a quick questions if I may fword and ummester… fword you state (sorry dont know how to make it do what you do)
"(24% or so) of Australian households being renters and without a mortgage. Furthermore, another some 30% of Australian households fully own their home with no mortgage on it whatsoever"
Can you further clarify where these numbers come from? Is it the section of the market that is not under 18 etc or is it the whole population? The reason I ask is the numbers seem high.. If we then take out the kids it seems that the motgage holders are actually the minority. (whats the percentage?)
If this is true why is it that govt and RBA use interest rates to slow the economy…?
Intrigue,
exact numbers are quite hard to find but housing bulls and bears generally agree there is a 3 way split in how the whole of the Australian population is housed – has been for a while. 30 odd percent rent, 30 odd percent have a mortgage and 30 odd percent live in a house that has been paid for.
Now, FHB numbers are right down. In 2009/2010 they were right up. Overall it averages out to around 25-30% of the market and provides the leverage to keep it boyant.
What these numbers don't take into account is wether or not the paid for houses have been refinanced for IPs or older people living off equity. They also don't show how the IPs are divided. As the amount of Australians claiming NG benifits in the past 10 years has almost doubled, it would mean that for the 3 way split to persist many IP owners must also rent.
The numbers also don't show vacant property or land held for capital gains. On average our cities carry a 2-5% vacant pool for rentals but census results usually show a much larger number of vacant houses (7-10%) per city.
All this aside, a three way split is generally accepted.
Yet, as you suggest, for IR increases to be such an effective blunt instrument, more than 30% of Australians must have some form of mortgage debt. How this debt is divided amongst how many people remains to be seen.
edit – i should just clarify, to simplify, that although around 25-30% of residents are housed via rental and 30% have paid their PPOR off, that does not mean that 30-40% have a mortgage. It means 30-40% have a mortgage on their PPOR. If 1/3rd of the renters have an IP and 1/3 of the owners have some kind of finance, then at least 50% of Australians have housing debt. Does this make sense?
ummester wrote:Because around 4x income is the local historical standard and the globally accepted standard. I have no other impartial standard to go on. New Australian standards are set by vested interests and therefore not impartial.Question, if I may: Who set this as the 'globally accepted standard'? If this is the case, then property in Singapore is at least one other basket case I know of where such a standard doesn't hold true. My suspicion is that this is the case in Hong Kong as well, based on what one of my old colleagues used to tell me. There is no doubting that property in Australia is expensive, but only time will tell if figures such as 9X income will become the new 'norm'. The 'expensiveness' of property is not really a reason why it has to conform with previous 'norms'.
ummester wrote:Perhaps I'm not quite as cynical yet – though I am cynical. I believe that alturism still exists – just not in a pure form.Then that makes two of us. Careful with what you read. Altruism does exist, but what I mentioned in my previous post was a disbelief in the existence of altruism in the context of of a GetUp campaign educating the public about the risk profile of Australian property.
ummester wrote:I've read about the guy who was behind the NG campaign. He already has a house of his own, so I don't think that was his primary motivation.And this would make me doubly suspicious of his intentions. What exactly is his true agenda?
Debates such as this one clearly show the marked differences in thoughts and values between homeowners and would-be FHB. Rarely do their thoughts and values overlap to any significant degree. Hence, a homeowner who is willing to buy seemingly 'overpriced' property, and then campaign against NG strikes me as bizarre.
However, we could look at what happened in the past when NG was briefly removed. It led to an increase in house prices and rent. Perhaps this is his true motivation after all.
ummester wrote:High house prices, by way of inlated rent, also effect those who wish to study here.Not entirely. University hostels do not have to raise their rents or boarding fees based on increasing house prices alone. Such hostels resemble almost a commercial entity rather than a residential property. Consider also 'home-stays', families who allow a student to board at their house…they do not need to increase their fees because house prices are high.
ummester wrote:A thriving economy with high house prices is better than a slump – if it is sustainable. Trouble is, it isn't. This is why those historical and global averages I mentioned before are a good yardstick – they represent sustainabilty. Without sustainability, deep seated problems always take root.We are living in a time of rapid change and we've seen a lot of curveballs in the last decade. In the end, I can only expect to be surprised. While average house prices sitting at 4X average income could be a 'yardstick' now (or should I say 'historically'), I wouldn't necessarily expect it to hold indefinitely.
