Glenn Stephen's comments this week

You are entitled to rebel. But there are certain basic laws of investment which remain constant. The first is: "Them what has, gets"

I am not yet convinced that borrowing money from "them what have" will make you rich unless you have a unique outlook. To the REAL wealthy you are just sheep.

So investing in property is just for the wealthy who don't need to take out a loan?

There seem to be plenty of people on this and other forums who started investing with very little, borrowed, bought wisely (although most admitted to making a few mistakes along the way) and have definitely improved their lot in life. So are you saying they never actually did this, or they were lying when they say they started with next to nothing and borrowed to make all they've achieved possible?
 
All this reminds me of a movie with Kevin Kostner. I thougt it was Jewel Of The Nile but my daughter says I'm wrong.

Anyway Big Kev is threatened by a guy wielding a whip. So he pulls out a gun and shoots him. Moral of the story: Don't take a whip to a gun fight.

Stephens has the gun.
 
I think that was Harrison Ford in one of the Raiders of the Lost Ark movies.

Sean Connery also says similar in the movie The Untouchables about someone who he shoots after he went for him with a knife or something (that movie had Kevin Kostner in it)
 
If all us good folk keep pushing house prices up to a point where loan default rates sky rocket as interest rates approach their long term median, Stevens realizes he will have been made redundant. Why?

THere won't be any pull side inflation once we are all committing 40%+ of gross income to mortgages and rent. Domestic consumption will go as flat as a tack.

And what is the role of a central bank if they can't manipulate rates?

Anyway, after Steven's Christian blurt earlier in the week, I doubt his judgement, as many of his fellow cb'ers must now. And I am saying that as a supporter of Christian values.
 
I am in the market for a property in the inner west of Sydney.

Glenn Stephens comments this week really got me thinking though - I mean if the RBA Governor is telling us we are in a housing bubble (that's what he was driving at) and that rates will continue to rise, should I be concerned of a potential "overheating" in the market and buying at the top.

Hi Sydb,

I'd be looking more at your objectives - are you buying a property to live in, or as an investment? If you are buying to live in, can you afford to meet the repayments when interest rates rise another 2-3% or more? If you are buying an investment property, will your rent be strong enough to cover the interest payments - or will you have the resources to meet the shortfall on the holding costs (including interest).

I know it's NEVER a good idea to try and time the market, but maybe proceeding with caution is best given the RBA Governor's comments. Maybe even holding off..

If you are looking for an investment property, there are other areas besides Sydney and Melbourne that you could buy into that haven't moved yet.

Or do some of you out there discount his comments and believe the markets will keep going regardless of whether interest rates go to the moon? ..

I wouldn't discount the comments, but would take the necessary precautions to ensure that I could afford to meet loan repayments when rates rise. This could include fixing loans for a longer period of time at a rate you know that you can afford, having excess cash set aside in offset accounts (cash buffers), and buying sensibly within your means.

If now is not a bad time to buy based on the Governor's comments, maybe buying is always good..

I think it depends on your own objectives and your ability to hold the property over a long period of time. Timing when to buy is difficult. Some people are lucky and buy exactly at the right time (just before a boom), others buy at the wrong time and cop years of a stagnant market with holding costs to pay- eg in Sydney in 2003-2009. I don't think that buying is always good, but then again, people who hold off too long can be priced out of the market.

and I should never be concerned about costs of funding etc...

I think this is a major consideration. During the late 80's and early 90's rates were up to 21%!! It was tough for many buying/holding property during this period of time.

Or maybe it's just a matter of weighing up his comments with those of others to come to one's own conclusion, I guess no one really knows where the market is headed....

Yes, I think this is a balanced approach.


Regards Jason.
 
Thanks for all the responses, very interesting argument. It is really quite divided out there, both on the merit on Stephens actions/words and the potential results of higher IR's. I am a FHB. I think I will wait it out a few more months and keep saving my deposit.

