Forum Replies Created
- ummester wrote:Investopedia is vested. It''s just the same as bublepedia. Let's use a dictionary, it has no interest in the debate at all.
profit – http://dictionary.reference.com/browse/profit
taking – http://dictionary.reference.com/browse/taking
demand – http://dictionary.reference.com/browse/demandThe presumumtion of profits to be taken lead to demand. It's a logical conclusion.
Haha, this one made me chuckle. Not trying to host an English lesson here, but we'd do well to look up the meaning of the full phrase 'profit taking', rather than to look up just the meaning of each word and then assume it implies something else.
To use a blatant example, without directing this at anyone of course,
Let's consider the meaning of the phrase 'you suck'.
If you only search out the meaning of 'you' and then combine that with the meaning of 'suck', neither of the meanings point to the rather inflammatory nature of the actual phrase. We would be foolish to assume someone were giving us an 'instruction' on what to do, rather than recognising it for what it really is: an insult.
ummester wrote:We agree here. I don't get why this is even being debated? I am saying there is (or was) a demand shortfall only.We debate this for three reasons:
1. To refute the statement that "the use of the word shortfall is invalid". On the contrary, the use of that word is entirely valid. There IS a shortfall, 'physical'-related, 'demand'-related, 'credit fueled', 'profit based' or any other term we wish to attach it to. Whatever the reason is, there IS an undersupply.
2. To highlight the unrealistic opinions of homebuyers, that the house that they want, and in an area that they desire, should be affordable. There IS a shortfall of these sorts of properties, so be prepared to pay accordingly.
3. To state that the shortfall is not merely in the face of 'profit based', 'profit taking' or 'credit fueled' demand. Not all FHB are out to make a buck from property investing. They however, still desire property that is well located (eg. near beach, trendy cafes, transport, in tree-lined streets), within minutes of their workplace, close to friends, amongst the 'Joneses' etc. They desire such property not just (and maybe not at all) for the sake of 'profit taking'.
ummester wrote:It definately was – I don't think there are as many FHBs as there are homes trying to get themselves into one ATM. The boost brought them all forward.'Was'? I'd say 'is'! Just because people aren't on the streets lining up for an OFI doesn't mean they aren't saving up to buy a house. Of course, there's others busy preparing for a FHB strike, or voicing their opinion on a forum or a blog. But they want a house. That's why they do what they do. Just because they aren't buying now doesn't mean the demand is not there. The price, or maybe the time is just not right for them.
Think about this: a cheetah is out on the prowl. She sights a herd of prey animals but is in the process of singling out the weakest one to pursue. She continues to slink and move ever closer. She doesn't strike yet, but it doesn't mean she ain't hungry, or that she doesn't have cubs to feed. The time is just not right yet. Or perhaps the risk of injury is too great.
ummester wrote:…now that demand is dropping, there is no shortfall.Let's step back to your earlier statement:
ummester wrote:…if there was a shortage of food, yes, the shelves would be empty. But food can be in high demand and the shelves still be stocked.The purpose of my debate was to spell out how there can be a shortage of something and yet still see a good degree of that object floating around for sale. And so we need to refer back even earlier to another statement:
ummester wrote:Surely increasing stock levels in every state disprove this.Not in my opinion. There can be plenty of stock floating around but that doesn't mean there isn't a shortage of housing. So, spelling it out more clearly, the stock currently on the market is likely:
1. Not located in an area where its needed or wanted.
2. Expensive, and not everyone can buy it.
There is STILL a shortage of housing.
ummester wrote:fWord wrote:Not gonna repeat myself again.
Perhaps.Unfortunately I feel compelled to do so. The message ain't getting across. Just wish my personal values didn't make me feel guilty for wasting time here trying to set things straight. This is an excellent discussion, however.
ummester wrote:…your arguments are valid when taking into account demand that is not based on physical availabilty and I do not dispute them in that sense – especially fwords description of 'profit taking' demand, which is essentially what I term credit fueled demand.Definition of 'profit taking' from Investopedia:
"The action of selling stock to cash in on a sharp rise. This action pushes prices down temporarily. When traders are profit taking, the implication is that there is an upward trend in the security."
The word 'demand' does not appear even once in all the posts above, let alone my own response. To use 'profit taking' and 'demand' as consecutive terms in a single sentence is seriously twisted. 'Profit taking' is the act of cashing in by selling, not by buying. Hence, 'profit taking' is not based on 'demand', or the number of people wanting to buy. It's based on the number of people wanting to sell.Without sounding direct, I'd appreciate if you didn't misrepresent my statements to substantiate your own.
ummester wrote:Yet, I would argue a shortfall based on what the market 'wants' as oppossed to what a population physically 'needs' is a misrepresentation of the word.Well, this highlights the crux of the problem: it's about 'wants' and not 'needs'. There's plenty of houses out there, but everybody 'wants' a perfect house in what they deem to be a perfect area. That's not physically possible, hence the shortfall of certain kinds of property, in certain kinds of areas/ suburbs. Imagine 60 people boarding a bus with 30 double seats. The bus can fit 60 people, so there's enough seats for everyone. Yet, everyone 'wants' a window seat, and there's only 30 of them.
So there is a shortfall of 30 window seats. So after all the window seats are filled, the remaining 30 people can choose to either sit in a non window seat, or stand. Or they can leave the bus and take their chances at the next one that arrives. They 'want' a window seat of course, but not everybody can have one. Same with houses. I admit, people need a roof over their heads. Housing is considered by most to be a basic necessity and a form of security. But when people unrealistically 'want' and expect to all be able to squeeze into a small area around the CBD, that's when the problem starts.