It would be easy to say prices are not sustainable, because it's true to a certain extent. The housing market has its cycles, and arguably as such, prices are not sustainable at any level, but that level is continually changing. It would be very interesting to see if prices would in the future crack through the 9X barrier, or as you say, fall back to historical trends at 4X.
I'd be extremely interested to observe Melbourne's median price fall by more than half, if this occurs.
ummester wrote:http://www.theaustralian.com.au/business/opinion/rba-and-government-incentives-hurt-housing-market/story-e6frg9qo-1226036868376This article kind of sums up what has happened with IRs and housing stimulus in Australia since 2008.
Speaking of stimulus, the other thing I'm watching with interest is for the effect of stamp duty cuts for FHB starting this June. Frankly, I suspect the effect would be minute, given the current state of the housing market and interest rates.
Intrigue wrote:Can you further clarify where these numbers come from? Is it the section of the market that is not under 18 etc or is it the whole population? The reason I ask is the numbers seem high.. If we then take out the kids it seems that the motgage holders are actually the minority. (whats the percentage?)
If this is true why is it that govt and RBA use interest rates to slow the economy…?
These figures are from the Australian Bureau of Statistics at http://www.abs.gov.au.
fWord wrote:Question, if I may: Who set this as the 'globally accepted standard'?History and maths, as I understand it. Long term averages and the like.
fWord wrote:If this is the case, then property in Singapore is at least one other basket case I know of where such a standard doesn't hold true. My suspicion is that this is the case in Hong Kong as well, based on what one of my old colleagues used to tell me. There is no doubting that property in Australia is expensive, but only time will tell if figures such as 9X income will become the new 'norm'. The 'expensiveness' of property is not really a reason why it has to conform with previous 'norms'.Singapore has a true land shortage. It's like Monaco or whatever that place is, tiny island where a lot of rich people want to live, just minus the rich people:)
Hong Kong may be in a bubble also – time will tell. It hasn't stood the test of time like Singapore and Monacco.
Like you say, time will also tell with the Australian market but, if it stays high, it wont be for the same reasons as Singapore. Proves that what we are debating can not be known until it comes to pass.
Like I've mentioned on numerous occassions, I don't think a crash is a good scenario for Australia. At the same time, I don't think further increases in the short to medium term are possible without major stimulus. I just think that a crash or large correction looks like the most likely outcome now, not the preffered outcome.
fWord wrote:And this would make me doubly suspicious of his intentions. What exactly is his true agenda?Debates such as this one clearly show the marked differences in thoughts and values between homeowners and would-be FHB. Rarely do their thoughts and values overlap to any significant degree. Hence, a homeowner who is willing to buy seemingly 'overpriced' property, and then campaign against NG strikes me as bizarre.
However, we could look at what happened in the past when NG was briefly removed. It led to an increase in house prices and rent. Perhaps this is his true motivation after all.
I'm sure I've mentioned this before – rents and house prices didn't increase when NG was removed in the 80s. It is a myth. Rents only increased in Sydney and WA (they were on there way up due to shortages anyway). Prices didn't increase either. In fact, they looked poised to decline, when the grandfather clause expired, which is one of the reasons NG was re-activated.
As for the NG guy – he may have brought before property was overvalued (mid 90s say) or has done the maths and realises that it won't correct lower than what he paid for it (probably any time pre 2004). He may only be forsaking gain he never expected to make for an ideal he believes is more important.
fWord wrote:Speaking of stimulus, the other thing I'm watching with interest is for the effect of stamp duty cuts for FHB starting this June. Frankly, I suspect the effect would be minute, given the current state of the housing market and interest rates.I tend to agree. Stamp duty cuts are nothing compared to the overall cost of the house.
