Sooky-la-la

[skater]

Over the last 2-3 decades, there's been an unusual stickiness to house prices in Australia (generally speaking). 'Corrections' haven't been seen.

Really? Sorry, you are showing just how na?ve you are with this comment.

Prices will over shoot , become unaffordable, there will be some economic shock and we will go into another slump .

It's the economic cycle .

Pinched this quote from another thread. As you can see, I'm not the only one sprouting this. It is what it is. Call it a correction, or call it a slump. Whatever you want to call it, it happens, & like I said before, it's how the cycle works.

I'm not going to get into a heated debate on this, in fact I'm not going to even bother with anymore replies, as you clearly think you know more than seasoned investors who have been around for a while.

 

[plusnq]

A large number of my friends are simply more risk averse than i am. Despite reasonable savings patterns, they've struggled to enter to market within their comfort barriers. They will at some point, but an ideal society wont require as great of a sacrifice.

Society has always required to sacrifice to achieve success. Whether that is purchasing your own property, building a career or business, or raising a happy, balanced family. An ideal society doesn't exist on this planet. In fact I would argue (topic for a different thread and forum) that in fact we in the western world have had a long period of relative comfort and prosperity and that we are more likely to have increased social and economic disruption in the future.

 

[Redom]

Really? Sorry, you are showing just how na?ve you are with this comment.


Pinched this quote from another thread. As you can see, I'm not the only one sprouting this. It is what it is. Call it a correction, or call it a slump. Whatever you want to call it, it happens, & like I said before, it's how the cycle works.

I'm not going to get into a heated debate on this, in fact I'm not going to even bother with anymore replies, as you clearly think you know more than seasoned investors who have been around for a while.

Cool, we'll just have to agree to disagree. Your spot on about economic cycles, i just disagree that we've seen it play out that way over the last few decades. Perhaps it is naive, i'm looking at charts and putting an economics hat on (not an investor). I've only been investing recently, so others (like you) will have much more practical experience on this than i would.

 

[Redom]

Society has always required to sacrifice to achieve success. Whether that is purchasing your own property, building a career or business, or raising a happy, balanced family. An ideal society doesn't exist on this planet. In fact I would argue (topic for a different thread and forum) that in fact we in the western world have had a long period of relative comfort and prosperity and that we are more likely to have increased social and economic disruption in the future.

Yeah thats definitely true, completely agree that hard work and sacrifice are important elements of wealth creation.

There's enough history to show that trying to 'design' the ideal society generally leads to unfruitful outcomes.

 

[Aaron_C]

Should be another bump up in Melbourne prime real estate this Spring. Can feel it in the bones.

 

[EN710]

Should be another bump up in Melbourne prime real estate this Spring. Can feel it in the bones.

So should I buy now?

 

[Aaron_C]

So should I buy now?

Well I won't be selling yet
Market is just really strong right now
Those who bought in 2011-12 are just laughing

 

[property_girl]

Fact is income to price ratios have been rising over the last 2 decades. That makes it harder for people who aren't in the market to enter the market. So it IS harder today than it was before .
)

I agree. I feel for the younger people wanting to get into the property market. Some will do it, yes, and good on them. But it is certainly nowhere as easy as it was thirty years ago. For my first house I took out a loan of $100,000. Nowadays kids have to take out loans of about $400,000 to $500,000 if they want to live in Sydney or Melbourne.

I don't think it's a matter of sooky la la. We are heading towards the way of some European countries, where the only way for kids to buy their first home is to get financial help from their parents.

I have no figures or statistics to substantiate this--it's just what I have noticed over the years.

 

[lizzie]

The evidence does not support you on this skater. Over the last 2-3 decades, there's been an unusual stickiness to house prices in Australia (generally speaking). 'Corrections' haven't been seen.

Can you post the charts you're using?

I've been around a while (like Skater, but not as long as Bayview) and can distinctly remember 3 rather hurtful compressions or stagnation of the property prices.

