Would you rather be stubbornly right, or richer? I think you made your choice.Ditto. ** Adds Hired Goon to his ignore list **
Congrats, the first troll to be added to my ignore list!
MW
Housing costs as a "support" or floor for house prices.
- Thread starter HiredGoon
- Start date
In my opinion, there is a big difference between being optimistic because you've analysed the bear case and believe you can survive it. and optimistic because you don't think it's going to happen. I think it's going to happen, and believe I can survive what I believe is the worst case scenario.
If I'm wrong and it's worse than I think, that's my fault. But I'm still young and can start from scratch again, if I need to. It comes down to the probabilities you believe in. Sure it's possible we have financial armageddon, and you can prepare for it now. But what if it doesn't happen? What if we just have a bad recession a la the 90s? Will you be richer then if you'd assumed a 29 style crash?
Read the bear case, by all means. Personally, I also expect a fall in prices and a recession. However, there are far more balanced sources of information out there.
Alex
If I'm wrong and it's worse than I think, that's my fault. But I'm still young and can start from scratch again, if I need to. It comes down to the probabilities you believe in. Sure it's possible we have financial armageddon, and you can prepare for it now. But what if it doesn't happen? What if we just have a bad recession a la the 90s? Will you be richer then if you'd assumed a 29 style crash?
Read the bear case, by all means. Personally, I also expect a fall in prices and a recession. However, there are far more balanced sources of information out there.
Alex
I'm now bored with HG, but YM, some of your ideas actually make a bit of sense. At least from an affordability point of view. Tax breaks for new constructions only would encourage people to build new, which we need to increase supply.
Full CGT on properties would be bad though, because people would hang on to properties instead of releasing them to the market.
And yes, we DO need a govt. that will invest in infrastructure. Its funny that the ALP govts in all states have failed badly, and the people most let down by them went out and voted in ALP federally. They (mistakenly) thought that the libs were responsible for low affordability, and they were wrong.
And add to that list, no CGT payable if you increase the number of dwellings on your land. This will encourage people to subdivide, build and sell. It seems like the only way the govt can increase supply sufficiently right now is to encourage others to do it for them.
In reply to Goon's original post
QUOTE HiredGoon
"Older/smaller housing stock should be worth less. Much like a second hand car"
Goon - I like the debate as I'm in saving mode for property #2.
As much as I wish your argument was true, there are some important differences between cars and houses (without wanting to tell you how to suck eggs).
1. Houses are immovable property - thus the location is critical and plays an inseparable part of the equation. That's why a crappy house in St Kilda, Victoria 5kms from Melbourne along the bay will cost as much as 5 bedrooms in Berwick (50kms from the city with no coast or views to speak of).
While I know you are not trying to equate cars to property - the notion of first hand vs. second hand will not apply to immovable assets for this very reason. Buyers judge cars by (a) mileage, (b) features, (c) brand rather than location (and "yield" in the case of investors) - which is the primary determinant for property buyers
2. design / style - while styles and designs do vary over longer periods of time, property is not a fashion statement the way clothes and cars are. Properties are also generally built to last decades, whereas cars are not. Thus older properties can be as/more valuable than newer properties.
Remember in a market with an under-supply of housing, people are bidding for a roof over their heads. I am sure, that if there was an under-supply of cars (in your argument), then the pricing of a second hand car would not matter much when compared to a new one. People would just want a car - as long as it works (with some premium on a new car I'm sure).
However, regardless of arguments 2 and 3, being design and the level of supply, the pricing in any property market - regardless of whether there is an under or over-supply - will still revert to a dependency on location. People will pay a premium for a better location - regardless of the age of the propery.
Don't worry about being ignored - I'm also known as a bit of a pessimist around here for thinking that Australian property is over-priced in relation to salary levels. I'm waiting on more short term squeeze before pushing the button on #2.
Cheers
Saffa
QUOTE HiredGoon
"Older/smaller housing stock should be worth less. Much like a second hand car"
Goon - I like the debate as I'm in saving mode for property #2.
As much as I wish your argument was true, there are some important differences between cars and houses (without wanting to tell you how to suck eggs).