Here's an article about more likely action the government will take to stop a crash. It's from a bearish commentator, so take the gloom with a pinch of salt by the focus on funding via RMBS is likely the focus the government will continue to employ.
http://macrobusiness.com.au/2011/04/plunge-protection-has-begun/
angelinsydney wrote:Hi all, I'm not an economist but I look around me, speak to many people struggling with cost of living, etc and I reckon there is no justification for the high interest rate. It has to come down a tad. Intellectuals, over to you… AngelSo Angel, you gained any clarity with all that info………lol
Im still with you they need to come down a tad…..a tad more confidence is needed for the average punter out there I agree
http://www.meriton.com.au/default.asp?action=article&ID=184864
Building the average four bed two bathroom house with all the finishes would cost over $200,000 in many areas( just house no land). So even if you where given a block of dirt you would run close to going over the 4x ratio.
Now find a desirable block of dirt and the ratio will climb quickly.
Unless we see a major drop in new housing costs or free land. We will not see a 4x ratio(single income) . More likely a flattening or slight correction coupled with climbing waged will improve things but 4x may just be a distant memory. 6x + may be the new 4x.
Cheersummester wrote:Your dog chasing it's tail analogy is interesting and reasonable fword – both sides of the affordable housing debate end up doing this, as you say. Trouble is, looking away from our own tails, we still see them in the big picture.I'd say – Australia stands alone in the world as not having a housing correction.
You'd say – Australia is different.
I'd say – No it isn't.
And we'd start chasing our tails again.
Yes, I think a 200k house is well within average affordability limits for wages in this country. No, I don't think the bottom of the market represents proof of affordable housing.
Av full time wages are approx 65k and av overall incomes are approx 55k, therefore av housing should be 60k x 4 (perhaps 5 in higher income cities) making them 240-300k. That is average housing.
Other housing still needs to exist for the lower income brackets in the range of 150k (approx). Wether or not all this housing has to be close to major cities is debatable, wether or not it has to be close to a source of income is not.Now, look at Sydney, ACT or Darwin and find me anything advertised less than 300k. Some may be selling for less now, meaning vendor expectations are unrealistic but none are advertised as such.
As for impressing ideas on the government – that is exactly what getup campaigns are about locally and IMF repoprts are about externally. These types of things add to global (and a little local) realisation that Australian housing is a high risk purchase.
As to you and me debating this, we each come from the POV of our own tails. Niether of us seem to be in positions where we are sufferring because of house prices. We both just have an opinion on them. I wont buy something that I consider a rip off, that being my opinion and choice. You think the said item isn't a rip off and have brought, that being your opinion and choice. We are both entitiled to them and it does make for interesting debate, as you say.
I do feel badly for those on lower incomes then myself who are struggling with rent or mortgages (depending on their choices) but ultimately there is nothing I can do.
But the topic at hand is IRs. As they rise, the economy is slowing, on that we both agree. I still stand by the argument thay are not high, which you also seem to agree with for the most part.
Do you also agree that the primary reason the Austrlain dollar is climbing so high is because our IRs are higher than the rest of the developed world?
If so – let's look at this another way. If houses were cheaper, IRs could increase and not slow the economy – correct?
What is better for the country overall? High IRs or high house prices?
ummester wrote:History and maths, as I understand it. Long term averages and the like.Well then, let's just hope for the sake of FHB that history in this case wouldn't be just that: history.
ummester wrote:Singapore has a true land shortage.If that's the case then, a comparison between Singapore and Australia is comparing a country that has a true land shortage versus another that has an effective land shortage. Essentially, are they the same? No. Effectively though, the results are similar. Unless we know that the Australian government is well and truly planning to release more land (and land that is well supplied with infrastructure as well), then arguably, Australia can head the way that Singapore has.
And no, the average Singaporean earns no more than an average Australian earns, possibly even less, based on what my contemporaries are getting. They do not earn a 'shedload' (your word) more than anybody else in the world that allows them to falsely drive up property prices. Prestige property in Singapore however (eg. $35 million or so for a house) is a different animal altogether because property in that range exists only in the playground of the rich and famous who can indeed pay any price under the sun.
