Rising House Prices - Good or Bad

[yieldmatters]

Rising house prices are great for investors sitting on housing assets - no doubt about it. But are rising house prices good for the economic health of society?

There seems to be a strange cultural situation in Australia. Rising prices of anything else sucks - petrol, food, - oh no, this is bad. But if house prices rise it is great news. Why is this? The cost of something we need has gone UP - therefore we have to consume less of other things and we are poorer.

Any views?

 

[Ausprop]

it's only good for people willing to reduce their exposure... I dont think there are too many of those people around

 

[yieldmatters]

Steve

So do you think it's fair to somehow keep median prices in check (not that I believe it's possible) so that the slacker FHB's can get their s&#t together to the detriment of other FHB's who do (& I'm sure the young couple who bought their first home last year want to see the price rise as opposed to sit flat), and to everyone else who is already in the REA market?

That is my main question to you.

If the growth stops then it is very unfair to the last person in (the couple who bought their first home last year) as they expected to see CG and now won't see it. But the rot has to stop somewhere.

A pyramid scheme has a finite life - eventually you run out of new entrants. But even if we don't run out of new entrants for the near future the country isn't any richer by running the scheme - it is just a shuffling of money from new entrants to previous entrants. Its neutral at the country level - the assets we have haven't changed - the same house is still sitting there giving the same service. Hence my view that house price rises are bad for our collective economic health.

 

[bailz66]

Prices going up on houses is good for a lot of people.

The main reason prices going up for houses is better than all the other things IMO is that a lot of people share in the extra value in houses where as when oil goes up the only people that benefit are the oil companies

 

[BayView]

Rising house prices has always been good in the past, because people used to use the increased value of their home to either trade up to the better house, or use the equity to fund investment. Their wealth base kept on increasing as the debt increased, so their nett worth increased.

This is not a new thing.

What has changed though is in recent decades, more people started using their increased house values to fund the "doodad" spending instead of the bigger/better house or new investment.

Does anyone remember those "where did he get the money for that?" ads? They were the Custom Credit ads that John Newcombe was spruiking. These were the first of this type of focus on using the home equity for spending on doodads. Up until then, I'd never heard of it.

So, while the asset has increased in value, the nett worth and the debt level of the home owner has decreased, because the monet was used to buy depreciating junk like cars, boats, holidays etc.

And now, it has become quite normal for people to be in debt for comsumer goods.

So, now that people have this mindset, and can access the equity for this type of spending, then the rising house prices is not a good thing.

Of course, all of us here are using our equity the correct way, and we are the minority, so for us the rising house prices is a good thing.

It's that same old law of economics in action; 90% of the wealth will be controlled by 10% of the population as all these doodad buyers go broke and the smarter spenders pick up the bargains.

 

[yieldmatters]

Prices going up on houses is good for a lot of people.

The main reason prices going up for houses is better than all the other things IMO is that a lot of people share in the extra value in houses where as when oil goes up the only people that benefit are the oil companies

They do share in the higher extra value so it is more acceptable - I agree - that is a good point. I think that is why it is more socially acceptable.

It's still a neutral outcome overall though. For every seller there is a buyer. So while the seller does well from the higher prices, the buyer does badly. And at the country level we are even. The only way the country does better overall is to get better quality housing at a lower price.

 

[charttv]

The way I see it - Rising house prices = greater equity to tap which leads to more consumption = more jobs and/or greater incomes which leads to increased demand for housing and so the cycle continues. Yes, it is harder for first home buyers and economically disadvantaged but the increased money flows into the economy also create more opportunities to either earn an income or boost their income due to increased demand for labour.

Also, increased equity leads to people borrowing to invest directly in business which directly leads to an increase in more jobs. The whole intellectual argument of excessive investment in housing at the expense of the productive capacity of the economy has some merit but often ignores the extra money pumped into an economy and its subsequent positive flow on effects.

 

[feihong]

The way I see it - Rising house prices = greater equity to tap which leads to more consumption = more jobs and/or greater incomes which leads to increased demand for housing and so the cycle continues. Yes, it is harder for first home buyers and economically disadvantaged but the increased money flows into the economy also create more opportunities to either earn an income or boost their income due to increased demand for labour.

Also, increased equity leads to people borrowing to invest directly in business which directly leads to an increase in more jobs. The whole intellectual argument of excessive investment in housing at the expense of the productive capacity of the economy has some merit but often ignores the extra money pumped into an economy and its subsequent positive flow on effects.

and the contrary holds true. That's why real estate market is often a barometer of a country's economical health.

 

[tubs]

If the growth stops then it is very unfair to the last person in (the couple who bought their first home last year) as they expected to see CG and now won't see it. But the rot has to stop somewhere.

A pyramid scheme has a finite life - eventually you run out of new entrants. But even if we don't run out of new entrants for the near future the country isn't any richer by running the scheme - it is just a shuffling of money from new entrants to previous entrants. Its neutral at the country level - the assets we have haven't changed - the same house is still sitting there giving the same service. Hence my view that house price rises are bad for our collective economic health.

