They should. They are foolish.
Yes, they should. But they don't. Why? They don't want to. If they looked at the rent they could get, they would realise that the PPOR doesn't make financial sense. But no one wants to believe that. So they conveniently ignore it. If enough people do that, they BECOME the mainstream.
Despite the massive increase in personal finance books, etc out there, people aren't getting any smarter financially. On the other hand, that means more opportunities for those of us who ARE financially savvy. You know, I didn't look at rent when I bought my PPOR. I was surprised at that, and now understand a bit more about the OO mentality. On the other hand, when you have enough people who don't take rents into account, then property prices really can decouple from rents. Which launches me into my 'property yields tend to fall because prices rise faster than rents, until they reset on redevelopment' theory.
Looking at ALL people then most don't. If the mean is $55K and you assume it is a positively skewed distribution then most are under this. Looking at just the FHB subsegment I couldn't tell you - they might earn more being in prime working age.
Not all properties are 540k, either. I would say most properties in Melbourne (looking at ALL properties) aren't 540k? People on lower incomes should be buying cheaper properties.
Anybody with a mind for the macro picture knows this trading up concept is nonsense - at some point, somebody, somewhere has to PAY for the house. Pyramid schemes have a bottom.
Yes, and we may well be approaching it. However, most people aren't as smart or as educated as you are, YM, and they don't have a mind for the 'macro picture'. Trading up works if you keep having new buyers (who don't have a property) coming in at the bottom. If the entry level properties aren't purchased, no one can trade up.
My view is that such a downturn will not last forever (just as a boom cannot last forever). We might see stagnating (why not big falls like the sharemarket? Because an emotional item like property is VERY sticky on the downside, and we didn't have the same level of crap loans as the US) prices for a while, rents will rise, and just as people think you'll never make money from property, it'll tip over and we have another boom.
On the other hand, my peer group(that does include you, YM), who may not have a property but make a decent salary, can come in and jump the queue a bit. We can afford median and above properties without having to trade up. I managed to buy a above median PPOR without selling a previous property (and I didn't have an old PPOR to sell anyway).
Exactly. So why is an old townhouse in Doncaster selling for 540k?
Presumably the people who will buy that townhouse are NOT young people on even 80k. They might be, though, TWO young people on 80k EACH. That's achieveable, though when they have kids it's going to be an issue. You can probably afford it, no?
Alex