If we think we got it tough when it comes to buying a first home, we should consider how excruciatingly painful it is in Singapore. Not to mention that a tax on cars called the COE balloons the price of vehicles and causes your regular Toyota Camry to cost close to $100K.
ummester wrote:I'm sure I've mentioned this before – rents and house prices didn't increase when NG was removed in the 80s. It is a myth. Rents only increased in Sydney and WA (they were on there way up due to shortages anyway). Prices didn't increase either. In fact, they looked poised to decline, when the grandfather clause expired, which is one of the reasons NG was re-activated.
Yes, you did discuss this on another thread, together with a link to this article:
http://www.smh.com.au/articles/2003/08/24/1061663676588.html
So essentially then, what I read in the book, 'Renton's Understanding Investment Property' was absolute rubbish? Roight.
I didn't delve deep into the research and hence couldn't pull up a chart to show the trends in rent during that time, however I did chance upon this thread many months ago that does have a median house price chart dating back to 1985, showing the price movements in all capital cities. Was there a house price increase from 1985-1987? Yes, it looks that way to me:
https://www.propertyinvesting.com/forums/property-investing/general-property/4334669?
The rise after 1987 was even more steep, and the stock market crash at that time could have been a contributing factor also.
fword,
I never said Singapore had high wages? Quite the opposite. I said Monacco did and Singapore was unlike that.
An effective land shortage can always be made ineffective, a true land shortage can not. Besides, there isn't even an undersupply of housing in Australia – let alone land. There has just been an oversupply of credit fueled demmand.
Look at those graphs you posted again.
NG was removed in 85 and brought back in 87. The growth occured after it was brought back. When it was removed, prices were poised to decline in all cities but Perth and Sydney.
Isn't it nice how that graph doesn't show most cities before 1990? What's the bet that the 2 it does show are Perth and Sydney?
If you really want, I can find you some graphs that plot property prices against known IRs from as far back as 1890 and you can try and work out the actual trends for yourself.
The bottom line is this on IRs – they have and always have had an indirectly proportional relationship to house price in Australia. IRs down – house prices up. IRs up – house prices down. There is a lag on the price but the pattern persists.
I don't think IRs have ever been as low in this country for as long as they have the last decade or two. And now, they are not even high, and the economy is getting wobbly.
Australians can make all the excuses about it they want but the reality is that it is house prices and not IRs that are causing the wobbles.
As for the threads question: are IRs too high? The answer is simple. If you want house prices to remain where they are now then yes, IRs are too high. Ohter than that, no, they are not too high.
ummester wrote:I never said Singapore had high wages? Quite the opposite. I said Monacco did and Singapore was unlike that.My man. I didn't make that statement in response to your post. I made it in anticipation of anybody who might decide to argue that house prices in Singapore could be high because Singaporeans have a high salary.
ummester wrote:An effective land shortage can always be made ineffective, a true land shortage can not. Besides, there isn't even an undersupply of housing in Australia – let alone land.Of course, that I agree with. Just hope we can trust the government to fix that, if they will. And even so, let's hope they do so quickly. Again, I ain't holding my breath for the government to open up hectares of land on the fringes of capital cities, and supply them with the necessary infrastructure at the same time. People in parliament seem to spend more time bickering like children, rather than getting down on the ground level and fixing real problems.
ummester wrote:Look at those graphs you posted again.NG was removed in 85 and brought back in 87. The growth occured after it was brought back. When it was removed, prices were poised to decline in all cities but Perth and Sydney.
Isn't it nice how that graph doesn't show most cities before 1990? What's the bet that the 2 it does show are Perth and Sydney?
If you really want, I can find you some graphs that plot property prices against known IRs from as far back as 1890 and you can try and work out the actual trends for yourself.
I'd like to see your graphs actually, and if you can post them here all the better. This forum seriously needs some hard facts. However, looking at those graphs in the link posted earlier, I'm confused. Check out the last graph in the first post. Didn't prices increase from 1985-1987? They sure did, unless I'm reading it wrong. And yes, prices for Sydney, Melbourne and Brisbane go right back to 1985.
ummester wrote:Australians can make all the excuses about it they want but the reality is that it is house prices and not IRs that are causing the wobbles.Possibly. We can't rule out the possibility. But honestly I don't see the correlation. Big house prices accompany a thriving economy. A thriving economy should see less wobbles, not more.
