House Prices Slump

[GreatPig]

But without rich parents university wasn't an option.

When I went to university, in the late '70s in NZ, it didn't cost my parents a thing. The government covered all tuition costs, accommodation costs were covered by government bursaries (I couldn't live at home, since that was over 300 miles away), and I earned spending money in the holiday breaks. No HECS or anything like that either. About as close as you can get to free education I reckon (and yes, certain members of the tax-paying community used to regularly complain about it).

About the only money my parents spent in relation to my university education was for petrol to pick me up from the airport when I flew home sometimes, and to attend my graduation ceremony.

GP

 

[craigb]

the younger ones just have not experienced tough times they will buy the best the bank will give them??
in other words they would all be climbing up on roof tops, if they have not ever experienced falling down at some time, this gen havent fallen yet "financialy" yet, and i think this is why our own mums and dads are so conservetive in this ip stuff?

 

[Bill.L]

Hi all,

It is interesting to note that the out and out D&Gers have disappeared from this thread.

It is becoming more obvious to me that all the personal examples given, clearly show much of the theoretical D&G to have been incorrect.

One of the main arguments that I believe spurious, is that everything has to collapse because we are at record debt levels. We were also at record debt levels in the late '90's, during the '80's, in the '70's etc. I'm also prepared to bet that we will be at record debt levels in the teens, and the '20's and the '30's....

What else would we expect with a growing population and inflation??

bye

 

[LynnH]

I bought my first PPOR in 1981. NAB knocked me back because I was a single income female, newly divorced. Credit Union gave me a high interest loan, and there was no FHOG.

sailor

Can you remember when the FHOG was actually introduced back in the late 1970s/early 1980s? I don't have much of a memory for dates/times ... all I remember is our friends getting FHOG (or whatever it was called then).

Cheers
LynnH

P.S. Edit: From plusnq's post (#59), it would appear that the scheme commenced in 1983.

 

[plusnq]

Hi LynnH

1983 introduced. Closed 1991

http://parlinfo.aph.gov.au/parlInfo/...sCount=Default



Cheers

Shane

 

[LynnH]

Thanks, Shane - just finished reading your previous post (#59) and amended my post accordingly. Must admit I was surprised to hear that the scheme actually operated for ~8 years.

Cheers
LynnH

 

[urchin]

Hi all,

It is interesting to note that the out and out D&Gers have disappeared from this thread.

Still here, just don't see the point in rehashing the old arguments that never lead anywhere. both sides are completely convinced that they are in the right--now all that is left to do is to wait and see how things pan out.

i do find it interesting that the number of listings where i live (canberra) have gone through the roof in recent months. more and more houses on the market, very few of them selling. it doesn't sound like a recipe for higher prices to me, but who is to say....

 

[urchin]

Hi all,

One of the main arguments that I believe spurious, is that everything has to collapse because we are at record debt levels. We were also at record debt levels in the late '90's, during the '80's, in the '70's etc. I'm also prepared to bet that we will be at record debt levels in the teens, and the '20's and the '30's....

What else would we expect with a growing population and inflation??

bye

I believe that the debt figures that are commonly used are debt vs GDP and or debt vs household income. both inflation and population growth would take these into account.

 

[GreatPig]

We were also at record debt levels in the late '90's, during the '80's, in the '70's etc. ... What else would we expect with a growing population and inflation??

Maybe that's just because that time frame is too small for the economy to build up to collapsing point. Also, it's not just that debt is at record levels, but how fast it's grown relative to the long term average growth rate.

It's similar to the share market. If it rose steadily at a few percent a year, then it would also be at record levels for most of the time (in nominal terms), but not necessarily in any danger of collapse. However, if the growth rate shot up to say 50% pa, as it did before the '87 crash, then that wouldn't be sustainable as the economy would not be growing at that rate to support it.

Looking back in history, debt relative to GDP grew abnormally fast in the 1920s, before collapsing back to be in line with the longer-term growth rate during the depression. It was not at record levels again for some time after the depression. It also started to increase in growth rate in the late '70s and '80s, after Bretton-Woods effectively collapsed in the early '70s. The concern is that the debt growth rate since then has been too high relative to the growth in the economy over the same period.