I disagree with those who are not supportive of Stephens, as a FHB I think what he is doing is really important to help young families hopefully be able to have our own home over our heads, rather than paying an investors rent (the great Australian Dream!).

Sure, higher IR's will mean higher repayments, but at the moment for alot of FHB's like me it is unnafordable to live within an hours commute of work (I work in the Sydney CBD), so when working 10-12 hour days, not much time left over to eat/spend with the family when you tack on 3 hours of commuting and 7 hours of sleep - too bad the infrastructure in Sydney is so poor and that all the taxes State Governments generate from property aren't put to better use!

I am hoping that things become a little more affrodable as IR's increase so that I can afford a place that allows me to spend more time with the family.

Apparently there aren't too many FHB's (relative to last year) making up the market now, so if a few more IR rises, this may deter investors and make things a little more affordable.

If not, oh well, can re-assess in 3-6 months time! Maybe Stephens is wrong and prices will keep going and it is an easy path to riches (for those who are already asset rich - not for FHB's)!

Good luck to you all.

SYDB

Edit: Sorry, to be 100% frank about my circumstances, I am not paying an investors rent (and never will). We are living with the in laws until we can afford to buy. Not optimal from a lifestyle perspective, but hey, it's a sacrifice we have to make. I will never, ever, pay someones mortgage for them. I feel lucky to have the family support to be able to make this decision, others aren't so lucky and are forced to rent due to affordability, some choose to as well, which is perfectly fine, but we don't want people marginalised into becoming long-term renters - a society of serfdom with Landlords vs the have nots. Well, I don't think it's what we want, some of you investors out there may disagree!

SYDB
 
Hi all,

SYDB,

but at the moment for alot of FHB's like me it is unnafordable to live within an hours commute of work

Can one of the negative people about property prices please point to where it says that everyone has a god given right to own property close to where they want to be??

The population is growing, the demand for property is growing. There is still affordable property, just not where some want it to be.

Why should us property owners just give up our good investments in desirable locations to those that want a free leg up??

All GS increases in interest rates will do is raise rents in the more desirable areas and allow more investors to buy as the interest rate hikes will not affect most of them as much as first home buyers.

You can expect your crash in property prices when population growth declines and ages, but given the baby bonuses and immigration, plus forecasts of 60% population growth over the next 40 years, you are going to be waiting a long time....

There were plenty on this forum complaining about how high prices were, and were likely to crash 50%, 7 years ago, yet in that time they have missed the boat and watched prices double in some areas.

I am not paying an investors rent (and never will). We are living with the in laws until we can afford to buy. Not optimal from a lifestyle perspective, but hey, it's a sacrifice we have to make. I will never, ever, pay someones mortgage for them.

So it's OK to sponge off the inlaws who paid their mortgage off over years, rather than pay them rent for the accomodation so they can get a little further ahead in life after the sacrifices they made to buy a home.. :rolleyes:

bye
 
but we don't want people marginalised into becoming long-term renters - a society of serfdom with Landlords vs the have nots. Well, I don't think it's what we want, some of you investors out there may disagree!

Yet, Europe with its long term renters is often seen as an alternative to the Australian 'have to own our own home culture'. They don't see themselves as serfs. Quite the opposite, actually.

As Bill said, there is no rule anywhere that says people should be able to live within an hour's commute. Also, you didn't mention the size of the place, which I suspect has a big impact. If you're willing to live, say, as a family of 4 in a 2 bedroom unit, I think you'll have a lot more choices. Sound terrible? People in many cities in the world make do with less. Australians are generally spoiled in the home size department.

It's not a matter of what I or anyone else wants, it's a matter of how it is. My opinions on what should be mean nothing.
 
The main reason that the RBA has been warning against a housing bubble is to make buyers cautious, and reduce the need for intervention (i.e. raising interest rates) that might damage other sectors.

That people (like SYDB) are paying attention to this and questioning purchases show it's working. But if it doesn't have the desired effect then the bank is likely to act.
Agree entirely... he's jawboning.

