Forum Replies Created
Here are (longer) term IRs and prices. Still not as long as I promised fword but I will find them – just for you:
http://static.seekingalpha.com/uploads/2010/9/26/595019-128548078561902-Leith-van-Onselen_origin.jpg
http://static.seekingalpha.com/uploads/2010/9/26/595019-128548185597047-Leith-van-Onselen_origin.jpg
I wont give you the whole article – you wont like it.
ALF1 wrote:25 years………
Bought first home PPOR in VIC 1984 for $55,000 a bloody fortune -worth $ 650,000 today
Bought first IP 1987 for $129,000 with 18.4% mortgage – worth $580,000 today
Owned freehold IP in Bunbury WA in 2000 worth $61,000 – sold in 2002 for $153,000 (ecstatic!) – it sold in 2003 for $249,000 – worth today $780.000.
Defense rests
Plot your wage growth (or average wage growth) against those values over the same time frame. You will see that they are not increasing by the same amount.
bardon wrote:I used to think this way but what I have found is that when it comes to property, time in the market is far more rewarding than timing the market. In 25 years time the theoretical 5% that you may think that you have saved ( and it is a theoretical number and doesn't include the rent you are paying whilst you find this market beating bargain) will look like peanuts. The market is very forgiving over time so much so that you could pay well over the odds and still come out ahead. I had to do some old records for tax recently and when I looked at my first purchase, its value and repayments I couldn't believe how small both were . I also remember at that time everybody warned me that I had paid to much and was overcommitted to the extent that I believed them when in fact with the benefit of time these comments and felling were totally inaccurate.Overall I agree with you. But house prices since the mid to late 90s (especially since the early 00s) have been an aberation.
The difference between buying late 2008 and early 2010 could be up to 25%, depending on area and place in the market. That is not a small difference for a small amount of time.
bardon wrote:Those with the I See Bubbles sense always seem to be a very outspoken and convicted lot, they can see things that others cant and wont rets until they have changed everyone else over to their dark side. How much will house prices have increased in 25 years is the question, how much will rent have increased in the same time frame and if you bought a house today on IO and didn't pay anything back the repayments would be the same price as a ticket to the cinema.This is very true. Over a long period of time it wont really matter because the end result will be sitting on on asset valued around about the same as everyone else in your peer group.
But when you buy in matters.
If you brought in in 2008 – you will be in a better place in 25 years than if you brought in in 2009/2010.
If 2008 is set to repeat, to greater extremes, you are better off buying in then.
I looked at some places in 2008 with a sale price of low 300s. They weren't moving. I was offerring high 200s. I would have got a purchase if it wasn't for the FHB boost and been happy that I was paying off a 250k debt over 25 years and lived my life around it.
Same places recieved high 300s by the end of 2009 and low 400s beginning of 2010. That's 25% more debt based on when you brought in.
If similar places are going back to sub 300k prices – I'll buy in then. Even if they don't, it's better to save 15k PA than pay it in interest if prices aren't rising.
Oh, as for Melbourne's double dip – yes it is always possible that prices will stabilize and slowly correct rather than crash.
That said, when unsustainable financial growth dips twice, in just about every other commododity or stock that I know of, a crash follows. Australia may be different but it is the least likely outcome.
Diamonds are something that grew unsustainably in value for a while and never corrected. They never corrected because supply was controlled to prevent correction. Outcome was a massive increase in diamond smuggling. Housing is not a commododity that can be controlled like diamonds. If supply is restricted to the same degree as diamonds, people will just leave Australia.
Ireland is a place that is currently trying to contain the fallout from it's housing bubble and the young Irish are leaving in droves. They don't want to be part of a future where more is owed than can possibly be paid off in a lifetime.
This conversation reminds me of this American video.
ALF1 wrote:Thanks CYC! Way too much pessimism going on in this post. Remember the Y2K bug – the end of the financial world as we knew it. The reality – just a bunch of people who will take any opportunity to stand on a box and preach their doom & gloom.Y2K was as more about the IT industry cashing in on fear than it was about gloomers. A lot of money was made with the Y2K bug and it has pushed IT wages into semi bubble territory. Half the reason the housing bubbles grew was because western governments didn't want the IT bubbles to disperse and generate recession.
Unpopped bubbles represent more gloom than the oppurtunity for new growth does. It all depends how you look at it.