Looking at the table on page 8 of the attached - that only goes to 2003 - you'll notice property prices (on average) in Sydney, as an example, stagnated or fell during 1970-72 ... 1981-84 ... 1990-95 ... and I distinctly remember a lot of squealing around 2003-4... and again in 2009-10 due to factors outside Australia's sphere.

http://www.econ.mq.edu.au/Econ_docs/research_papers2/2004_research_papers/Abelson_9_04.pdf

This doesn't factor in interest rate rises and falls either (which significantly affects affordability) ... a 20% mortgage loan - which a friend had in the mid 1980's - puts a rather large damper on affordability

So, basically every decade there is a period of 2-5 years of stagnation where income catches up with prices, then prices move off again. It's been nearly a decade since the last Australian specific stagnation period, and recent increasing unemployment suggests, it may be time soon approaching for another.

 

[Redom]

Hey Lizzie, thanks for that paper.

I think it may just be a definitional difference here. When i talk about asset price corrections, i dont think periods of 'stagnation'. I think drops of some maginitude over a relatively short period of time.

For example, i'd define price drops in the gold coast not too long ago as a correction, while i wouldn't call the stagnation period a correction.

I think its really open to interpretation what corrections mean. Australians are likely to say stagnation, while the Irish will say 50% falls!

The below link has a great chart on income to debt ratios - there are periods where it catches up (the stagnation periods). But on the whole, theres been an upward trend over the last couple decades.

http://www.imf.org/external/pubs/ft/scr/2014/cr1451.pdf --- refer to the house prices annex at the back.

 

[lizzie]

But, if truly comparing, one also has to include the physical "cost" of borrowing the money.

If you have a look at the attached chart - you'll note that interest rates have significantly declined, consistently, over the last 30 years (last two charts) which makes the ability to borrow and repay easier to finance ... example - $200,000 loan at 16% costs $32,000/yr in interest only repayments - $200,000 at 5% costs $10,000/yr in interest only repayments - leaving $22,000 after tax dollars available to either borrow more and hence repay more, or spend elsewhere.

So - the interest repayable on a mortgage of the same value in 1981 would be three times 2011 ... or ... to bring back to comparable interest repayments for 1981 one would have to borrow 1/3rd of 2011's mortgage, or around $65,000 - however - income was significantly less at the time too, so as a comparable of ability to repay as a percentage of income the mortgage in 1981 would have to be even less than $65,000 - but my head hurts to much to do the math (late night working and making pots of money).

I do know that my weekly income in 1986 was $100 net/week. I made that in an hour last night.

http://mortgage-x.com/trends.htm

 

[Redom]

But, if truly comparing, one also has to include the physical "cost" of borrowing the money.

If you have a look at the attached chart - you'll note that interest rates have significantly declined, consistently, over the last 30 years (last two charts) which makes the ability to borrow and repay easier to finance ... example - $200,000 loan at 16% costs $32,000/yr in interest only repayments - $200,000 at 5% costs $10,000/yr in interest only repayments - leaving $22,000 after tax dollars available to either borrow more and hence repay more, or spend elsewhere.

So - the interest repayable on a mortgage of the same value in 1981 would be three times 2011 ... or ... to bring back to comparable interest repayments for 1981 one would have to borrow 1/3rd of 2011's mortgage, or around $65,000 - however - income was significantly less at the time too, so as a comparable of ability to repay as a percentage of income the mortgage in 1981 would have to be even less than $65,000 - but my head hurts to much to do the math (late night working and making pots of money).

I do know that my weekly income in 1986 was $100 net/week. I made that in an hour last night.

http://mortgage-x.com/trends.htm

Agree Lizzie. Thats definitely a factor in the equation.

Also supporting your point, not too long ago there was a series of analysis talking about affordability being at its highest point in years recently.

 

[BayView]

I don't think it's a matter of sooky la la. We are heading towards the way of some European countries, where the only way for kids to buy their first home is to get financial help from their parents.

Um, this:

http://somersoft.com/forums/showthread.php?t=101945

As has been stated a million times here already; it's a matter of expectations, desired location, and lifestyle that they (the young ones) currently and/or have been leading.

