The focus needs to change from the 'property bubble' to the 'affordable housing crisis' in Australia. 'Crisis' may be a loaded word but I use it freely now, as it is being widely adopted by the Australian media, political parties, housing institutions and academics.
By discussing the alleged property bubble, we rely too much on speculation, from both sides. Of course home owners, investors, banks and governments do not want to see it happen – the only people who want 'the bubble to pop' are those who are, or feel, priced out of the market and resent it (and some well respected economists, but they too are speculating until it happens, if it ever does).
But the reality is this. Aside from the dire consequences a market crash could have on our greater economy and society – if prices crash, investors and first home owners will buy low, and eventually sell high, and the cycle will continue. Unless there is a dramatic change in policy and the way the housing market works in Australia.
What we need to address now is the issue of affordable housing – urgently for current generations, and of course, for future generations. We particularly need to consider low-to-middle income earners who are being affected right now (this includes key workers: nurses, police, firefighters, teachers), who are being forced out of the buyers market and into long-term, unaffordable rental conditions. These same people are being forced further afield from the localities they work in, and the divide between the 'haves and have-nots' is growing rapidly. There is a wealth of evidence (I can supply links to interested parties) that support the need for dramatic change. The discussion should no longer be about making or losing big dollars, but about social justice and protecting everyone's right to a safe place to call home.
if it seem this is the wrong place to talk about affordable housing, that reflects the shift needed in our investors approach to housing. And it reflects the shift required in our government policy to benefit those investors. My focus is now on moving towards what can be done about creating a better solution for both sides. I recommend reading this address given by Julian Disney at the Australian Housing and Urban Research Institute. It will make for a much more interesting discussion – one with, hopefully, the same goal for everyone involved. Investors want to make some decent money (nothing wrong with that) and low income earners want access to safe, affordable housing (nothing wrong with that), whether that be rental property or a home they can own, should be up to them – and within their reach. Seriously, I implore you to read this before continuing this discussion:
Affordable Housing in Australia
Some Key Problems and Priorities for Action
by Julian Disney (Director, Social Justice Project, University of NSW),
http://www.ahuri.edu.au/downloads/2007_Events/AHURI_Conf/Julian_Disney.pdfNational Forum on Affordable Housing,
Australian Housing and Urban Research Institute,
Melbourne, 19 April 2007NB: While this report is from 2007, it is equally relevant today. And given the increases in housing prices over the last four years, it is even more relevant now. Some of the initiatives discussed within this address were implemented by the Rudd government – so this is not lightweight fluff – I believe Julian Disney is on the right track, and I would welcome an open, level headed discussion, with any investors on this site – about the ideas he provides, and if you disagree with them, ways to improve the proposals. Let's hope we get past the 'bubble argument', which is becoming a bit like the 'culture wars', and lets hope we do something much more productive with our time.
Good post Wynyard and I appreciate the sentiment. But I don’t see the point in trying anymore – the government is not interested in making houses more affordable because it would upset too many voters and cause some short-term damage to the economy.
That report you linked to highlights the fact that the First Home Owners Grant only increases house prices, so what did the government do? Double it.
I’ve resigned myself to the fact that there’s nothing that can be done, except wait for the bubble, sorry “severe shortage of affordable housing” to correct itself.
"But I don’t see the point in trying anymore"
What did you try, when you were trying? I am trying to rally support, and once there is enough awareness of the crisis, and a clear policy direction that benefits all, encourage people to petition the government, and ideally, hold large scale protests in major cities. There are a lot of struggling people who would support a movement – IF – if they can be shaken out of the apathy you express (I understand the apathy, because that's what we are left thinking, 'nothing I can do about it'). But there are enough people trying, and enough people wishing 'for the bubble to burst' that I hold out hope for some direct action to replace the apathy.
Wynyard, to be honest, not much. I’ve fired off a few emails to the housing minister and set up http://aussiehouseprices.blogspot.com/ to get my thoughts down, but that’s about it. However, I’ve noticed much more influential people, such as Steve Keen, getting ignored.
But you’re right – that’s no reason to give up. Count me in for any protest you get up and running.
Nice one.
"Not much", that pretty much sums up this whole thing doesn't it?
Seems like the less YOU put in the more you want out.
I guess the petition will go along the lines of "Dear Sir/Madam, I would like a house for free as I am owed it by everyone else"
Count me out of any further discussion on this topic as it has obviously degenerated into a "you all owe me as I can't seem to make an effort"
If you lived in the dark old cave man days you would have to hunt for your own food. Maybe you would have been one of the ones who sat and waited until someone else hunted your food. Oh no wait, that wouldn't have happened, you would have been left to starve.