ALF1 wrote:Do you know it takes approx 80 more muscles to smile than it does to frown…………mmmmm.That is absolute garbage.
http://anatomynotes.blogspot.com/2006/01/muscles-to-smile-muscles-to-frown.html
12 to smile and 11 to frown – depending on what type of smile and frown it is.
mattnz wrote:It is no coincidence that the two massive peaks in Australian private debt to GDP levels coincide with the depressions of the 1890s and 1930s.Exaclty – people need to look further back into history to see what is going on ATM.
Dan42 wrote:BTW, some of the bearish types here have been predicting the 'bursting of the bubble' for the last three years. What's so different now compared to last year, or the year before?Sentiment.
The last time any bears worth their salt were really behind the crash being on was 2008. Rudd turned that around with the FHB boost, allowing the market to leverage up.
The condiditons of 2008 are taking sahpe again (some places like QLD and WA have bigger stock levels now) but sentiment is worse this time around.
ALF1 wrote:LOL!!!! Oh come on guys! Now it's going to be that battle of who gets in the last knife, I mean word. It has been great reading but you guys could end up writing another book like Dianetics and then what has the world got? 2 more loopy religions that can't agree on anything. But it has been a hoot!You started it with your shortage claim:)
I agree with ALF1 here – it is going to end up in a debate of semantics.
if you tell me I suck, I ask what? What do I suck? You suck is incomplete:)
Obviously we have a totally different take on what a shortage is.
I would argue there is not a shortage of seats on your bus, just an excess of unreasonable people, But a big problem with people is that they seldom want to blame themselves for anything, so convincing the people on the bus that they are the problem and not the bus is an impossible task.
Just entertain the notion for an instant that house prices may correct by 25% or so. If they did, would there still be a shortage?
fWord wrote: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.
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.
fWord wrote: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.
We agree here. I don't get why this is even being debated? I am saying there is (or was) a demand shortfall only.
fWord wrote: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.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.
fWord wrote: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.
Again, we agree. I really dont get what is going on with this debate?
Houses of a certain type may be too in demand, or houses may be too expensive, or both.
I was debating wether or not there was a shortfall only. I agree there was a shortfall based on demand and now that demand is dropping, there is no shortfall. I was saying there never was a physical shortfall – like the food example we both agree on.
fWord wrote:Not gonna repeat myself again.
Perhaps.devo and fword,
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.
In this case, the use of the word shortfall is invalid. A shortfall is a physical undersupply. Unless of course, AFL1 was claiming there is a shortfall for profit based demand. 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.
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.
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?
There are cycles within cycles. Last up cycle was bigger than any up cycle in quite a while and got a boost when it started to wind down in 2008.
Anyone who brought in before 2004 is sweet.
fword,
I never said Singapore had high wages? Quite the opposite. I said Monacco did and Singapore was unlike that.
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. There has just been an oversupply of credit fueled demmand.
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.
The bottom line is this on IRs – they have and always have had an indirectly proportional relationship to house price in Australia. IRs down – house prices up. IRs up – house prices down. There is a lag on the price but the pattern persists.
I don't think IRs have ever been as low in this country for as long as they have the last decade or two. And now, they are not even high, and the economy is getting wobbly.
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.
As for the threads question: are IRs too high? The answer is simple. If you want house prices to remain where they are now then yes, IRs are too high. Ohter than that, no, they are not too high.
fWord wrote:Question, if I may: Who set this as the 'globally accepted standard'?History and maths, as I understand it. Long term averages and the like.
fWord wrote: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'.Singapore has a true land shortage. It's like Monaco or whatever that place is, tiny island where a lot of rich people want to live, just minus the rich people:)
Hong Kong may be in a bubble also – time will tell. It hasn't stood the test of time like Singapore and Monacco.
Like you say, time will also tell with the Australian market but, if it stays high, it wont be for the same reasons as Singapore. Proves that what we are debating can not be known until it comes to pass.
Like I've mentioned on numerous occassions, I don't think a crash is a good scenario for Australia. At the same time, I don't think further increases in the short to medium term are possible without major stimulus. I just think that a crash or large correction looks like the most likely outcome now, not the preffered outcome.
fWord wrote: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.
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.
