The next 10 years: Prediction of the market

[skater]

You most likely will be outpaced by the market.

Best to suck it up, get on the ladder and start (climbing) now!

Then I'm sure you will get what you want, eventually.

It's what we did and we just sold off the "old dog" late last year for a great price.
That place was the cornerstone in our early investing years, we did everything possible to grab it and build equity and then borrow to the hilt for more IP's.

Now we have options and have decided to use PPOR as cornerstone.

But without buying that "dog" I seriously think we would still be renting and whingeing about property being too expensive.

We've started from scratch twice.

The first was a really crappy home in a crappy area. Lived there for around 8 years, then lost it due to a failed Business.

Second home, hubby was working in Sydney, so rented near to work. Looking to buy a home & could easily have afforded a place nearby in a new sub-division, but we were spending a lot of money on sport & didn't want to compromise this (high level athletes)

So.....bought in Lethbridge park, miles away from work, a crappy home in a crappy area. Stayed there for 7 years. Upgraded PPOR about 5 years ago now. An older but nice home in a much better suburb but still the long commute. But that's fine because Hubby won't be doing it for much longer.

 

[rizzle]

You think I like living in Forrestfield and spending 4hrs a day on public transport? Man up and get yourself a place, wait for some equity and then buy more places. Soon enough you can upgrade the PPOR you something you prefer.

I accept the point you're making as it seems to be recurring advice in this thread. 4 hours however is 16% of a day. That time cost would simply be unacceptable to many people. I would much sooner buy an IP and rent before doing that (yet another debate in my head). I might need to start looking in less desirable areas though like box hill if I want a PPOR.

I do appreciate all the different perspectives though as I do often get caught up with 'analysis paralysis'.

 

[WattleIdo]

The hardest thing about living in a crappy area is - believe it or not - judgement from those who have been in the market for longer than you.

Why aren't you buying in Artarmon, Beecroft or even down-market Cherrybrook? The Eastern suburbs are so close to town ...Why not go for a cheap and cheerful innerwest dump that you can do up?

Anyone who isn't buying in this day and age still thinks like this.

As far as getting your own place goes - once you get something, you'll make it nice. You might get a job closer to your home or you'll get used to the commute.

After a while you'll be telling everyone how good the area is. There'll be other people around like you. Eventually, the area will rise in value and become desirable. Others will be wishing they'd been as smart as you.

 

[trey]

Bollocks!

There are homes available for around $300k or less in the outskirts of every major city in Australia. Yes, you might have to commute to live there. No, they might not be new, they might not be big & they most certainly won't be the dream home. What they will be is an average home in an average condition, suitable for an average person/family.
.

If by outskirts you mean 200kms away then you may be correct! Lets be honest you wouldnt find a place for that on the outskirts of Sydney and Perth where the Median price is 600 - 650k.

 

[Singo]

If by outskirts you mean 200kms away then you may be correct! Lets be honest you wouldnt find a place for that on the outskirts of Sydney and Perth where the Median price is 600 - 650k.

I have no idea about Sydney. But in Perth, you can buy houses for $300-$350k. Not 200km from CBD, but 20-25km. For $400k, better houses can be bought slightly near the CBD.

If someone can save 40k, they can buy a reasonable house with 10% deposit. And move on from there.

Say one need 10% deposit to buy a house. If one want to buy a house 500k, but can afford to buy for 300k only (have 30k deposit only), they better buy one. Because lets assume all houses grow in value by 10%. 500k moves to 550k and 300k moves to 330k. Then to buy 550k house, 55k deposit is needed. But with initial 30k and 30k equity growth, it can be bought. With some savings in between. even 1M house can be affordable.

 

[skater]

If by outskirts you mean 200kms away then you may be correct! Lets be honest you wouldnt find a place for that on the outskirts of Sydney and Perth where the Median price is 600 - 650k.

http://www.realestate.com.au/property-house-nsw-macquarie+fields-115888343

http://www.realestate.com.au/property-house-nsw-cambridge+park-108450016

There's two in outer Sydney without even trying. One in South West, the other Western. Two areas with affordable housing.