I believe that in the context of the words 'oversupply' and 'undersupply', quite simply, there is an 'oversupply' of property in places where people do not want to live (or otherwise do not want that type of property) and an 'undersupply' of property in places where people want to live (or otherwise want a certain type) of property. And in this instance I agree with you. There is NOT a true shortfall, just a shortfall where people want to live. But for all intents and purposes, unless people change their mindset and buy what they can afford, they will continue to believe that affordable property in the areas they desire is in really short supply.
ummester wrote:To use fwords analogy – if there was a shortage of food, yes, the shelves would be empty. But food can be in high demand and the shelves still be stocked.Same with property. Is property not in high demand? I believe so, considering the number of FHB out there trying to get themselves into a new home.
I know of at least two old colleagues who chose to blow their chance at a first home. One of them was saving well, and then blew the money on a new car and a two week holiday. The other colleague also had great plans in mind, and then promptly got a new phone plan to get a fancy phone, and bought a sports bike together with all the other gear to go with it.
Do they want a house? They sure do, but they don't want it badly enough I suppose.
So why can food be in high demand and shelves still be stocked? Two possible reasons:
1. There is not enough food where it's really needed or wanted.
2. Food is expensive and not everyone can afford to buy them.
Replace the word 'food' with the word 'houses' in both those points and we'll see this is exactly what's happening in the world of housing.
And if anybody wishes to start a debate about housing being 'overpriced' rather than just being 'expensive', please read the following post in detail first:
https://www.propertyinvesting.com/forums/property-investing/general-property/4336247
Not gonna repeat myself again.
ummester wrote:ALF1 wrote:Australia currently has a housing shortfallSurely increasing stock levels in every state disprove this. If there truly is a shortfall, how can stock increase without a similar increase in homelessness?
Note that when houses are for sale and causing an increase in stock levels, the houses are simply 'on the market'. They are not 'vacant'. At one point of time there were three houses on my street that were for sale. The owners lived in it till near the time of settlement before moving out and the new family moved in.
The current property market is in the stage of 'profit taking' at the moment, just like what happens to the stock market when there has been a recent run-up in prices. People are trying to take advantage of the increase by either trying to upsize or downsize, hence causing an increase of stock levels, or more appropriately, increase in turnover of stock. Key point of note however, is that regardless of the choice, people moving out of their current places will need another place to live.
To discuss your statement using another analogy that we all know: just because the supermarkets are full of food for sale and there's people blatantly wasting food at massive buffets does not mean that we have an oversupply of food. There are squillions of people around the world who go to bed hungry each night.
Can we then say, 'Surely, if there is a shortage of food, then the supermarket shelves should all be empty? Shouldn't there be no wastage at buffets? Or perhaps buffets shouldn't exist at all?'
Not really.
ummester wrote:I never said Singapore had high wages? Quite the opposite. I said Monacco did and Singapore was unlike that.My man. I didn't make that statement in response to your post. I made it in anticipation of anybody who might decide to argue that house prices in Singapore could be high because Singaporeans have a high salary.
ummester wrote:An effective land shortage can always be made ineffective, a true land shortage can not. Besides, there isn't even an undersupply of housing in Australia – let alone land.Of course, that I agree with. Just hope we can trust the government to fix that, if they will. And even so, let's hope they do so quickly. Again, I ain't holding my breath for the government to open up hectares of land on the fringes of capital cities, and supply them with the necessary infrastructure at the same time. People in parliament seem to spend more time bickering like children, rather than getting down on the ground level and fixing real problems.
ummester wrote:Look at those graphs you posted again.NG was removed in 85 and brought back in 87. The growth occured after it was brought back. When it was removed, prices were poised to decline in all cities but Perth and Sydney.
Isn't it nice how that graph doesn't show most cities before 1990? What's the bet that the 2 it does show are Perth and Sydney?
If you really want, I can find you some graphs that plot property prices against known IRs from as far back as 1890 and you can try and work out the actual trends for yourself.
I'd like to see your graphs actually, and if you can post them here all the better. This forum seriously needs some hard facts. However, looking at those graphs in the link posted earlier, I'm confused. Check out the last graph in the first post. Didn't prices increase from 1985-1987? They sure did, unless I'm reading it wrong. And yes, prices for Sydney, Melbourne and Brisbane go right back to 1985.
ummester wrote:Australians can make all the excuses about it they want but the reality is that it is house prices and not IRs that are causing the wobbles.Possibly. We can't rule out the possibility. But honestly I don't see the correlation. Big house prices accompany a thriving economy. A thriving economy should see less wobbles, not more.
ummester wrote:History and maths, as I understand it. Long term averages and the like.Well then, let's just hope for the sake of FHB that history in this case wouldn't be just that: history.
ummester wrote:Singapore has a true land shortage.If that's the case then, a comparison between Singapore and Australia is comparing a country that has a true land shortage versus another that has an effective land shortage. Essentially, are they the same? No. Effectively though, the results are similar. Unless we know that the Australian government is well and truly planning to release more land (and land that is well supplied with infrastructure as well), then arguably, Australia can head the way that Singapore has.
And no, the average Singaporean earns no more than an average Australian earns, possibly even less, based on what my contemporaries are getting. They do not earn a 'shedload' (your word) more than anybody else in the world that allows them to falsely drive up property prices. Prestige property in Singapore however (eg. $35 million or so for a house) is a different animal altogether because property in that range exists only in the playground of the rich and famous who can indeed pay any price under the sun.
If we think we got it tough when it comes to buying a first home, we should consider how excruciatingly painful it is in Singapore. Not to mention that a tax on cars called the COE balloons the price of vehicles and causes your regular Toyota Camry to cost close to $100K.
ummester wrote:I'm sure I've mentioned this before – rents and house prices didn't increase when NG was removed in the 80s. It is a myth. Rents only increased in Sydney and WA (they were on there way up due to shortages anyway). Prices didn't increase either. In fact, they looked poised to decline, when the grandfather clause expired, which is one of the reasons NG was re-activated.
Yes, you did discuss this on another thread, together with a link to this article:
http://www.smh.com.au/articles/2003/08/24/1061663676588.html
So essentially then, what I read in the book, 'Renton's Understanding Investment Property' was absolute rubbish? Roight.