I agree. Enough of this investing in property nonsense. I feel so dirty for having ever been in.

I'm off to a more responsible forum.

(Only kidding)

 

[Dazz]

Rising house prices are great for investors sitting on housing assets - no doubt about it. But are rising house prices good for the economic health of society?

There seems to be a strange cultural situation in Australia. Rising prices of anything else sucks - petrol, food, - oh no, this is bad. But if house prices rise it is great news. Why is this? The cost of something we need has gone UP - therefore we have to consume less of other things and we are poorer.

Any views?

Wow YM - you sure are a consistent bugger.

Your noble aspirations are honourable but highly misplaced in this cut-throat, dog eat dog, commercially driven western democracy we reside in.

I disagree with the thrust of what you have written, and the reason I disagree is because the "we" in your post is in dispute.

When I read the word 'we', I was thinking about my family. When you say or write 'we', you mean the collective Australian public "we".....which is totally different.

My version is the remit of the private property investor. Your version belongs in public policy of a political party document......two vastly different things.

It totally depends on which side of the ledger you sit on with services and goods that are for sale. If the price of property (CG and rents) rises, that good for the owners and bad for the non-owners. Get over it. If you don't like it....jump onto the other side, or do something about it - get a 2nd or 3rd job.....just don't sit there and whinge about it.

Same with every other good and service YM. I'm on the revenue side of oil, so when prices go up, I'm over the moon, and it definitely doesn't suck as you put it. Most people are on the cost side....oh well. You've got two choices. Pay up - or get out of your car and walk....and stop using plastic....and stop eating food. Ok - not reasonable choices I agree....so pay up.

Once you own your PPoR outright, the cost of housing becomes quite insignificant. Many people in Oz are in this situation, and therefore have bigger fish to fry. Only some of the younger folk starting out are having a bleat cos it's probably the first tough thing they've faced in their life....that hasn't been handed to them on a platter.

YM, you're not the PM or the Federal Public Housing Minister, and you'll never personally benefit from your noble crusade.

My suggestion is paddle your small canoe upriver and trade up eventually for a small dinghy....and go from there. Wishing everyone should have as a right some sort a nice 40' cruiser is nonsense.

You've been banging that noble drum of yours about "fair and equitable" for well over a year now. If you'd put all that effort and research and knowledge instead into a property venture - you'd be well on your way.

 

[BayView]

So while the seller does well from the higher prices, the buyer does badly. And at the country level we are even. The only way the country does better overall is to get better quality housing at a lower price.

That's not my experience.

I've been a buyer several times in my life, and even after making some mistakes, I have come out of it better every time.

The seller did or didn't do well when I bought. I don't know their situation.

You keep trying to put a national blanket over the whole property market, but every transaction is a new deal.

The price of the housing will continue to keep going up, but only as the economy allows it to do so.

If there is a glut of properties, and the market slows due to over-supply as is the case in the US), then tradesmen go out of business, or have to cut their costs and charge less to get work etc. This keeps the cost of building a house down.

If there is a shortage of properties, or tradesmen, or both; prices go up.

I am going to be building a new PPoR in the near future. I want to get the best quality for the cheapest price I can. When do you think I will start the process?

During a housing shortage when the prices are going up, and the tradesmen are flat out and charging a fortune, or when there is a flat spot, no-one is building or renovating, and the tradesmen are sitting around scratching their plumber's cracks?

So, Yield, while your ideal of the better quality house for a cheaper price for the masses is noble, and I applaud you for caring, the reality is that it's a capitalist market and controlled by supply and demand.

 

[yieldmatters]

My suggestion is paddle your small canoe upriver and trade up eventually for a small dinghy....and go from there. Wishing everyone should have as a right some sort a nice 40' cruiser is nonsense.

You've been banging that noble drum of yours about "fair and equitable" for well over a year now. If you'd put all that effort and research and knowledge instead into a property venture - you'd be well on your way.

Everybody assumes I am arguing these things because I have a personal axe to grind. I could buy a house (even one of those insanely priced 'median' houses) with only a modest loan any time I wanted to. I am fortunate enough to have a large chunk of savings and an income probably 3 times the average. I don't buy out of choice - thats all. So the personal advice isn't necessary - I am talking generally and out of interest.

You haven't convinced me that rising house prices is a good thing. We essentially have the same houses sitting there with a larger price tag on them. This wealth simply gets transferred from new entrants to old entrants. It's a society sanctioned pyramid scheme and I find it absolutely bizarre and fascinating.

 

[yieldmatters]

So, Yield, while your ideal of the better quality house for a cheaper price for the masses is noble, and I applaud you for caring, the reality is that it's a capitalist market and controlled by supply and demand.

But a capitalist market controlled by supply and demand delivers goods and services at the cheapest possible price. That is the whole point of capitalism. So what has failed in the housing market and if it has failed why are we still using the system?

 

[Dazz]

Everybody assumes I am arguing these things because I have a personal axe to grind.