Here are (longer) term IRs and prices. Still not as long as I promised fword but I will find them – just for you:
http://static.seekingalpha.com/uploads/2010/9/26/595019-128548078561902-Leith-van-Onselen_origin.jpg
http://static.seekingalpha.com/uploads/2010/9/26/595019-128548185597047-Leith-van-Onselen_origin.jpg
I wont give you the whole article – you wont like it.
Hi all, Hi beedie,
I read all responses with interest. But it hasn't changed my mind. I still reckon the interest rate has to come down a tad if only to make me happy
. Joking aside, the people's confidence is shot at them moment, many big business falling under and small businesses struggling to make ends meet. I am aware that it is not the IR causing it but to a degree mismanagement and severe debt burden. however, it can't be argued enough how the economy needs help. The AUS$ also needs to come down a tad, our farmers and exporters are being hit badly.
Although, for those wishing to invest in the US, it is a good thing.
Enjoy the day.
Angel
angel,
If IRs come down, it is likely the dollar will also.
On 'your money, your call' (I think that is what the show is called) last night, the RE section was speculating the lenders would lower IRs with or wothout the RBA by the end of the year. That seems like wishful thinking. But, if the RBA does lower, the lenders should follow with some, if not all of the cuts. Lenders have to increase their margins but it makes sense that they pass on something.
ummester wrote:Here are (longer) term IRs and prices. Still not as long as I promised fword but I will find them – just for you:http://static.seekingalpha.com/uploads/2010/9/26/595019-128548078561902-Leith-van-Onselen_origin.jpg
http://static.seekingalpha.com/uploads/2010/9/26/595019-128548185597047-Leith-van-Onselen_origin.jpg
I wont give you the whole article – you wont like it.
Thanks for posting those. The second JPG in particular was very small and I had trouble making out the words in those graphs. Does a larger version exist in the article itself? I think it matters not whether we will like the article or not. All the better if you can post it up here.
fWord wrote:ummester wrote:Here are (longer) term IRs and prices. Still not as long as I promised fword but I will find them – just for you:http://static.seekingalpha.com/uploads/2010/9/26/595019-128548078561902-Leith-van-Onselen_origin.jpg
http://static.seekingalpha.com/uploads/2010/9/26/595019-128548185597047-Leith-van-Onselen_origin.jpg
I wont give you the whole article – you wont like it.
Thanks for posting those. The second JPG in particular was very small and I had trouble making out the words in those graphs. Does a larger version exist in the article itself? I think it matters not whether we will like the article or not. All the better if you can post it up here.
mattz found longer term house prices in his thread – I'm looking for just longer term IRs now
article was here
http://seekingalpha.com/article/227083-the-great-australian-housing-bubble
These IRs are a bit longer
http://www.loansense.com.au/historical-rates.html
If you compare them to mattnz long term house prices you can see the pattern just at the end
http://cdn.debtdeflation.com/blogs/wp-content/uploads/2011/04/041011_2142_ThisTimeHad111.png
From the mid 70s to late 80s IRs were higher and house prices were depressed, for example. Irs started to rise in 2007/2008 and house prices bacame a little depressed 2008/2009 then IRs were lowered again.
If I can find IRs further back, it looks more obvious. When one goes up, the other goes down and vice-versa
Oh, I should also mention, another interesting thing with the IRs shown here is the buy in periods they represent. 60s & 70s were when the BBs were FHBs, meaning there was more activity in the market. 80s were when a lot of BBs were buying IPs, again more activity. Demographics drive credit supply. When large groups of people are spending, the economy thrives and banks relax IRs – its a kind of chicken and egg thing but these patterns persist even longer back.
Hi usual gang
nice to see no one has changed sides
I don't know about interest rates coming down, but it would not surprise me if there were no further rates rises this year.
People are leaving their money under their mattress' and being in retail ….it ain't roses.
From a retail perspective, turnover is down, profit is down. Staff numbers have been cut, with no new staff being employed.
Retail in states like Vic and NSW provides quite a lot of employment. Mining in WA and QLD and SA will prop up those states.