 

[The Fence]

Yeah, but who'd want to live there?

 

[Jay84]

I appreciate the ideas. In regards to your calculations, it's best to account for tax as well. In regards to your suggestions, the first one is too far out and sunshine is literally one of the worst suburbs I could think of to live in. This is for a PPOR not an IP. I plan on being there for more than five years and I have to want to live there. While I won't live in the bottom of the barrel, I don't consider my criteria too picky (within 11km of cbd, 2br, has balcony, has car spot, easy train acccess etc.). For me its a constant mental battle between getting in now with something that I simply don't want to live in, versus waiting, saving and hoping I'm not outpaced by the market.

Have u been to sunshine? What do u find so bad about it?
Yes there are some scumbags around but generally they stick to themselves
That place is about 10 min walk from a zone 1 station, 5 min from the cricket and soccer Club with a Council maintained oval, play equipment, bbq, and walking track along the creek,
It's a short drive or 20 minute walk to the shipping Centre, cinema etc
there is quite a bit of development going on simular to that place with the old places being knocked down and rebuilt
There was an idea from another poster about buying an ip but renting where u like
I have a mate who brought an ip in sunshine but rents in Thornbury
another guy I work with, he is about 27, put a good deposit on a cheap place in deer park, renovated, has continued to pay it off and if he continues will have it paid off by 2020, (he is thinking about buying an IP though)

disclaimer: I was in a similar position to yourself in 2008 but couldn't afford yarraville newport Williamstown and brought and lived further out west since then

 

[TMNT]

I accept the point you're making as it seems to be recurring advice in this thread. 4 hours however is 16% of a day. That time cost would simply be unacceptable to many people. I would much sooner buy an IP and rent before doing that (yet another debate in my head). I might need to start looking in less desirable areas though like box hill if I want a PPOR.

I do appreciate all the different perspectives though as I do often get caught up with 'analysis paralysis'.

Um, I grew up in Nunawading
Its about three times further then your 11km

Assuming you are a fhb or fairly young, why are you unable to travel that far, I did it for ten years,

I had class mates and work mates who lived in Boronia, Kilsyth, and even lilydale, travel time was well under 1.5 hours, my travel time would have been about 1 to 1hour 10 mins

I don't see the problem, other then an entitlement issue

 

[rizzle]

Um, I grew up in Nunawading
Its about three times further then your 11km

Assuming you are a fhb or fairly young, why are you unable to travel that far, I did it for ten years,

I had class mates and work mates who lived in Boronia, Kilsyth, and even lilydale, travel time was well under 1.5 hours, my travel time would have been about 1 to 1hour 10 mins

I don't see the problem, other then an entitlement issue

Everybody places a different value on their time. The cost of commuting say 3 hours per day, to me, is just not worthwhile. I don't feel entitled to have a home with a short commute time. I simply place X value on my time, and if I can't purchase something that meets that criteria then that's okay, I will simply look for alternative options (e.g. buy an IP instead).

 

[rizzle]

Have u been to sunshine? What do u find so bad about it?

It's really tough keeping an open mind when it's a home you're looking for. The west for me isn't overly appealing because of stigma, reputation, violence. But more so it's about the eastern side being more of a home to me. I have never really had any need to go to any western suburbs as all friends and family are either in the eastern/south eastern suburbs, or in Gippsland.

 

[TMNT]

Everybody places a different value on their time. The cost of commuting say 3 hours per day, to me, is just not worthwhile. I don't feel entitled to have a home with a short commute time. I simply place X value on my time, and if I can't purchase something that meets that criteria then that's okay, I will simply look for alternative options (e.g. buy an IP instead).

