harb wrote:

Ok then, if you are going to remain in denial why don't YOU pick the time frame ?  Btw, wasn't there a recession in the late 80s early 90s or does that not count because we had to have it ?
And why did you think the 2008 figure was a bit high ? Its actually over 40k below the 2007 price and is a real example of what it could actually fetch right now although it could very well go back up to the 2007 prices by X-mas. Maybe you're still hopping for a 40% fall in prices before the end of the year ?

Recessions hit 84-85 and 92-93.  2005 was the start of the forced boom on top of the boom. We are not in disagreement about the times. You are just comparing 2 down prices to 2 high prices. Compare either all boom times or all recession times.

Compare 1970, 1980, 1990 & 2000 – do all the 5's aswell and get a graph of best fit to take out the peaks and troughs. If you include 2005 you'll see an exponential patern curving sharply upwards at one end. Even a best fit though 2005 will skew the results. Try it and find out – you'll see that the last 7-8 years are an unsustainable anomolly.

Which market are you watching for your figures? The market I have been watching has gone down 25% (worst case) since the start of the year and 17% average if you believe the com bank figures.

I was never hoping for a 40% fall – only 30% and where I want to buy is almost there. That said, I won't but till end 2009 now – I reckon that'll be the best time. Posibly start 2010.

harb wrote:

Mid 5s RBA rate not the variable rate but it could even get to that by X-mas 2009  if things are not picking up over the next 9 months. Someone else told me it was funny when during last May-June while most of the "expert economists" were calling  a couple more rate rises by X-mas I suggested the possibility of a couple of rate cuts.  Bloody hilarious.

RBA rates will go down. Mortgage interest rates will not.

You borrow direct from the RBA do you?

I recon everyone's reasoning for price hikes is correct. Easy credit, 14k FHB, boomer investing and capital gains tax removal – they have all played a part.

I don't see how the market can go either sideways or up, though. I can't see where the money would come from to either sustain or increase it at this stage.

It's tripled in the last 10 – overvalued even by doubling standards. House prices should keep up with wages, which almost double every 10 years – actually doubling every 15 – 20 years. The last 10 years have seen some skewed wage statistics with 'household' incomes being pushed by Howard as the new yardstick but in 1998 the average single wage was around 35K and now it is at 55K (give or take).

1998 avg 3 bdr house cost 120K (true value was around 140K but we were coming out of a minor recession)
2007 avg 3 bdr house was selling for around 400k
2008 avg 3 bdr hose is advertised at 350k
if the price should only have doubled, the avg 3 bdr house should be currently advertised around 280k
if wages have gone up 1.5X, avg 3 bdr house should be around 200k

Panic will cause the price to dip below 200k (in some places) over the next 12 months but between 200 & 300k is what the avg 3 bdr house should be selling for, depending on state and location.

So, yes, I hold the belief that property should almost double every 10 – 15 years – from it's true value. How long it takes to correct back to the true value will effect the percieved doubling amount over the next 10 to 15 years.

All things being equal in 2020 or so the averge single income should be worth around 90k and the average 3 bdr house should have a value of 400-500k. The biggest specualtive inequity of the last 10 years has been the boomer population bubble and their retirement strategies but, by the early 2020s, that situation should be resolved and Xs retirement strategies will be underway (which includes far less people and will therefore put far less speculative pressure on the market place).

Harb,

it's foolish because it draws on public funds which leaves less for public assistance when the true force of the financial instability hits home. Do some reading about the depression.

Mid 5's – you are funny:) The big banks still have not made fully good on the last RBA cut.

I think we are at the tipping point and falling.

Housing cost more than the average Ozzie can afford (even the average family) and a lot of people are leveraged as far as their incomes will take them on 5-7% interest rates. Rental rates are more than some people can pay and there are vacancy crisis because 1) much of the prior rental stock is up for sale 2) landlords still in the game have to keep up with inflationary pressures. The inflationary pressures are coming form commodities prices and overvalued assets but not from spending or wages, meaning that the only way to possibly keep up is debt. But the banks have more debt (yes, in Australia too) than they can handle – remember debt is future money but if the indebted are either leaving the workforce or have decreasing asset values that debt becomes a liability. Only possible results are a rise in unemployment and a decrease in asset values, which is happening at an increasing rate. This is the crux of the American problem – what are the underlying asset values really worth? It will be our problem aswell.

I have been reading about this (on and off) since the 80s – it has been a growing problem for that long. Of course the exponential peak of the problem hasn't really occurred until the last couple of years. True it is a cycle (but there are cycles within cycles) and
true the base skills of an individual are worth money (but like assets they are currently overvalued in the western world) Basically, investing in skills and assets only works if the sum of the investment is less than the true sum of the skills and assets.

I think when the full extent of the shift comes it wil leave many people in positions where they have to revalue what is important to them. Extravagent lifestyles (for most) will become a thing of the past (for the next 15-50 years – depending on how big the bust is). What will become important again are base values, saftey and community… eventually…

Devo,

I find it sad that you don't consider morals one of the best cases to base an argument on. Still, each to their own.