 

[TMNT]

my 2 cents

im late 30s, i see both arguments for the harden up generation and entitlement generation,

these days it seems you need well above average incomes and double incomes to afford a decent house,

you cant tell a young person living in sydney , oh go move to TAS to buy a house where you can get one for $150k

also, its hard to tell them, oh if you want to save money, cancel your phone plan, home internet, and everything else. a phone and internet these days is a necessity,and yes 30 ears ago, we didnt have to pay for internet, mobiles etc. etc. sooverall our living costs were far lower

on the other hand if you tell a young person to get a house 40km from the CBD (depending on which city) 2bdr unit built in the 60s, they will look at you in shock horror, and still comapring income to price ratio, I think the ratio is worse now then 30 years ago

the truth is wages have gone up, but property prices havent gone up as quick, inflation has occured, for the most, things are more expensive they were 30 years ago,

there are heaps of other factors that come into play, but overall I think to buy a house that the same criteria our parents bought is harder now, but only slightly, its just that the living costs are now higher plus teh entitlemenet is far higher too

here ends the lesson

 

[property_girl]

Um, this:

http://somersoft.com/forums/showthread.php?t=101945

As has been stated a million times here already; it's a matter of expectations, desired location, and lifestyle that they (the young ones) currently and/or have been leading.

Yes, I was shocked when I read that article. And they took out a loan to maintain their standard of living? lol.

Unfortunately though, there are many young people who do save, but while the property market continues to grow faster than wages, it will get harder for them.

Bayview, I remember years ago going to a block at Sorrento with bay views wanting to buy. It was $26,000. That was my yearly income at the time, and I was on a low income. There is no way I could buy a block at Sorrento now for the current annual low income.

 

[BayView]

Bayview, I remember years ago going to a block at Sorrento with bay views wanting to buy. It was $26,000. That was my yearly income at the time, and I was on a low income. There is no way I could buy a block at Sorrento now for the current annual low income.

Those areas are not a very good indication of how values go for the majority of properties.

When I was doing my PGA apptrenticeship between 1979-81, I used to drive down to the Mornington Peninsula from Ringwood to play the golf courses down that way on my day off.

Most times, you could fire a gun in every direction (this was midweek mostly). That is why I went there; no crowds and a lovely setting...peace and quiet.

I remember one day playing Portsea GC, Sorrento GC, Cape Schank CC and Rosebud CC - all in one day...there was noone around to slow you down.

Those areas where predominantly holiday houses with a few retirees wandering around, and a bit of tourist trade on the weekends and summer went mad, of course.

The roads were nothing like these days with Eastlink and the MP Freeway, etc; it was a long drive and one lane for most of it unless you went the Nepean Highway..

I remember when I bought my block of land in Blackburn in 1992 ($60k for a 445sq/m handkerchief), they were selling houses in Flinders at the same time for about $55k.

I hummed and haa'ed, but the commute from Flinders to BoxHill would have sent me insane, so I went for the vacant block a couple mins drive from work instead.

Since those days, there are twice as many golf courses, wineries galore, freeways and loads of other attractions, schools etc.

The commute has become waay shorter, so understandably, the values had to go up as the population grew. The demographic in my little hidey-hole of Dromana is changing quickly; loads of tradies and working class families due the low prices and shorter commute, lots more holiday houses becoming permanent residences.

Flinders and Sorrento are two suburbs which have attracted an unusually high representation of high-income buyers (The Joneses need to be beaten, you know! ), so there has been a lot more interest down that way from folks who have the resources to spend more to be near their comrades; thus forcing up prices quicker.

One of my mates bought a block of land in Calcutta st, Sorrento for $500k - and then spent another $500k on the house - it is a holiday house, has no views but is walking distance to the beach.

I can't imagine anyone of his calibre doing that in Rosebud.

Compared to scuzzville Rosebud where the price rises are very slow, full of pensioners and lower-end income earners for the most part..

But, compare the same period of time to a suburb such as say; Blackburn where I used to live, and I think you will see a significantly different set of numbers for the same timeframe.

