Forum Replies Created
Have a look over your building contract – check for ‘prime costings’ next to items. Then check the variation allowance for prime costed items. From memory the standard here in VIC is +-30%. Meaning, if you sign a contract with $15,000 worth of prime costing you can be stuck with a $5,000 bill at the end, no questions or approvals required. I hope this is not the case for you, but if it is, I wouldn’t waste money on legals.
Cheers, F.[cowboy2]
Bear in mind that this is simply my personal opinion based on my own limited research and resources and should not be considered specific financial advice blah-blah so sue me.
I think interest rates are going to rise much faster and much further than even the most extreme of mainstream commentators are currently predicting.
That’s all. If I had loans I’d be fixing them.
F.[cowboy2]And so, the credit crunch begins.
Perhaps some of those who were recently boasting of having “locked in equity” using LOCs should be checking their fine-print…
F.[cowboy2]How does No-doc help? Sure the ATO can’t match income tax returns to stated income (for loan app), but they can still work out whether the declared income is sufficient to service the loan.
Yes, but….. Belair?
Originally posted by Cabo Wabo:U say there are 600,000 dwellings turned over each year, with the average mortgage being 215,000. Ur $129 billion housing debt growth number comes from 600000 x 215000. This number is actually the total value of new mortgages issued… not housing debt growth.
Ah, thanks and well spotted Cabo. That explains why the RBA statistics show the following aggregate housing credit figures (April):
Year__CredtGrwth_Total
2000__+44_billion_297_billion
2001__+47_billion_344_billion
2002__+59_billion_404_billion
2003__+73_billion_476_billion
2004_+103_billion_581_billion
2005__+89_billion_669_billion
2006__+84_billion_753_billion
Source: http://www.rba.gov.au/Statistics/Bulletin/D02hist.xls
A fair bit lower than $130 billion, admittedly.What about the people who have just sold a house? What do they do with the 245k they have just received for their property? (215K + 45K deposit – 15K selling costs)Well, if we break it down roughly:
5% of houses turned over annually.
– 1% = First home buyers (20%)
– 3% = Existing home owners with existing mortgage (60%)
– 1% = Investors (20%)
Ok, now despite the recent investment boom, investors still only own only around 20-30%(?) of all dwellings. This indicates that there is a reasonable balance between investors selling and investors buying. Existing home-owners generally move house – either to trade-up, trade-down or move locations. The proceeds from the sale of their old house is reinvested into the new house (and an average $100k extra loan was acquired in 2004). So the only place where any scale of profit enters/leaves the system is FHB buying or retiree/deceased estate selling. Sure, there are a very few people who have ‘sold to rent’ either by design or accident, but I doubt the numbers are significant.If ur saying it takes 20yrs for a house to turn over… I assume the owners would have paid off most of the existing loan’s principle during those 20 yrs.Which is why I ignored the value of loans outstanding at the ‘other end’. A house bought 20 years ago will have next to no debt secured against it. If it is re-sold today, it will have debt secured against it up to whatever value the market will allow. I get your drift though – do you think it should be added to aggregate income?
But lets assume they haven’t. Lets assume no principle has been paid in Australia for 20yrs (untrue). Lets also assume the seller owes the entire value of the house (again untrue due to 20years appreciation). When he/she sells, the money would go to the bank, and the bank would pay off its debt to whatever international institution provided the money to start with.I disagree. If they are the 3% of sales per year that sell one house to buy another, there is no cash to deposit in the bank. Investors are also a closed loop. And in the remaining 1% of sales where cash does leave the system, this cash is often diluted through multiple benefactors or handed over to an expensive nursing home or used to fund the final fragile years of one’s life. In other words, consumed, not saved. Generally.
Assuming no principle paid off (ever) and no appreciation over the past 20 years, I’ve run a rough scenario of housing debt increase between now and 2016 at the following (ur assumptions):Initial debt – 700bill
Interest rate – 7.2%
Turnover – 5%
Future appreciation – 7%I get a 18bill increase in housing debt in yr 1 and a total housing debt of approx 900bill by 2016.
Yep, but here’s the thing – the whole crux of my argument. That $700 (actually, $753 billion) billion is the current aggregate debt secured against current aggregate asset values of over $3 trillion!
