Housing affordability myth busted

[Harris]

http://www.news.com.au/story/0,23599,22070468-2,00.html

"HOME ownership rates for the mainstream family - a couple with dependent children under 15 - have improved over the past 10 years despite the doubling of property prices in that time.

New census data supplied to the Weekend Australian yesterday challenges the conventional wisdom that housing has become less affordable for this pivotal group. "

 

[Nullagine]

Proportionally more saps stitched up with proportionally more income blown on mort-gages does not mean housing is more affordable.

To me, affordable means able to buy with cash and unaffordable means unable to buy even with other people's money.

 

[Harris]

To me, affordable means able to buy with cash and unaffordable means unable to buy even with other people's money.

What actually matters is what affordability means in general terms rather than what you believe is affordable or not.

btw - we are talking houses here.. not grocery items.

Cheers
Harris

 

[Nullagine]

OK let me improve on my definition.

Affordable means able to buy with cash and have enough future cashflow left over for both forseeable future expenses as well as a margin for a few unforseeable expenses while unaffordable means you can not beg, borrow or steal enough money to buy and if you did you would not be able to buy next weeks groceries.

Affordability is a degree of pecuniarity between unaffordable and affordable. In some ways a measure of risk that what you thought was affordable proved not to be.

 

[Harris]

OK let me improve on my definition.

Affordable means able to buy with cash and have enough future cashflow left over for both forseeable future expenses as well as a margin for a few unforseeable expenses while unaffordable means you can not beg, borrow or steal enough money to buy and if you did you would not be able to buy next weeks groceries.

Affordability is a degree of pecuniarity between unaffordable and affordable. In some ways a measure of risk that what you thought was affordable proved not to be.

well.. its left me more confused than your original statement !

The bottom line without going into too much semantics is the fact that latest factual data from latest Census when compared to previous data of 10 years ago shows that housing is relatively more affordable now for couples with under 15 dependent childeren (largest demographic of first home owner) than 10 years ago.

Lets wait till the whole article is published in the Australian and all sources and figures quoted.

Harris

 

[Nullagine]

well.. its left me more confused than your original statement !

The bottom line without going into too much semantics is the fact that latest factual data from latest Census when compared to previous data of 10 years ago shows that housing is relatively more affordable now for couples with under 15 dependent childeren (largest demographic of first home owner) than 10 years ago.

Lets wait till the whole article is published in the Australian and all sources and figures quoted.

Harris

I say you assumed that housing is more affordable because proportionately more people hold housing title deeds now than 10 years ago.

That only very indirectly hints that housing may be more affordable but discounts the possibility that housing has become less affordable as people are spending proportionately more of their income on housing.

 

[Sunfish]

Having to commit a higher percentage of income to mortgage repayments does not automatically mean housing is less affordable. It may just mean that we can afford to do so, in part because turning the house into a home is far cheaper than it once was. Measured as weeks of a tradesman's pay the TV is 95% (or more) cheaper than it once was. By the same measure buying and running a used car, white goods, the motor mower, ceiling fans and dozens of other items are far cheaper than they were.

Don't underestimate this affect. The only reason these things may have lasted longer then than now is because we had to repair them, not merely replace. And replacing a valve in a TV would cost the equivalent of $100 today. I have never done the sums but this type of expenditure could have eaten up 20% of a standard pay then and far less today, freeing up dollars for the mortgage.

I don't do the shopping and no longer have a brood so could be wrong but I think providing the essentials for them, as a percentage, would also be less, especially when you consider we now have smaller broods.

Anyway. Who said saving a deposit and buying a house was ever easy? It certainly wasn't for me. None of my generation bought an expensive car and a house.

Forgot to mention that the fact that your desires on what constitute a good TV or car and an acceptable house have scaled up significantly should not be part of the argument. These are optional expenses. If your desire is strong enough to buy a house you will save money where you can.

 

[Nullagine]

Having to commit a higher percentage of income to mortgage repayments does not automatically mean housing is less affordable.

Good point - to which I counter that saving for retirement now accounts for a much larger portion of income reducing disposable income on which some measures of housing affordability are calculated.

 

[alexlee]

Affordable means able to buy with cash and have enough future cashflow left over for both forseeable future expenses as well as a margin for a few unforseeable expenses while unaffordable means you can not beg, borrow or steal enough money to buy and if you did you would not be able to buy next weeks groceries.

When have average people EVER been able to buy property without loans?
Alex

 

[Nullagine]

When have average people EVER been able to buy property without loans?
Alex

Aw-bloody-stralya for one, mate. Look down - yer standin' init.

 

[Nullagine]

Seems some have forgotten what cash is:

Bankruptcy soars as city feasts on easy credit

"Census figures show one-third of NSW homeowners are in mort-gage stress."

http://www.smh.com.au/news/general/bankruptcy-soars-on-easy-credit/2007/07/13/1183833772689.html

 

[wylie]

Maybe I am missing something here, but I do not know ONE person (friend, relative.... anyone) who has been able to buy a house with cash - apart from possibly someone who has built up assets using loans, and has become wealthy enough to use cash. But that is not what you are saying, is it?

