- Originally posted by L.A Aussie:
[The average punter is still optimistic and still spending over here. That’s precisely the problem.
They may not have that option, what with the subprime MBS scandals and losses moving into the higher rated MBS and the Federally-sponsored ‘Freddie Mac’ publicly stating it will cease purchase of risky loan products .
More here
Some commentators are suggesting that as much as 25 – 30% of recent loans have been made under lending standards that are no longer available. Presumably such borrowers only used negative amortising / 100+% financing / no-doc or a combination because they needed to in order to get the loan (otherwise why pay the higher interest cost?).
If these reports are correct, as much as 30% of demand will evaporate shortly, and frankly, the housing market was already in decline!F. [cowboy2]
Daniel Lee – I would be wary of taking up camp with a bunch of property bears. people have talked property up AND down for years and I can’t think of a time that it hasn’t been substanitally cheaper to rent than to buy AT THAT POINT IN TIME. if I had rented for the past 25 years it would have been a personal financial disaster. if you really aren’t sure then:
– buy a property, claim any grants you may get
– then move out and make it tax effective
– rent elsewhere.pay the property off as fast as you can and if the world collapses or the sun dont shine tomorrow, then at least you have a roof over your head that has been part funded by tax breaks.
Originally posted by AUSPROP:people have talked property up AND down for years and I can’t think of a time that it hasn’t been substanitally cheaper to rent than to buy AT THAT POINT IN TIME. if I had rented for the past 25 years it would have been a personal financial disaster.
Many people followed this kind of logic during 2002 and 2003 in Sydney and Melbourne. Many of those people have had, or are facing a “personal financial disaster”. Most of the others are holding on, but losing $10,000 to $15,000 per year in interest payments (above the cost of renting the equivalent home).
If they’d chosen to rent 4 years ago they would have the tidy sum of ~$70,000 to put towards a better house for less money than they would have got 4 years ago! Hardly a personal disaster. Even if they’d frittered away their savings, they’d have enjoyed a higher standard of living and still not been any worse off!
I think I was fairly even in my response. Ultimately it’s a personal decision. Weigh up the risks and rewards on either side, giving fair (not even) weighting to each outcome occurring, be sure to cross out those that have 0% chance of occurring (house prices to double in 7 years for example), then choose your path and take ownership of whatever path that is.
F. [cowboy2]
F,
I gotta hand it to you for consistency…..you’ve been bangin’ that negative drum of yours for the full two years that you’ve been on this forum as a member.
You have come up with a massive array of thoughtful, well researched data about why the sky is going to fall in. BUT, you have consistently avoided my questions about what you would have or did invest in.
It’s OK to pour cold water on property if you wish, but instead of telling us 10 or 15 reasons why you think property is inevitably headed downwards, tell us 5 or 6 reasons why you WOULD invest in something….and what that something is.
Whilst you’ve been dissuading everyone from property investing, the wife and I have been taking action on a reasonably large scale….to the point where that investing reward from our risk taking endeavours has grown (Bank’s Mortgage Valuations came in last week) by about $ 80K p.w…..every week, for the past 2 years. This has literally set us up for life, and we now compete against super funds and institutions for prime CBD properties.
Keep on encouraging the newbies to be cautious and rent, so that they don’t make the plunge…..but they should know it’s going to cost them a fairly large price to listen to your naysaying.
All I can recommend is do your DD, play your cards smart, grit your teeth, get disciplined and get cracking. Time is ticking.
Originally posted by Dazzling:F,
I gotta hand it to you for consistency…..you’ve been bangin’ that negative drum of yours for the full two years that you’ve been on this forum as a member.
Thanks Dazzling! [thumbsupanim]
BUT, you have consistently avoided my questions about what you would have or did invest in.Not strictly true, I’ve made various statements concerning my investments over the years, including in answer to questions from you! Example:
Posted 02/08/2005, 12:48:00to answer your question Dazzling, I’ve invested in the repayment of all my debt over the last 18 months. Spare cash is invested in oil, base & precious metal shares (currently just BHP, ROC & GDR), physical gold & silver.