I get what you are saying totally, I have more free time then teh average person hence I can do renos for weeks on end and it doesnt really affect me except my kids, but I manage to squeeze them in,

there comes a point when most people will simply say "stop being a spoilt brat" its up to you, whether you care what others think or say,

I have a friend who refuses to catch a train/car to work, and his work must be within 10 mins walking distance, naturally he pays extra for the privilege, and he does way up the costs of fuel and train tickets of $50 per week vs the rent he pays

 

[trey]

i agree theres all these young hipsters out there with uni degrees first year out who think there killing it driving around in there cars owned by the bank and only want to live in good areas. they need a reality check. But i do believe it is going to be hard for the next generation, because the majority of People who are driving prices up are old people who own there house outright and bought it when it was 10k now its a 500k. whats going to happen when all these people are no longer here? what would happen to all the property investors or even normal people who have 500k mortages because its the "australian dream"if they lost there jobs because there was a crash? i dont no but its going to become straining and in the end something has to give. so a market crash would be good.

 

[TMNT]

i agree theres all these young hipsters out there with uni degrees first year out who think there killing it driving around in there cars owned by the bank and only want to live in good areas. they need a reality check. But i do believe it is going to be hard for the next generation, because the majority of People who are driving prices up are old people who own there house outright and bought it when it was 10k now its a 500k. whats going to happen when all these people are no longer here? what would happen to all the property investors or even normal people who have 500k mortages because its the "australian dream"if they lost there jobs because there was a crash? i dont no but its going to become straining and in the end something has to give. so a market crash would be good.

yes but, the houses they purchased for $10k in terms of ratio to income isnt much different to what it is now, plus these $10k houses were most likely the western suburbs equivalent of now!!!

generally, old people dont invest, they've done their investing, its the 30-50 year range who have the income to service the loans and are more pro risk. When the older people are gone, the now 30-50 range would be the older gen with assets,

rinse and repeat and there you go!!!!

the only thing that might happen is prices wont go gang busters as at some point it does become unreasonably unaffordable, eg imagine if the closest suburb you could get to CBD under $800k in sydney for example became 100km, its at this point when the high end will stop growing at average growth levels,

 

[trey]

yes but, the houses they purchased for $10k in terms of ratio to income isnt much different to what it is now, plus these $10k houses were most likely the western suburbs equivalent of now!!!

,

Disagree. for people earning the average australian wage i do not believe the rise of income to buying house ratio is relative to the old days. My parents bought there house for 50k 25 years ago and earn t 30k. How is that relative? can anyone else in there 50s back me up on this?

 

[skater]

Disagree. for people earning the average australian wage i do not believe the rise of income to buying house ratio is relative to the old days. My parents bought there house for 50k 25 years ago and earn t 30k. How is that relative? can anyone else in there 50s back me up on this?

That old chestnut AGAIN!!

NO! I'm not backing you up at all. Young people these days look at a point in time, usually before an upswing in prices, so things are quite cheap, and think that they are comparing the income verses cost of housing, and everything else remains the same. Well, it wasn't.

I'm in the age group you are talking about. If you go back in time, the banks looked at serviceability based on the family income. As most women didn't work, it was mostly done on the male wage. What has changed is that now you have two incomes, so the serviceability is higher. You also have low interest rates. This affects serviceability in that you can borrow & repay a much higher amount.

We had 17.5% interest rates. The cost of many goods in relation to wages was much, much higher than it is nowadays. For instance, I remember buying a TV for $500 around 30 years ago. A washing machine cost me $1000 not long after I got married. I remember buying a plain cotton dress to wear to a school dance. It was on special for $20, and I thought it was a bargain. I can purchase similar nowadays for a similar price (or less at KMart).

Housing prices are based on supply and demand. The cost of housing is high because that is what the market says it is worth. If tomorrow, nobody wanted to buy in your suburb, the price would go down. Simple! It has absolutely nothing to do with old people buying property.

In fact, we have a fairly large portfolio. We are starting to look at it to determine which properties will be sold off for our retirement. Quite a few will be sold and maybe a couple more bought. But overall, we are reducing our portfolio down. We don't care one iota about expensive CBD properties, as we want cashflow to see us through retirement. Well maintained properties giving off nice large chunks of $$ each month.

So....go back in time if you want, but don't you dare for one instant think it was all roses. It certainly wasn't! We couldn't afford new cars! There were no overseas holidays! There was not a lot of discretionary spending at all. It is much easier for a switched on person to start & grow a portfolio now than it was then. I mean, afterall, you guys have the internet to learn from. Us, well...we had to figure it out for ourselves at the start.