We have seen a number of retailers starting to go into liquidation. Starting with Clive Petes, Borders/Angus and Robertson, and a number of other clothing retailers all starting to bite the big one of a lack of consumer spending.
Particularly in Melbourne where a lot of people spent a crazy 9 mths buying houses I think retail has been hit hard due to people paying mortgages rather than buying cheap junk.
I don't think retailers are blaming online shopping as much as they are blaming the rate rise that happened right before Christmas and the ongoing fear that is being perpetrated in the media.
I don't think there is a day that goes by where I don't read an article talking about a property crash, interest rate hikes, a new tax, a disaster, etc.
There are a lot of reasons for Joe Blow to be afraid and that is what is motivating people at the moment. Look at the price of gold, fear is driving that. This is going to be an interesting year to be an investor as it seems that the bargains are already starting to hit the market. Fear is driving the market and will continue to do so until people, like a herd of sheep, wake up and think hang on……..everything is fine and has been for awhile now.
The prices are dropping, but do you ever think that it may be unreasonable to ask $1.2 million for a house that is not even able to be used for firewood? Prices are NOT falling in suburbs that are around the $400-$500k mark which shows that people are still ok with that price.
Personally I think while everyone is running scared and Bubblephobia is the hot topic, I'll be going shopping. There'll be plenty of car spaces at the local shopping centre and everything will be on sale. Then I'll hit the real estate agencies, they are already falling all over themselves calling me, emailing me……now I can pick up some property at prices not far off what I paid 4 years ago. Then in a few or more years the cycle will come around again and people will be borrowing and buying and going bonkers because the sun will always shine… right? Well according to the herd mentality at least.
It is all about sentiment and perception. Even the RBA is about market perception and sentiment.
Now….where's my cheque book?
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeDWolfe wrote:The prices are dropping, but do you ever think that it may be unreasonable to ask $1.2 million for a house that is not even able to be used for firewood? Prices are NOT falling in suburbs that are around the $400-$500k mark which shows that people are still ok with that price.This is a reasonable observation and interests me.
400k is obviously easier to borrow than 1.2 mil. So, if a 1.2 mil place corrects to 6-700k it represents a pretty good deal, even I am in on that. But, why would people buy a townhouse for 300-400k when something much better may be availbale for 600k? Surely it makes more sence to save the LVR required to purchase the better deal than start with what is a bad deal in comparrison?
A couple things with your comment Ummester.
Firstly the houses I am speaking of are houses for the $400-$500k range. You can get 4 and 5 bedroom houses for this in these areas. The 1.2 mil areas which may or may not fall that far (they are currently at around the 1mil mark now) are closer in to the city.
You are discounting the area that people have been brought up in, job location, extended family location and perception of who they are. Not every working joe bogan (illustration purposes only) wants to immediately live with the yuppies in the blue chip suburb. That may mean traveling further to work and higher fuel costs. Living further away from the grandparents aka built in babysitters may mean more child care costs or a lack of general support which many people need when having small children. People may have a whole network of friends and services they use in a particular area.
Also people may not be able to/or want to borrow more even if they have the required deposit.
Would you move 1/2 hr drive hr away from your stomping ground just because you could get a bargain. Not many people would.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeDWolfe wrote:A couple things with your comment Ummester.
Would you move 1/2 hr drive hr away from your stomping ground just because you could get a bargain. Not many people would.I don't have a stomping ground, so it doesn't really apply to me. I've been moving since my mid 20s and have no desire to return to where I grew up.
But yea, I'd rather save 100k and buy a 5 bedder on a reasonable block for 4-500k than go in with no deposit and get a 2-3 bedder with no land for 3-400k. I guess many others don't see it the same way.
I hear you on the moving around, I'm 30 and have lived in 20 or so houses, in 3 different states. I figure I'm on tour.
I am no longer surprised at what people don't see even if it is in plain sight. Some people are really funny about areas. Years ago when a friend was looking to buy I suggested suburb x, next to the more expensive suburb she was looking in. She paid top dollar for a house that backs onto a train line in the more expensive suburb and the other suburb I suggested – she could have sat on a nice house in a quiet street and capital gained $200k in 2 years.
You can't tell em.
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email Me
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