I didn't delve deep into the research and hence couldn't pull up a chart to show the trends in rent during that time, however I did chance upon this thread many months ago that does have a median house price chart dating back to 1985, showing the price movements in all capital cities. Was there a house price increase from 1985-1987? Yes, it looks that way to me:
https://www.propertyinvesting.com/forums/property-investing/general-property/4334669?
The rise after 1987 was even more steep, and the stock market crash at that time could have been a contributing factor also.
Intrigue wrote:Can you further clarify where these numbers come from? Is it the section of the market that is not under 18 etc or is it the whole population? The reason I ask is the numbers seem high.. If we then take out the kids it seems that the motgage holders are actually the minority. (whats the percentage?)
If this is true why is it that govt and RBA use interest rates to slow the economy…?
These figures are from the Australian Bureau of Statistics at http://www.abs.gov.au.
ummester wrote:Because around 4x income is the local historical standard and the globally accepted standard. I have no other impartial standard to go on. New Australian standards are set by vested interests and therefore not impartial.Question, if I may: Who set this as the 'globally accepted standard'? If this is the case, then property in Singapore is at least one other basket case I know of where such a standard doesn't hold true. My suspicion is that this is the case in Hong Kong as well, based on what one of my old colleagues used to tell me. There is no doubting that property in Australia is expensive, but only time will tell if figures such as 9X income will become the new 'norm'. The 'expensiveness' of property is not really a reason why it has to conform with previous 'norms'.
ummester wrote:Perhaps I'm not quite as cynical yet – though I am cynical. I believe that alturism still exists – just not in a pure form.Then that makes two of us. Careful with what you read. Altruism does exist, but what I mentioned in my previous post was a disbelief in the existence of altruism in the context of of a GetUp campaign educating the public about the risk profile of Australian property.
ummester wrote:I've read about the guy who was behind the NG campaign. He already has a house of his own, so I don't think that was his primary motivation.And this would make me doubly suspicious of his intentions. What exactly is his true agenda?
Debates such as this one clearly show the marked differences in thoughts and values between homeowners and would-be FHB. Rarely do their thoughts and values overlap to any significant degree. Hence, a homeowner who is willing to buy seemingly 'overpriced' property, and then campaign against NG strikes me as bizarre.
However, we could look at what happened in the past when NG was briefly removed. It led to an increase in house prices and rent. Perhaps this is his true motivation after all.
ummester wrote:High house prices, by way of inlated rent, also effect those who wish to study here.Not entirely. University hostels do not have to raise their rents or boarding fees based on increasing house prices alone. Such hostels resemble almost a commercial entity rather than a residential property. Consider also 'home-stays', families who allow a student to board at their house…they do not need to increase their fees because house prices are high.
ummester wrote:A thriving economy with high house prices is better than a slump – if it is sustainable. Trouble is, it isn't. This is why those historical and global averages I mentioned before are a good yardstick – they represent sustainabilty. Without sustainability, deep seated problems always take root.We are living in a time of rapid change and we've seen a lot of curveballs in the last decade. In the end, I can only expect to be surprised. While average house prices sitting at 4X average income could be a 'yardstick' now (or should I say 'historically'), I wouldn't necessarily expect it to hold indefinitely.
It would be easy to say prices are not sustainable, because it's true to a certain extent. The housing market has its cycles, and arguably as such, prices are not sustainable at any level, but that level is continually changing. It would be very interesting to see if prices would in the future crack through the 9X barrier, or as you say, fall back to historical trends at 4X.
I'd be extremely interested to observe Melbourne's median price fall by more than half, if this occurs.
ummester wrote:http://www.theaustralian.com.au/business/opinion/rba-and-government-incentives-hurt-housing-market/story-e6frg9qo-1226036868376This article kind of sums up what has happened with IRs and housing stimulus in Australia since 2008.
Speaking of stimulus, the other thing I'm watching with interest is for the effect of stamp duty cuts for FHB starting this June. Frankly, I suspect the effect would be minute, given the current state of the housing market and interest rates.
ummester wrote:You'd say – Australia is different.I'd say – Australia stands alone in the world as not having a housing correction
No, I don't know enough to say 'Australia is different'. Not that smart unfortunately. I only know enough to say that a housing price crash has yet to occur in Australia. A 'correction' however, has already occurred, but whether it has reached the bottom is something of debate. Naturally I presume you believe we have yet to see the worst of it. I on the other hand, can only say, 'I don't know when it will bottom out and when it will rebound.'
Of course, other intellectuals could probably give reasons why Australia is or is not different to other countries that have already experienced a crash, citing population growth, supply, demand etc.
ummester wrote:No, I don't think the bottom of the market represents proof of affordable housing.Then I give up. This is bordering on ridiculous.
What good is it for well-meaning people to tell FHB where it's affordable to buy when they prefer to keep their blinkers on and look at all the stuff that is beyond their budget? In doing this they are simply green with envy. Not only do they fail to ever take a first step towards buying their home, but its destructively incapacitating. All they can think about are those lovely houses they cannot afford and they're not settling for anything less. I'm sure none of us who currently own cars do this. That is, we do not fall into a state of insisting that we should be able to afford say, an Audi (and its price needs to come down so that we can buy it), and we're simply not going to buy a Mazda, or a Suzuki.
Hey, I want an Audi too. An RS5 to be exact. My dream car. But since I can't afford it, I'm now happy with a Mazda 2. Point is: Get real. Buy what you can afford, or quit complaining and do something to build you up till you can afford it.
There's dozens of these kinds of affordable houses out there for sale right this moment. There is no need to queue for them. But people prefer to queue for something they cannot afford. What am I to do?
ummester wrote:Av full time wages are approx 65k and av overall incomes are approx 55k, therefore av housing should be 60k x 4 (perhaps 5 in higher income cities) making them 240-300k. That is average housing.Why should this be the case? I don't believe house prices have to come down just so that people can finally afford to buy them.
