int rate 17% in 1990

Thanks John, that has put some interesting perspective on it for me. Like Celeste I thought the same.[hmm]

I went through the 15% rates back then, and I sure did hurt. Can’t stand boiled rice or 3 minutes noodles today. I remember when I got down to my last two bucks for the month. Always made repayments on the loan, although I got a whole lot skinnier back then. The thing is that I knew what was important to me, and I prioritiesed my goals to keep my unit. Yeah, I didn’t eat fancy meals, or ever buy a coctail, but I knew the cycle would change and rates would eventually come down.

So for the struggling home owners out there good luck (good prioritising). Back to basic meals, save money where you can, pay the morgage first, and don’t burry your head in the sand. You’ll get there.

Again, thanks John, I get it now. My 15% back then is the same as thier 7.5% now, only they have more money tied up in the deal.

Crickey!!

I absolutely dispute this assertion.

Let’s see:

• Our wealth is dependant on our housing market.
• The housing market is dependent on debt levels rising faster than income.

Therefor our wealth is dependant on debt rising faster than income…[blink]

Perhaps you could chang it to “our current perception of wealth is linked closely to our possession of real estate, and expectations for future capital gains from housing. However, this perceived wealth will eventually prove to be an illusion, a mirage that vanishes into the ether. Unfortunately, the debt will remain for generations, acting as a constant grinding drag against our economic performance and real sustained wealth..”[biggrin]

Then I’d agree with you!

F. [cowboy2]

And here’s another rip-snorter. It shows that in order for house prices to grow 7% pa, housing debt must grow by 15.7% pa. If you look at our current aggregate housing debt which is about to pass $800,000,000,000 then project this to grow by 15.7% per annum for a few years, perhaps a decade…[blink]

http://img209.imageshack.us/img209/3779/houscreditvshousepricescq8.jpg

Strangely, I very rarely see any mention of these kinds of analyses in newspaper commentaries, REIx reports, HIA, BIS etc…

So either I’m looking at the data all wrong, or there is nothing to be concerned about.[blink] Or perhaps they don’t want to upset the bandwagon in case the music stops…

I’d better point out that half of 2005, all of 2006, and 2007 were based on ‘projections’, the rest is real data (nominal, not CPI adjusted).

F.[cowboy2]

I hear you, and I like the way you think. It would be better of course if we could first ensure that most of the air was in the hands of the Baby Boomer generation, because frankly, we can’t afford to pay the pensions and health-care that they feel they are entitled to. So if they hold most of the air before we create an air boom (or air-bubble if you like), they’ll end up exceeding the assets test and lose pension and health-care entitlements…. Of course they won’t be able to sell their air – they need somewhere to breathe after all, so we’ll have them TRAPPED! MuhawhaHAHA!

I see only one potential flaw in your plan – what if they realise that their air-bubble is over-inflated? What if they fall out of love with air? What if the air-bubble bursts? What if they ran up hundreds of billions of dollars in debt to ‘fund their retirement’ through air-investing? What if they saw their air-wealth going up and p_ssed it against the wall – living large instead of saving dilligently for retirement? They’ll end up worse off than they were before, and will need more pension and health-care funding! What will we do then?

Ah, I hear your whisper, “We’ll just tax the heck out of Gen’s X and Y!”.

Oh good, good plan. Let’s proceed then.

F.[cowboy]

Lol too pessimistic for me, and also too one sided. You discount super, you discount poulation growth, and immigration.

Yes our trade deficit is not good, yes we have too much debt, but is it all going to fall in a heap – maybe but we are not close yet, and there is still money to be made till then.

Regards
John

Inspired Finance
(02) 9944 7776

[email protected]
http://www.inspiredfinance.com.au

My point was best expressed by Mervyn King, governor of the Bank of England, when he said:

“House prices are a matter of opinion whereas debt is real.”

OR, to relate it all back to the original post by Celeste, see this article:

Sydney Morning Herald

“See the point? We took the benefit of lower interest rates and used it to achieve little more than a doubling in the price of homes. The recently retired governor of the Reserve Bank, Ian Macfarlane, described this last week as “one of the great disappointments of the long expansion [of the economy] and the low interest rates”.”

“But whereas the boom redistributed money between individuals, from the viewpoint of the community as a whole the doubling of house prices leaves us no better off. The rise in our wealth is an illusion.”

*My comment* In fact, we’re worse off, as we now have (including personal and credit card debt) $1,000,000,000,000 to repay*, plus interest. Bummer.

F.[cowboy2]

*… and the repayment strategy for the majority? Hold long enough and capital gains will pay for the house. Problem solved. But where do capital gains come from? More debt of course… Oh…

A debt is debt is a debt. What is bad debt? Unsecured? Non-deductible? What is good debt? Tax-deductible? Positively geared? What if the debt is tax-deductible but holding costs (interest costs plus income minus management minus insurance minus rates minus land tax) consistently exceed capital gains? Good debt or bad debt? What if the property is positively-geared but incurs a capital loss? Good or bad?

In the end, the only certainty with debt is that it must be repaid…. With interest.

It’s important to note that in times of stable, non-inflationary monetary policy, capital gains are not consistently higher than borrowing costs. To assume that whatever you term ‘good debt’ must over the long-term result in capital gains in excess of costs may be an error of judgement. Otherwise surely there is no incentive for any person to work?

Regardless, I’ve shown that capital gains are the product of debt, so even ‘good debt’, resulting in net capital gains would require somebody else to take on even more debt. Good for you perhaps, but bad for our collective economy. And ultimately, unsustainable.

F.[cowboy2]

dont u mean 750k in debt each?