1. Houses are immovable property - thus the location is critical and plays an inseparable part of the equation. That's why a crappy house in St Kilda, Victoria 5kms from Melbourne along the bay will cost as much as 5 bedrooms in Berwick (50kms from the city with no coast or views to speak of).
While I know you are not trying to equate cars to property - the notion of first hand vs. second hand will not apply to immovable assets for this very reason. Buyers judge cars by (a) mileage, (b) features, (c) brand rather than location (and "yield" in the case of investors) - which is the primary determinant for property buyers
2. design / style - while styles and designs do vary over longer periods of time, property is not a fashion statement the way clothes and cars are. Properties are also generally built to last decades, whereas cars are not. Thus older properties can be as/more valuable than newer properties.
Remember in a market with an under-supply of housing, people are bidding for a roof over their heads. I am sure, that if there was an under-supply of cars (in your argument), then the pricing of a second hand car would not matter much when compared to a new one. People would just want a car - as long as it works (with some premium on a new car I'm sure).
However, regardless of arguments 2 and 3, being design and the level of supply, the pricing in any property market - regardless of whether there is an under or over-supply - will still revert to a dependency on location. People will pay a premium for a better location - regardless of the age of the propery.
Don't worry about being ignored - I'm also known as a bit of a pessimist around here for thinking that Australian property is over-priced in relation to salary levels. I'm waiting on more short term squeeze before pushing the button on #2.
Cheers
Saffa
But I think that is OK as long as the property isn't empty. You don't need to release the property to the market for it to be utilised - somebody (i.e. renter) will be living it for sure.
It would reduce liquidity in the market though as many people would just be holding rather than trading properties. This reduced liquidity may turn investors away from the asset category all together which could be bad depending on what the investors were planning to do (i.e. build vs speculate in existing assets).
Full CGT on PPOR would be very unfair.
Imagine this:
Purchase house in 1980 for $100k.
House now have value in 2005 of $500k
Employer requires person to move to different city.
Sell house for $500k, pay tax of nearly $200k on $400k profit (most would be on top tax bracket).
Have $300k now to purchase in new location .. so you get a much worse property.
Imagine this:
Purchase house in 1980 for $100k.
House now have value in 2005 of $500k
Employer requires person to move to different city.
Sell house for $500k, pay tax of nearly $200k on $400k profit (most would be on top tax bracket).
Have $300k now to purchase in new location .. so you get a much worse property.
Given the 50% CG discount, though, it would actually be 50% x 45% marginal rate x 400k = 90k.
Alex
Thrawn
To sidestep the unfairness of releasing a policy onto the public, which has invested prior basing on pre-policy conditions the government usually attach a 'grandfathering' clause and time of commencement to the new policy. Under 'grandfathering', the policy would not apply to existing PPOR but it will apply from a certain date to new PPOR. This option for 'grandfathering' is usually required by the Senate, which regards fairness at least as one of its prime responsibilities. (A good case for not having one party monopolising both houses.)
I think this is a good aspects of the bicameral system and differentiates from other tinpot countries, making Australia a top country for investment certainty (there is a recent survey mentioning Australia is fourth in the world, I think.
To sidestep the unfairness of releasing a policy onto the public, which has invested prior basing on pre-policy conditions the government usually attach a 'grandfathering' clause and time of commencement to the new policy. Under 'grandfathering', the policy would not apply to existing PPOR but it will apply from a certain date to new PPOR. This option for 'grandfathering' is usually required by the Senate, which regards fairness at least as one of its prime responsibilities. (A good case for not having one party monopolising both houses.)
I think this is a good aspects of the bicameral system and differentiates from other tinpot countries, making Australia a top country for investment certainty (there is a recent survey mentioning Australia is fourth in the world, I think.
Thankyou RP, behold another gem from the "hiredgoon" Who here can say "the green eyed monster"
http://forum.globalhousepricecrash.com/index.php?showtopic=29925&view=findpost&p=260296
HIREDGOON said:
Its a troll, in here, its name is "hiredgoon"
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There's a troll, in here,
...and a bear as well,
people playing lots of games,
with horrific stories to tell,
Open wide, Come inside,
It's Bear School.......