As for the NG guy – he may have brought before property was overvalued (mid 90s say) or has done the maths and realises that it won't correct lower than what he paid for it (probably any time pre 2004). He may only be forsaking gain he never expected to make for an ideal he believes is more important.
fWord wrote: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.I tend to agree. Stamp duty cuts are nothing compared to the overall cost of the house.
Here's an article about more likely action the government will take to stop a crash. It's from a bearish commentator, so take the gloom with a pinch of salt by the focus on funding via RMBS is likely the focus the government will continue to employ.
http://macrobusiness.com.au/2011/04/plunge-protection-has-begun/
Intrigue,
exact numbers are quite hard to find but housing bulls and bears generally agree there is a 3 way split in how the whole of the Australian population is housed – has been for a while. 30 odd percent rent, 30 odd percent have a mortgage and 30 odd percent live in a house that has been paid for.
Now, FHB numbers are right down. In 2009/2010 they were right up. Overall it averages out to around 25-30% of the market and provides the leverage to keep it boyant.
What these numbers don't take into account is wether or not the paid for houses have been refinanced for IPs or older people living off equity. They also don't show how the IPs are divided. As the amount of Australians claiming NG benifits in the past 10 years has almost doubled, it would mean that for the 3 way split to persist many IP owners must also rent.
The numbers also don't show vacant property or land held for capital gains. On average our cities carry a 2-5% vacant pool for rentals but census results usually show a much larger number of vacant houses (7-10%) per city.
All this aside, a three way split is generally accepted.
Yet, as you suggest, for IR increases to be such an effective blunt instrument, more than 30% of Australians must have some form of mortgage debt. How this debt is divided amongst how many people remains to be seen.
edit – i should just clarify, to simplify, that although around 25-30% of residents are housed via rental and 30% have paid their PPOR off, that does not mean that 30-40% have a mortgage. It means 30-40% have a mortgage on their PPOR. If 1/3rd of the renters have an IP and 1/3 of the owners have some kind of finance, then at least 50% of Australians have housing debt. Does this make sense?
fWord wrote:Again, goes back to the question of, 'Why should such property sell for under $300K?'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.
fWord wrote:Well, it doesn't, because people are still currently willing to pay more than $300K for such property, for whatever reasons those might be.Credit standards giving them the ability to do so – beyond that most people don't think about it and follow the herd, as you note.
fWord wrote:Alternatively, if nobody wants to pay the price, and yet nobody wants to sell, the price will simply stagnate.Yes and no. Someone will always have to sell and someone will always be willing to buy. Pure stagantion is unlikely, especially in such a highly geared environment.
fWord wrote: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.Perhaps I'm not quite as cynical yet – though I am cynical. I believe that alturism still exists – just not in a pure form.
fWord wrote: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.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. I've not read anything on who started the FHB strike campaign, so you could be right in that case.
fWord wrote: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.High house prices, by way of inlated rent, also effect those who wish to study here. Further, they effect what is required of local wages and drive them further out of sync with the rest of the world.
fWord wrote: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.
Yea, you are correct. 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.
On this:
This article kind of sums up what has happened with IRs and housing stimulus in Australia since 2008.
Your dog chasing it's tail analogy is interesting and reasonable fword – both sides of the affordable housing debate end up doing this, as you say. Trouble is, looking away from our own tails, we still see them in the big picture.
I'd say – Australia stands alone in the world as not having a housing correction.
You'd say – Australia is different.
I'd say – No it isn't.
And we'd start chasing our tails again.
Yes, I think a 200k house is well within average affordability limits for wages in this country. No, I don't think the bottom of the market represents proof of affordable housing.
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.
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.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.
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.
As to you and me debating this, we each come from the POV of our own tails. Niether of us seem to be in positions where we are sufferring because of house prices. We both just have an opinion on them. I wont buy something that I consider a rip off, that being my opinion and choice. You think the said item isn't a rip off and have brought, that being your opinion and choice. We are both entitiled to them and it does make for interesting debate, as you say.
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.
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.
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?
If so – let's look at this another way. If houses were cheaper, IRs could increase and not slow the economy – correct?
What is better for the country overall? High IRs or high house prices?
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.)
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.
Of course land closer to the city will be higher valued than land further away. And urban sprawl isn't the answer. Niether is cramming more people into less space – that justmakes ghettos.
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.
