The original post cited nine reasons why it really is different here. Token Funder has addressed none of these but I suppose his point is that the lack of available credit might trump all of these reasons. We’ll see.
Why it really is 'different here'
- Thread starter Shadow
- Start date
Not drying up...tightening up...not the same thing.
All banks (I am not overstating this) have moved down the credit curve. In some instances it's fairly obvious...fewer discounts for Lo Doc, lowering LVRs, No Doc becoming harder to get, mortgage insurers getting more conservative, giving valuers a serve...but generally it's done by moving credit scoring bands, reducing underwriting discretions, erring on the conservative side.
If your MB hasn't noticed, he/she isn't paying attention
No - it always boils down to income. Debt will plug the hole for a while but eventually it will hit your income when it needs to be paid back.
Lets say the supply / demand fundamentals were such that an average house was $1,000,000,000,000,000. Trouble is I can only work 24 hours a day ... can't be done ... it stops with income.
Or to put it even more simply (it is a bit like hitting your head against a brick wall so I am trying a few different angles) ... income is a hard limit on demand.
Do you think a median house 12 x median income is possible? How about 30 x ?
Yes - easily.
Yes again.
Why do median income earners have to own median houses? You make it sound like median home ownership is some god given right to median income earners in the "lucky country". Just because that is our history doesn't mean that is our future.
Why can't the housing stock be progressively owned by investors instead? Median income earners will then be spending 40% of their incomes on rents instead of mortgage payments.
The only protection against this happening is the current poor yields on housing stock in a lot of the country. When those yields improve through rising rents, the OOs of this country better get in quick otherwise the investors will move in and price them out of the market - potentially for good.
In that case the median income earner still has the option to buy a low end house. There are plenty of scenarios that could develop where median house prices can move well ahead of median incomes - there is no hard connection between the two.
It's not a god given right - it's just logic.
If a median income earner can't buy a median home then who is buying it? A high income earner? If a high income earner is buying a median home then who is buying the high end homes? If a median income earner is buying a low end home then what are the low income earner's buying .... (and so on)
Renting instead doesn't solve the problem. Somebody has to pay for the house - renting just shifts that cost to landlords.
Landlords can't sell properties back and forth to eachother forever at higher prices and get rich doing it - there has to be an entry point of new money somewhere. In the past it was debt. In the future? Maybe the taxpayer. In the long term future?????? Who knows.
Perhaps we could have a scenario like this:
- Credit rules get tighter - lower LVRs, restricitions on nodoc/lodoc, already happening.
- Lower IRs - already happening.
- Rising rents - already happening.
- Immigration exceeds new construction - already happening.
The median income earner now paying 25% of their combined income on rent vs say 35%+ on a mortgage can no longer get loans because they haven't got enough deposit / employment history / etc any more with the new lending rules, despite dropping IRs. As rents keep going up, investors who do qualify for finance buy the house instead. Mr and Mrs Median are now "locked out" of the market but rents keep rising over the years until they are now spending 40% of their income on rent as construction is not keeping up with overall housing demand and there is stiff rental competition.
Investors bidding amongst themselves, with the tax benefits, keep yields low so prices keep getting higher and higher, keeping Mr and Mrs Median further locked out. Mr and Mrs Investor keep getting wealthier (and able to get finance) due to the steadily rising value of their assets and the associated income streams.
The gap between rich and poor keeps widening - there is no law saying it won't or can't happen. Agreed it can't keep going indefinitely but there is a looooong way to go yet before Mr and Mrs Median can no longer afford the new higher rent. This would be after the point they can't afford the new plasma etc.
It's hard to compare apples to apples, some countries let you claim your mortgage payments as a tax deduction! (Netherlands)
My take on all this is throw your 2c in and lets wait 12months to see who is got the closest to what actually happens!
The conjecture is a lot more fun but it seems like there are way too many variables at play to get a good comparison.
My 2c
Graeme
I suspect there's a few of us with a bit more than 2c in this outcome!
That's the interesting thing about this forum - you get people with years of experience and multimillion dollar positions in the market debating the merits of investing with someone who has no skin in the game. In what other business would the latter person be taken at all seriously compared to the former?
The dynamics are fascinating though because the mindset is just sooo different. Same glass but to some it's half full, others half empty. It's a good way to see how the glass looks to the other half at the very least!
I am pretty sure this is the case in USA(ppor mortage), correct me if i am wrong...
They should do it here too
this is such a fallacy... median priced houses by and large are selling at replacement or under because.... they have a real cost to produce. Investors are not responsible for a brickie earning a fair wage, nor the cost to lay a sewer pipe, nor the price of the metal in the roof.
Quite a few people here could write a 10 page essay on that subject. You've got a whole bunch of swirling dynamics going on, intermingling with one another....it's hard to ultimately tease out each factor and isolate it.