I’ll break it down:
– if 600k houses bought with an average $215k loan in the year
– then even if they were ‘maxed on credit’ at 80% LVR^
– implied average value of houses sold is $269k
– implied aggregate value of houses sold is $161 billion
– if this represents 5% of all houses* then implied total value of all houses is $3.23 trillion
So you’ve looked at 7% appreciation on $700b debt, which comes to $18b, but 7% appreciation on $3.23 trillion valuation comes to $226 billion in year one!^ As you pointed out, most buyers (the 60% OOs) bring some cash to the deal, so actual valuations are likely to be considerably higher!!!
* Here’s another thing you can perhaps look into. How many dwellings are there in Australia? Figures from REIs have current turnovers at around 5% at 596,000, which implies a total dwelling stock of 12 million as used in my initial musings. This is easily supported by ABS figures showing, in April alone, $13.2 billion (OO) and $5.9 billion (IP) was loaned against 59,500 dwellings. However, the 2001 census only estimated 7.8 million dwellings. I doubt there are 4 million holiday houses…
Then back to the RBA figures 12 months to April:
– 482k new mortgages (excluding refinancing)
– $108b new mortgages (excluding refinancing)
– 689k new mortgages (including refinancing)
– $149b new mortgages (including refinancing)
So perhaps their 5% turnover = 482k dwellings? For a total of 9.6 million dwellings and a total current value of $2.7 trillion ($108b x 20)?Anyway, good to be mulling this over with you! And thanks for catching me out with $130 billion. I might run through the sums at $84 billion and see what it turns up.
Cheers, F.[cowboy2]Originally posted by Dazzling:
[navy]OK, so what exactly is the aim ??
Surely this isn’t a highly technical “I told you so” session.No. And a little bit of yes. I would have kept looking at this until I worked it out to my own satisfaction. I posted it here to a) share information, b) as an opportunity to accept criticism and corrections and c) because I’m sick of writing “No they won’t” AND an explanation every time somebody plugs in their keyboard, switches off their independent thought capabilities and bleats “House prices will double…” etc. Now I can simply post a link to this thread, rather than detailing my reasons.
Should I be content to let people make statements that I believe are false, or misleading? For healthy debate, the person espousing the theory holds the burden of proof that the theory has some basis. Unfortunately, this theory is oft repeated, and rarely challenged. When challenged, the proponents can provide no better answer than “because over the long-term, they always have.”
There’s an old Chinese saying that “three men can make a tiger”…
Footnote : Both you and I have been members of this forum now for about 18 months now F, and you have consistently maintained this line. 100% for consistently. In that time, we’ve seen substantial growth, well above the “median” figures presented above. In that time, have you also managed to capture large capital profits from your obviously profound house market knowledge.The short answer is no, but rarely is an answer short for me. In the past 18 months I’ve watched the building progress of 2 houses. One was built to CofO, and required me (with a little help from some friends) to just paint & decorate. 12 months after completion I’ve still got a few bits of trim and a couple of doors to paint. I also constructed some 80m of paling fence, a deck, concrete paths and gardens (these jobs all single-handed). Meanwhile, the other house was constructed to lock-up plus internal walls, leaving the g/f and myself to install skirting & architrave, cornice, cupboard shelving, bath & showers as well as painting and organising contractors to install plumbing, electricity, kitchen etc.
Now for the figures:
House 1
600m^2 of dirt for $60k (2003)
87m^2 of house for $85k
Current market value around $235-250k. 2 similar style houses on the same street (both 3br vs my 2) are advertised at 315k and 330k. Cheapest vacant block within residential boundary (which is strictly controlled due to coastal communities policy) is $130k for 600m^2. All told maybe 100k paper profit?House 2
2000m^2 of dirt for $20k (2001)
170m^2 of house for $160k
Current market value minimum $330k. Closest vacant blocks selling fast at $90k for 700m^2, with none of our uninterrupted views. It’s a real ‘character house’ too. The sort where if we’re having a cuppa on the verandah, complete strangers will stop to say “Oh we just LOVE your house!”… which is nice. More rewarding than a $150k paper profit. Now it’s officially hers not mine, but I think it still fits the criteria for ‘capturing large capital profits’, given the time, energy, skills, tools etc. invested.Err, that’s the extent of it. I know these kind of numbers are pin-money to many people on this board (and perhaps even amusing) , but neither of these houses were constructed for profit motives. The whole aim was to improve lifestyle. The big house is a place where we can live comfortably and perhaps think about having a family. The beach house is somewhere to get away from it all, unwind and enjoy the sand, sun and ocean.
