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.

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'.

'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.

Let's step back to your earlier statement:

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:

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.

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.

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.

Well then, let's just hope for the sake of FHB that history in this case wouldn't be just that: history.

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.

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.

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'.

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.

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.

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.

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.

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.

Fair 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.

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.

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.

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.

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.

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.

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.

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.

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:

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.

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.

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…

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.

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…

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'.

'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.

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.

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.

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.

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!