Of course everyone should pay more than the previous owner (unless in a time of correction) but never more than what other financial and moral factors determine – like wage growth and inflation.

Irreguardless if arguments are moral or financial, however, it is becoming undeniable that the Western World is in for the mother of all corrections – well, the biggest since the 30s.

No – I am not Scamp.

devo,

What about being morally better off than the generation before us? Having an easier life does not always mean a better life. Better, in this case, obviously depends on your POV.

If assets values in Australia don't decrease, successive generations will not have better lives. People in the 20's thought that future generations would be better of than them in the financial sense – they weren't until around the 80's. 50 odd years of greater financial hardship caused by greed, speculation and overindulgence and it's coming around – read your history and watch the news.

C2,

Define affordable?

Depending on which small business you run there are always laws and regulations governing standards required. Hence the reason for this thread, residential investment, as a business, requires greater regulation.

Society can only afford people to work 50% of their lives if we are breeding faster than we retire but then we run into all sorts of population problems that have adverse effects on the planet (already have). There is a self sustaining balance that can be reached but we need to grow up a little as a species to get there and the pursuit of financial wealth hiders that maturity.

Rich in happiness with health, purpose and knowledge is better than rich in money, cars and houses period.

Damo,

Unfortuanately I don't gamble.

The PM is getting there by himslef, in an ass about kind of way. He could go about it better and is meeting all kinds of opposition but he is on, more or less, the right path. His two biggest problems are peer group pressure and the financial world collapsing around him.

The factors sending our property values south extend beyond just the local market. Sure, the Australian housing market boom is instrumental but so is the growing global recession. The biggest spender in the world has just been caught with bad credit debts, what did you think was going to happen?

But I agree, over-correction greater than a 30% average in housing prices could be dangerous for the economy and scrapping negative gearing out right could cause that. As stated, the only safe way is phasing it out. Leave affluent Mum and Dad with their 1 property 10 years from now and things should be fine, giving gen Y somewhere to rent.

Investors get blamed because they buy out of more than necessity. A PPOR buyer will buy 1 whenever the market and purchase is right for them and usually retain it for an extended period, having less overall effect on speculative values. That said, half of the PPOR buyers that fell into herd mentallity during this recent boom and accepted the prices are as responsible as investors for driving prices even higher.

The question isn't wether it is a legit taxation method for wealth creation but wether the product should be used for major wealth creation at all.

How do you know this isn't going to happen?

devo,

I don't think where IP investment is heading is anyones guess – we are already there. It drives the value of housing up beyond what society can afford and the investments devalue, leaving over leveraged home buyers in the poo.

After this bust, people will shy away from it for a while. Besides, they will have no choice. The next gen to consider thier retirement is X and there won't be enough Y's to fill 2 other generations worth of IPs and niether X or Y are breeding fast enough to backfill the looming vacancy or sale rates. Yes, there is immigration but the governement is already thinking about cutting back to ease unemployment and inflation.

That said, with more or less the same amount of Y's in the workforce as X's, Y will be able to sustain the retirement of X. So long as all the boomers are dead, that is… otherwise we are going to have a massive problem with old people and palative care… meaning all we should immigrate are nurses:)

For all of these social issues, I think the weening of people off NG residential property is a good idea. If you read the bottom of the first page of the review that started this thread:-

Recommendation 4.2

The committee recommends that Australia's Future Tax System Review Panel consider the implications for housing affordability, as well as the overall fairness of the tax system, of the:

1. tax discount for capital gains on investor housing;
2. exemption from land taxation of owner-occupied housing; and
3. current negative gearing provisions.

Only 3 issues tax issues are under considerration for revision. The easist one to change is a as it is the most recently implemented and I think that is what more investors should be worried about. Also, page 10

Other issues

10.104         While home ownership is an important aspirational goal for many Australians, long term rental may be a more attractive prospect if some of the benefits of home ownership could be translated into the rental market. According to the Western Sydney Organisation of Councils:

There appears to be the perception that ownership in its current form is the only form of desirable housing, whereas surveys indicate that what people really want is security of tenure.[86]

10.105         Lack of secure tenure was seen as one of the major deficits of the private rental market and something which often prompted people to enter home ownership even when they could not afford to do so: 

We have transitional communities because leases are often for six or 12 months and people are moving endlessly. When they are offered the First Home Owner Grant, they think, ‘This is an opportunity for me to set up home, to have some security,’ but they do not have the income to cover their mortgage.[87]

10.106         Several witnesses suggested that security of tenure might be addressed via the development of more uniform tenancy laws across Australia:

We would like to see a consistent national framework specific to tenancy legislation. It is quite complex at the moment. We operate in a number of states and there does not seem to be any consistency.[88]

10.107         The Australian Council of Social Service suggested that such an approach might be incorporated in the future National Affordable Housing Agreement:

Many international experts have come to the country and said that one of the things that could possibly be done under… the National Affordable Housing Agreement, is to provide a national set of standards for people in the private rental market. Clearly, they are not strong enough.[89]

This could suggest that tenancy laws may be overhauled in the near future and long term tenancy agreements on fixed amounts may become a future law.