likely as convincing a preist that there is no god.
You also appear to treat the property market as a whole, like all areas will perform the same. Which is like saying that the whole stockmarket is the same and that buying shares in a Microsoft and an internet bubble stock and Berkshire Hathaway is the same. There are many areas of housing that may will be in for a shock. There are hundreds of crappy estates on the edges of the city that may well become ghettos. Then there are prestige areas that will do well. People apsire to live in the good areas not the ghettos (funnily enough). All stocks not the same, all properties not the same. I know people who bought in Ipswich and 10 years later sold for less than they paid. You'd have trouble (i'd say impossible) finding anyone who could say the same in inner Brisbane. Over a 20 year period than good luck finding anyone who's has has only kept pace with inflation.
If you look at this blind beleif at a pure supply and demand perspective. I'll take just the residential perspective at the moment. I only buy charachter houses within 5k of the CBD. So over the next 20 years do you think that there will be more or less people who would want a house in this area? Do you think in 20 years that the person on average wages will be able to afford a house in this area (no, average wage can't now) Do you think that there will be a greater number of people (not % but actual number) on above average wages who will want to live in this area. Do you think that as populations increase, traffic gets worse etc that more or less people will want to live close to the city .Finally do you think that the will be increase in the number of houses (not units) in this same area.
So talking in supply and demand
>no of people wanting to live in area
<no of houses in area (removed for units etc.)
> no of people who can afford to pay above average house prices (greater income concentration closer you get to city)
Therefore according to the theory of supply and demand houses in desirable areas like these will increase at a rate greater than inflation.
If the house prices in an area like this only increase in line with inflation. Lets look at some person who has $500k to invest and buys 4 houses in area like this today at an average 4% inflation over 20 years.
Start price $500k (good luck finding a house for this price now)
assume 80% loans (other 100k gone on stamp duty)
So
Total portfolio now $2m
Total Loan $1.6m
Net worth $400k
End price 1.1394M 4% increase over 20 years
Total portfolio now $4.5575m
Total Loan $1.6m (assuming no principle payments)
Net worth $2.9575m
This equates to approx 10.5% compounding growth
Now lets assume these properties acheive 11% ave annual growth over 20 years (as they did for the period from 1900 till 1990 (prior to the availability of credit exploding in the 90's)
Total portfolio now $16.1246m
Total Loan $1.6m
Net worth $15.060m
That also assumes that they never buy another house along the way. Yes they will be negatively geared but that is just compulsory saving. If the houses dive in value at some stage, doesn't matter as we are looking at a long term view. Will the houses acheive the average 11% who knows but even at the 4% growth the person who got in now does well. If they only buy 1 house they still multiply thier wealth over 7 times.
Meanwhile the person who was sitting on the sidelines might never buy, they might buy in and sell again in a couple of years because their theories inform them it is the right time to do so and take their cash and sit and wait. during the time that they are waiting to get back in, are they leveraged at 80%lvr into something else, are they doing the compulsory saving to replace the costs of negatively geared property. If not they need to find a pretty good returning investment.
So I, along with many others on this forum who live off their investments, will sit back and enjoy our naivety watching our long term wealth grow. While others will, sit, theorise, criticise, procrastinate or otherwise be negative. If they happen to make the same or greater wealth in another area, good luck. But my guess would be the people making more money in other areas would spend less time being negative about property and more time talking positively about their own investments
I will give a rough outline of why I don't think it's naive, not for your benefit of any newbie's reading. I am fully aware that tyring to convice you that there is any chance that any property investor is correct is as likely as convincing a preist that there is no god.