In a Utopian society, everyone would get everything, for free. Unfortunately this is the society we live in. And a few ingrates such as yourselves have no idea how lucky you are to not be starving on the streets as we have welfare and social housing.
I don't agree with everything that happens with the housing market, I do know that if I don't hunt my own food (houses) I will be left to starve. No one will give a whiner anything for free or even cheap much less a house. Even the argument about getting a 'cheap' house, 'cheap' is a subject term.
I am unsubscribing from this post, as there is really nothing further that can be said on this matter. Buy a house or don't. I will not be giving you one for free.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeWhy so angry DWolfe? You’re surprised I haven’t done much to pop the Aussie housing bubble? You must think I’m more powerful than I am. I’m not looking for hand-outs or a free house – no idea where you got that idea from. I don’t ask for anything from the government. In fact, I’d be happier if they stopped the hand-outs, butted out of the housing market altogether and let it correct itself. In the meantime, I’m happy to sit on the sidelines and not get involved in the mania. I guess it’s just a bit frustrating that housing affordability was the number 1 election issue and the government responds with policies to keep prices high. In addition, the longer they prop up the bubble, the more painful the inevitable burst will be – which is in no-one’s best interests. p.s. did you enjoy my blog DWolfe?
I think one of the best ways to address the 'affordable housing shortage' is by encouraging people to realise that you don't have to live in an expensive city. There are some great, large and even smaller regional towns that have fantastic homes for much cheaper prices than those in the city. When i divorced four years ago i couldn't afford to buy a home in the blue mountains where i had been living for thirteen years ( and had owned two homes), so i moved to my 'home' town – a regional city of approx 30,000. Since moving here i have been the sole supporter of my three young children- bought our PPOR as well as three investment houses and two flats. I have done this on a beginning teacher's wage as i only finsihed my degree in 2007. So it can be done when you are an 'average' or below average wage earner.
I don't understand people who bemoan not being able to afford a home when they only look in the cities, especially people who don't 'have to' live in a city. We all make choices people – maybe some people need to reconsider the choices they have made or wish to make. They may be pleasantly surprised by what regional areas have to offer in the way of services, lifestyle and social opportunities- especially for families with young children.
I'll get off my soapbox now… LOL
NEWSFLASH: To all the folk who believe that property prices will tumble 40% – prove it! Go to your nearest open-for-inspection tomorrow and drop in an offer at 40% less than the asking price, together with all your documentation that supports your theory.
Who knows? The vendor might accept!
It's been said before: talk is cheap. There are people out there who believe property prices will go in cycles but trend upwards and they're betting their entire portfolios on it. In essence, they walk the talk, and you should too. So, if you're betting property prices will fall, then put in a reduced offer that reflects what YOU believe to be true market value. Stop talking and get with the program!
BTW, if property prices tumble 40%, you can drop me a line and I might just be distressed enough to sell at a 50% discount to current values. But hey, you gotta get in line and get in quick!
fWord – that’s a ridiculous idea – to put in an offer 40% below current market value, because of the expectation that prices will be 40% cheaper some time down the track. Although if I wanted to buy, I would definitely be putting in offers around 5% less than 6 months ago.
You could possibly argue that property bears could put their money where their mouth is by shorting the property-related market such as the banks.
If prices do fall by 40%, there won’t be any queues outside your place. Unemployment would have risen, sentiment would have collapsed and deposit requirements would be much higher – so if you were a distressed seller, I’d imagine you would take what you could get.
AussieHousePrices wrote:fWord – that’s a ridiculous idea – to put in an offer 40% below current market value, because of the expectation that prices will be 40% cheaper some time down the track. Although if I wanted to buy, I would definitely be putting in offers around 5% less than 6 months ago. You could possibly argue that property bears could put their money where their mouth is by shorting the property-related market such as the banks.What's so ridiculous about that? Importantly, something is only worth as much as a buyer wants to pay for it. And there's a bunch of folk out there now that are touting that property prices need to come down 40% or so before we are at true market value. Indirectly, they are bemoaning the fact that they can't afford to buy a mansion in the inner city because they are on $40K salary a year, and therefore the property market MUST crash and EVERYBODY else must lose money so that they can finally buy their house.
It reminds me of that famous saying, "It's not enough that we win; everyone else must lose."
