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Like you said, it's only around 25% of people that rent and of those I'd wager the majority are lower wage earners. Renters who can afford to buy, like myself, are few and far between. Current rents are high for low wage earners. Those who have money to spend ATM are becoming a minority.
Older home owners who have little to no mortgage could afford to spend but they are likley preparing for retirement. Those already retired are starting to struggle.
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 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).
I have to have dinner – so sorry for the fast response. 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. Land in Australia is not in short supply – it's supply is just artificially restricted ATM.
ok fword, you tell me what else is expensive?
I honestly can't think of much. Electronics are dirt cheap ATM. Cars are about what they have always been relative to income. Food and petrol may be rising but only returning to 2008 prices.
Granted, cigis, booze (tax) and insurance are costly but all of those things are very much a choice.
Relative to the rest of the world, Ozzies are paid an absolute shedload.
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.
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.
If IRs are still relatively low and consumer items other than houses are not overpriced, I just see it as a logical deduction working out what the expensive thing is.
Oh, I didn't think that the cost of living is increasing equally for everyone – it is increasing more for those with mortgages. Tenants on lower incomes would also be feeling it because rent is trying to keep up with house prices.
I don't think consumer 'sentiment' is actually dampened. I think people still want to spend – we have been brainwashed into thinking it is the purpose of our lives. I just don't think they can afford to because of current interest rates and lack of equity growth. But, I think the country needs IRs what they are now (or a little more) to be properous globally.
It's why our dollar is so high – possibly too high. All other western nations are stalling financially because house prices are returning to long term trends. Australia is currently keeping its high house prices and reasonable IRs in place – at the expense of Austrlaians being able to afford much else. On paper – we look great. 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.
fWord wrote:Haha, the ol' house prices debate again, and you're mighty quick to jump into it.It is the most overvalued consumer commodity realative to general inflation at this point in time. 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.
fWord wrote: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.Only reason consumer sentiment wasn't dented in 2008 was that the RBA slashed rates and Rudd threw 7-14k at home purchases and $800 – $1200 at every adult to go shopping. 2008 was a great year – allowed me to pay of every single debt I had:)
fWord wrote: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.And now they have stopped but confidence isn't picking up?
fWord wrote: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.All of this is possible. 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.
IRs have no such limitations governing them. They can rise and fall quite quickly.
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.
Just read some articles about IRs and home prices in Australia.
And this, on international funding
http://online.wsj.com/article/SB10001424052748704101604576248162439434754.html
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.
fWord wrote: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.There is absolutely no doubt that the RBA raised rates to control house price growth. Stephens said as much.
fWord wrote: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.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?
fWord wrote: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!
It's going to be very interesting to see how it all plays out, isn't it?
I'd wager this much though, if the RBA slashes rates, the value of our dollar will decline quite quickly.
gmh454 wrote:If demand drives up the cost of money the reserve can drive down its cash rate, and just become irrelevant.over to others..
And the banks may not follow suit.
As I think it was mantz noted, which I tend to agree with, if housing sales contunue to slide the RBA will likely lower the cash rate. However, the funding cost to our banks on what the world now views as a risky market will increase. Therefore RBA rate cuts will have no real effect on actual borrowing costs – aka USA.
IRs are still lower than the long term average.
IRs have the strongest correlation to house prices (inverse) of any single financial variable in this country.
gmh454 wrote:A couple of years ago a family member was mentioning their place was worth 800K, followed by the usual, "will sell up some day, sell the IP and retire up the coast."
fast forward three years
the neg was killing them they had capitalised interest losses again and again, plus took a holiday, borrowed on the capital gain etc etc. (sound familar)
on the market goes the home, no choice really. Will take best offer over $730K, way too low, but that is what agent recommends.
Four months later sold for $630K, and they moved into the 270K rental with still a debt over them
Very few people undervalue their homes…(and those that do, usually are headed for retirement homes.)
just human nature
Interesting story.
I don't want to lie to myself about how much I think whatever house I buy is worth and I don't want to buy something that turns out to be a rip off either – therefore buying ATM seems like too big a financial risk to me.
I have a sibling who has brought and sold many houses, from the 90s through to now. Has a few IP ATM. I have never seen this sibling come out in front.
Houses it seems to me are a very long term investment, so why hurry into a purchasing one?
beedie wrote:Quote
“In my generation, I don’t know of any one that created wealth by paying rent.”