You also appear to treat the property market as a whole, like all areas will perform the same. Which is like saying that the whole stockmarket is the same and that buying shares in a Microsoft and an internet bubble stock and Berkshire Hathaway is the same. There are many areas of housing that may will be in for a shock. There are hundreds of crappy estates on the edges of the city that may well become ghettos. Then there are prestige areas that will do well. People apsire to live in the good areas not the ghettos (funnily enough). All stocks not the same, all properties not the same. I know people who bought in Ipswich and 10 years later sold for less than they paid. You'd have trouble (i'd say impossible) finding anyone who could say the same in inner Brisbane. Over a 20 year period than good luck finding anyone who's has has only kept pace with inflation.
If you look at this blind beleif at a pure supply and demand perspective. I'll take just the residential perspective at the moment. I only buy charachter houses within 5k of the CBD. So over the next 20 years do you think that there will be more or less people who would want a house in this area? Do you think in 20 years that the person on average wages will be able to afford a house in this area (no, average wage can't now) Do you think that there will be a greater number of people (not % but actual number) on above average wages who will want to live in this area. Do you think that as populations increase, traffic gets worse etc that more or less people will want to live close to the city .Finally do you think that the will be increase in the number of houses (not units) in this same area.
So talking in supply and demand
>no of people wanting to live in area
<no of houses in area (removed for units etc.)
> no of people who can afford to pay above average house prices (greater income concentration closer you get to city)
Therefore according to the theory of supply and demand houses in desirable areas like these will increase at a rate greater than inflation.
If the house prices in an area like this only increase in line with inflation. Lets look at some person who has $500k to invest and buys 4 houses in area like this today at an average 4% inflation over 20 years.
Start price $500k (good luck finding a house for this price now)
assume 80% loans (other 100k gone on stamp duty)
So
Total portfolio now $2m
Total Loan $1.6m
Net worth $400k
End price 1.1394M 4% increase over 20 years
Total portfolio now $4.5575m
Total Loan $1.6m (assuming no principle payments)
Net worth $2.9575m
This equates to approx 10.5% compounding growth
Now lets assume these properties acheive 11% ave annual growth over 20 years (as they did for the period from 1900 till 1990 (prior to the availability of credit exploding in the 90's)
Total portfolio now $16.1246m
Total Loan $1.6m
Net worth $15.060m
That also assumes that they never buy another house along the way. Yes they will be negatively geared but that is just compulsory saving. If the houses dive in value at some stage, doesn't matter as we are looking at a long term view. Will the houses acheive the average 11% who knows but even at the 4% growth the person who got in now does well. If they only buy 1 house they still multiply thier wealth over 7 times.
Meanwhile the person who was sitting on the sidelines might never buy, they might buy in and sell again in a couple of years because their theories inform them it is the right time to do so and take their cash and sit and wait. during the time that they are waiting to get back in, are they leveraged at 80%lvr into something else, are they doing the compulsory saving to replace the costs of negatively geared property. If not they need to find a pretty good returning investment.
So I, along with many others on this forum who live off their investments, will sit back and enjoy our naivety watching our long term wealth grow. While others will, sit, theorise, criticise, procrastinate or otherwise be negative. If they happen to make the same or greater wealth in another area, good luck. But my guess would be the people making more money in other areas would spend less time being negative about property and more time talking positively about their own investments
I don't think he mixed it up; I read it as four hundred thousand houses that are unaffordable vs nine hundred thousand houses that are affordable.
Then later more of them are unaffordable, so the unaffordable figure blows out to eight hundred and fifty thousand houses because prices have grown. However more houses have also been built, hence the 'affordable' figure has also grown (by one hundred and fifty thousand houses).
I don't think Steve was quoting actual prices.
When I was a kid, (I feel old saying that, scary) I used to do jobs around the house, as did my sisters. This would sometimes result in a dollar or so for pocket money. My Dad repaired the house and was a jack of all trades.
I have four sons and our situation is so different.
I pay a gardener, dog groomer, car detailer, service on my car, many of the repairs on my properties. We have new cars, playstation, dvd,internet, cable tv, mobile phones , credit cards, dishwasher, ensuite, spa etc
We are a generation like any other where the lifestyle is improved but also radically different.