 

[Phiber]

the only thing that might happen is prices wont go gang busters as at some point it does become unreasonably unaffordable, eg imagine if the closest suburb you could get to CBD under $800k in sydney for example became 100km, its at this point when the high end will stop growing at average growth levels,

I think there is a point at which people might refocus on smaller dwellings at a more affordable price, so instead of buying a freehold house, might go for a duplex, a townhouse or an apartment. This shift has already started and even though I don't have any data, I bet a lot more people are living in apartments now than 25 years ago. 25 years from now, I would think this trend would only get stronger - we are talking capital cities here of course.
For a given budget, it's a trade off between lifestyle vs convenience and commute to go to work. I believe there is a point at which people start to sacrifice the house and backyard for something smaller but more convenient with a shorter commute.

So I would expect stronger demand for units and apartments as more affordable options. Also I think the younger generation has no issue living in units whereas some of the older generations seem more comfortable with a house lifestyle, having resided in these sorts of dwellings for their whole life ( there are always exceptions though). On the other hand, the value of land with development potential will continue to grow. There will always be buyers for well located houses though, but it's a demand question: low demand due to $ needed, but also low supply - so a bit undecided on this one!
Thoughts?

 

[TMNT]

Disagree. for people earning the average australian wage i do not believe the rise of income to buying house ratio is relative to the old days. My parents bought there house for 50k 25 years ago and earn t 30k. How is that relative? can anyone else in there 50s back me up on this?

there is no way you could have bought a house for $50k at 30k income in a metro area of melbourne, if you are going to bring up examples, then make them realistic,

I for one know of somone who bought a $75k house on a $25k salary (in the late 70s or early 80s and he bought in a crappy area of melbourne at the time, which now is worth $700k and is considered bluechip.

let me ask you, how much your foxtel, mobile phone, home internet, ipad repayments, ipad data plan repayments, gym membership, store finance costs per month???? Have kids??? then multiply that figure by 50% of the number of kids you have, and then you will start to see the realty of the situation.

Dont get me wrong, I aint that old, in fact I have a phone, home internet and gym membership and kids, I just know how to make realistic comparisons

 

[Truly Exotic]

That old chestnut AGAIN!!

We had 17.5% interest rates. The cost of many goods in relation to wages was much, much higher than it is nowadays. For instance, I remember buying a TV for $500 around 30 years ago. A washing machine cost me $1000 not long after I got married. I remember buying a plain cotton dress to wear to a school dance. It was on special for $20, and I thought it was a bargain. I can purchase similar nowadays for a similar price (or less at KMart).

Exactly!!!! in 2001, me and the gf at the time splurged out on a 60cm Flatscreen CRT Sony TV, $1500 from JbHifi after negotiations, everything else was like a 50cm for $999,

you can now pick up a 50" decent brand for $400!

in the mid 90s, I forced/convinced my parents to buy me a 486 computer, at a cost of $3000, (id hate to imagine how much a computer in the late 80s would have cost !!! $6k!!)

My last computer cost me $380 brand new without monitor,

you gotta compare apples with apples

 

[Joe D]

Exactly!!!! in 2001, me and the gf at the time splurged out on a 60cm Flatscreen CRT Sony TV, $1500 from JbHifi after negotiations, everything else was like a 50cm for $999,

you can now pick up a 50" decent brand for $400!

in the mid 90s, I forced/convinced my parents to buy me a 486 computer, at a cost of $3000, (id hate to imagine how much a computer in the late 80s would have cost !!! $6k!!)

My last computer cost me $380 brand new without monitor,

you gotta compare apples with apples

LOL ......

A top of the range Sony Trinitron 28" TV cost me approx $3000 in the early 90s. I also bought my first Toshiba laptop with a whopping 20MB hard drive for around $6000 duty free in 1990/91! (Young, cashed up and before kids)

Even though I probably have more than 20 times the equity now, I wouldn't expect to pay more than 20% of the cost for a similar TV and laptop.