P.S. How much would you want to be a full time property researcher for our group ??Thanks but no. I have a rewarding job just now, but I can do you one better. How’s about if you’d like a bit of research done, a question answered or another viewpoint you let me know, send me any specifics for the task and I’ll look it over for free? Either PM me or post here. If it interests me, is within my capabilities and I have the time, I’ll get back to you with a short report/opinion/relevant stats. If not I’ll let you know. What is more I will merrily do the same for anyone whom has a quality question. And nothing that requires travel / phonecalls / broadband / subscription-only data.
Cheers,
F.[cowboy2]Originally posted by chrisconuts:Theres a number of worthwhile considerations which haven’t been made which would affect the outcome of the scenarios. Unfortunately, a lot of them are unpredictable and hard to enumerate.
Too true, Mr Conuts. That is why I deliberately simplified the numbers, and assumed ‘best case’ scenarios for wage growth, economic climate etc. For what it’s worth, I also forwarded my thoughts to a number of economy lecturers, writers and forecasters. Will be interesting to see what they think. I’ll address your issues one by one.
1. Population growth – Australias population will continue to grow. This means demand for more housing. Also, if more people are of working age and earn the average wage, the amount of money available to spend will increase. There are both positive and negative impacts of this on house prices.The number of ‘working age adults’ (my definition – age 18-65) will be in decline within 7 years, regardless of immigration. This implies a falling real gross aggregate household income.
2. Living trends – people may prefer to live in smaller dwellings with less people per dwelling. This creates an impact on property.Agreed, although I’m unsure whether this trend is set to continue. Rising rents, for example, would encourage larger households. Regardless, smaller households do not add to aggregate incomes, and cannot therefore support higher house prices over the long term – which is the whole point of the OP.
3. Global Money market – As long as interest rates in parts of Asia are around 0.5-1.0% banks will want to lend money to Australians who will pay 7%Not quite. Interest rates are set to rise in Japan (as confirmed by bankers). They are already rising in most parts of the world. This must lead to lower liquidity levels worldwide – Ie, borrowing $100 billion per annum to buy unproductive assets is less likely in future than today, given the competition from other investments. I have a whole other 4-pager on this issue…
4. Generational changes – Some say Gen X’ers are quite greedy and Gen Y’s are more determined to delay gratification to save money to buy a house, or not spend as much generally.Once again, intention/propensity to save really can’t benefit aggregate income. In fact, lower consumption spending will/does impact negatively on an economy founded on debt-spending (especially for home-buyer types working in retail/debt finance etc). Thus, less jobs, lower incomes….
If I were you I’d spend less time worrying about that and more time finding them. Or don’t, all the more for everyone else. [aacool]You’re welcome to ‘them’. Just keep away from the assets that actually have the ability to appreciate in excess of inflation over the next 20 years while I’m still in my ‘accumulation phase’.[biggrin]
Cheers, F.[cowboy2]
PS – you forgot one, so here’s a free kick:
5. Australia has abundant resources. These are in massive demand from the emerging economies of China, India, Pakistan ect. This will support higher prices and perpetuate the ‘commodities supercycle’.Sure, but current estimates place Aus’s total economically viable resources (current, proven and estimated) at a little under $15k per person (RBA figures). Even if we dug them all up and sold them tomorrow, they’d pay for less than half our current housing debt. Double them in both quantity and value as an assumption of our ‘supercycle’ theory and they still can’t support entirely the additional debt required to sustain current house prices (in real terms) over the next 20 years, let alone double….
Norby – apologies for getting your back up. I was responding to a previous post that itself had noted that multiple posters had little good to say about this particular group, whereas a number of first-timers had nothing but praise. It is very easy to check the origin of such posts to ascertain whether they have originated from a single internet connection… thus my resply.
That’s all.
National Builders have just opened up their first display home in a nearby town, and I checked out their wares yesterday morning on my way through. The standard of finish in their display home was certainly up to that of the other large builder companies. A bit bland for my liking, especially the basic b/v without eaves exterior, but certainly competitively priced.Cheers, F.[cowboy2]
Would one of the moderators care to check the IP’s on the above ‘First-time posters’ to check whether they’ve all been sent from the same computer?
F.[cowboy2]Dazzling, I will get back to your questions shortly, promise.
Flash, I bought a few dozen bullion-grade fine silver one ounce coins over 2004 & 2005. Also some Unc Australian Mint silver coins ranging from an ounce up to a couple of 10oz’ers. All bought when silver spot was less than US$7. None for more than AU$10.50. Currently up around 66%.