What saddens me the most is that with the obvious reasoning and firepower available to some of the folks on GHPC, they don't do more with what they have at their disposal.
One of the star contributors, vaunted for his intellect and data mining - Foundation, started contributing on Steve's forum PI.com, where he exhibited a brilliant understanding of the larger economic model and how things work at the macro level. Some of his posts resembled notes from a Masters level lecture. Great stuff indeed. I even went so far as offering him employment to work for me as a property researcher. He was good.
The unfortunate thing was that the considerable firepower was not put to any worthwhile use, instead it was used to ridicule any who sought to invest for their family and escape the humdrum of their working life, and start to get back into the pilot's seat of their life's plane.
To cut a long story short, when he and I started contributing to forums, we were pretty much on the same investing level. Since then, he has sold his PPoR and his once held beach house, and instead chosen to invest in resource stock plays and defensive gold.....no problem really.....but just don't bash the real estate sector as you leave via the back door.
As for us, we've chosen to ignore the negative press and over riding statistics of the macro market and concentrated on the lowly local level of things. It has served us well, and continues to serve us well. Both CG and rents are rising nicely.
Financial freedom or adulation at GHPC, where no-one seems to dream or think bigger than one solitary house for the working man. The choice for me is clear.
The ethos on SS is definitely the way to go.
One of the star contributors, vaunted for his intellect and data mining - Foundation, started contributing on Steve's forum PI.com, where he exhibited a brilliant understanding of the larger economic model and how things work at the macro level. Some of his posts resembled notes from a Masters level lecture. Great stuff indeed. I even went so far as offering him employment to work for me as a property researcher. He was good.
The unfortunate thing was that the considerable firepower was not put to any worthwhile use, instead it was used to ridicule any who sought to invest for their family and escape the humdrum of their working life, and start to get back into the pilot's seat of their life's plane.
To cut a long story short, when he and I started contributing to forums, we were pretty much on the same investing level. Since then, he has sold his PPoR and his once held beach house, and instead chosen to invest in resource stock plays and defensive gold.....no problem really.....but just don't bash the real estate sector as you leave via the back door.
As for us, we've chosen to ignore the negative press and over riding statistics of the macro market and concentrated on the lowly local level of things. It has served us well, and continues to serve us well. Both CG and rents are rising nicely.
Financial freedom or adulation at GHPC, where no-one seems to dream or think bigger than one solitary house for the working man. The choice for me is clear.
The ethos on SS is definitely the way to go.
Hi all,
The mistakes in the theory and reality from HG are amazing, not worth responding to, especially when in other threads you don't bother to respond to posts that clearly prove your assertions incorrect.
Here is another question for you. If investment in second hand property should not be tax deductible because it adds nothing to the economy, then couldn't the same thing be said about shares??? How does the changing of hands from one person to another of 'existing shares' add anything to the economy??
Further, should a person who buys an 'existing business' be unable to claim on it's losses???
I know I cheated there is more than one question.
If you follow this argument, then eventually nobody invests in anything, because even by investing in 'new', you know you can't sell to anyone because they will be buying second hand.
I don't abide by the using of the ignore button because it lets the doom and gloomers rule the threads that sound interesting to newbees.
bye
The mistakes in the theory and reality from HG are amazing, not worth responding to, especially when in other threads you don't bother to respond to posts that clearly prove your assertions incorrect.
Here is another question for you. If investment in second hand property should not be tax deductible because it adds nothing to the economy, then couldn't the same thing be said about shares??? How does the changing of hands from one person to another of 'existing shares' add anything to the economy??
Further, should a person who buys an 'existing business' be unable to claim on it's losses???
I know I cheated there is more than one question.
If you follow this argument, then eventually nobody invests in anything, because even by investing in 'new', you know you can't sell to anyone because they will be buying second hand.
I don't abide by the using of the ignore button because it lets the doom and gloomers rule the threads that sound interesting to newbees.
bye
Hi Dazzling,
I find Foundation receives undue adulation for his posts on GHPC. His posts display that he has some skill in sourcing data to support his point of view. Most of his graphs are lifted from existing sources.