My point is: He still has to the power to make his prophesies "self fulfilling".
Sure... he has the power, but he's reluctant to use it because of the effect on business.

SYDB said:
Sure, higher IR's will mean higher repayments, but at the moment for alot of FHB's like me it is unnafordable to live within an hours commute of work (I work in the Sydney CBD)

......

too bad the infrastructure in Sydney is so poor
As others have said, why should you jump the queue & expect to live within 1 hour of the CBD. It's the people who have saved harder, invested for longer and suffered more hardship than you who have the privilege of living there.

SYDB said:
I am hoping that things become a little more affordable as IR's increase
Huh :confused:.... surely houses become LESS affordable when IRs rise. If we get 0.75% of increases in IRs in the next few months (from 7% to 7.75%) that makes house ~10% less affordable - we'd need a ~10% fall in prices to maintain the same affordability...... don't hold your breath.
 
Hi Keith,

we'd need a ~10% fall in prices to maintain the same affordability

I think that is exactly what SYDB was getting to, but much higher than 10%. This is another D&Ger on property prices, who believes they should be allowed to purchase cheaply. The constant media stuff about affordable housing, and helping young buyers, helps perpetuate the myth of easy home ownership where you want it.

The RBA may very well get it wrong again in the future and raise rates too high, causing a recession and house price falls, but it is likely to be from higher levels than now. Looking at history, we see that prices rise WHILE interest rates are rising up to a point. Seeing as we are still near the beginning of the higher IR cycle, it is most likely a while away for the 'potential' for falls in prices to occur.

bye
 
I think that is exactly what SYDB was getting to, but much higher than 10%.
Hi Bill,

In that case he'd need a huge fall to get to the same affordability as this time last year...... IRs have already risen by 40% (from 5% to 7%) in the last 6 months, and are expected to rise to 8% by end of 2010.... that's a total increase of 60% (from 5% to 8%).

Prices in Syd have risen by 12% in the last 12 months.

So by waiting till the end of 2010, affordability will be ~70% worse than in early/mid 2009.

For affordability to be better than 2009, Syd house prices will have to fall by ~40% :eek:.

Cheers Keith
 
Wow, alot of hostility here from PI's against people looking for their first home for their family within a reasonable commute from work. It's not an entitlement at all. I'm sure you'd like to see 12 hour days with 2 hour commutes on either end, leaving ZERO time for family. As long as you can squeeze a buck out of your fellow man......then what does it matter.

Because in your world it's your balance sheet that matters more than people.nGood luck with that. Greed is a powerful motivator I guess, always will be.

Housing should be for shelter first and foremost, not for investment. But I think I'm fighting a losing battle with that line, I mean what a ridiculous concept right?

Good luck with your rising interest burdens, I hope you can continue to grow your "portfolio" whilst closing your mind. You can't take it with you when you go. Happy Easter to you.

bye
 
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A house was more affordable last year. Does this mean that one SHOULD have bought a house then if possible?

They are becoming less affordable now because of interest rates not really price appreciation except in Melb (Your 12% in Syd is a bit dodgy to me, sorry) so how would buying last year help? If you can't afford the interest rates this year then you would be better off NOT buying.

The point is oft made here that it is cheaper to rent than buy so if owning is too expensive, don't buy.
 
A house was more affordable last year. Does this mean that one SHOULD have bought a house then if possible?
He wants to buy a house.
The OP is waiting for housing to get more affordable than it is today.
He says he's not bought yet & will continue to save a deposit until it (hopefully) becomes more affordable after IRs rise.
Presumably he had the deposit to buy mid 2009.
The point I'm making is that it will need to fall ~40% if IRs rise & prices stay flat if he is to regain the affordability he had <12 months ago.... it's his choice.


They are becoming less affordable now because of interest rates not really price appreciation...
Sure.

... except in Melb (Your 12% in Syd is a bit dodgy to me, sorry)
Link here.. Syd 12.3%, Melb 19.3%.