I've written this before elsewhere, that I've wasted enough of my life worrying about what things should be. These days I accept the way things are and work on that basis. Likewise when I'm driving on the road and someone else falls asleep, cutting into my lane dangerously, I immediately employ evasive maneuvers and get out of the way. I don't just keep cruising along thinking to myself, 'This dude SHOULD keep to his lane!'
ummester wrote:Other housing still needs to exist for the lower income brackets in the range of 150k (approx). Wether or not all this housing has to be close to major cities is debatable, wether or not it has to be close to a source of income is not.They do exist, I suppose. Try Coober Pedy, for example. Close to a source of income? Depends on what you do for a living up there. Ultimately, there is nothing forcing people to buy. They have a choice to rent, for the sake of getting a roof over their heads, and be close to major cities and a source of income in one fell swoop. In that regard, absolute rock bottom priced property doesn't 'need' to exist.
But perhaps to these people, 'close' is defined as being able to walk to work. Again we need to be realistic here. I used to think driving 50 minutes one way to get to work was far. Now I know it's reality, and I'm sure many other people travel longer distances than I do to get to work.
ummester wrote:Now, look at Sydney, ACT or Darwin and find me anything advertised less than 300k. Some may be selling for less now, meaning vendor expectations are unrealistic but none are advertised as such.Again, goes back to the question of, 'Why should such property sell for under $300K?' Well, it doesn't, because people are still currently willing to pay more than $300K for such property, for whatever reasons those might be. It would be similarly ridiculous for me to waltz into a ritzy suburb and say, 'Sell your mansion to me for $150K!' Well, why should they sell it for such a price? When nobody wants to pay the price, AND the vendors are absolutely desperate to sell, then the price will fall. Needless to say however, it then looks like a Dutch auction where people hold their cards close to their chest, till they can't resist the price anymore.
But when buyers finally jump in, the herd follows, which drives prices up again. That's the cycle.
Alternatively, if nobody wants to pay the price, and yet nobody wants to sell, the price will simply stagnate.
ummester wrote:As for impressing ideas on the government – that is exactly what getup campaigns are about locally and IMF repoprts are about externally. These types of things add to global (and a little local) realisation that Australian housing is a high risk purchase.The only things I've heard from GetUp were ridiculous propositions such as a FHB strike and a campaign to end negative gearing. These are not actions that are likely to solve the 'housing unaffordability' conundrum. Furthermore, I don't believe the campaigns even remotely aim to increase public awareness about the risk profile of Australian housing. I'm too cynical to believe in this sort of altruism.
The true aims of the campaign are probably, to either get the government to do something drastic to reduce house prices, or hope that enough homeowners will panic and put their houses through a fire sale so that all FHB can finally get on the boat and buy their dream home for a fraction of their current prices.
ummester wrote:I do feel badly for those on lower incomes then myself who are struggling with rent or mortgages (depending on their choices) but ultimately there is nothing I can do.As do I. In my opinion, this is simply reality playing out. Life was never meant to be easy, not to mention buying a house, sometimes purported to be the largest purchase in a lifetime for the average Joe.
ummester wrote:But the topic at hand is IRs. As they rise, the economy is slowing, on that we both agree. I still stand by the argument thay are not high, which you also seem to agree with for the most part.Indeed. Looking back in history it shows how high they really can go.
ummester wrote:Do you also agree that the primary reason the Austrlain dollar is climbing so high is because our IRs are higher than the rest of the developed world?Very likely so.
ummester wrote:If so – let's look at this another way. If houses were cheaper, IRs could increase and not slow the economy – correct?Not entirely correct, IMO. We need to revisit the point about a certain percentage (24% or so) of Australian households being renters and without a mortgage. Furthermore, another some 30% of Australian households fully own their home with no mortgage on it whatsoever. Increasing IRs (whether house prices are high or low) doesn't sting them. In fact it generates more interest from their savings, which can then increase their spending power. The higher dollar makes our products more expensive for overseas buyers and can hence also affect the retail sector. Moreover, a strong currency reduces the urge from foreigners to study here, have a holiday, or set up a new life in Australia. All this slows the economy.
ummester wrote:What is better for the country overall? High IRs or high house prices?Both have a significant effect. The effect of high IRs I have already attempted to discuss (at least simplistically) above. High house prices in themselves does not affect Australia's exports, nor the tourism sector, and perhaps not even education. It does however, affect those who wish to migrate here, if buying a house is a priority for the said migrants. The latter can be a significant issue because a growing workforce can be beneficial for the economy, and fill the government's coffers, if I might add.
Another question to ask is perhaps, 'What's better for Australia? High house prices that accompany a thriving economy, or a housing market slump that indicates a country with deep-seated problems?'
I think we know which is better.
Shape wrote:For me most, if not 95% of new property are over priced and targeted for "owners" and not for investors. Regards MichaelFair call. Just thought that, for the purposes of this discussion, I should at least point to the possibility, rather than ruling out the '+ve part' for brand-new properties entirely.
Be_Rich_By_2012 wrote:I currently have the 50K in a usaver account which makes me $200 a month or so, I need more than that, I am looking for something that generates $500 a month or more.Can't help with the rest, but I saw this statement and it raised my eyebrows a bit. I'm not good with numbers, but assuming your $50K is earning you $200 per month or $2400 per annum in interest, then the interest rate is roughly 4.8%.
Consider opening up a 100% offset account that is linked to the loan of one of your IPs and then put the $50K there. Any savings you have in a 100% offset account reduce the interest on the loan accordingly.
So, if you have $50K in an offset account linked to a loan of $300K, you pay interest only on the balance of $250K. Plus, the $50K is easily accessible to you as if it were money in a savings account. The $50K as such, earns you interest at the same rate as your home loan rate (which would surely be higher than 4.8% by now), and tax free.
Just a thought, assuming I didn't miss the point.