In my opinion his use as a research assistant would be dubious as he uses the cut and paste function too frequently and presents data that is readily available on the net to investors. Much like a student who presents a glamarous looking assignment....until you scratch the surface and realise that the work is, well, how do I put it nicely .....fraudulent......
In addition I personally wouldn't tolerate his disdainful attitude and closed mind.
Regards Jason.
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I don't have a problem with HG and YM. They are presenting a logical case.
Firstly, the original post has merit. Current property prices can move below replacement cost, just as share prices can drop below NTA.
Why? because as I have said elsewhere, we are in an era where leverage has been used to inflate asset prices well beyond what they'd be without access to leverage.
Today, property prices are determined most strongly by the availability of credit. Tighten credit and prices will come down.
If there wasn't some merit in the idea, then central bank monetary policy wouldn't work whatsoever, but it does. If you increase the cost of credit, you eventually reduce the labour rate of builders, because they compete for less work. And that's how monetary policy controls inflation.
HG and YM have valid points to make. It isn't emotive bear bleating. Their views are nothing less than the concerns Steve Keen and Ron Paul have raised in relation to high household debt.
Firstly, the original post has merit. Current property prices can move below replacement cost, just as share prices can drop below NTA.
Why? because as I have said elsewhere, we are in an era where leverage has been used to inflate asset prices well beyond what they'd be without access to leverage.
Today, property prices are determined most strongly by the availability of credit. Tighten credit and prices will come down.
If there wasn't some merit in the idea, then central bank monetary policy wouldn't work whatsoever, but it does. If you increase the cost of credit, you eventually reduce the labour rate of builders, because they compete for less work. And that's how monetary policy controls inflation.
HG and YM have valid points to make. It isn't emotive bear bleating. Their views are nothing less than the concerns Steve Keen and Ron Paul have raised in relation to high household debt.
They're presenting an unbalanced view which happens to supports their failure to act. If this was a share forum they would probably be banned for their self-interested persistant down-rampering.
Agreed - availability of credit is part of the equation - that's why the RBA increases IRs to restrict borrowing. Isn't that a normal part of the cycle ?
I think many big picture investors believe we're in for a period of stagnation (+/-10%), with more than usual bargains around over the next 1-2 years. I'm looking forward to it - last time this happened produced previously unimaginable results for me.
They appear to be saying that house prices must fall by around 40% nationwide. Do you see a fall of that magnitude, or simply stagnation for a few years ? And when is this big fall expected to happen ? Obviously timing is a bit of a tricky one, some economic theorists predicted it in 2005 and took sold their PPORs .... and are still waiting to buy back in ?
I've always said 2003 prices in real terms (referring to Brisbane). That would be far from 40%. Maybe only 10% if inflation keeps kicking along.
Heck, even I'm expecting a bigger fall in nominal prices than 10%! And you're not even in the maket.
Alex
Keith, I have thought for 4 months or so now, it will be difficult to see median property growth in the caps above 5% for the next 2-3 years. So that's my ceiling.
So how low could it go? I'd say we will see price drops on the fringe up to 15% if debt cost stay where it is. My reasons are that petrol is very likely to be $1.50/l by the end of the year, and $2/l by the end of 2009. So for the median income earner commuting by car, and averaging 15,000km pa, that'll be an extra 65c/L * 9L/100km * 15000km = $877pa = $73pm after tax = $104pm pre tax.
Throw another $50 after tax a week = $300pm pre tax in for higher food costs and your median 80%LVR mortgage is reduced by
PPR $ 37333
IP $ 53333 (though rents will undoubtedly cover some of that)
And factor in the reduced property growth will lead to less equity growth for investors to leverage off.
And consider wages will be constrained in every sector other than mining, and we have some serious downwards pressures unfolding for leveraged assets over the coming 5 years.
As for a 40% drop, hard to say. Inflation is rising in China, as is the value of the yuan, which means they are exporting inflation here. If their productivity slows from 8%pa+, and the USA continues to slow as debt is unwound, then 40% here might be possible on the fringes.