So…problem meet solution: offer the vendor how much you think property SHOULD be worth and let the vendor decide if they want to accept the offer.
AussieHousePrices wrote:If prices do fall by 40%, there won’t be any queues outside your place. Unemployment would have risen, sentiment would have collapsed and deposit requirements would be much higher – so if you were a distressed seller, I’d imagine you would take what you could get.Well, I'm no expert. However my opinion is that even the government would be playing lap dog for the banks and doing everything they can to prevent house prices by collapsing in this manner. This is because if the property market crashed the effects would be widespread and the folk that are rubbing their hands in glee and waiting to buy bargain houses will not even be able to get finance to buy. More to the point: if the property crash did occur, these same fence-sitters would be spending the time making water in their pants rather than taking action to buy.
So these doom & gloom soothsayers will do nothing during a property crash. Prices eventually trend upwards again because people with some guts will buy, and these same soothsayers will be complaining again during the next boom. In effect, what have they achieved? They essentially watch 7-10 years of their life drift by and they are STILL left with nothing.
Besides, do these soothsayers realise that they too, would probably lose their jobs when the property market crashes, and as you say, unemployment rises? All I can say is, be careful of what you wish for…you could get more than what you bargained for. And on that note, never eat anything bigger than your head and don't try to look at a complex issue with a simple mind.
Digressing for a few minutes:
So often we read about home ownership being a 'right' that everybody has. Frankly, in today's world, I'm not sure what 'rights' there are anymore. There's certainly more 'wrongs' than 'rights' as far as I can see.
However, for a moment, assuming that home ownership is indeed a 'right', it's key to remember that there are houses out there for less than $200K, which virtually anyone can afford, with a degree of will power and a willingness to make sacrifices. Realistically, can anyone even hope to own something worth a few hundred thousand dollars without some degree of sacrifice? Haven't we learnt from young that we need to scrimp and save to buy a toy worth just a few dollars? Or that a teenager similarly needs to save in order to buy their first car that's worth a few thousand dollars? Why then should home ownership be any different?
Or perhaps when they were young, people bought absolutely everything for them and they never learnt the meaning of 'saving up'?
And no, these $200K houses are not a shack in a slum that is light years away from civilization and employment. They are nice, solid houses on a family-sized block of land and part of a region bustling with over 280,000 residents and about an hour's commute to the Melbourne CBD. And yes, you can take the train even if you didn't have a car!
And let me spell out the figures for the benefit of anybody who bothers to read this far:
Assuming that even if you borrowed the full $200K to buy such a house and cover the closing costs, and then did a principle & interest loan fixed for 3 years at 7.2%, we're looking at repayments of roughly $312 a week. Considering there are people willingly paying $360 a week (and usually more) to rent a similar house in the outer-eastern suburbs of Melbourne (which is more expensive than the outer west, BTW), suddenly the repayments on a $200K house don't look like much at all. At the end of 30 years, you OWN the house outright.
Who says people had to rent for the rest of their lives? Renting however, is way cheaper than owning.
Consider that the rent on a Melbourne outer-eastern suburb house is $360 a week and the landlord is paying the mortgage on a house worth $450K (assuming an 80% lend and hence a mortgage of $360K on a 7.2% fixed rate for three years). Even without adding in the agent's fees, rates, repairs, insurance etc, the landlord is out of pocket to the tune of $7,000 per annum.
Yes, that's right. Before all the bitter and angry-envious renters think the landlord is ripping you off and having high-tea by the bay, remember that your landlord is subsidising your housing, so that you have a roof over your head! In essence, they are doing what the government SHOULD have done. However we know that parliament is affected by the same inaction that plagues our doom & gloom soothsayers, so don't hold your breath for a solution from them, or you will die!
If people WANT a 'right' to home ownership, get off your butts and EARN the 'right' to do so. Either that, or rent. Besides, what's so bad about renting??
*Note: If the figures above are false, by all means correct me.
fWord, you said: “What’s so ridiculous about that?”
It is possible to have a view of where the market will be in the future while understanding that the market isn’t there yet. Think of it this way, if you think your investment property will double in 10 years, would you try to sell it for double NOW?
You said: “Well, I’m no expert. However my opinion is that even the government would be playing lap dog for the banks and doing everything they can to prevent house prices by collapsing in this manner. This is because if the property market crashed the effects would be widespread and the folk that are rubbing their hands in glee and waiting to buy bargain houses will not even be able to get finance to buy.”