I have my eye on an approximately 45,000m2 property with subdivision potential (stca & rezoning) on the Victorian coast, but it would require a 30% drop in asking price to make the reward / risk ratio more appealing.http://propertyinvesting.com/forum/topic/18742/2.html
As an update, I sold the last of my shares in December – GDR, for a significant (~300%) gain. That property never sold and the owners never reduced the price. It’s no longer on the market.
I’ve a bit more gold and silver than I had then, but stopped buying when gold passed AU$720/oz.It’s OK to pour cold water on property if you wish, but instead of telling us 10 or 15 reasons why you think property is inevitably headed downwards, tell us 5 or 6 reasons why you WOULD invest in something….and what that something is.I’m all for cash. There is too little chance of gains currently in most other investments, too great a chance of loss. All with thanks to the debt bubble – too much money chasing too few assets lifted prices too high, leaving risk seriously underpriced.
The obvious response to this is to laugh!
“Haaa! CASH! After the tax-man steals half of your profits and inflation takes 2/3rds, you’re losing money!!!”
That’s fair enough. But I’m gaining purchasing power compared to many in my age-group, who are struggling just to stay solvent. These people can’t save a penny after paying the mortgage, bills etc. Meanwhile if I can save $500 per fortnight, I’m $500 per fortnight ahead! And I’m ready and able to move very quickly into any opportunity that arises.
I’ve got to admit, I still haven’t got around to selling my beach-shack yet. The emotional is currently beating the financial even though I am 100% certain there will not be a better time to sell it for decades… call me a hypocrite.
F. [cowboy2]
“Many people followed this kind of logic during 2002 and 2003 in Sydney and Melbourne. Many of those people have had, or are facing a “personal financial disaster”.”
Well that was then and we are in the now. My advice may have been different to a sydneysider in 2003, however with the market at or near bottomed and rents arguably on the up, I cant think of a better time to be looking to get in if you want to ‘time the market’.
Originally posted by AUSPROP:Well that was then and we are in the now.
Too true. But a couple of very simple mathematical equations can be applied to the now. These show that (as I’ve so often repeated):
- for house prices nationally to simply hold their current level, housing debt will grow to a crippling level. In my opinion, the amount of money that would be diverted to interest payments from other uses (consumption/investment) over the next decade would drive the economy into a severe and prolonged recession.
- if the market truly is “at or near bottom”, this implies that another boom is about to start. This would simply hasten the above problem, driving us into a sharper, deeper and longer recession (and removing all doubt that it would occur).
It’s that simple. I’m happy to be proved wrong. I’d love somebody to tell me that we’re about to have another boom of 1998-2004 magnitude and be able to back it up with some simple mathematics that prove their claim to be possible.
eg.
Debt = Debt + Debt Growth
Debt Growth = Turnover pa x average price x 0.7 (0.8?)
Debt servicing cost = Debt x Interest Rate
Debt servicing ratio = Debt servicing cost / Aggregate household net incomeObviously, that last little equation limits the ability of house prices to rise. The cost of servicing our debts cannot exceed our total income. Those who claim that house prices will forever grow on average at 7-10% pa (double every 7-10 years) while wages grow more slowly, are claiming that it can and will! [blink]
In fact, it can’t even come close. Where the tipping point actually is, is not so clear. I’d suggest much more than 25% would be nearly impossible. It may be much lower. Remember, roughly 1/3rd of income earners don’t have a house, another 1/4 don’t have a mortgage, so the other 42% of people would be paying 60% of their income in interest…
I’m about done here, having hijacked the thread and stepped on some toes. I just thought I’d better explain my rationale rather than appearing just to have quack theories.
Cheers, F. [cowboy2]
PS, will post a simple spreadsheet shortly.
Hi,
Foudation: Thanks for your insight. Most interesting as usual. Personally, I believe that with the increasing debt domestically, something has got to give. Something like what is happening (or going to happen in the US, maybe? LA Aussie: Any comments?).
In the end, best to do the due diligence (as mentioned by Ausprop), buy a place that requires some simple reno (so that it is cheaper), as close to its last rates notice price as possible (Read that in Anita Bell’s book) and location, location and location.
