Median house price included in inflation figure?

[GoingDHfast]

Afternoon Guys,

Just interested to hear people's opinions on Real inflation versus our Governments official inflation figures of around 3%.

As a struggling First Home Buyer my salary has been increased by the governments inflation figure of 3%. Melbourne's median property value increased by 28% over the same period of time. Once I own a house I intend to put at least 50% of my useable capital into paying off the mortgage so it could be argued that half of my living costs have just increased by 28% so my effective cost inflation would be 15-20%.

As an interesting comparision, if we were to go back to 1972 and buy a house, within 8 years my salary would have grown to be worth more than the value of the house. I believe the figures are approximately Median 1972 salary = 5k, house 15k, and by 1980 the Median salary was 15k.

Not trying to have a whinge or incite generational debates, but just trying to figure out where we sit in the cycle of things as to be best informed when the time comes to buy.

Cheers,
GoingDHfast

 

[agent007]

Melbourne's median property value increased by 28% over the same period of time. Once I own a house I intend to put at least 50% of my useable capital into paying off the mortgage so it could be argued that half of my living costs have just increased by 28% so my effective cost inflation would be 15-20%.

Hi GoingDHfast,

I'd argue that as per above statement, your "living cost" hasn't increased by 28% as you mentioned. In fatc, going with the same logic you depicted in your message, it wouldn't make sense to pay down capital at all. The fact of the matter is that your property will increase by x% regardless of the amount you owe on the loan. Thus, it would make more sense to use the "rapidly" devaluating currency in acquiring assets earlier rather than later. I'd also suggest to use leverage in the process. In that way one would be able to keep up with inflation.

 

[devo76]

Question. What does goingDHfast mean ? Is it what I think it is ? Might be wrong.

 

[PeterC]

first of all, its not inflation that you went from having no house and no repayments (or renting) to having a house and now devoting a certain amount of income to it. thats like saying inflation doubled from one week to the next, just because you bought a car and your disposable income halved due to loan repayments.

then you need to consider that housing prices, or moreso the loan repayments of housing purchases (as determined by cost & interest rate) are the one control that works against inflation. higher interest rates generally help control inflation and vice versa.

thus if we started considering housing costs in determining inflation, this 'real inflation' as you put it, may not change much - but the level of inflation that matters to economic management (i.e. the figure used now) would fluctuate and be balanced by housing and other costs as it is today.

 

[invest4bigprofi]

Afternoon Guys,

Just interested to hear people's opinions on Real inflation versus our Governments official inflation figures of around 3%.

As a struggling First Home Buyer my salary has been increased by the governments inflation figure of 3%. Melbourne's median property value increased by 28% over the same period of time. Once I own a house I intend to put at least 50% of my useable capital into paying off the mortgage so it could be argued that half of my living costs have just increased by 28% so my effective cost inflation would be 15-20%.

As an interesting comparision, if we were to go back to 1972 and buy a house, within 8 years my salary would have grown to be worth more than the value of the house. I believe the figures are approximately Median 1972 salary = 5k, house 15k, and by 1980 the Median salary was 15k.

Not trying to have a whinge or incite generational debates, but just trying to figure out where we sit in the cycle of things as to be best informed when the time comes to buy.

Cheers,
GoingDHfast

You will be going down hill fast if you keep procrastinating and hold of buying in the hope of price drops

 

[WinstonWolfe]

Go to the rba site and compare the rate of combined growth of credit and M3 vs gdp vs property. When credit/M3 growth is higher than gdp growth, you have selective inflation in the things people use credit for..... property, shares, and whatever people do with lines of credit against property. Fruit and vege are not effected by higher credit availability because we can't consume more of these per capita because we literally can't stuff our faces with more.

Credit growth in excess of gni causes a devaluation of the currency. It has to because not enough goods and services are created to cover the credit money created.

Ask yourself where the additional credit money is coming from....that's right it is foreign money. So Australia is going deeper into hock to foreigners so we can all bid each other up on property, and think we are clever.

But how clever is it that we are selling off our most profitable companies to foreigners, our toll roads, trains, water supply, and telecommunications, you name it and we are liquidating it....then paying foreigners ever greater dividends........and then we borrow back the dividends and profits to bid up houses. Australia is being liquidated. Clever huh?

But the point is you have to be in the game to preserve your capital.....that is until there's less people able to borrow next month than this month, or foreigners stop lending at a reasonable rate.....then inflation rolls over to deflation.

It is a *****, but what are you going to do. If you profit at the expense of your neighbor, that's your neighbor's fault for voting in a government that doesn't get this stuff.

 

[Neophyte]

Remember that in the 70s there was what was referred to as hyper-inflation in most of the anglo-sphere. Double digit annual inflation for years. Also remember that what broke the inflation cycle was brutal interest rates (15+%) that led to the late 70s recession in the US and brought Regan to power.

As to the best time to buy. I guess the best time is just before any serious wage increases happen. Assuming property price is some multiple of wage. Buy before people use their increased income to push prices up.