I also bought gold coins during ’04/’05. 1/10th, 1/4, 1/2th oz Maples mostly plus a couple of handfuls of Australian sovereigns, half sovereigns, a couple of 1/4oz Panda, and my fave – a mongolian 1oz decorated with cartoon-style chickens. My cheapest oz was IIRC AU$511, and my most expensive was $600. Currently up around 48%.
So I’m hardly a stranger to such ‘alternative’ investments. If you searched for some of my older posts you’d find references to this. I’m happy to talk about what I’m doing, but you won’t get anything out of me that could be considered investment advice. So I can’t directly say things about buying shares in debt-collection agencies like CLH*. Or things about food commodities*. Or gold* and silver miners. Or oil producers*.
Cheers, F.[cowboy2]
* Disclosure: The author holds shares in each of these companies and/or sectors.
Excellent! I was thinking you’d be more of a bottle-of-Grange kind of fellow (although I don’t believe it generally lives up to the promise of the pricetag – perhaps I’m too impatient?), but I support your charitable suggestion. I hereby solemnly swear to donate $2500 to each of 2 charities if APM/ABS figures show the median house price in Melbourne to have surpassed $500,000 in June 2010.
Best of luck Michael. See you back here in four years.
F.[cowboy2]
A fair question Dazzling. Perhaps I should have given more thought to that question before I posted, but that was never my aim. You see, I’m the kind of kid who would rather pull apart the toy and find out how it works… then once satisfied, leave it in pieces. I will address your question later, but for now, I’d just like to thank you and the other moderators for their tolerance of my ramblings.
Some additional data on the composition of recent household expenditure. Remember, if house prices do not rise over the next decade, around 17% will need to be added to housing costs, and the same amount removed from other components.
Source: 6530.0 – Household Expenditure Survey, Australia: Summary of Results, 2003-04
Essential
Current housing costs (selected dwelling) – 16.1%
Domestic fuel and power – 2.6%
Food and non-alcoholic beverages – 17.1%
Clothing and footwear – 3.9%
Household services and operation – 6.1%
Medical care and health expenses – 5.1%
Transport – 15.6%Non-essential
Alcoholic beverages – 2.6%
Tobacco products – 1.3%
Household furnishings and equipment – 5.8%
Recreation – 12.8%
Personal care – 1.9%
Miscellaneous goods and services – 8.9%Cheers, F.[cowboy2]
Mr Yardney, may I refer you to my recent post:
https://www.propertyinvesting.com/forum/topic/24432.htmlBefore you read it, perhaps a gentlemanly wager is in order… Melbourne median house price 2013 (ten years from peak at $368,000). Above $736k*, you win, below $736k I win, as measured by APM/RBA series. Name your poison!
[biggrin]
Cheers, F.[cowboy2]
*I’m happy to make it more interesting, say above/below $500k by EFY 2010? That’d be under 36% in seven years, far below “the average 10% per annum” that you’ve stated! Remember 10% = Doubling every SEVEN years.
Originally posted by alexlee:On the contrary, have you ever done a refinancing on one loan out of many?
Yes.
The bank will revalue the property you are refinancing, but they never check the value of the exisitng properties: they assume that LVR is ok and look more a the income / interest payment side of things.I think you’ll find they require you to list each and every loan and mortgage you currently have, along with values for the assets secured against them and outstanding balance, monthly repayments… I’m fairly certain this is a consumer credit requirement. If you lie, that would be, well, bad.
I know that banks have never had to value any other properties of mine apart from the one I’m buying / refinancing.They probably have no need to… in a boom market they can safely assume the other lender has followed the rules in establishing a valuation and barring dramatic market movements it is likely to remain fairly accurate.
You’re not thinking like a bank: banks DON’T want you to repay capital. They can get capital cheaply from deposits or borrowing in the money market. Of course credit will be tighter, but there will be ways of borrowing. Volumes fell during the last bust, of course, but there WERE still settlements. Meaning people got their money from SOMEWHERE.I’d rather not think like a bank… during the last bust, State governments were forced to bail out many a bank. Banks found it difficult to get cheap capital, as their credit ratings declined and foreign ‘investment’ dried up. Mortgage defaults hit 6%. As you said, there was tightening – higher LVRs were demanded, more risky applications were denied. It pays to remember that multiple IPs were relatively rare, but I assure you they were not ignored in the banks risk assessments. This time around, everybody, not just property investors, has a high level of debt exposure, and the lenders would be forced to scrutinise every application,
I’m not saying everyone will be able to take advantage of the bust. I just expect to be one of them.Good for you!
