My apologies yarpos, and sorry if I come across a little pessimistic regarding oil.

When I first started researching the matter it took quite some time before the reality of the situation sunk in, I find it tough to keep a smile on my face regarding my outlook on life nowadays. I know I cant control the future but it has taken its toll on my business and property accumulation. Its been quite a few years since I have been on this site. From memory SM was just entering the US property market, it would be interesting to know how he fared regarding that considering they have had a 25% average fall in price. I believe it there is much worse to come.

Currently I am researching productive agricultural land in areas that are of close proximity to Ocean access, and rail. From the research that I have done its helped me come to the conclusion that these parcels of land will be the ones of high value. The burbs are in trouble and I agree that inner city will hold some level of value too because of rail.

Such a waste of resources.

Elka

Now , something similar occurred with mortgages. In the 1970's , a mortgage of 2 or 3 times your yearly wages was considered normal. It was a lot of money. Then , somewhere around the 1980's, banks were lending more money to people, instead of people thinking "what can I safely afford to pay back each month" , it was now the banks who told the people what they could borrow. It started by shifting the 10 year mortgages to 15 years, then 20 years. If you can pay back 25.000 dollars in 10 years, who says you cannot pay back 50.000 dollars in 20 years, right ? So banks changed the standard mortgage times from 10 years to 20 years, thereby doubling the amount of money that people can borrow and spend on housing. People didn't think anymore in terms of what they could afford, but what they wanted. This was a major change in how people looked at real estate. Instead of a small 3 bedroom house, they now bought massive open plan houses with 4 , sometimes even 5 bedrooms. They had the money to do so. Then, banks thought, hey.. we're earning a lot of money here on these 20 year mortgages, what about we offer them 25 year, or even 30 year mortgages, and then 40 year mortgages ? And so , the amount that people borrowed double up again. At this time, they seemed to have reached a limit. You can't expect someone to pay off more than 40 years of their lives paying off houses , could you ? Since people's wages would only go as far at 40 years. ( from age 25 to age 65 on average )

But then the banks came up with the term 'household income'. Meaning that in a family of 4, you have 2 adults, and thus 2 incomes, basically DOUBLING the income, and thus they had a means to increase mortgages again, up to a massive 500.000$ AUD dollars , sometimes even a MILLION dollars , to be paid back over the next 40 years.

And so , credit was available to anyone. Because of this cheap credit ( 6% interest rates , compared to 18% just a few years earlier ) it meant people could borrow even more. And so the builders created ever bigger buildings, 6 bedrooms / 4 bathrooms / pool / 4double garages etc, because people had money to buy. The cheaper houses went up in price because developers would buy them up , bulldozer them and put up McMansions on there.

So why should houseprices not go up further you say ?
The answer is simple : We have now reached a social limit on the amount of money 'households' can borrow.

We have maximized the incomes ( two per household ). We have maximized the amount of hours that people want to work ( 50-60 hours per week on average, counting traffic hours etc ). We have maximized the repayment period ( 40 years ).

So we have people sitting with :
two incomes at 60.000 p.a.
40 years mortgage repayments
both working 60 hours

Unless we prohibit people from having kids and thus be able to keep this going, we're up for trouble. As now the double incomers want kids, or they get unemployed because of the incoming recession. Their HUGE mortgages are only sustainable if they BOTH work, and both work 60 hours or more, and have no kids.

This is the simple reason that we have now peaked the house prices , until inflation catches up with the houseprices. So we'll either see :
– Huge inflation catching up with houseprices. Wages will have to double in order to keep up with these house prices
– Huge houseprice deflation in order to get back to normal wage proportions.

Now, remember the huge country wide debts I was talking about in the first part of this post ?
Well , those, together with the individual debt levels, have reached 'breaking point'. Banks will not have the physical money available to service it all. So the governments ( USA ) are printing loads of money ( and by doing this, they are stealing YOUR future's money ). This also explains the high oil prices we see today.

Saudi arabia ( and other OPEC countries ) are getting dollars for their oil. The dollar is nothing more than some paper with prints on it 'saying' it's 'worth' something. Now, if 1 country controls the printing of dollars, they can 'print' free oil , right ? Wrong. Saudi Arabia does not trust the dollar as being worth what USA says it's worth anymore, hence the high oil prices.

It is perfectly logical from a Saudi point of view : They give away oil and get back freshly printed paper in return. Those dollars are only worth whatever someone else will give for them. If europe says they don't want the dollars, they can't use them for anything , maybe toilet paper. Hence, they want MORE of the dollars in order to make up for any future devaluation of the dollar as a result of the frenzied USA dollar-printing that has been going on for the last years. This is what inflation really is.

Now, we can even compare that to house values. A house is only worth what any fool will give you for it. If Michael Jackson decides to buy your house for 1 million dollars, does this mean it's 'worth' 1 million dollars ?
It sure doesn't. It's worth whatever Michael Jackson can sell his house for. We're in a same kind of situation now.
When people have a lot of money, they tend to spend more money.

Now , with so many houses up there, and not a lot of people that want to buy them , you would expect people wanting 'more houses' for their money ( "more oil for the dollar" ) or , same house for less money.

When you remove the existing buyers ( people who own a house and who need to sell it in order to buy another house ) from the market ( and with everyone being locked in at 40 year mortgages that's now happening ) and the new buyers too because of restricted credit on top of overpriced houses, house prices will have to come down for the new buyers to get in the market. By pulling houseprices down, the existing buyers will lose money and thus the only real buyers left are the FHB's. These FHB's are outpriced by the homeowners. This friction has to give somewhere, and it will result in houseprices dropping.

On top of all this, Australia has a unique problem : Negatively geared property investors ( the likes of those on this forum ). When houseprices drop, the banks will foreclose the house. ( read the small print in your contract that says that if the amount of money due is higher than the valuation of your house you HAVE to pay the bank the difference back ). So, we get foreclosures of the investors. Those investors usually have 2-3 ( sometimes 20 ) properties that are all interlocked with equity. ( ie : they have bought a second home using equity on the first home, and a third home with equity on the second and first home, and a 4th home with equity of the 3rd, 2nd and 1st home etc ). So if the 1st home goes, the whole chain goes. This means we'll see a lot of properties on foreclosure auctions soon. Whole chains of properties.

This is reality, it's not something I make up. Do the maths, and you will see that I am speaking the truth.