generational housing problem
- Thread starter keneth
- Start date
See post:
http://www.somersoft.com/forums/showpost.php?p=320229&postcount=431
I did quote them:
http://www.somersoft.com/forums/showpost.php?p=320276&postcount=434
Yo-yo, do you even read the posts? this is like the 2nd time in 2 days you have said something that could be found by reading just a few posts above yours...
Remember how I said that this only works because people are looking back for 1 generation, and that is the period of unsustainable debt growth?
Here is the inflation adjusted graph of house prices.
Here is Australia's debt to GDP ratio:
As you can see, the reason house prices have risen so far above wages is entirely due to the debt binge Australia has been on since the 1960s. The only way for this to continue is with MORE and MORE debt growing faster than incomes.
Everything since the 1960s is an ABNORMALITY from historical trends because of DEBT.
Eventually you reach a limit. We are currently exceeding the repayment burden of the "recession we had to have" and 18% interest rates - hence housing stress etc. And this is with historical low interest rates.
Back then the repayment burden was due to high interest rates, which can go down easily. Now the problem is due to a high debt burden (150%+ of GDP!!!!!!!) which will take years/decades to pay off. And of course, is subject to the risk of HIGHER interest rates.
Household debt is scarily high in this country, it is only a question of when it will get too large to service, and then we will eventually have to stop borrowing more than we make.
When that happens, we'll see asset price collapse. It is just a matter of *when* not if the day of reckoning comes, you can't borrow money from overseas to spend your way out of recession forever. This is Australia's current course, we run trade deficits and it takes $5 borrowed to create $1 of GDP. When we stop borrowing, we're screwed.
The credit contraction now obvious in international markets has begun. Is this the end of the mega-trend of the west spending mroe than it has earnt since the 60s? Maybe, or maybe we'll just lower interest rates and spend our way to an even bigger disaster in the future. Those are the only 2 choices.
Al Gore has a chart like that! I think rising australian debt is responsible for melting the ice caps. 
it is probably fair to say that looser lending practices, the re-entry of women into the workforce, people working later into retirement etc has driven house prices. servicability seems ok at present and hence there is no reason for a asset price collapse. That guy in that video you posted was so dead cert of his predictions that I reckon I would like to get some lotto numbers off of him.
found a paper from 1997 today. was a really interesting read... 1996 Magna $27,000, house and land package in Rockingham $85,000, Woodside was $11. World has sure changed a lot in 10 years!
it is probably fair to say that looser lending practices, the re-entry of women into the workforce, people working later into retirement etc has driven house prices. servicability seems ok at present and hence there is no reason for a asset price collapse. That guy in that video you posted was so dead cert of his predictions that I reckon I would like to get some lotto numbers off of him.
found a paper from 1997 today. was a really interesting read... 1996 Magna $27,000, house and land package in Rockingham $85,000, Woodside was $11. World has sure changed a lot in 10 years!
Sorry Sommersoft - I'm deleting my post because .... well it was a tad trollish on my part. This is your Forum.
If you could indulge me I'd appreciate it but if you don't .... well that's cool to.
Thanks
Gcs15
If you could indulge me I'd appreciate it but if you don't .... well that's cool to.
Thanks
Gcs15
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Hi GCS,
Are your forums being fumigated at the moment? Seriously I'm starting to wonder.............
I also see that you've modified and extended your original post.
Tuthfully I'm not that familiar with Sydney so it wouldn't be appropriate for me to comment without any local knowledge. Of course others more knowledgeable than myself may possibly wish to.
Also interesting to note that I nearly had to move to Sydney in '98.......the prices blew me away then....so I can imagine the difficulty now.
http://forum.globalhousepricecrash.com/index.php?showtopic=21230
Having just read that thread again, it seems that the challenge was solved in the second posting of the thread by yourselves.....No...???. After that it just became a series of personal choices.................
ciao
Nor
Are your forums being fumigated at the moment? Seriously I'm starting to wonder.............
I also see that you've modified and extended your original post.
Tuthfully I'm not that familiar with Sydney so it wouldn't be appropriate for me to comment without any local knowledge. Of course others more knowledgeable than myself may possibly wish to.