I don’t doubt the government and RBA will do everything in its power to keep the bubble alive, but like every government around the world, they are powerless to force people to spend in a falling market.
You said: “More to the point: if the property crash did occur, these same fence-sitters would be spending the time making water in their pants rather than taking action to buy.”
Probably true – which is why the downturn will be so severe.
You said: “So these doom & gloom soothsayers will do nothing during a property crash. Prices eventually trend upwards again because people with some guts will buy, and these same soothsayers will be complaining again during the next boom. In effect, what have they achieved? They essentially watch 7-10 years of their life drift by and they are STILL left with nothing.”
Depends what they’ve done with the money they’ve saved while renting.
You said:” Besides, do these soothsayers realise that they too, would probably lose their jobs when the property market crashes, and as you say, unemployment rises? All I can say is, be careful of what you wish for.”
I believe the crash is inevitable so the longer the government tries to prop it up, the worse the pain will be. The crash isn’t the problem – it’s the (albeit painful) solution to the problem of rising house prices. A bit like chemotherapy is to cancer. So I do wish for the crash to get underway, but I can see that it won’t be pretty.
You said: “So often we read about home ownership being a ‘right’ that everybody has. Frankly, in today’s world, I’m not sure what ‘rights’ there are anymore. There’s certainly more ‘wrongs’ than ‘rights’ as far as I can see.”
Not sure if you’re referring to other posters but I certainly don’t see home ownership as a right.
Your comparison of a $200k house to the average rent of $360 p/w might have been a bit misleading. The rent on that $200k place would be more like $150 p/w.
Finally, your last example seems to highlight just how over-valued property is, how much property investors are losing, and the benefit of renting. So I agree with you there!
AussieHousePrices wrote:It is possible to have a view of where the market will be in the future while understanding that the market isn’t there yet. Think of it this way, if you think your investment property will double in 10 years, would you try to sell it for double NOW?Good point. I'm not trying to sell a house for double the price now (instead of 10 years time) because nobody would believe me. That is exactly the same reason why you're not hopping down to your next OFI and dropping in an offer that's 40% less than the asking price. But am I sitting around whinging that nobody believes my house will be worth double the amount in 10 years? No! I'm going to wait and prove myself right, and then I'll be laughing all the way to the bank. If my predictions were wrong, no big deal. I never publicly declared my beliefs so there's no chance I'd be embarrassed. And all the doomsayers should do the same: bide their time and wait for time to prove them right (or wrong).
And regardless of what happens to house prices, I'm just happy to have a house I can eventually move into and call my own. What emotional value do people put on a place they can call their own and nobody can remove them from their place of residence? Very high I presume. Hence the concept of the Great Australian Dream.
However the bottom-line I've been hinting at all this while is that, as with everything in life, there are two choices: action or inaction. We can choose to be proactive and take actions to have a chance to control the situation to steer it in a direction that is favourable to us, or we can just sit around and mope, which achieves nothing. For example, me complaining that a Ferrari is so expensive doesn't ensure that I can buy it at a lower price. What I should be doing is to find means to either save up more, hunt around till I find someone willing to sell it to me at a price I am willing to pay, or otherwise stick to driving my Corolla.
In property market terms, offer the vendor an amount for a property that you believe is fair value and see what the response is. If the vendor declines your offer and you think the house is too expensive, then look elsewhere and keep looking till you find something you're happy to pay for. This is like teaching people to suck eggs of course, because this is exactly what people should be doing whenever they're buying something that has a price which is negotiable.
AussieHousePrices wrote:I don’t doubt the government and RBA will do everything in its power to keep the bubble alive, but like every government around the world, they are powerless to force people to spend in a falling market.Sorry, just to clarify, do you mean the government has no power to force people to buy property in a falling market? The government has no power to force people to spend on anything. We are experiencing first-hand the effects of interest rate rises – the slow-down of retail and cutbacks on discretionary spending, people spending their money overseas on vacations or shopping online. There is a current complaint about how online shoppers are evading import taxes by purchasing in this manner (based on the limited amount I've read anyway). In reality, the real problem is the strength of the AUD. There will be fewer people willing to take a vacation here or send their kids here to study. Other nations would prefer to buy their products from elsewhere to avoid the costs associated with currency exchange.