Expectation evolution and a shift in priority.
As has been written here, I agree that the market will continue to rise and the equity in one property will allow the purchase of another.
Wages will rise and new properties will be built and come into the market.
These cycles have been prevalent for so long now, why would they suddenly change?
Correct Ian, just plucking figures out of the air. But the principle is fair. Existing houses will increase in price, but new stock will come on line - and when that stock is further out or up - it will be cheaper.
I suppose when you do the math, if property keeps outperforming inflation as it seems to do, eventually it will be too expensive for the average person to buy. But I dont believe that is a reason for the price to drop. It just means there will be a bigger differance between the have's and have not's. From what I have been told, this is what it's like in places like London. Most people rent because they just can't afford to buy. There does not seem to be a reason why affordability has to be sustainable.
I remember, 35 years ago my sister borrowed $30,000 to buy a home, it was a lot of money and the projection said it would eventually cost her $100,000 to pay off over the 30 years. She was stressed about that and asked her accounant, he said "You gotta remember in 30 years, people will pay $100,000 for a house. Pffffffffffffff !!!!
35 years later, the house is worth $300,000 and she still lives there!!
un -bloody- believable !!!
She was stressed about that and asked her accounant, he said "You gotta remember in 30 years, people will pay $100,000 for a house. Pffffffffffffff !!!!35 years later, the house is worth $300,000 and she still lives there!!
un -bloody- believable !!!
Sorry to half hijack this thread,
but someone with a bit more years and/or experience /knowledge pls,
1. can tell me the general trend of what happens when housing affordability for the average person becomes ridiculous like now????? maybe for Aus or any other country, do prices simply stay there and possibly stangant while other areas catch up until housing affordability goes from ridculous to super dooper hard??? surely something must give way if generation after generation of first home buyers simply can't get in......
2. I am also confused by the 40% potential rises article, sure, if there was onesided and overwhelmingly strong negative OR positive sentiment from multiple (non biased) experts, then I would be more then happy to accept their views, however, I read articles of BOTH a 40% drop and rise in the coming few years of property prices, which simply baffles me..... sure there are a lot of clueless idiots out there, but this has got me baffled....
in all seriousness, my original view was the prices were going to stagnant for the next 2-3 years or at least until rates stop rising, and maybe come down, but after reading all of these opposite view articles, I am going to toss a coin.... I probably have a better chance with a coin!
but someone with a bit more years and/or experience /knowledge pls,
1. can tell me the general trend of what happens when housing affordability for the average person becomes ridiculous like now????? maybe for Aus or any other country, do prices simply stay there and possibly stangant while other areas catch up until housing affordability goes from ridculous to super dooper hard??? surely something must give way if generation after generation of first home buyers simply can't get in......
2. I am also confused by the 40% potential rises article, sure, if there was onesided and overwhelmingly strong negative OR positive sentiment from multiple (non biased) experts, then I would be more then happy to accept their views, however, I read articles of BOTH a 40% drop and rise in the coming few years of property prices, which simply baffles me..... sure there are a lot of clueless idiots out there, but this has got me baffled....
in all seriousness, my original view was the prices were going to stagnant for the next 2-3 years or at least until rates stop rising, and maybe come down, but after reading all of these opposite view articles, I am going to toss a coin.... I probably have a better chance with a coin!
I will tell you exactly what 'gives way' in three small letters.... s q m.
People don't aspire to the quarter-acre block any more. Most would be happy with the 405sqm block and even smaller. I don't think the great Australian dream has such a big back yard anymore... even for the dreamers that want a yard at all.
There will come a time (maybe 50 years, who knows) when families can't afford a house on 405sqm even in the outer suburbs; That kind of block will just go the way of the quarter-acre block and families will aspire to a 200sqm patch of grass.
Ask someone here in Hong Kong if they dream of having 405sqm one day and I'm sure they'll give you a pretty funny look.
-Ian