Also interesting to note that I nearly had to move to Sydney in '98.......the prices blew me away then....so I can imagine the difficulty now.
http://forum.globalhousepricecrash.com/index.php?showtopic=21230
Having just read that thread again, it seems that the challenge was solved in the second posting of the thread by yourselves.....No...???. After that it just became a series of personal choices.................
ciao
Nor
I applied to join your forum last night but haven't had anything back so I'll give my advice from here.
Your precious little firefly firstly needs to save a deposit. How is he supposed to take advantage of the big credit crunch and crash if he doesn't have a deposit. Does he think if credit is being restricted they will make an exception for him.
I see that he blames his inability to save a deposit on the fact that he is paying $350 a week rent. It was pointed out to him that he could have rented something about $100 a week cheaper. This would allow him to save $5000 a year.
From what I can gather firefly has been working for about 15 years and hasn't saved anything. Whose fault is this. I don't see firefly ever getting a house and it will have nothing to do with affordability. Firefly obviously can't handle money and is very poor at decision making.
HG,
You're right in stating its "only a question of when it will get too large to service", but don't make the mistake of correlating house prices with servicability. I make this point time and time again but noone seems to be listening.
It is not the price of the property that determines its affordability, it is the percentage of take home pay devoted to servicing that mortgage!
Prices can, and probably will, continue to rise for the foreseeable future. In my opinion there is two main drivers behind this:
1. There is significant equity in existing housing stock now that prices have risen so much. As a result, trading up is easier with managable mortgages. The ripple upwards effect means house prices at all levels can keep creeping up.
2. And probably more importantly, banks now have shared equity loans. You don't need to borrow the full price of the purchase any more. The banks will wear some of the debt for a share of the equity growth upon disposal. This means prices keep rising significantly but that the percentage of take home pay used to service the mortgage stays manageable.
Its a crazy equity world, but don't think for an instant that it is going to implode any time soon. I reckon there's at least another decade in it and beyond that is just far too much crystal ball gazing for me.
Cheers,
Michael.
Wait a minute
If Firefly has been working for the last 15 years, how come he was sitting on his laurels for the first 10 years when prop was reasonably affordable and realized that he needs to buy it when based on his salary, it is relatively least affordable.
Why wasn’t firefly keen to buy in Syd’ outer west/ north west in 1998 or 99 or 2001, when he could have saved a small deposit and bought a prop and able to make the re-payments as well.
I know a lot of somersoft members personally who earn less than Firefly and with similar size or large families. Not only did they buy their house 10 years ago or so, they were pro-active enough to take charge of their affairs and now sitting on massive prop portfolios.
Moreover, if he could not save enough for a large enough deposit, then where did he invest any money at all..? Did he buy any shares in the last 15 years..? Buying $10k worth of bank shares 10 years ago and reinvesting the dividends would ve given him a good deposit to buy a property.
It might come across as a harsh point, however since when has everyone a birth right to own a home at an age of their choosing and without a willingness to take control & responsibility of their affairs.
If one needs to buy a house and its their pressing goal, then surely to attain that goal in difficult times needs commitment, focus and discipline.
Things just dont happen… sometimes we need to make them happen.
Harris
If Firefly has been working for the last 15 years, how come he was sitting on his laurels for the first 10 years when prop was reasonably affordable and realized that he needs to buy it when based on his salary, it is relatively least affordable.
Why wasn’t firefly keen to buy in Syd’ outer west/ north west in 1998 or 99 or 2001, when he could have saved a small deposit and bought a prop and able to make the re-payments as well.
I know a lot of somersoft members personally who earn less than Firefly and with similar size or large families. Not only did they buy their house 10 years ago or so, they were pro-active enough to take charge of their affairs and now sitting on massive prop portfolios.
Moreover, if he could not save enough for a large enough deposit, then where did he invest any money at all..? Did he buy any shares in the last 15 years..? Buying $10k worth of bank shares 10 years ago and reinvesting the dividends would ve given him a good deposit to buy a property.