AussieHousePrices wrote:Depends what they’ve done with the money they’ve saved while renting.Doesn't matter. If the property market does crash, virtually none of these guys will buy property because they will be too afraid. Or their perpetual mind-set that property is overpriced will continue to hinder their every decision to buy a house unless they get themselves into gear and start moving fowards. More likely, they will simply take joy in seeing they were right in predicting the crash. Or perhaps they'll be too busy predicting that prices will tumble another 40% and wait on the sidelines to buy. Furthermore, no bank in their right mind would loan money for property purchases to the people who need it most. In this case, a property crash doesn't necessarily bode well for those who dream of owning a house.
Let's say an average house in Melbourne that's currently worth $500K tumbles 40% to be worth $300K in the next number of years. The vast majority of working folk will NOT have this in cold hard cash to buy a property outright. They will NEED to take a loan from banks that will be absolutely unwilling to lend or are in the process of going out of business while the entire Aussie economy is in turmoil.
How many INDIVIDUALS here under the age of 30 (ie. Gen Ys, the people trying their hardest to move out of home, or who have already done so and don't yet own a house) actually have $300K of their own CASH sitting in their accounts accruing interest? I'd like to see a show of hands! If you do, very good, you are either a good saver, have an incredible job that pays you well each year (in which case, be thankful), or you came upon an inheritance.
A property crash is like a kiss of death to the dream of home ownership, not the solution to the problems that would-be buyers actually face.
In Singapore, I've observed this as a means of improving the prospects of home ownership: government subsidised housing. The government owns blocks and blocks comprised of hundreds of thousands of shoebox apartments that are sold direct to the public and on a 99-year leasehold (ie. at the end of that 99 years, the property goes back into the hands of the government and if you're left holding the hot potato at that time, it's value goes to zero and you get no compensation). The process is means-tested so that only select people will be successful in their application. Those who don't qualify have to buy these same apartments from private sellers who are on-selling them in order to upgrade to something else. And prices on the private market are some 30-50% more than government pricing.
These shoebox apartments are considerably less expensive compared to other private housing. They can be priced in the $300-400K range (in the 'suburbs') compared with a small terrace house in the 'suburbs' that fetch over $1.8 million. In Singapore's 'inner-city' areas, you could triple or even quadruple those prices. If the government in Australia is intent on adopting a similar strategy, they better get building now and build fast, like there's no tomorrow. But let's consider those prices for a minute. A shoebox apartment in Singapore costs $300K when in Australia you could get a nice detached house on a big block of land for that price. Is Australian property really overpriced?
AussieHousePrices wrote:The crash isn’t the problem – it’s the (albeit painful) solution to the problem of rising house prices. A bit like chemotherapy is to cancer. So I do wish for the crash to get underway, but I can see that it won’t be pretty.Even if it is the solution to the problem, but at what cost? This is akin to saying we should proceed with genocide so that we can boast of being a people united by one law or one religion. The solution to unaffordable housing is not a crash or a recession. The solution is increasing supply, using government subsidised housing as suggested above.
AussieHousePrices wrote:Not sure if you’re referring to other posters but I certainly don’t see home ownership as a right. Your comparison of a $200k house to the average rent of $360 p/w might have been a bit misleading. The rent on that $200k place would be more like $150 p/w. Finally, your last example seems to highlight just how over-valued property is, how much property investors are losing, and the benefit of renting. So I agree with you there!That's good. We agree that home ownership is something to be earned, not something given to us as a 'right'. Actually, the rent range of the $200K house I mentioned is closer to $180-260 pw (conservatively). What I was trying to prove however, is that for the people complaining about sky-high rents, there is a solution: buy a $200K house and pay it off on a 30-year P&I loan. For 30 years you will have a roof over your head that nobody can take away from you, and at the end of 30 years (or even less if you're able to pay off faster), you have a house that is unencumbered and entirely yours.
Haha, no, my point on investors losing money is not to highlight that property is over-priced. If that's how you interpret it, well and good, your opinion is as valuable as mine. What I meant to prove was that landlords are not out there to squeeze tenants for every drop of their blood and to house them up in shonky living conditions. Where would renters be without our generous, loss-making landlords and the 'over-priced' housing they own? Do we seriously believe the govenment is going to provide loss-making property for us to live in?
The vast majority of these landlords are renting these houses out with the intention of moving in eventually. There is a growing number of disciplined young folk who have taken to buying their 'dream house', not to stay in it immediately, but to rent it out while they are still living with their parents, or while they are renting cheaply with a bunch of other mates. Hence, these small-time landlords are about to prove to all of us what 'delayed gratification' really means – giving up the thought of buying life's luxuries now in exchange for a luxury that few people of their age would eventually have.