Shape wrote:Fword- i think you mean one of the advantage of a brand new property..dont know abt the +ve part
Well, I'm no accountant, so I'm getting out of my depth here. But consider the following simplified example on a rental property:
Interest on loans (per annum): $20,000
Total rental income (per annum): $18,000
Shortfall (per annum): $2,000 (assuming no tax refund)Less depreciation benefits which constitute and after-tax refund: $2,200
Result: a positively-geared property returning $200 per annum.
Therefore, a property that would normally cost money to control (ie. have negative cashflow) can actually become positively-geared (ie. positive cashflow occurs after depreciation benefits are taken into account). This is not the same as a positive-cashflow property that has income exceeding expenses, regardless of depreciation.
ALF1 wrote:Perhaps I should re-phrase point 1 as Buy brand new to maximise tax deductions OR buy what you can afford. But, BUY SOMETHING!Yes, but what you say about buying brand new has a lot of sense in it. Depreciation benefits are one of the means of getting a positively geared property.
ummester wrote:Our debate is circular fword – but you are a good sport about it:)The government isn't solely to blame. There are so many little bits and pieces that have led to house prices here and elsewhere becoming overvalued.
Other than land release, CGT removal and government stimulus, the main drivers of house prices were easy credit and historically low interest rates (these 2 could be related and devo raises a good point – they could end up in a cycle that pushes lower and lower. What happens at the end of that cycle? USA, that's what.)
Haha, what can I say? I love a good debate. In my day-to-day job it is normal to cop all sorts of rubbish from cranky clients and be forced to take it like a strike to the chin. On this forum however, I get to engage in a no-holds-barred discussion, where I can honestly speak my mind.
However I am gradually wising up to the observation that people are not really interested in knowing where plentiful amounts of affordable housing exists. Rather, it has reached a point where it has become more important to debate about whether housing is overpriced or not, and discussing about issues that we cannot change. The end result of such discussions is becoming increasingly predictable.
1. A debate erupts between two or more parties as to whether housing is overpriced or not.
2. Each party starts to discuss the issues affecting house prices.
3. One or more parties discusses the hopeless situation of a FHB who is unable to afford anything.
4. One or more parties respond(s) by indicating existence of affordable housing, a point which is ignored.
5. The debate may circle back to point number 2, or otherwise resolve where opposing parties agree to disagree.In my earlier post, I just dangled a fat carrot in front of everybody: truly affordable housing. Nobody has even bothered to bring that up for discussion, or ask where such housing can be bought. People are refusing to accept that $200K constitutes 'low end' housing. Instead they think of more popular outer suburban property costing even in excess of $400K and believe that should be 'low end'. I used to be like this, moaning about how I went to Uni for 5 years to become a 'doctor' and then still struggling to get into the 'lowest end' of the market. I was wrong. The 'lowest end' is not a $450K house with a massive backyard, two living areas and four-car carport. The 'lowest end' is $200K…and this IS a house. It's not some shack in a slum.
Although we believe the government's decisions have something to do with increasing house prices, we cannot hurry them along, and neither can we impress on them the brilliant ideas that we have.
It took a massive, prolonged drought to finally kick start plans for desalination (which lots of people still opposed). Imagine what it would take for them to do something about house prices. In that regard I think, there is great wisdom in that famous saying that advises us to accept the things we cannot change, and to have the strength to change the things we can. It is helpful to discuss how things can be better, but it eventually becomes pointless if we're not interested in finding a way around those problems.
So eventually these discussions always make us look like dogs chasing our own tails. Our 'tail' is always going to be there, lest we prefer to remove it by some painful means, if it's even possible. Mind you, I've seen plenty of real dogs chase their own tails and with no end in sight. I pity them. They have mental issues that require a specialist behaviourist to truly understand
Using that analogy, we can either choose to look away from our 'tail' and see the big picture, see how big the world really is and what opportunities exist, or we can continue to chase our 'tail' and imagine it's the only important thing in this world. Perhaps part of the human brain actually rewards people for having a sense of self-pity. It must feel good, that's why people continue to do it.
ummester wrote:The government is restricting supply because they can't see the woods through the trees. In ACT recently the state government has canned around 1/3rd of 2012 developments because they are afraid an OS of housing will lead to lower prices. State governments depend on housing transactions for revenue. Soon they will realise that less revenue per transaction is better than no revenue at all.What you say is probably true. However we should also consider that again, even if the government did increase supply and did so dramatically, infrastructure would not be able to keep up. When I look at Melbourne for example, there is plenty more room for expansion, but even now we have some obvious issues: not enough water, brownouts and even full blackouts from time to time (especially when its warm and people start to put their airconditioners to work), frequent public transport glitches and ridiculously congested roads. Unless some forward planning is implemented, simple expansion at the urban fringes will kill our capital cities.
ummester wrote:The solution in a country as large as ours is decentralisation and untilization of technology to virtualise workplaces. But, in these debt fueled times, no government wants to commit the recourses and future planning to a sustainable future with a potentially costly onset.Agreed, and discussed numerous times in the past. But it's dawning on me that our thinking isn't going to have much effect on what the government chooses to do, at least in the short term. In the end I never hold my breath in an expectation that the government will do something to make my life 'easier' or 'better'. They are too busy defending themselves in parliament against the opposition, and in power for too short a time to make any real changes to our lives. There are some grave issues in politics as such, which is why I treat it with such apathy and disdain.
ummester wrote:I was refferring to equity purchases – I think they have made up a substantial amount of the larger non-housing transaction in Oz over the last decade. banks have let people spend willy nilly against the value of their houses and many people have done so – that is drying up.The people who make thoughtless purchases against the value of their home are clearly giving the rest of homeowners a bad name. Equity in a house could be appropriately used for investment purposes, and even so, perhaps only to a point.
ummester wrote:The stock market is very reactive – up and down like a working girl on a good night:) It's the nature of the thing. the ebb and flow of housing markets are slower – though Australia's has been pretty up and down for the last 2-3 years (which, in stocks is a warning sign when it occurs faster than normal).If I might argue however, the Australian property market has done this because of the global events that have occurred. It is these events that appear to be (at least in part) responsible for the apparent volatility in the share and property market.
ummester wrote:One thing though, the items you have noted as expensive (top tier gaming rigs, rolex etc) are the high end of their item class and should be expensive. Average to low end housing shouldn't be.Depends on how you see it. It could be argued that renting is the low end of housing as an 'item class', whereas buying a house is high end. Having a roof over your head is a necessity. It's a 'need'. Owning, or paying a loan off that said roof over your head on the other hand, is not a necessity. It's a 'want'. People 'want' to own a house. They don't 'need' to have one.