It might come across as a harsh point, however since when has everyone a birth right to own a home at an age of their choosing and without a willingness to take control & responsibility of their affairs.
If one needs to buy a house and its their pressing goal, then surely to attain that goal in difficult times needs commitment, focus and discipline.
Things just dont happen… sometimes we need to make them happen.
Harris
Yes, fumagators have been in to get rid of terminites at 'alternate' forum... actually no, a few of us have heard about this forum and as one of your posters pointed out... until you can sensibly debate both sides of the argument, you do not understand the topic very well.
I'm interested in your perspective of the Shared Equity concept that the banks have put forward.
Are there many people doing this for IP's ?
Seems the downside risk is not too bad (they take a hit as well as yourself), but the upside reward is greatly hampered (?40% for the bank from memory ?).
I'm guessing the benefit of buying a premium position makes the shared (potential) profits tolerable.
*if* I was going to buy an IP this market... it would have to be pain proof... and I guess shared equity is the only way to afford the location required to achieve this.
Having said that, I don't know if shared equity are such a good thing (bigger picture)... it's just pushing up a market to new highs when it probably needs a good rest (as opposed to a major correction).
My 2c anyway.
Hi Rastus,
I'm not aware of many people doing this for IPs, but remember that it is not investors that determine house prices for the most part. They represent a relatively small proportion of the property owner pool. It is owner occupiers that predominately set the price, and investors just tag along for the ride.
And owner occupiers might well consider this to be a good option. Basically, they can now buy a more expensive house for the same amount of monthly expenditure. In their mind, this means bigger and better! But in reality, as I posted earlier, given this option is available to all, it probably just means "the same" but now more expensive as the market is bid higher.
My point was that house prices are probably set to increase much further as new and more innovative lending products become available. It will just mean more and more debt, but now some of it is borne by the banks themselves. I also agree that some brakes are in order and not more accelerator pedal work. But unfortunately, its in the banks interest to write more loans, and its in the governments interest to tweak the demand side levers like FHOG as the masses think this helps them.
So, in the end, all we will get is even more house price appreciation above inflation. So long as Aussies are infatuated with the prospect of home ownership, you'll continue to see a large portion of their take home pay dedicated to that purpose.
As an investor with existing properties in my portfolio this is good news, as a member of society who is concerned with home owners risk exposure, I am concerned for the masses. If this bubble does burst one day then it is going to be one hell of a mess. I just can't see that day being any time soon. I subsribe to the "one last big bubble boom" theory and reckon the Baby Boomers are going to swing out of the current explosive equities market in a few years time when its priced to perfection and back into the old sure bet, property. You ain't seen nothing yet!
But when that one plays out and the BBs start dropping off, get ready for a big mess as the demand side of the demand/supply equation becomes very weak and prices start to fall. I can see a lot of negative equity pain being borne by the new entrant home owners for many a decade...
Cheers,
Michael
Never a truer word was spoken!
As a personal case in point, I am now very VERY highly leveraged with quite a few different investments on the go. I have a PPOR and an IP worth about $1.5M in total as well as almost another $1M in shares. To service that $2.5M portfolio I have over $1.5M in debt!
Do I like that risk exposure, particularly given the current equity market performance? Hell NO! But in my mind, I had little choice...I set myself an explicit strategy to be retired by 2015 with a paid off PPOR and passive income in excess of $100K pa. To achieve that strategy I had to take risks. I'm young enough that if it all goes ugly I can pick myself up and start over. But the point is, that I chose to take those risks despite my risk aversion.
As I saw it, I could either work until I was 70 and die of a bad heart 5 years into my retirement, or actively change my future through investments and leverage so that I could retire at 45 or younger and live stress free. For me that decision was a no brainer. What a lot of people fail to realise though, is that it requires a DECISION! I made it consciously, but a lot of people make it subconsciously. They keep working and spending every penny on doodads, and work until they die. THAT is a decision in its own right, the decision not to delay gratification and enjoy a prosperous early retirement. But never dismiss that it was actually a life inflection point that went un-noticed and a decision un-made.