Anonymous (Age 65)That's because Anonymous' generation has had it easier than any gen before and easier than any gen will have it again:)
streamlineinvesting wrote:There was a good article I read months ago, couldn't tell you the name of anything anymore sorry, has slipped my mind. Basically the guy in the story bought a house where he wanted to live when he was older, out in the suburbs, lots of bedrooms for the future family, nice sized yard, near schools etc etc. But in the present, he wanted to live near work, in the city, near his friends. So basically continued renting and just bought the house he was going to live in some time in the future. It worked for him as the rent he earned from the property was far greater than the rent he paid where he wanted to live, so he worked out positive that way, and seemed to get the best of both worlds.I have looked into doing this. Buying a nice place near the coast with all the FHB stuff when I am on LSL and living there for 6 months, then going back to work in the city and NG that place to pay it off faster. I may yet do it. I really don't want to buy near an Australian city – they are all too badly run.
streamlineinvesting wrote:I know it is very scary trying to figure out when to buy, and you keep saying just to save a little bit more, which is all well and good, providing house prices don't go up. Say you want to buy a $400,000 property somewhere, and you currently have $20,000 saved up, but you want a 10% deposit. So you spend an extra year saving up $20,000 but in that time property prices have risen 5% so your property has already increased up to $420,000, effectively as much as you have saved, while paying rent $10,000 rent or so at some other place.It is because of the massive capital gains that so many have brought over the past 15 years. The rate of these gains has outpaced what the average Aussie can save and, if you wholeheartedly believe they will continue forever, then as soon as possible is the best time to buy.
Personally, I don't think the rate of house price growth (which averages to around 10% PA from 1999 til now) can continue. The long term average is in line with inflation (around 3% PA) and I believe that average will be reached again either via stagnation or correction.
Dan42 wrote:You also need to factor in the increases in rent over time, compared to the relatively stable mortgage payments.So it might be cheaper to rent in year one, but more expensive from years 5 onwards.
This is true.
Although my rent has not increased in the past 3 years and IRs have increased a bit in that same period.
Buying in 2008 and locking in would have yielded around the same results as renting for me from then on. Buying any time since and renting is in front. I was seriously looking in 2008 but didn't find the right place – since then the maths have been wrong to buy.
Now, I just want as big a deposit as possible. Less I have to borrow the better. And, I am kind of turned of the idea of buying some place to live, work and raise the kids in. A rental seems to suit that purpose better – insurance, costs and other worries aren't mine to deal with.
its really very simple.
Being that the house you can buy and rent are essentially the same quality and value:
If the interest on the loan can be locked in for less than what the rent cost you PA – you should buy. If the interest is more than the rent – you should rent and save.
You either have to pay a LL or a bank. You pay the one that costs less.
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:)
I have been sitting around here (on this forum) as a nameless face for many years though. Actually started posting here before reading and posting on bear forums. Besides which, I don't really need to be faceless and nameless – I'm happy to have the housing debate with anyone in the flesh. 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.
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.
High unemployment is a very real downside when a fast property crash occurs – especially within the RE and construction industry. The flipside is that the RE and construction industry have probably made more profit from the boom over the past 15 years than other industry. Like I've mentioned before, I have no idea what I think the best outcome will be anymore – there are just too many angles. In the end, what will be will be.
angelinsydney,
Don't put all your eggs in one basket – a great thing to remember. I fear many Aussies have put all their eggs in the housing basket. I fear the countries economy has, to a degree. I hope I am wrong.
devo76 wrote:Property would have dropped if The government didn't step in………. Do we really think they won't do the same this time??? Of coarse they will. They may be a little more careful not to overstimulate but stimulate they will. To think they won't is falling into the same trap.Yep. Unless the govt considers it either too expensive or poilitcally unsafe, they will try and stimulate the market again.
gmh454 wrote:I commented a few months ago at how many boomers who are about to retire are sitting on neg properties. (met predictable replies) . Talked about this with other accountants, and we are now seeing them sell, and talk about unloading, they cannot sit any longer. They certainly are not buying.They have to sell places that aren't cashflow positive – what's the point of a NG IP when you are retired?
gmh454 wrote:as NSW and Vic, Federal and Qld will show, the lack of infrastrucure is bringing down all goverments. People are unhappy aboyt congested roads, trains, hospitals, and bringing more people before the facilities will see governments treated very hashly.State governments have become reliant on revenue from house sales. Not sure about all states but it represents 1/3 of the total income for ACTs state government.
If you think infrastructure spending is bad now, wait until no-one buys houses or price decreases effect stamp duty.
did you have to save a deposit for your first place cutyoungchic?
fWord wrote:Maybe so. But perhaps they'd prefer to bad-mouth something that they cannot afford, rather than to put in the hard yards and work towards it.This is an interesting comment.
I agree that people should work towards the things they want but they should do that first buy saving a reasonable percentage of the purchase cost first. There is too much easy debt extended nowadays for anyone to have to truly work towards anything.