At the mean time, just save like mad. Personally, I do not intend to pay more than $180k for a 2 bedroom unit inclusive of transaction cost. So, I better work on improving my property knowledge so that I can spot to ‘deal of the week’ when it is time for my partner and I to buy.
Regards
Daniel Lee [specs]Regards
Sorry to interupt guys, but getting back to the education thing….
I am a secondary teacher, and the school I currently teach at offers a subject called Personal Finance. It is a compulsory subject for Year 10 students.
After reading this thread I talked to the teacher about the content that is taught. He said that mainly they teach information such as, Budgeting, Credit Cards, Investments (such as stock market). They do activities such as paper trading on the ASX website, and making their own budget.
The teacher said that most of the kids see the subject as pointless, as their parents pay for everything they want. The only kids who seem to take it more seriously are those that have part-time jobs and can actually put a budget into practice.
I asked whether they had thought of teaching something about financial strategies in order to be rich (eg, something like what Robert Kiyosaki says in “Rich Dad…”). I thought that maybe, if it actually captured their imagination to be rich, they may get really interested.
The teacher said that the kids just don’t care about being rich. At the beginning of the term they look at the effects of compound interest and how it is better to save when you are young, rather than in middle age or later because the money grows better. The kids’ opinion is that, if they can buy it now…why shouldn’t they.
They don’t seem to have the maturity to grasp the idea that, if they delay gratification for the first 10 years of their adult life, they could be overwhelmingly rich and get anything they want then.
This made me think that it is not JUST the education system that needs to teach kids this… It is ALSO a parents responsibility to teach their kids, and to teach them as early as possible (as Marc is… Congratuations on the saving success of your child!). Teaching them the value of money, and that it needs to be worked for, and that it can work for you if you manage it correctly, to pay yourself first, to buy assets and not liabilities, etc… etc…
As parents we can give our kids the keys to their financial freedom.
Kelly
Hi Kelly,
I know you are a secondary teacher, but when I was in year 5 our teacher introduced a great concept called “the class bank”.
We each got a fake bank book with a starting balance of $0. Good behaviour/participation/achievements was rewarded with $5 – $10 and bad behaviour resulted in $5 – $10 fines (a very effective strategy to curb bad behaviour when yelled out in front of the entire class)! The motivation for earning ‘money’ was “the class shop” which was open once a week and contained various trinkets of differing value. The most expensive item was a revolving porceline clown worth $800. I worked all year to get that clown and finally earned the $800 needed to purchase it. It is kind of like saving hard for a deposit to finally get a house. As a 10 year old, the clown appealed and the concept worked (although as previously mentioned, it took a while for the penny – pardon the pun – to finally drop). I would have loved the opportunity to build on this learning experience during high school.I guess the point is to get kids thinking while they’re young. Perhaps there is a creative strategy out there for teenagers to get them thinking before they blow their cash on expensive cars and become walking billboards for designer labels?
ha ha – reminds me of grade 7 when we had a class banking system and use to be able to buy auctioned items that people brought in. me and a couple of other guys somehow secured ourselves as the bankers and it was on for young and old… counterfeiting, theft from the safe, passbook fraud, you name it. the teacher must have had suspicions about how we could afford all that stuff. At the end of term we had so much cash that we couldnt spend we ended up burning it. something in that for all of us!!
“as close to its last rates notice price as possible”
to what end is this? in WA rates are all adjusted at settlement anyway.
had a flick thru that pay off your mortgage in 5 years book a couple of days ago… there is some odd stuff in there i must say.
Originally posted by AUSPROP:me and a couple of other guys somehow secured ourselves as the bankers and it was on for young and old… counterfeiting, theft from the safe, passbook fraud
A bank creating ‘funny money’? Now why does that sound familiar?
At the end of term we had so much cash that we couldnt spend we ended up burning it.The supply of money became so plentiful that the value of money was destroyed! Again, where have I heard this story*?
something in that for all of us!!Yes! Let’s stop the banks from printing money at rates in excess of 10% per year or we’ll destroy the value of our dollar! Also, don’t trust lenders. And kids are horrid.
Thanks for the laugh.