Life is full of decisions. Some people are so introspective or self-indulgent that they don't even realise that they have made these decisions by their inaction until it is too late. The good thing about property investing is that it is seldom too late if you've a mind to make that decision!
Cheers,
Michael.
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Very nicely put Michael,
Rastus,
Run a search using Equity, Shared, Loan.
Amongst the results you should find two main threads where this was discussed ad infinitum.
Maybe you could rebirth one of these threads with a request for a bit of an update from the mortgage brokers or anyone that is currently using that type of setup. Can't really see the value in it for what I do, but I suppose that whilst there are horses for courses there will always be creative minds at work looking for a better way.
ciao
Nor
Rastus,
Run a search using Equity, Shared, Loan.
Amongst the results you should find two main threads where this was discussed ad infinitum.
Maybe you could rebirth one of these threads with a request for a bit of an update from the mortgage brokers or anyone that is currently using that type of setup. Can't really see the value in it for what I do, but I suppose that whilst there are horses for courses there will always be creative minds at work looking for a better way.
ciao
Nor
Thanks HG (Nelson)
Unfortunately, I asked for posts that quote people on the forum that state that every property will double every 10 years... simpily quoting your own babble doesn't count... sorry
. Also if you carefully read what DavidMc has written, he only writes from a historical perspective... ie stating average performance in the past. He doesn't predict the future.I have to give you a F for that... I will however, allow you to try again:
Please quote anyone on the forum who states that all property will double every 10 years.
You can write all the bs numbers you wish, to attempt to make you sound like you know what you are on about... don't worry, I'm onto ya
Kind regards
Steve
Thanks HG (Nelson)
Unfortunately, I asked for posts that quote people on the forum that state that every property will double every 10 years... simpily quoting your own babble doesn't count... sorry
Did you click the top link?
Doubling in 10 years is 7% yearly compounded gains. Has NOBODY ever said anything like this on the forums? Why would you buy properties that run at a loss and even if owned outright return 1/2 the risk free rate of cash but with cash you don't have to deal with tenants or in fact do *anything*. If you didn't expect this kind of gain why are you buying such crappy yields?
David MC is writing from a historical perspective? He made up something, used it as evidence and I proved he was off by many many many orders of magnitude. he was as far wrong as someone saying "there a 100 grains of sand on this beach" or "there are 1000 planets in the universe" he is THAT wrong.
And saying the doubling in 10 years is true "Because as long as records have existed that is the long term average. This goes back almost 1000 years" doesn't imply that trends will continue?
I think that the point Yoyo is trying to make here, is that no one expects EVERY property to double every 10yrs.
Well all know that some properties will increase by an average of 10% pa, others only 2%, others at the magical 7.2%, and others for the next 10yrs may do absolutely nothing at all, then on year 11-12 triple in price.
The property market doesn't work as one big whole - which is the reason that the doomsayers are'nt right either. If there is a crash, do you really think EVERY SINGLE property in Aust. will crash? No, of course not. Just like in a boom, not EVERY SINGLE property will double in 10yrs.
It's the same as the stock market, if there is a 20% market crash next week, not every stock is going to fall that much - some will fall more, some will fall less, some will still even rise.
But for the record, when I was asked that question a few months back in the forum - in regards to my IP's, I said 'yes', they will double in the next 10yrs, absolutely (well 10yrs from the point I purchased at anyway).
My holding costs are ~1.2% and falling. I don't need anything like 7-10% growth to show a profit. However I fully expect my property will perform better than 7% long term
If it doesn't, and there's a huge sustained bust and credit crunch, well bad on me, I'm a grown up and know what I'm getting myself into. Investing is about knowing and managing the risks, no such thing as guarantees and noone to blame but ourselves. IMHO not investing is way riskier than doing so.
If it doesn't, and there's a huge sustained bust and credit crunch, well bad on me, I'm a grown up and know what I'm getting myself into. Investing is about knowing and managing the risks, no such thing as guarantees and noone to blame but ourselves. IMHO not investing is way riskier than doing so.
Really? This poll:
http://www.somersoft.com/forums/showthread.php?t=33605
Says that 79.1% of people on this forum think that property will "probably" or "definately" double in 10 years.