Wylie

 

[alexlee]

Aw-bloody-stralya for one, mate. Look down - yer standin' init.

I'm not exactly making average wages, but it'd be tough for me to put together $300k for a house out in Western Sydney? My understanding from your post is that housing is 'affordable' when people can buy it with cash (i.e. without a mortgage)?
Alex

 

[Nullagine]

I'm not exactly making average wages, but it'd be tough for me to put together $300k for a house out in Western Sydney? My understanding from your post is that housing is 'affordable' when people can buy it with cash (i.e. without a mortgage)?
Alex

Aye, affordable is buying with cash and having enough left over to have a pretty good chance of meeting your expenses on time and saving for retirement.

Having to borrow money to buy raises to question as to how likely is future failure to afford.

It would only be tough to scrape together $300k if you did not save and invest adequately. Not only is it possible for the average Joseph and Josephine with Josephette to save that amount by 35 but by casting their mind beyond the Sandstone City, they may meet their goal sooner.

 

[alexlee]

Aye, affordable is buying with cash and having enough left over to have a pretty good chance of meeting your expenses on time and saving for retirement.

Having to borrow money to buy raises to question as to how likely is future failure to afford.

It would only be tough to scrape together $300k if you did not save and invest adequately. Not only is it possible for the average Joseph and Josephine with Josephette to save that amount by 35 but by casting their mind beyond the Sandstone City, they may meet their goal sooner.

Nullagine, you do realise that had we followed this 'only pay cash for property and don't borrow money' plan, none of us who invest in property would be anywhere near where we are now financially? Is it realistic for anyone, much less everyone, to save enough money to buy a house without debt? An interesting side effect is that it'll probably cause interest rates to fall significantly if the savings suddenly increased to that level (and cause the economy to tank as everyone stops spending). Presumably if you put those savings into the sharemarket, for example, it'll increase share prices. The combination will probably mean that companies will borrow more.

While borrowing without considering the repayments is idiocy, surely responsible, planned borrowing is the basis for property investment? How would you invest in property without debt? Just save until you can buy it outright?
Alex

 

[DavidMc]

Aye, affordable is buying with cash and having enough left over to have a pretty good chance of meeting your expenses on time and saving for retirement.

Perhaps for you. I'd imagine most of this board would have a different definition.

It would only be tough to scrape together $300k if you did not save and invest adequately. Not only is it possible for the average Joseph and Josephine with Josephette to save that amount by 35 but by casting their mind beyond the Sandstone City, they may meet their goal sooner.

It might be *possible* but it's not probable. I think it's highly unlikely. Saving that amount in that space of time is extremely difficult especially after you take into account the time value of money. Check the maths. If you were start this 14 years ago, that's $21k per year on average (assuming they started at 21, after University). What was the average wage 14 years ago? - was it even $20k? Even if they could do this JJ&J wouldn't even be able to buy a median priced house in any of our capital cities.

 

[Nullagine]

Saving that amount in that space of time is extremely difficult especially after you take into account the time value of money. Check the maths.

Here's an example of the arithmetic (I'll leave GCT out for something to quibble about):

 

[Nullagine]

Nullagine, you do realise that had we followed this 'only pay cash for property and don't borrow money' plan, none of us who invest in property would be anywhere near where we are now financially?

Is it realistic for anyone, much less everyone, to save enough money to buy a house without debt? An interesting side effect is that it'll probably cause interest rates to fall significantly if the savings suddenly increased to that level (and cause the economy to tank as everyone stops spending). Presumably if you put those savings into the sharemarket, for example, it'll increase share prices. The combination will probably mean that companies will borrow more.

While borrowing without considering the repayments is idiocy, surely responsible, planned borrowing is the basis for property investment? How would you invest in property without debt? Just save until you can buy it outright?
Alex

You were lucky in birth to be able to borrow to riches.

It was realistic for me, not for everyone including the village idiot but for the majority.

I think it likely that houses would not appreciate in monetary value as quickly - perhaps less quickly than wages and business profits - making houses affordable - that is purchaseable by the majority with cash - without the use of mort-gages.

 

[Andrew_A]

Aw-bloody-stralya for one, mate. Look down - yer standin' init.

Well not the Australian property history I have studied.

Loans might more often have been from family or community members, but Alex is on the money with his comment.

 

[Nullagine]

Well not the Australian property history I have studied.

Loans might more often have been from family or community members, but Alex is on the money with his comment.

This is the question Alex asked:
When have average people EVER been able to buy property without loans?

The average Aw-bloody-stralyan can buy property today - well next business day. The average Aw-bloody-stralyan very obviously does not want to buy property they can afford - more than a few appear to lust after property they can not afford.