Unfortunately, nothing is resolved definitively because most, if not all of what is discussed is opinion based, and there is way way too much emotion to lucidly peg it down so there are no more "if buts and maybes". Over-riding everything of course is that everyone on the forum is completely and utterly 100% independent. If you don't or agree with a stated opinion and/or fact, you can simply ignore the comment, refute the comment or go tell the person to jump. Either which way, there's no downside, and bugger all upside.
That's where the forum flourishes over real life. The forum is nuetral, it's free, it's unisex, it's levelled, everyone is equal. It's completely the opposite to real life. It's safe and unthreatening above all, cos they are just words, no more and no less.
In real life however, it's anything but that. It has rank and power. People order and force others to do things they don't wish to do.....but due largely to weight of money or the threat of losing jobs, people still do things they don't wish to do. Big dogs don't cry and whinge, they simply eat the smaller weaker dogs and then go looking for the medium dogs to eat. It's sexist and racist and ageist and disablist and no doubt a whole bunch more istsits. People can and do force others to comply, they sue and threaten to sue to get their way in a deal. They lobby and cheat to get the rules changed or amended or excluded. There are family connections and favouritism. There are free kicks and trust fund kids who don't need to learn any of this boring stuff the newbies are trying to learn on here.
This is where lessons and tips learnt on the forum or at some controlled seminar fall down massively in the real world.
Dazz just brought this to my notice.
While I would lack a nought in comparison with him, I too have a very important amount of skin in both property and stocks and just lately I am fed up with debating "theory" with people I'm not sure aren't just mischevious high school kids. Hence the thread I started inviting them to show us their credentials.You're excused Dazz.
"Originally Posted by yieldmatters
Do you think a median house 30 x median income is possible?"
Well I think it would be impossible. How could it ever happen?
Average house values of 1.5 million with wages of 50k? Houses would have a rental yield of 1%.
It could never happen, but go ahead and show me how it could.
There are plenty of simple and reasonable reasons why houses have risen much faster than inflation and wages, including double incomes, increasing efficiency right through society, increasing disposable income, falling real energy and food costs, decreasing widget costs, etc, But it can't just go on and on till houses are 30 times wages. It will pull up at some point.
See ya's.
Do you think a median house 30 x median income is possible?"
Well I think it would be impossible. How could it ever happen?
Average house values of 1.5 million with wages of 50k? Houses would have a rental yield of 1%.
It could never happen, but go ahead and show me how it could.
There are plenty of simple and reasonable reasons why houses have risen much faster than inflation and wages, including double incomes, increasing efficiency right through society, increasing disposable income, falling real energy and food costs, decreasing widget costs, etc, But it can't just go on and on till houses are 30 times wages. It will pull up at some point.
See ya's.
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Someone was proposing credit had a 90% correlation in the short term to price increases. I was simply highlighting the extreme case of 0 credit and its repercussion under such a proposition.
I agree totally with you, my comment is absurd but its simply an extension of the absurdity being said by others trying to argue demand and supply no longer applies and to that effect your comments proves my ultimate point.
That is, you cannot argue credit has a 90% correlation on price but then distance yourself to the proposition of 0 credit and 0 price, its either correlated by 90% or its not.
I agree totally with you, my comment is absurd but its simply an extension of the absurdity being said by others trying to argue demand and supply no longer applies and to that effect your comments proves my ultimate point.
That is, you cannot argue credit has a 90% correlation on price but then distance yourself to the proposition of 0 credit and 0 price, its either correlated by 90% or its not.
Stop extrapolating current trends to infinity. Who said prices will continue to rise at the current rate forever? I think they can go up quite a bit higher during the next cycle. I am not in the business of extrapolating to infinity, so I suggest you try the same...
There will still be plenty of funds available, but the banks will become more selective and risk averse, and obviously we have to foot the bill for any increase in their cost of funds.
Spot on, here the people with a lot of nice theories but no experience can be heard. How long do you think an old Italian bloke with 20 commercial and residential properties under his belt would listen to a 30 something guy with no practical experience, just a lot of nice graphs, theories and articles to reference? If they even met, I doubt the old bloke would listen for more than 2 mins before smiling politely and finding someone else to go talk to.
Only people who are buying homes have anything to do with demand in the home buying market. What have your grandparents to do with it? Are they potential homebuyers?
Are you disputing my post (which was properly explained within itself, but not within your quote)? If so, spit it out. If not, stop sniping unless you have something constructive to add to the discussion.
Dazz just brought this to my notice.
Chuckle. I notice this doesn't seem to worry the 'old timers' much when the posts conform to their pre-existing notions. Take for example this thread. I have many years more property investing experience than the thread originator (maybe you want to ask him just how experienced he is
, I assure you, you'll be amused). Yet nobody is questioning the value of what he has to say.The value of what I have to say is questionable because I disagree, is it not?