F. [cowboy2]* Possibly 1920s Weimar Germany, 1940s China, 1980s Argentina or Zimbabwe today.
Quote:Originally posted by daniellee:Hi,
Foudation: Thanks for your insight. Most interesting as usual. Personally, I believe that with the increasing debt domestically, something has got to give. Something like what is happening (or going to happen in the US, maybe? LA Aussie: Any comments?).
In the end, best to do the due diligence (as mentioned by Ausprop), buy a place that requires some simple reno (so that it is cheaper), as close to its last rates notice price as possible (Read that in Anita Bell’s book) and location, location and location.
At the mean time, just save like mad. Personally, I do not intend to pay more than $180k for a 2 bedroom unit inclusive of transaction cost. So, I better work on improving my property knowledge so that I can spot to ‘deal of the week’ when it is time for my partner and I to buy.
Regards
Daniel Lee [specs]Hi Danielle,
I have been following this thread with great interest as it does concern me that the current generation of kids/adults seem oblivious to their future of poverty, given their financial habits.It is even more worrying when there is an absolute wealth of financial education information freely available.
In my opinion the USA situation is similar to Aus, but on a much larger scale, and from what I’ve seen there is only bad news looming as the average punter keeps spending. It is fueled by relentless ads, media scrutiny of the rich and famous who are living the life; keeping up with the joneses.
As people go further into (bad) debt, it must ultimately leave them with less and less to spend on housing, unless the Banks come up with new ways to provide finance to those who probably shouldn’t be getting it.
They are already doing this now to a degree; with products like 30 year fixed interest rates, ARM loans etc.
On the Aus front; I see increases in defaults and foreclosures, like here in the USA, increases in rents as more people are forced out of the homes they struggle to afford or are forced to sell. Fortunately for Aus, we have a much better wage system than the USA – we have regular, and in line with CPI wage rises, where the USA does not. So I think our problem will be deferred for a while as the average wage is still going up on a regular basis.
The minimum wage hasn’t gone up over here for many years, neither has the middle class income. This puts houses more out of reach and people don’t seem to care.
The best case scenario I believe is a long, drawn out recession where average houses don’t go up much in value over the short – medium term. It becomes even more important for investors to improve their education and due diligence skills to find a deal that will make money. It won’t be a case of buying something good and waiting 2 or 3 years for the value to go up.
The good news is there will be plenty of well priced properties to pick up for those in a position to do so over the next 2 years.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Sorry to interupt guys, but getting back to the education thing….
I am a secondary teacher, and the school I currently teach at offers a subject called Personal Finance. It is a compulsory subject for Year 10 students.
After reading this thread I talked to the teacher about the content that is taught. He said that mainly they teach information such as, Budgeting, Credit Cards, Investments (such as stock market). They do activities such as paper trading on the ASX website, and making their own budget.
Good to see some financial education at last, but it worries me that it is not balanced – too much emphasis on the stocks and shares. It’s a similar scenario over here. All the media focus is on the stock market and the big investment houses are relentless on tv as well.
There is an agenda for sure. The next big industry is finance – big money in lending these days. Pity it’s for mostly for consumer debt on their home Line of Credit.Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
People hoping for a solution to inceasing debt need to understand the moeny system. I don’t think most people understand that debt has to increase. The money system IS debt. The banks create money by converting private debt into money. It is impossible for everyone to ebolish their debt. To repay one loan, more must be loaned because the interest simply does not exist, it must be repaid by creating more private debt. This is why a certain percentage of loans always fail, it doesn’t matter how successful companies are, a certain percentage must fail because of fractional reserve banking.
The problem here is that without huge economic reform you can’t expect debt to ever lower. Infact if we hit economic troubles, this will only result in a very low interest rate that will encourage loaning of money (see japan).
Hi L.A Aussie I trust u r well … just a comment IMHO of the financial education in schools …
I believe schools should be teaching …
The effects of credit card debt and how to manage with out them.
How much a car lease costs to a wage earner and how much that money could be worth in the future if better spent.
The dangers of interest free store accounts
Stats on teenager debt
What happens to your money in the stock market if the company you invest in goes into liquidation.