Truth of the matter is that a large proportion of these young folk would rather move out early, party at the clubs twice a week, mope about high house prices and then go out and buy a sports motorbike when their parents already gave them a car, or even buy a $3000 bomb and spend another $5000 tarting it up so it sounds like a sports car, or otherwise spend hundreds of dollars a month smoking, drinking, buying hair extensions and makeup or on a gym membership that they do not even use!
So going back to the most important point in all of this: we have to choose between action and inaction. If we want to be inactive, then stop complaining and be happy with what we have. If we want to actively control what happens in our lives, then similarly stop talking and get cracking!
A real life example is that of a colleague and myself: both of us knew we would not be able to afford a house if we stayed at our current workplace, which we dearly loved and had worked for over 3 years, BTW. So we stepped out of the comfort zone, are now working in new places, having to learn all the ropes again and build friendships and rapport with both colleagues and clients from scratch. My traveling time to work has also doubled (and for my friend, more than tripled). In exchange for this inconvenience we are drawing higher salaries which we know will put us well on the way to securing a house.
Progress was never achieved through inaction. And inaction is like quicksand. The longer you stand in it, the deeper you get and the harder it is to get out.
I agree that landlords are not out to sqeenze tentants dry. But I also wouldn’t call them ‘generous’ for providing a roof over people’s heads. Investor’s are (rightly) in it for themselves and they simply get the best rent they can, as the market dictates.
One thing I don’t understand is that you seem to approve of the concept of delayed gratification (as I do) when it comes to investors, but when it comes to home owners, inaction is frowed upon – i.e. you seem to encourage everyone to buy NOW. What about those people who are renting cheaply, saving hard, not asking for hand-outs and will buy a house when they can afford to do so, without going into debt that will put them into mortgage stress from day 1? That “inaction” is still a form of controlling your future.
If you buy beyond your means because you buy the line that house prices always go up, true there’s no landlord to kick you out – but the bank certainly can if you can no longer pay the mortgage. Just look at how the American dream to own your own home can turn into a nightmare.
One other thing fWord, we get bombarded with claims that prices always go up, and advice that if we don’t buy now, we’ll be priced out forever – from the media, from the property industry, the banks and even from friends and family.
You might not have declared your beliefs but everyone else has! So I think it’s unfair to ask us doomsayers to cop it on the chin and keep quite.
AussieHousePrices wrote:I agree that landlords are not out to sqeenze tentants dry. But I also wouldn’t call them ‘generous’ for providing a roof over people’s heads. Investor’s are (rightly) in it for themselves and they simply get the best rent they can, as the market dictates.Then it is the market dictating the cost of renting, is it not? And why should an investor charge rent that is under market value? I have even been advised by my accountant that you could get pulled up by the ATO if you undercharge in rent while claiming your regular deductions. In fact, I've been advised that the ATO will limit your deductions based on how low your rent is in comparison to the rest of the market.
Based on what I've read (ie. comments on articles and at forums), some people have the mistaken belief that investors have many properties and have a massive income from their rents. This would be less than a percent of your Australian wage earner. I'd dare say that, on the contrary, the vast majority of the investors on this forum are actually losing money on their investments every year. However, without sounding cliche, they are in the business for the capital gain (which they predict will occur), or otherwise ensuring they have a foot in the market so that they will have a house to move into when they finally want to stop renting, or if they are young and eventually want to leave the nest and live in their own home.
On an unrelated note: from time to time we hear of tenants absolutely thrashing a house to make it unlivable, or otherwise cause undue damage to a property that was rented to them in good faith, and then absconding without paying for the damage. Why do these bad tenants do this? Is it because they live like slobs? Maybe. Or is it because they damaged the property out of spite? Or out of the fury and frustration and thought that their landlord is actually filthy rich and owns multiple properties while they themselves are renting? That's a big 'maybe'.
So for those who have an axe to grind with 'property investors' as a whole, I implore you to please consider that these 'investors' are just like almost everyone else, trying to make a living and ensure a comfortable lifestyle in the fairest possible way. And if you're renting, please look after our (sorry, the banks') houses as best as you can. I'm not pointing fingers at anybody, but wow, the comments I sometimes read on some articles are just caustic.