But to entertain the debate of the cost of 'average to low end housing', consider for a moment that you can buy a decent 3 bed/ 1 bath house on 600-700sqm of land that is 40-50 minutes train ride/ drive to the city and for little over $200K. Sometimes you can find a house below that price. That looks cheap to me.
BTW, in case people think I've got my head in the clouds (and can walk to work), yes, I do drive 50 minutes one way to get to work each day. To me, that's simply reality. It's worth noting, but not worth complaining about. I can either buy where I can afford, or rent where I want to be.
If you can't find affordable low end housing, you ain't looking in the right place. People also have the wrong idea as to what constitutes 'average' or 'low end' housing. People want a house that is affordable and yet nearly perfect for their wants (notice I said 'wants', not 'needs'). Sorry, but 'affordability' and 'perfection' are usually mutually exclusive.
ummester wrote:Land in Australia is not in short supply – it's supply is just artificially restricted ATM.So the government is to blame. And unless they start to release more land, the result is the same. We effectively have a shortage of supply. Can someone please shoo them and hurry them along to release more land? We're impatient to set this 'housing affordability' debate to rest.
Besides, even if the government were to release a gazillion hectares of land along the city's fringes, the vast majority of people will not like to live there because there is simply no infrastructure in place to support that degree of expansion. Is it possible that the government is restricting the supply of land because they know that they have no means to supply the necessary infrastructure and we'll end up creating little 'ghost towns' or throngs of angry homeowners complaining that their estate is becoming a ghetto, with not a single shop or even a post office in sight?
Not to mention that the vast majority of FHB will also be moaning, 'What?!! I'm NOT gonna live out there!!' Everybody wants to be near the darn CBD.
The problem perhaps then, is not really a shortage of affordable housing, but a shortage of affordable housing where people want to live. And in this regard, I cannot see how it's possible to resolve the problem. It comes down once again to supply and demand.
ummester wrote:ok fword, you tell me what else is expensive?Let's consider the meaning of the word 'overpriced' versus the meaning of 'expensive'.
Now my English ain't that flash, but here's what a Google search has to say about the meanings of each:
Overpriced- 'Charge too high a price for', or 'priced higher than what it is really worth'.
'Overvalued' seems to have a similar meaning to 'overpriced'.
Expensive- 'Costing a lot of money', 'having a high price'.
Seen in this light, yes, houses are expensive to buy. So is a Rolex watch or a Mercedes Benz, or a massive commercial building in the heart of a capital city.
But in response to your call that housing is 'overvalued' or overpriced, I disagree. Once again, as I said before, houses sell for as much as people want to pay for them. That may make it expensive, but that doesn't make it 'overvalued'.
Let's consider this using the example of watches. My cousin for instance, wears a $10 watch and says, 'Well, it tells the time just fine! Rolex watches are overpriced.' And that I disagree with. A Rolex sells for as much as a person wants to pay for it. The people that understand fine watchmaking and horology know the true value of a Rolex and are willing to pay the price to buy it. That's why a Rolex sits on my wrist at a fine dinner, or a wedding, instead of a $10 watch (which I'd normally use at work <moderator: delete language>). So, a Rolex is not 'overpriced' or 'overvalued', but it is expensive of course, at a few thousand dollars a piece.
ummester wrote:I just can't see any other item that is expensive relative to what I earn. Just in the last fortnight I have brought 2 computers, an 81cm TV and a guitar for one of my sons and they were all pretty cheap for what they are.Tough to compare this with housing. Those things are not the kind of objects that typically increase in value. Furthermore, they are mass-produced in factories where labour is likely to be very inexpensive. In fact we should argue that these items should be cheaper, because the profit margin for the 'middle-man' is just way too high. Both you and I know that the 'middle-man' could make in excess of 100% profit on these items before palming it off to us, who then pay the price.
Houses (ie. the structure itself, not the land) are NOT mass produced on factory lines in say, China, and then brought in by the container-load. Moreover, no human has the power to mass produce land these days. For example, nobody can walk into the ritzy suburb of Toorak in Melbourne and magically start creating empty blocks of land amongst already-established housing. Also, houses are for the most part, proudly made in Australia. Hence, even though the high AUD is capable of reducing the price of the things we import, hence making them cheaper relative to what we earn, it doesn't do the same for housing.
ummester wrote:I am open to hearing what else is so expensive in this country ATM. I know it's cheaper to buy many things online but that is usually because you are avoiding the Australian wages or taxes that shopping locally incurs.A Rolex, a full-on gaming computer (which costs more than the vast majority would spend on a computer, hence becoming 'expensive'), a BMW, a Mercedes Benz, an Audi…a building in the heart of a capital city, a thriving business, lamb, beef, prawns, premium dog food. The list goes on. All these things are expensive. But are they overpriced or overvalued? No, not to the people who are willing to buy them.
ummester wrote:Oh, I didn't think that the cost of living is increasing equally for everyone – it is increasing more for those with mortgages.Precisely what I'm getting at, and on that note, interest rate rises alone causes NO increase in the cost of living for those who don't have a mortgage.
