This big.

http://www.mysanantonio.com/business/realestate/stories/MYSA050407.01A.BuildersSlow.359f7cc.html

Sounds like a fairly sound strategy (Note: I know nothing! Talk to a professional)! Bankwest will turn that into $54,000 in a year at minimum risk (disclaimer ditto).
Weight that against the possibility of the bigger house appreciating $54,000 over 12 months if you sold it. Remember, the house price could go up, sideways or down.

Good luck,
F. [cowboy2]

Good point. Problem is:

Chart courtesy of Steve Keen (http://www.debtdeflation.com/blogs/?page_id=16)
(Mortgage debt vs household income is even more out of whack given household income < GDP)

Problem is that house prices only rise faster than inflation so long as debt rises faster than income. That's something that's happened fairly steadily since Nixon severed the dollar's tie to gold but it is by no means something that can go on forever. To borrow from Mr Keen's report (the words not the opinion):

"[T]hings can’t continue as normal, when normal involves an unsustainable trend in debt. At some point, there has to be a break–though timing when that break will occur is next to impossible, especially so when it depends in part on individual decisions to borrow."

You're quite right, inflation (specifically wage inflation) in the order of 10%+ per annum could perhaps solve the problem in a matter of years. Unfortunately, where would interest rates go? More importantly, the window of opportunity for inflating away our debt is closing fast. I'm inclined to believe we're headed for a deflationary period beginning some time over the next few years.

Just about the only thing that could delay (but not prevent) something* causing a collapse of my optimistic plan (the buy one house plan, not the deflation thing) is… one final frothy blow-up in the housing boom. The future is in your hands! I'd be stoked if we could have 40%+ in Victoria by year's end!

Cheers, F. [cowboy2]

*Your pick – high interest rates brought on by inflation, or declining house prices from debt deflation.

millions – Nope, just the equity from the one boarded up home. Brilliant huh? It helps to have a large chunk of readily available cash or cash equivalents. And only works if the optimistic prophecies come true.

What's more, the more people that followed my plan (thanks HG!), the less houses would be available to renters! This would make yields rise, stir up investor confidence and push prices to the stratosphere!

Note: I actually will not be implementing this plan. My firm belief is that the cost of capital over the next decade or so will be considerably higher than the returns from debt-backed assets. What’s more, such a plan relies on the ability and willingness of lenders to frequently revalue the house and extend further credit. The assumption that this will always be possible based on the ability to do it now is tenuous at best.

Think about this:
* If person a borrowed $160,000 against a $200,000 house on an income of $60,000 how would the bank rate her risk?
* If person b borrowed $320,000 against a $400,000 house on an income of $60,000 how would the bank rate this risk in relation to person a?
* If person c borrowed $3.2 million against a $4 million dollar house on practically no income, how would the bank rate this risk?

Supposing we have a credit crunch – say a simple slowing of credit creation (as opposed to an actual contraction in credit, which is not only possible but also a plausible future scenario given our current record level of indebtedness). Who do you think the banks would be lending their now limited money to?

Now suppose I told you that such a credit crunch is absolutely inevitable?

I’m not trying to poop in the punch-bowl, just begging people to ask the hard questions.

ka-ching,
F. [cowboy2]

Right, you've got my attention. Big rewards, no risk. That's what I like to hear! Woohoo, fire away!

There's a difference between rational positive thinking and irresponsible magical thinking. So you had advice that the price of your house should double over the next 10 years. I'd love to hear where you got this advice. I'd also be interested to hear what you did when you heard this opinion. Here's what I do when somebody offers an opinion:

Consider that opinion. If the opinion doesn't stand up to scrutiny or the opinionator can't substantiate it, disregard it. Assume all opinions are false unless they are backed by sufficient evidence. If the opinion relates a future (which is always uncertain) without acknowledging this lack of certainty, disregard it. Once the opinion is substantiated to my satisfaction, then and only then consider staking my financial future on it.

See here's the thing. If these prophets who claim house prices will double every 10 years into perpetuity are correct, I could purchase just one house tomorrow, board up all the doors and windows, then retire in three years (mid 30s). The capital gain would by then be sufficient to pay (using a line of credit) the small remaining mortgage and to replace my wage. Better still, the amount I could draw to replace my wage would rise by 7% per year each and every year for the rest of my life! Sure beats the 3%-5% increases I've been getting lately!

Would this be a wise thing for me to do? Why/why not?

Would this be a wise thing for every singe working person in Australia to do? Why/why not?

1) What average rate of appreciation are the NAR currently predicting for the US as a whole?
2) How's the Florida market looking?
3) Are US citizens still on track to reach a world record 2,000,000 foreclosures over 12 months?
4) What proportion of states & counties have seen sales drop by 25% or more in the 12 months from March 2006 to March 2007?
5) Is it true that 30+ percent of buyers in most markets no longer qualify for any finance now that various forms of exotic finance have become extinct?

Mmmmm… I'll be back with more questions later.

MPL, I pick "none of the above" and "seasonal" followed closely by "REIV's press releases regurgitated by incompetent 'journalists'".

The main cause of apparently high auction prices is a practice of deliberate underquoting by REAs.

In other news from the REIV – median metropolitan house prices fell $11,000 in the 3 months to March to $380,000 and are now below the original peak from 2003. Not lovely. Also – house prices falling in Victorian regional towns and cities, including a $61,000 (21%) decline in the median sales price for the greater Shepparton area in the 12 months to March. Shep dropped 12 percent for the quarter alone.