AussieHousePrices wrote:One thing I don’t understand is that you seem to approve of the concept of delayed gratification (as I do) when it comes to investors, but when it comes to home owners, inaction is frowed upon – i.e. you seem to encourage everyone to buy NOW. What about those people who are renting cheaply, saving hard, not asking for hand-outs and will buy a house when they can afford to do so, without going into debt that will put them into mortgage stress from day 1? That “inaction” is still a form of controlling your future. If you buy beyond your means because you buy the line that house prices always go up, true there’s no landlord to kick you out – but the bank certainly can if you can no longer pay the mortgage. Just look at how the American dream to own your own home can turn into a nightmare.I don't believe I actually said anywhere that people should buy into property NOW, and neither am I suggesting people to overextend and take a loan that is beyond their means to service. If I did, then I must apologise because I wasn't thinking clearly.
The thing I urged was 'taking action'. And if saving, renting cheaply etc is what they're doing, then that's good. That's 'taking action'. When we talk about inaction, we specifically talk about the people who preach the topic of 'overpriced housing' continually and don't seem to have the drive to take a step forward. We advise these same people about WHERE affordable housing can be found, and that's where they COULD be buying, yet all they do is slump back into their seat and lament about 'overpriced housing'.
Does preaching about unaffordable housing ever solve any issues? Their time would be better spent doing the research on where they could buy, budgeting, working out finances, speaking with mortgage brokers, their accountant, reading as many books as they can to seriously prepare themselves for the day an opportunity does surface. And when that happens they should be ready to strike immediately.
And that's what I probably should be doing too, rather than trying to preach 'affordable housing is there if you look' to people who derive more joy from complaining about the state of the market! Let's just say I derive much amusement from engaging in such discussions outside my full-time job.
AussieHousePrices wrote:One other thing fWord, we get bombarded with claims that prices always go up, and advice that if we don’t buy now, we’ll be priced out forever – from the media, from the property industry, the banks and even from friends and family. You might not have declared your beliefs but everyone else has! So I think it’s unfair to ask us doomsayers to cop it on the chin and keep quite.Fair enough. People love to blow things out of proportion and indulge in sensational material (and this applies to both sides of the story). This is the exact same thing I've been told, and in all honesty it weighed in heavily in my decision to buy something. However, is there some truth in them saying that property prices will always go up? Perhaps. Inflation alone will push property prices upwards. The demand for limited space in 'trendy' or desirable areas will always be there. Will supply necessarily increase to keep up with that demand? Perhaps not.
If someone owns a block of land in a fabulous area, can you force them out of their pad, pull down their house and then build apartments for those who want to move in? Maybe, but only if you start a war and win, or if the country were extremely corrupt and things were in absolute disarray.
But let's take a step back and look at the concept again: action vs inaction.
What is the likely consequence of people claiming that property prices will ALWAYS go up? It is likely that, playing on people's fears, it will force people into action to buy, which then becomes a self-fulfilling prophecy that drives prices up. This is directly beneficial to the people who own property and proclaim that THEIR investment always increases in value.
What then, is the likely consequence of people claiming that property prices are overvalued and set to tumble to the order of 40%? If anybody thinks this will directly cause a crash and drive property prices down, then speak now. If, on the other hand, they agree that simply talking about a crash doesn't bring on a crash, then I rest my case.
Honestly, people can only attempt to predict the future based on what has happened in the past. It is because of this that I believe people consciously or subconsciously make certain decisions in life, or place bets, if you like. For example, if I was fined for running a red light in the past, I would clearly try to avoid doing it again. I'm not going to run that red light by betting I won't be caught this time around! If, however, I had run several red lights in the past and was never fined, I would bet on not ever being caught.
It is impossible to predict if a property crash will occur. It just seems easier to make bets on what is likely to occur, based on what has happened in the past.
fWord wrote:Then it is the market dictating the cost of renting, is it not? And why should an investor charge rent that is under market value?That’s right. I’ve never suggested that investors should under charge.
fWord wrote:The vast majority of the investors on this forum are actually losing money on their investments every year. However, without sounding cliche, they are in the business for the capital gain (which they predict will occur),If that’s the case, they are not investors, they are speculators and many will get burnt when capital gains dry up. When people are buying simply because prices are rising, not because the investment is sound, that is a pretty good sign that there’s a bubble. It’s the greater fools theory and it works – as long as you’re not holding the investment when greater fools run out. Do you not find it strange that a loss-making investment continually goes up in value?
fWord wrote:The thing I urged was 'taking action'. And if saving, renting cheaply etc is what they're doing, then that's good.Great – we agree there.
fWord wrote:However, is there some truth in them saying that property prices will always go up?No there’s not truth in it. Prices are crashing in many countries around the world. 20 years ago, prices in Toyko started falling and have still not recovered to their bubble prices.
fWord wrote:Honestly, people can only attempt to predict the future based on what has happened in the past.Yes, this is true. Where people go wrong, however, is they predict in a straight line – when prices are rising, they assume they will always rise, when prices plateau, they think it will be permanent and when prices are falling, they can see no end to the downturn in sight. In reality, markets move in cycles and what goes up beyond inflation and wages must come down.