Lets say it isn't houses. Let's say its big TVs. If you save your 3k to buy your massive tele – good on you, you deserve to sit back and enjoy it. I can't shake the feeling that getting extended the entire purchase cost of the tele with no money down somehow undermines the 'hard work' involved in purchasing one with savings.
Of course most people can't save the 300-400k required to purchase a first home (should cost 250-300k to be inline with wages IMO). But they should be required to save 20-25% of that purchase price. That is the hard work.
100k of savings for the average working Aussie is hard to achieve. 50-70k is a bit more reasonable – it's a years average earnings (which means you should be able to knuckle down and put it away in 4 to 5 years if you budget correctly). It would alos bring stability to the housing market and disable much of the speculation.
fWord wrote:My knowledge doesn't go back that far to the 1890s. However whether there was a 'slide' or a 'crash' in the 30s is subject to debate. Prices didn't 'crash' 50-, 40-, or even 30%, if I remember correctly. Pity my short-term memory, and lack of access to a book I just returned to the library yesterday. Going further however, rents soared during the same period.Rents didn't sore during the depression:) You are reading spruik in a book, it seems.
Prices in Australia deleveraged around 25% during the depression (they were lower than the rest of the world due to the extreme nature of the 1890s crash). Looks like what happened then is set to happen again this time around.
During the depression, Australia crashed later, harder and faster than the rest of the world. Because we were a commodity exporter (as now – just more livestock than metal then) it took a while for it all to hit us. When it did, UE here reached almost 30% (which was one of the highest). House prices were already in decline before the UE growth but really hit the skids when that happened.
fWord wrote:There's a wonderful graph in the book titled 'Mastering the Australian Property Market' by John Lindeman which shows exactly that: when house prices slide, rents increase. The more drastic the slide or 'crash', the more exorbitant the rents become. Presumably its the tightening of credit during periods of falls in house prices that forces even more people to rent than to buy, because a FHB simply cannot borrow enough to buy themselves a place.That's not really true – generally when property crashes unemployment becomes high. Rents are entirely wage dependant. Do you really think in times of high unemployment that people will have lots of money to spend on rent?
ALF1 wrote:Yes, you have the right to your opinion on this forum but you are going against the grain of over 175 years of Australian property stability which encompasses the Great Depression, WWI and WWIIWhat?
Property in Australia crashed big time in the 1890s (which is within 175 years) and it also crashed to lesser degree in the 30s.
xdrew wrote:I'm sorry .. i've lived through the 73 oil crisis .. the 82 recession .. the one we had to have in 90 and the dot com collapse. And the only consistant thing they've all said is .. THIS ONE IS DIFFERENT.Its not .. the people are all .. talking the same.
Petty we don't have any one left around who lived through the 30s depression also.
You do realise that the west never got rid of the bad debt after the dot com collapse don't you? And that most of that debt was just transferred to RE.
We never really let the 80s recession run it's course either.
And the 70s oild crisis was the start of peak oil – it's taken 30 years to curve the hump.
What is brewing now is a pattern that occurs outside of normal human lifespans.
xdrew wrote:This is the extra bit i think you should add to the above stated facts from the SMH … which pretty much say .. people who are holding onto their property because its worth money … dont want to have people do things to make that go down.The reality is … property in a civilised society is just an asset .. like anything else. But people moving in and out of this asset places the asset in demand. And not everyone who sells their housing asset goes on to buy another house. Some sell and reinvest that money in the economy, creating small businesses .. and investing in other areas.
So what you are percieving as just a property loss is not just a OMG its property falling loss. Its a loss of capital that would feed fabric and fund other members of society.
In the very early years of the United States, there was a puritanical idea that property was there for the common good, and as a result no private property ownership. Come a couple of harsh winters and poor crops, people started starving for no good reason other than they had no private property to lend against .. for fabric and food. With a little rethink .. they re-established private property rights. And as they said at the time … 'nary hath been a person who looked back'
xdrew,
I'm fully aware of the fact that the Australian property bubble popping could have dire consequence for the wider economy. I started researching all this stuff back in 2007, when I just had the chip on my shoulder 'it's so unfair attitude'. I got over that and started putting money away to hedge against it.
Personally, stagantion will yield the same buying results for me (in 4 years when I plan to start looking seriously again) as a crash would. Not only that, but I know staganation will be less demorlazing for society and the economy as a whole.
I'm just afraid our govt and debt levels have pushed it all too far for any reasonable type of stagnation now. But I actually hope I'm wrong – because I have close relatives that stand to suffer badly if I'm not.
The flipside to the loss of capital that you mention is that capital may be currently tied up in assets that are too unproductive themselves to provide true economic growth.
Either way, the world's debt levels (including Australia's) must be dispersed via deleveraging. Oddly, those debt levels exist because of population bubbles brought on by the wars and it is because of those same groups of the population that the economies of the world will deleverage.