But let's consider your other statement below:
ummester wrote:I just don't think they can afford to because of current interest rates and lack of equity growth.Why can't people afford to spend? If a certain percentage of Aussies don't actually have mortgages, then these same people should be very willing to spend. IRs doesn't hurt them one iota. And yet, it appears that the degree of spending has slowed down dramatically. Something else must be causing the lack of the desire to spend.
Perhaps it's the occurrence of a variety of natural disasters, unrest in certain areas, plus a recent GFC that left us reeling.
On another note, I've found the stock market harder to 'read' in the last couple of years compared with the many years before that. Why is this so? The occurrence of natural disasters elsewhere and unrest has toyed with the market on various occasions. Things are no longer predictable. We are seemingly experiencing a time of 'firsts', where major events appear to be raining down on us all at the same time. Even the weather has been pretty weird this past year, so weird that we can't even say it's a drought anymore.
In the light of recent events that have caused some of us to sober up and realise we better start planning for life's little surprises, I think it's actually no surprise that people now are deciding to save rather than spend.
ummester wrote:The reality is that the average worker with a mortgage doesn't have much left over and without further debt creation thier purchasing power is crippled.Just to clarify, what do you mean by this? Are you referring to taking on debt to buy a house? Or are you referring to people taking on debt to buy something that they actually cannot afford and shouldn't buy?
If it's the former then that is well-accepted. I cannot see how it would be possible to buy a first home outright except with an inheritance or a lottery ticket that won first prize in the recent Powerball.
Or of course, we could be 'given' a house for free by someone who is generous enough to do so.
If it's the latter, then people should adhere to a simple maxim of not spending on non-essentials until they can comfortably cover the costs of essentials for their day-to-day living.
First of all, I'd say that your level of motivation is excellent. You have the right frame of mind and that's a very good start.
It may have been mentioned above, but perhaps you could start by investing in shares. I'm not implying whether NOW is a right or wrong time to be in the sharemarket, however it's a very good start. With baby steps, even big dreams can be realised. I personally invested in the sharemarket for over a decade (starting with very small capital) to build up a deposit for my first home.
If you want to get started in the sharemarket, go to your local library and look for this book: 'How to make money in stocks' by William J. O'Neil. This book has been quite a big influence for me.
Now I don't want this to degenerate into a 'housing affordability' debate again. There's been heaps on this forum and I'm beginning to tire even responding to such topics, but…
ummester wrote:It is the most overvalued consumer commodity realative to general inflation at this point in time.No, to me at least, housing is not overvalued, particularly since I've been blessed enough to see how expensive they can be elsewhere. Housing is worth precisely as much as people are willing to pay for it.
When it comes to houses, there are two broad choices:
1. Buy
2. Don't buy. Rent.As such, if an outer-suburban house costing say $500K looks overpriced to someone, he/ she can choose not to buy. Others however, may jump at the property and start negotiating a sale price. So, if you think housing is overpriced, don't buy! But you cannot tell people that it's 'overpriced' and tell people not to buy. Similarly, what worth is it for me to say housing is underpriced when I'm talking to a penniless family?
When people sell a house, they don't just slap a big price tag on a house for fun. They price it according to what they think it's worth, and then adjust that expectation based on what the market tells them. And when people slap a fat wallet down to buy a house, they don't pay a big price just for fun. They pay that amount because they believe it's worth that much.
ummester wrote:When a thread is started questioning if IRs are making the cost of living too high, surely we must look at the most expensive portion of that cost first.To look at costs of living for Australians in this manner is to assume that all household forming units in Australia have a mortgage. Looking at the 2006 census for Melbourne, for example, 24.5% of private dwellings are rented. And if we put this information together with what you said…
ummester wrote:Rent however can only rise by a certain percentage of CPI changes at predetermined times throughout the year (different from state to state, I know) and rent is dependant on real money supply, not credit or debt. If a tenant does not have the money, they can simply not pay the rent and then an eviction process must be started.Then there are three conclusions to be drawn:
1. A mortgage doesn't factor into the equation of 'costs of living' for a certain percentage of people in Australia, specifically those who rent.
2. If rents cannot be raised in accordance with rises in IRs, then rising IRs itself does not cause any strife to those who rent in Australia.
3. Increasing IRs alone does not increase the costs of living for renters.
So it is flawed to assume that rising interest rates increases the cost of living for everybody in Australia because house prices are 'too high'.
ummester wrote:And now they have stopped but confidence isn't picking up?'Once bitten, twice shy.'
Common idiom, mate.
Let's also look to the above discussion about IRs and costs of living. I would like to suggest that something else besides 'high house prices' is dampening consumer sentiment.
ummester wrote:Further, say the average rent increases 5% as the REI would try and spook us into believeing, that is around $40 a fortnight. A single percentage in IR rises is more than $100 a FN on the same house.Some clarification is necessary. Nowhere in my statement above did I say that rents would be increased by the same amount as a rise in home loan rates. This is one of the good reasons for renting. An interest rate rise hurts a homeowner more than a renter. However, a renter would be very wise to anticipate a rise in rent to some degree in the light of increasing interest rates.
ummester wrote:Just read some articles about IRs and home prices in Australia.And this, on international funding
http://online.wsj.com/article/SB10001424052748704101604576248162439434754.html
Yes, I read those articles.
The articles on the Australian property market are always 'much of a muchness'. Depending on the state of affairs, the sentiment is the same and they seem to leech off each other.
ummester wrote:Like I've said, I would preffer a soft landing and stagnation – suits my financial plans fine. But I don't think it will happen now. Even if the government stimulates the market and the RBA cust rates to 0 – it's like a car that has gotten the speed wobbles when travelling too fast, the government and RBA can't steer us out anymore.Virtually every property crash in history has resulted in the voting out of the government at that time. As such, these big boys better keep their eyes on the prize, because it's their butt on the line too.
ummester wrote:So, if rates are not high and the retail sector and other parts of the economy are sufferring, is it just possible that houses cost too much ATM?