GP

 

[WinstonWolfe]

It is not only debt to gdp, but the % of foreign debt.
Interest paid on foreign debt leaves the country and therefore drops the money multiplier effect.

Foreign ownership of Australian business is also a consideration. I don't know the figures but would presume much of Australia's economic growth in the last 30 years is on the back of foreign ownership via direct ownership or via the stock market. That too decreases the money multiplier.

So for a certain level of gdp growth, we aren't going to see the same cash flow and wealth effect.

 

[boz]

It is not only debt to gdp, but the % of foreign debt.
Interest paid on foreign debt leaves the country and therefore drops the money multiplier effect.

Foreign ownership of Australian business is also a consideration. I don't know the figures but would presume much of Australia's economic growth in the last 30 years is on the back of foreign ownership via direct ownership or via the stock market. That too decreases the money multiplier.

So for a certain level of gdp growth, we aren't going to see the same cash flow and wealth effect.

I agree with that.
Another point to view this is from the saving prospective:
Australians have a saving rate pretty much at zero for the last few years. So, how is all these new houses and investment are going to be paid with? and how sustainable is a system with a zero saving rate?


source ABS

 

[Sunfish]

About savings rates:

This is something that no-one discusses but it seems to me that the only people who save are those without a safety net.

China has a far lower per-capita income than we do, but they save a significant percentage of what money they get because they know they are on their Pat Malone if things turn worse. Momma San has financed many of our houses because the BofJ pays no interest on savings, but she has a need to save. Why? During the post-war boom when everyone had a job for life no social security system developed (I'm guessing a bit here!).

Only in the wealthy countries who can "afford" welfare, do people feel no need to save a little for a rainy day. Why should I go without my luxuries today if my neighbour will pay me if I stuff-up tomorrow?

 

[Francesco]

I agree with that.
Another point to view this is from the saving prospective:
Australians have a saving rate pretty much at zero for the last few years. So, how is all these new houses and investment are going to be paid with? and how sustainable is a system with a zero saving rate?
View attachment 4044

source ABS

How can it be zero when you have compulsory superannuation which is quarantined savings and not accessible normally until after age 55?

 

[boz]

This is something that no-one discusses but it seems to me that the only people who save are those without a safety net.

Only in the wealthy countries who can "afford" welfare, do people feel no need to save a little for a rainy day. Why should I go without my luxuries today if my neighbour will pay me if I stuff-up tomorrow?

You better look more into it, Germany, France, Switzerland, Italy are far more savers then Australians, Americans and British with number closed to 10%. This actually is one of the reason why I feel very safe to have my savings in EU.
Japan was really a big savers but in this decade they dropped a lot and closing to zero. We have to say that there is household savings and government savings or spending. Australians GOvernment has being quite good in that.
Here is a table with household savings by different countrys:
View attachment gross-savings-rate.pdf
I wouldn't say low savers country are the wealthy one at all. After all, Australia and US are more a kind of banana republic now or in the old days when they had higher savings?

 

[WinstonWolfe]

How can it be zero when you have compulsory superannuation which is quarantined savings and not accessible normally until after age 55?

I think where things might be confounded is the diff between savings and investment.

I think savings have dropped in Australia because more people are putting their savings into shares and property, which is qualified as investment.

Super may be categorized as investment....well a lot of it ends up in shares anyways.....

This movement of savings to investment is one of the reasons aussie banks have to borrow more from OS.

I'd like to understand this phenomenon better, if anyone cares to expand.

 

[boz]

I think where things might be confounded is the diff between savings and investment.

I think savings have dropped in Australia because more people are putting their savings into shares and property, which is qualified as investment.

Super may be categorized as investment....well a lot of it ends up in shares anyways.....

This movement of savings to investment is one of the reasons aussie banks have to borrow more from OS.

I'd like to understand this phenomenon better, if anyone cares to expand.

I am not sure, but I believe investing=savings, probably paying the mortgage is not savings.
This saving numbers have not much effect in the short term but in the long term and gives you a bit more perspective, for example:
if next year the Australian decide to save as much as the Germans the GDP will drop at least 5%. While if next year EU countries decide to spend all their year savings like Australians or Americans the GDP will be boosted by at least 5%.
Also when you look at EU that has an average of saving rate of around 10% for long time and you see that they haven't had a stock market outperforming Australia, house prices either, GDP growth either, where the hell all these money went? simple answer: no bubble! and sustainable growth! or better: no debt bubble! and no big debt bubble done and no big debt need to be repaid or inflated away!