No, if you read my post in full, you'll see that I'm saying the opposite. I can tell you have nothing personal at risk.

I could buy a house (even one of those insanely priced 'median' houses) with only a modest loan any time I wanted to.

Once again YM, I understood very well that you don't have any significant exposure to the housing market.

I am fortunate enough to have a large chunk of savings and an income probably 3 times the average. I don't buy out of choice - thats all.

Good for you. You are indeed fortunate. In my view not qualified to comment on the housing market from a wealth building perspective - but fortunate nevertheless.

So the personal advice isn't necessary

Mine was a suggestion - not personal advice. I can't offer you that for two reasons. I don't know you or your circumstances from a bar of soap and I'm not qualified to advise anything at all.

I am talking generally and out of interest.

Agreed there. I have no interest in either. There's nothing in it for the private investor, so I shall not engage you further on the general topics.

You haven't convinced me that rising house prices is a good thing.

That was not the objective of my reply to your initial post. You simply asked for "Any views?".....and I took your invitation to present my view. I have no desire whatsoever to convince you of anything....there's simply no mileage in that activity.

We essentially have the same houses sitting there with a larger price tag on them. This wealth simply gets transferred from new entrants to old entrants. It's a society sanctioned pyramid scheme and I find it absolutely bizarre and fascinating.

Indeed - it must be absolutely fascinating sitting on the sidelines watching others involved.

 

[yieldmatters]

Agreed there. I have no interest in either. There's nothing in it for the private investor, so I shall not engage you further on the general topics.

That was not the objective of my reply to your initial post. You simply asked for "Any views?".....and I took your invitation to present my view. I have no desire whatsoever to convince you of anything....there's simply no mileage in that activity.

Didn't mean to offend here - your views are very welcome. That is the whole fun of discussion forums! Swapping views.

 

[pelanie]

Hi
I am new to this, how do you guys keep up to all these messages? The topics available are HUGE. Please advise.

Well i personally think that the rising of house prices are not really good, why? because first of all, if everywhere raise at the same rate, then there is no difference in the purchasing power isn't it? well, at the end of the day, it is still the same. For instance, if we were to purchase a property at 100k, it went up to $150 in few years, then by then, if we sell, we still have to buy at the cost of $150 so are they any difference after all in holding it? unless if you invest somewhere else?

But if we were to buy a few before the price rice and hold it, and then at the end sell it all at once, then probably that would be an o-some condition!

 

[BayView]

Everybody assumes I am arguing these things because I have a personal axe to grind. I could buy a house (even one of those insanely priced 'median' houses) with only a modest loan any time I wanted to. I am fortunate enough to have a large chunk of savings and an income probably 3 times the average. I don't buy out of choice - thats all. So the personal advice isn't necessary - I am talking generally and out of interest.

You haven't convinced me that rising house prices is a good thing. We essentially have the same houses sitting there with a larger price tag on them. This wealth simply gets transferred from new entrants to old entrants. It's a society sanctioned pyramid scheme and I find it absolutely bizarre and fascinating.

Ok, and the share market is.....?

Do you visit a shares forum and argue the same stuff on it?

 

[yieldmatters]

Ok, and the share market is.....?

Do you visit a shares forum and argue the same stuff on it?

You always go there! No - I stay away from the shares forum. Shares are different:

1) When the share price goes up it represents partial ownership of an asset that is now different. It now has greater earnings (profit) or earnings potential. In short, you have share of a bigger company. When the stock of current houses go up in price - they are the same houses.

2) The average person does not have to participate in the share market. They do have to participate in the housing market in some form (buy or rent).

 

[willair]

Y-M,What will happen this time next year ,there has been several come and go in this site for the last 4 years that have waited for the property price correction it may well happen in 08 with the credit markets bubble,and inflationary blowouts led by OIL prices,but the facts are simple if you only have a small number of properties listed for sale,and you have everyone wanting that special property in High numbers then the price will always only go one way,and that's up and in inner Brisbane it is not going to stop for a long time,like it or lump it,you either talk about it happening,watch it happen,or make it happen ,which one will be you???in 08,i do you make it happen otherwise waste another year.....willair..

 

[yieldmatters]

Y-M,What will happen this time next year ,there has been several come and go in this site for the last 4 years that have waited for the property price correction it may well happen in 08 with the credit markets bubble,and inflationary blowouts led by OIL prices,but the facts are simple if you only have a small number of properties listed for sale,and you have everyone wanting that special property in High numbers then the price will always only go one way,and that's up and in inner Brisbane it is not going to stop for a long time,like it or lump it,you either talk about it happening,watch it happen,or make it happen ,which one will be you???in 08,i do you you make it happen otherwise waste another year.....willair..

Or you have a large number of properties listed for sale, and you have very few people wanting that special property then the price is only going to go one way - down.

But putting basic microeconomics aside - is the rising of prices a good thing? What does society get out of it? I argue it is a zero sum game. 100 houses are sitting there. They double in price. More cash is moving from buyers to sellers now. But there are still 100 houses sitting there.