Haha, the ol' house prices debate again, and you're mighty quick to jump into it.
In my opinion, it's simple really: raise interest rates too quickly against a backdrop of a recent GFC and global uncertainty (that is still ongoing) will dent consumer sentiment.
Let's be honest. While rates are only just considered 'average' right now, the rate rises hit homeowners hard and fast. Initially we were experiencing one rate rise a month. The frequency would have been frightening for a start, but when the banks started raising their rates out of sync with the RBA and slapping on super-sized rises, that really showed some people the things we're likely to face again in the future.
Homeowners, regardless of the size of their mortgage would be concerned that more rate rises are to come, and rightly so. So they buckle down, cut discretionary spending and put money towards their mortgages. On the other hand it is likely that renters will also be on edge. If the rate rises are hitting the landlords, the cost could be passed on in the form of a rent rise. Yes, they could choose to leave and find somewhere else to rent. But let's not forget that it's not as simple as packing everything into a backpack and leaving. A home is still a home, and people could lose their friends, the convenience of the location of their current place of residence, their kids may be forced to change schools…In general, moving for cheaper rent could also mean moving further away from the city, and everybody seems to crave being near the CBD.
There's this aquarium that I patronise, and it's been very quiet there of late, and in many other retail stores. I asked the friendly owner how business was and he said something of the lines of, 'Yeah, look, we've been a little quiet. This is what happens. Raise the rates a few times and people are spooked.'
I think it is simplistic to assume people stop spending simply because house prices are too high. But even if this assumption is right, it only confirms the value of home ownership in Australia: that people can, will (and should) make sacrifices to own a home. Food prices are high too. Meat is expensive. That never stopped people from throwing a Friday evening bar-b for their mates.
ummester wrote:I'd wager this much though, if the RBA slashes rates, the value of our dollar will decline quite quickly.Might be a good thing actually. Spending in Australia may once again become trendy.
Sometimes I cynically (and humorously) think the RBA increased interest rates ONLY to combat the explosive housing market (under the guise of trying to control inflation) and bring more peace by cooling it down. They have certainly achieved that, at great cost to the retail sector of course. Edgy local retailers then go on to blame online retailers and Ebay for taking their business away and consider that buying things online is also tax evasion.
In reality, interest rates are not all that high at the moment, relative to the levels they have reached in the past. However, what is important is the level of interest rates that today's consumer can sustain. In this case, the answer is, 'Not a lot.' The strength of the AUD could be detrimental to the country. One of my Mum's friends runs a boarding facility for overseas students, and there's been difficulty trying to get a 'full house' of late.
And considering the strength of the AUD, I'd rather be holidaying overseas, or buying stuff online than buying from the shops here. Of course, the high AUD makes all expenses that much greater for those considering to migrate. And as ummester alluded to, the banks are not forced to follow the moves of the RBA. They have made housing even more expensive by slapping on a fraction more on the interest rates for mortgages.
Interestingly, I noted an increase in the 3 year fixed rate from Homeside initially (probably in Feb), rising from 7.2% to 7.45%, which was promptly again reduced to 7.29% in early March. The banker claims that the costs of funding had reduced, leading to a reduction in the fixed rates. This is rubbish, IMO. They reduced it perhaps because they didn't see interest rates rising much further in the next 12 months.
One thing's for sure though, it'd be funny if the high AUD ended up killing the economy!
ummester wrote:fWord,I write fiction and am trying to get puplished as a fictional author. Reading about and commenting on the Australian property market is more a hobby which rises from what I suppose is a genuine concern over Australia's future. Though I like thinking about it, reading about it and posting on it, it's way too dry to dedicate 6 months and 100k words to:)
Yes. But what I meant was, it was rather amusing to be talking about spuriks in a book. I wanted to admit that, I'd rather read a spruik in a book from an author who has been in the business over 30 years, writes enough sensible info to be published in an actual book that has a chance to be widely circulated, and widely ridiculed (if they are wrong).
In short, I respect the people who put their money where their mouth is AND have plenty to lose in the process but are not afraid of doing so. It's the degree of conviction that I respect.
ummester wrote:Many of the people I have it with get very sensative and upset about claims that their house may not be worth as much as they think its is though.Quite understandable, me thinks, particularly since some of the folk you debate with have been saving/ investing for donkey years to buy their first home and I am one of them. As mentioned on another thread, I've been saving and investing for over 12 years and then working full time for 3 years before getting enough savings to buy a home. Of course, I bought a few luxuries along the way, including a brand new car that I bought outright with savings. Even though it's a 1.5L 4-cylinder, it's pretty extravagant for a young worker considering I could have bought a drivable car for less than half that amount if I really wanted to.
So I've made some choices in life that delayed the process of buying a home. Plus I was set back by over 2 years of compulsory military service in my country which paid me less than 10% of the starting wage in my profession. But at least I pressed on nevertheless. I didn't sit around and blame everyone else for not being able to buy a house. I persisted till I could.
This is why it ticks me off when some folk talk as though some greedy investors have made life hard for them. No, they made life hard for themselves, getting loans for a flashy car they cannot afford, going out raving, drinking, smoking, buying hair extensions, acryllic nails and expensive clothes while complaining about high house prices. Meanwhile, they are waiting to splurge on their next iPhone. Priorities, folks.
ummester wrote:Truth be told, the psycology of this whole thing interests me more than the economics. I've always believed that people and society drive the economy – the economy is just a reponsive construct that some take advantage of when the majority are being greedy.Definitely agree here. Emotions are often more important than fundamentals. Hence perhaps, the housing market will do whatever the public sentiment reflects, and regardless of what the fundamentals are. That's why some people think its overpriced, and others feel there is a very good reason for prices to be high.
Ultimately I hope that potential FHB will not bear needless hatred for people who have bought their own home, or investors. Chances are, the vast majority of them did the hard yards to get to where they are now. And do I think they deserve to be rewarded? Hell yeah!