... so how would buying last year help? If you can't afford the interest rates this year then you would be better off NOT buying.
You know there are lots of answers to that one.....
Early last yr at the peak of affordability fixing rates was cheap (~6.19% for 5 yrs).
If you can't afford high rates then don't borrow to invest.
Borrow what you can afford to service & lower your sights, remember FHBs aren't supposed to be able to afford their dream home (ie within 1 hours commute of Syd CBD) - that's a privilege reserved for those who have done the hard yards of saving & investing.
You're borrowing 12.3% more than if you'd bought last year.
Hopefully you salary has gone up a little your servicability was calculated since last year.
The point is oft made here that it is cheaper to rent than buy so if owning is too expensive, don't buy.
It's usually more expensive to own in year 1. It gets cheaper in yr 2, etc.... and then in yr 25 it's free.
 
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Wow, alot of hostility here from PI's against people looking for their first home for their family within a reasonable commute from work. It's not an entitlement at all. I'm sure you'd like to see 12 hour days with 2 hour commutes on either end, leaving ZERO time for family. As long as you can squeeze a buck out of your fellow man......then what does it matter.

Because in your world it's your balance sheet that matters more than people.nGood luck with that. Greed is a powerful motivator I guess, always will be.

Housing should be for shelter first and foremost, not for investment. But I think I'm fighting a losing battle with that line, I mean what a ridiculous concept right?

Good luck with your rising interest burdens, I hope you can continue to grow your "portfolio" whilst closing your mind. You can't take it with you when you go. Happy Easter to you.

bye

Hi SYDB,

Is there a possibility of you breaking into the market by buying an investment property in a more affordable suburb first? Pay it down and then you would have established an equity base to buy closer to your place of work?

This option would involve you either renting or staying with your in laws for a while which may or may not be feasible.

Regards Jason.
 
Hi SYDB,

Is there a possibility of you breaking into the market by buying an investment property in a more affordable suburb first? Pay it down and then you would have established an equity base to buy closer to your place of work?

This option would involve you either renting or staying with your in laws for a while which may or may not be feasible.

Regards Jason.

Hi Jason

Thanks for that advice. We have thought of that but are seeking the security of our own home given that we have a young family on the way. We don't want to take advantage of our parents kindness either. Even if we are stretched budget wise, we have decided to buy. That was why I asked the original question re: interest rates as technically, when we buy, we will be in "mortgage stress" (not that I agree with the definition of mortgage stress anyway). It is a risk we feel we have to take given where prices currently are.

I'm not here to argue about the merits of the system, it is what it is, just really p*sses me off when those with alot want to trod down young people just trying to work, put a roof over their heads, and raise a family/spend time with them. They are the ones with the entitlement complex, they think they are entitled to continued government support of their asset base/highly leveraged strategies. I'd love to see them compete on a level playing field - maybe Ken Henry will have something to say about that.......most of them wouldn't have the ticker. This thread really shows a nasty side to those who have done well out of the game.

Clearly, you're not that sort. Thanks for the constructive suggestion, much appreciated.

SYDB
 
Hi Jason

Thanks for that advice. We have thought of that but prefer the security of our own home given that we have a young family on the way.

That's understandable too. I hope you can find something suitable soon. I'm not sure about Sydney, but I notice in the inner areas of Melbourne that many people start off in flats when they have their first child. They seem to sell them and move to a larger dwelling once the second child comes along. That may or may not be an option for you? It could serve two purposes - gets you into the market, giving you a couple of years (or more) to build some equity and may allow you to buy closer to your place of work, thereby cutting down travel time?


I'm not here to argue about the merits of the system, it is what it is, just really p*sses me off when those with alot want to trod down young people just trying to work, put a roof over their heads, and raise a family/spend time with them...

It's an emotive issue for those like yourself who are trying to break into the market, and want to live in a decent place at a reasonable distance from your place of work. Your frustration is entirely understandable.


Regards Jason.
 
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