F.[cowboy2]I’ve taken a position. I’ve decided not to sell my surplus property. Thus, I have a vested interest in further house price appreciation. I simply posted a contrasting view… one that I would think is important for NZ investors to at least acknowledge, given that the governor is the one who is essentially in control of future house prices, and that he intends to use monitary policy to induce house price falls.
Cheers, F.[cowboy2]<edit>
Oops, just realised I might have accidentally pushed a button when I referred to “Punch and Judy”… I meant of course, the VIs of the banking, lending and RE world who were interviewed, along with the papers who published the articles, not your good self, DP…
</edit>Originally posted by alexlee:high yields because prices go down and rents, if population remains the same, don’t go down) during a bust.
AlexReserve bank of Australia:In the early 1990s, high vacancy rates were associated with a decline in rents.
Source: http://www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_jul02/bu_0702_1.pdf
Graph 4 (p. 5) Illustrates the approximate doubling of the vacancy rate from the historically unremarkable rate of 2% to over 4%. This was the combined result of rapid house price appreciation and recession.Graph 5 (p. 5) Demonstrates a consistent decline in rental yield from the early to mid nineties, a time when house prices were flat to falling. This implies declining rents.
Cheers, F.[cowboy2]
So who do you believe; Punch and Judy or the puppet master?
Price of houses will drop, says Reserve Bank headTuesday June 27, 2006
By Matthew BrockettReserve Bank Governor Alan Bollard expects house prices to start falling by the end of the year as higher interest rates begin to bite.
“We are seeing the rate of increase slowing a lot,” Dr Bollard said in Basel, Switzerland, where he is attending a meeting of central bankers.
By the end of the year the bank expected house prices to “go negative”.
“Monetary policy is now having an effect and we feel more comfortable as a result of that.”New Zealanders were wrong to think they could “overwhelmingly save through housing”.http://www.nzherald.co.nz/section/story.cfm?c_id=1&ObjectID=10388515
So the governor of the reserve bank seems intent and content to see across the board falls in NZ house prices.
F.[cowboy2]
Originally posted by alexlee:What will I do when the bubble bursts? BUY! Experienced investors would be prepared for the bursting of the bubble anyway with LOCs locked in near the top of the market and cash reserves.
But surely ‘locking in’ values near the top of the market won’t be much use if the value of current holdings falls, will it? Lenders will still want to see balance sheets where total loans outstanding < total current market value. Unless their LOCs are sufficient to buy outright (no loan), these ‘experienced investors’* would be LESS able to borrow money than people with less or no outstanding debt.
I’ve heard tales from the early 90s where people in negative equity were knocked back on small loans to repair their cars or purchase washing machines… let alone multiple properties.
In addition, were things to turn sour (increased loans in arrears, valuations below loan values etc), the banks and lenders mortgage insurers would be very quick to tighten their lending criteria. Loans for multiple property holdings where the borrowers had no realistic plan in place to repay capital would be seen as high-risk, rather than ‘safe as houses’.
Furthermore, in a global economic climate of rising interest rates, further foreign lending will come at a high cost… if at all, as the risk/reward ratio adjusts. Why would foreign investors ‘lend our banks’ money at <7% to be used essentially for the purchase of assets that have proven to be risky, when they can get similar returns by parking it cash?
Cheers, F.[cowboy2]
*IMHO truly experienced investors are likely to have actual cash reserves rather than debt-based (eg LOC) reserves, because they bought low and sold high.
I have just 2 houses, and neither of them generate any income whatsoever. Net of major bills and investing costs I have just $350 per fortnight left of my wage to spend on food, petrol, clothes, toys holidays and gifts etc.
Am I successful?
I have no good debt. Is this a sign that I’ll never ‘make it’?
I drive a modest car, dress nicely but plainly, talk softly and have more questions than answers. Am I a loser?
I spend my leisure time on the beach (this is my favorite time of the year for dawn/dusk walks), take just a handful of daytrips to snowboard during winter each year, care for my garden, woodwork and spend most nights reading, playing guitar, writing songs and essays…
Am I? Will I? What if?
Who gives a damn? I couldn’t be happier and I don’t care whether the world knows it or not. When it comes to finances, my greatest pleasure is not how much my net worth is or what my cashflow situation looks like, but the knowledge that should my 9to5 become too much for whatever reason, I could comfortably walk away, take 2 or 3 years off to travel or volounteer for MSF… and still have the security of a house to return to and the luxury of a modest holiday house at the beach if I ever need to get away.
I guess I’m a 95%er. Good for me.
Love, F.[cowboy2]