Just a few ideas – maybe others could add to this – every person is talking about spending but what happened to good old fashion saving ??? or is that a disease.
wealth4life.com wrote:I believe schools should be teaching …
<snip>
How much a car lease costs to a wage earner and how much that money could be worth in the future if better spent.Ha. Yes, every time I see a P plater buy a new or near new 6 cylinder car…
(When did they start doing this? Thirteen years ago, 'sweet wheels' meant anything less than a decade old that your nanna wouldn't drive… or an EH or FJ wagon)
Anyway, back to my point. I just want to shake them and say…
"Do you realise you could have bought a cheaper car, invested the difference, and retired 5 years earlier?"
Or if they bought the car on a 7 – 10 year plan, "10 years earlier"?Not that I believe they shouldn't have the choice, just that I don't think they've been taught to think like this.
Quote:every person is talking about spending but what happened to good old fashion saving ??? or is that a disease.It's a disease. It's a social disease.
Talking about money marks you as greedy and scroogeish and 'rubbing one's face in it', especially to indebted people who go paycheque to paycheque. Yet they can live in an enourmous house, drive a horrendously bling-bling car (of course with a superflous 'rear-wing'), have the latest doodads, wear clothes that look like billboards and talk endlessly about expensive holidays…. notice any hypocrisy? One person can't talk about what they do with their earned and saved money, the other person can boast (or bling) about what they do with their borrowed money!
Don't get me started on budget shopping… briefly though :-p… for example I get all my toiletries, kitchen and laundry supplies for 1/4 to 1/2 price from a discount warehouse kind of shop. The look of horror that passes over the face of people when I tell them… why? The stuff is the same as in the supermarket, I just get to keep an extra $20+ per month. And when did supermarket shopping become classy anyway?
Then you've got the money/investment magazines constantly reviewing "the best credit card deals". Duh, stupid. The cheapest credit card is the absent one. I don't have one, won't ever have one, and don't need to read how many dollars I can "save" by switching to Virgin…
Just getting warmed up here…
F. [cowboy2]
Good work F;
as I read that last post I thought I was listening to myself talk. We are definitely the minority you and I and most of the forum – sad, I know.
Over here we buy as much of our shopping at the 99c store as we can, and whatever else is left on the list we go to the local supermarket with the rewards schemes.
We are not cheap though; our lifestyle is very fulfilling. If I can find a way to save another ten bucks I find it. But you know what; those savings pay for our trips around the U.S – something almost no L.A locals ever do. Go figure.
You are right about the blasphemy that is talking about money. As much as we would love to, we cannot talk to any of our family about it (not bragging; we have achieved the most wealth and with no help) but do you think any of our family ask for help or advice, or "how did you do it?". No; instead they talk about us behind our backs.
Hey guys,
Have been reading this thread for a while and thought I would put my 2 bob in.
I do totally agree that getting into debt is just too easy nowadays. A friend of mine is on $45K a year, rents in Brisbane CBD and pays $320 a week rent for a tiny unit and now he is going into debt to buy a car. He says he is going to start saving to get into PI but every week he has new gadgets and goes out every weekend drinking. He is my age (25) and we have completely different views on money.
He had an easy upbringing in the UK, parents were quite wealthy so gave him everything he desired. I left school at 16, wanted to go to Uni but had to leave to get a job as we were a single family and I needed to help mum with the bills. My twin sister and I paid everything during our teens, never went out drinking with our friends and basically went from pay cheque to pay cheque. Mum couldn't work as she was ill so it was pay back time for all the years she struggled looking after us through school. She is now 63 and has gone back to work. I love her dearly but am trying my hardest not to end up like her – working at 63. She has no assets, apart from 5 gorgeous kids and is still struggling to make ends meet.
I came over to Australia last year from the UK with my Aussie husband. We have brought some land on the Gold Coast and are currently building a house. Every dollar we earn is either going into our loan or into our bank account. Sure we have some luxuries now and again and even go for a curry on a special occasion but are adamant to not end up broke at 60.
Kids coming out of school have no idea of the differences between an asset and a liability and no idea of the value of money. This will be different when we have kids. We will be teaching them financial literacy and how important is it to not squander your hard earned cash.
I have been reading this forum for around 5 months now and can't say how much it has helped us in realising our goals and pushing us to achieve financial freedom. Thank you to everyone who has replied to my threads and contributed to this forum
Ems
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