 

[jkat]

you cant tell a young person living in sydney , oh go move to TAS to buy a house where you can get one for $150k

also, its hard to tell them, oh if you want to save money, cancel your phone plan, home internet, and everything else. a phone and internet these days is a necessity,and yes 30 ears ago, we didnt have to pay for internet, mobiles etc. etc. sooverall our living costs were far lower

on the other hand if you tell a young person to get a house 40km from the CBD (depending on which city) 2bdr unit built in the 60s, they will look at you in shock horror, and still comapring income to price ratio, I think the ratio is worse now then 30 years ago

I think for me the thing that I always think about when talking about this stuff is that telling someone to buy a PPOR on the other side of the city is harder to do these days because of mental health issues/support issues.

Before, the cities weren't as sprawled out so to buy 'far away' from your support systems (family/friends) wasn't too bad because it was still manageable to get together on the weekend/after work, or to seek support with kids etc.

These days there may be people wanting to stay in certain areas and not move to the outskirts because they would be moving away from their only support systems. With everyone working longer/harder it is more difficult to spend 1-2hours travelling just to see family/friends.

I'm certainly not trying to justify a 'sooky la la' attitude because I don't agree with it. But in my own experience I know how hard it is when you live 1-1.5hours drive away. It makes it harder to see family and friends and you end up being more withdrawn and isolated which really impacts on your mental health.

 

[skater]

I'll just add a few things here.

you cant tell a young person living in sydney , oh go move to TAS to buy a house where you can get one for $150k

No, that would be silly, but I CAN tell them to buy on the outskirts and commute. I know plenty that have realistic expectations and do this.

also, its hard to tell them, oh if you want to save money, cancel your phone plan, home internet, and everything else. a phone and internet these days is a necessity,and yes 30 ears ago, we didnt have to pay for internet, mobiles etc. etc. sooverall our living costs were far lower

Obviously you weren't paying for the phone 30 years ago.

Believe it or not, it is actually much cheaper. I remember as a young 20something getting phone bills for over $120 each month. That was the phone only! Being ultra careful to NOT call long distance, and certainly NEVER internationally.

When mobiles came in, it was very expensive to CALL mobiles, and you got a separate bill if you could afford to use one. Then when the internet arrived, there was ANOTHER bill. Now, you get one bill that covers all three, and I'm paying less than I was when I first got my landline phone all those years ago.

for the most, things are more expensive they were 30 years ago,

No, they are not! Cars are cheaper, clothing is cheaper, electrical goods are cheaper, and the phone bill is cheaper. Wages are higher. Much higher!

One thing that is often neglected is that it depends at what time in the clock the property is purchased just as much as cost of living and wages. This is the part that a lot forget. Some people just buy at the right time & so they pay less. Happened decades ago, just as it happens today.

 

[property_girl]

Skater, not sure what kind of barrow you have to push. Sure, it can be done, but it is very hard. Sure, buy 1.5 hours out of the city, but it's a pretty poor quality of life--three hours of travel each day to work in the city. I know because I have done it.

These are the facts: 'Our housing debt to disposable household income has tripled over the past two decades. In 1992, our housing debt to household income was 40.4 per cent. It's now 133.4 per cent and that's with a higher proportion of households having two full-time workers. We're working harder but we still have to take on three times as much debt in proportion to what we earn.'

 

[skater]

Skater, not sure what kind of barrow you have to push. Sure, it can be done, but it is very hard. Sure, buy 1.5 hours out of the city, but it's a pretty poor quality of life--three hours of travel each day to work in the city. I know because I have done it.

No barrow, just plain sick of people crying about it being so hard. YES, IT IS HARD! It is hard now, it was hard then.

And as for the travel to the city, well, if my Husband can do it, and my neighbour can do it, and many other people I know can do it, what on earth makes you think that you and others deserve better?

We choose to live here for a better quality of life than in the City. We have (maybe I should say HAD) a smaller mortgage, meaning a nicer home, and a lot more money for living than if we lived in the City.

Hubby is at the stage where he can retire if he so chooses, yet at present, he's still working, and still catching that train each day. He may decide to keep this up, or he may decide to work locally for less $$, or there are many other things he could do.