ASX is back to pre – GFC 2008 level
DOW is back to pre- GFC level few months ago
Where is the CRASH? double recession etc….AussieHousePrices wrote:If that’s the case, they are not investors, they are speculators and many will get burnt when capital gains dry up. When people are buying simply because prices are rising, not because the investment is sound, that is a pretty good sign that there’s a bubble. It’s the greater fools theory and it works – as long as you’re not holding the investment when greater fools run out. Do you not find it strange that a loss-making investment continually goes up in value?This one made me chuckle a little. Certainly there is a degree of speculation with any form of investment. Taking a step away from property for just a moment, and not referring to anything in particular: Shouldn't a sound investment deliver a gain that eclipses the rate of inflation? Does anybody here actually invest money (and time) into something that is knowingly going to be worth less than what they paid for it? Anybody who does this needs to get their head examined. A lot of us put money into a safe and fuel-efficient car, clothes, basic furniture etc, all of which are things that depreciate and are worth less than when we bought them. To a large extent these are necessities, but people do not invest money into them.
Why would I buy shares, property, gold, silver, sheep skins, pig ears, or any manner of other commodity in order to lose money on them? Not unless I'm feeding the pigs ears to my dog or putting the sheep skins down in my living room to be used by my visitors. Of course, I invest in these things to get some sort of return, whether immediate or in the future. But if that's the case, is there an investor out there that does not speculate when they buy into some form of asset?
I typed the word 'speculate' into Google and got this:
"Invest in stocks, property, or other ventures in the hope of gain but with the risk of loss"
Then I typed the word 'invest' into Google and this was what I got:
"Expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture"
The point at where Google got it wrong was that they failed to mention the risk of a loss with investing. Where then is this fine line between investing and speculating? In both cases you hope for a gain but there is the risk that you could lose. In life there is no free lunch. If you want a result that is above ordinary, you have to take some risk. Then again, people could hole their money in the ground and risk their dog eating it for breakfast.
AussieHousePrices wrote:Prices are crashing in many countries around the world. 20 years ago, prices in Toyko started falling and have still not recovered to their bubble prices.Yes, prices have crashed in these countries. Why is it so? Are there an overwhelming number of similarities we can draw between Australia's property market and those of which have crashed? And believe me, I'm not touting that the Australian property market cannot falter. In life, we can only expect to be surprised. What I am interested to know is: what is it that caused other markets to go from gangbusters to disaster and what conclusions can we draw from them?
AussieHousePrices wrote:In reality, markets move in cycles and what goes up beyond inflation and wages must come down.Of course. That's why it's called a 'cycle'. The question is, what is the 'downtrend' that we're likely to see? Is it really going to be a crash where the property market falls flat on its face and prices tumble 40% like some pundits have talked about? Or are we more likely to see a 10-15% correction? If it's the latter, then that's a perfectly reasonable assumption to make.
fWord wrote:Where then is this fine line between investing and speculating?
Investors focus on the potential cash flows of the investment (e.g. rent / profitability / dividends). Of course, they might also hope that the value of their investment will go up as the potential future cash flow improves. Speculators aren’t as interested in the potential for cash flows. In fact, when it comes to property, they are happy to lose money and get a tax deduction, in the hope that capital gains will more than offset their loss. Therefore, they are speculating that the value is going to go up, regardless of what the underlying profitability of the venture is.
fWord wrote:What is it that caused other markets to go from gangbusters to disaster and what conclusions can we draw from them
I would sum it up as: fear and greed, sentiment and the herd mentality.
fWord wrote:The question is, what is the 'downtrend' that we're likely to see? Is it really going to be a crash where the property market falls flat on its face and prices tumble 40% like some pundits have talked about? Or are we more likely to see a 10-15% correction?
I think we need to see minimum 40% to get back to long-term trend, and to get back to historical norms of multiple of household income and rental returns.
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