 

[Sunfish]

No way it will drop 90% the way some miners have.

But Spain had a Daddy of a housing bubble.

But I'm interested in WW's contention that investment is not considered savings. I don't know either, but if it isn't then the stats are meaningless anyway.

Boz, Would the violent history of Europe reduce their trust in "The State" and force a measure of self reliance? I could understand if a Frenchman didn't really trust his army to keep him safe from marauding tribesmen. And I'm sure Aussies feel no overwhelming need to look after themselves, the guvmint will do it. Maybe the Yanks just trust in God? They are the chosen people after-all. 'Spose we can't generalise.

 

[boz]

But Spain had a Daddy of a housing bubble.

But I'm interested in WW's contention that investment is not considered savings. I don't know either, but if it isn't then the stats are meaningless anyway.

Boz, Would the violent history of Europe reduce their trust in "The State" and force a measure of self reliance? I could understand if a Frenchman didn't really trust his army to keep him safe from marauding tribesmen. And I'm sure Aussies feel no overwhelming need to look after themselves, the guvmint will do it. Maybe the Yanks just trust in God? They are the chosen people after-all. 'Spose we can't generalise.

I agree that saving rate doesn't necessary avoid bubbles, specially looking at the Japanese and German bubble of late 80's-early 90's. Also it is a tricky measure because it is effected by the Government saving rate and the gdp growth. For example Canada have a relatively low saving rate compare to Europe but the government had very good budget and reduce the public deficit in the last 10 years, also their gdp growrh has been good.
Anyway, from this site there are better number of saving (the net number from Spain and UK and not their gross numbers). Also seems that any income that is not spend is considered saving.
About the European "trust" in State:
Within Europe there are very different cultures and north European countrys like Scandinavia or Germany the trust in the state is very high. In latin Countries or Eastern European countries where you have higher corruption there is much less trust. Even within countries like Italy the southern part is very much into self reliance and even a murder or big Mafia crimes are not reported to police or state institutions, like you said" didn't really trust his army to keep him safe from marauding tribesmen" is very true and lead to a society more family oriented and seems it is related to history where there has been always weaker state in power to protect their citizen.
About the Army protecting Europe there is no willing from European after the 2nd world war to have anything to do with more wars. This feeling is very strong in Germany, Italy, Holland, probably a bit less in France and UK where they have this feeling of superiority...

 

[Bill.L]

Hi all,

I find it interesting that the current discussion on savings has left out both taxation and inflation as important aspects in peoples decisions about what to do with their money.

As the interest on savings is taxed at the marginal rate, then with inflation the real value of the total savings + interest decreases. People generally realise this.
People also don't trust "official" CPI figures based on personal experiences.

Why should people 'save', if the real value of those savings is falling???

Plus there is the fact that people believe that they are saving via the compulsory superannuation contribution. Remember that when it came in, it was instead of a CPI wage rise, and promoted as saving for the future.

Here is a quick calculation of the effect of savings compared to doing something else with the same money.

Go back 30 years and start with $40,000. After paying tax on the interest, this would have grown to about $198,000 by today (assuming 7% return after tax for first 15 years, then 4% since then).

If instead we had bought a house (no loan), paid all expenses and tax on the rent, then saved all the money, plus the interest on that money (again assuming tax), then the total we would have is around $202,000 today. Plus we would own a house with a current value of ~$350,000 that is returning rent to be added to our total (after we pay tax on it).

The income producing asset has given us much more than the savings, so the real question given current taxation and inflation is.....

Why save???

bye

 

[evand]

I agree that saving is lazy but its low risk for low return. And that suits a lot of people.

One point people dont realise is that the interest is compounding, so this generally makes up for the inflationary loss.

Of course that doesn't apply if you spend it but thats a whole nother discussion.

As the interest on savings is taxed at the marginal rate, then with inflation the real value of the total savings + interest decreases. People generally realise this.