The future of Australian property prices

[medicowallet]

Also need to consider everything extra they put into the loan now pretty much earns them 7% on that money.

And loses them 6.5% in interest from the bank....

 

[Tysonboss1]

haha Think I said this a while ago but I have friends that bought a good 5 - 8 yrs ago and only manged to pay off something like 20k from the loan and the rest is all interest payments. Needless to say they have no savings because everything goes off to pay the bank....

They got suckered in by exactly the same pitch that Tyson is spinning up

After 8 years you would already be seeing the compounded increase in the alternative rent they would have to pay for a similar property, and you would be seeing the exponetial decay of the loan, for example each payment they make this year has much less interest than it did in year 1.

Look, I am not trying to spruik property or sucker any body in, I am an investor in realestate so I benefit from lower prices and I benefit from having a larger body of potential tenants, I am just pointing out my beliefs.

After 8 years on a P/I 25year loan property investment is usually positive geared, atleast in my experiance, So that would be the mark where the owner occupier starts to break even in weekly housing cost compared to his renting friend, and from their compounding of rents and exponential decay work in the owners favour for as long as they live.

 

[Tysonboss1]

And loses them 6.5% in interest from the bank....

which is taxable and offers no hedge against inflation.

So yes, I aggree in a world with,

Zero inflation,
Zero population growth,
where you can only pay interest only on loans,

It makes sense to rent,

However I live in the real world where their is inflation, capital cities do have incremental population growth, owner occupier loans are p+I,

 

[Tysonboss1]

In 10 years time they will probably pay off another 30 - 50k max so maybye by the time they are 60 more disposable income will come for the pokies

No, it would be more than that,

But consider this,

In ten years what would be the median rent compared to the weekly interest bill.

 

[medicowallet]

After 8 years you would already be seeing the compounded increase in the alternative rent they would have to pay for a similar property, and you would be seeing the exponetial decay of the loan, for example each payment they make this year has much less interest than it did in year 1.

Look, I am not trying to spruik property or sucker any body in,

Ok, so you are not a spruiker, nor trying to sucker anyone in,

but you are not comparing apples with apples.

How can an interest cost of $675 (anz standard variable), and P&I over 25y of $785 per week

be compared to $400 per week for a rental.

You keep ignoring or misrepresenting this fact.

Also don't forget inflation also affects your replacement costs and outgoings as well, so it is all relative.

So I have one question for you, if you dare:

AT WHAT POINT DOES RENTING BECOME MORE ATTRACTIVE THAN PURCHASING?

 

[medicowallet]

which is taxable and offers no hedge against inflation.

So yes, I aggree in a world with,

Zero inflation,
Zero population growth,
where you can only pay interest only on loans,

It makes sense to rent,

However I live in the real world where their is inflation, capital cities do have incremental population growth, owner occupier loans are p+I,

And zero risk and zero bubbles... and where the person can AFFORD to pay more than interest only OR has not the capacity to invest in other areas... do you think everyone is clueless?

Who in their right mind would invest in cash? It was an example of his erroneous statement.

How about $450k invested into a McDonalds franchise? or a pharmacy, or any other business that weathers storms quite easily..

 

[medicowallet]

No, it would be more than that,

But consider this,

In ten years what would be the median rent compared to the weekly interest bill.

Well it would depend,

How much will houses be worth in 10 years time?

Rent may be very similar in ten years time to what it is now, could be more, who knows??

And in saying that, purchasing a house in 10 years time may be a highly attractive proposition, as it was in the late 90s, but now it is not supported by fundamentals, if looking at returns.

 

[Tysonboss1]

.

1, How can an interest cost of $675 (anz standard variable), and P&I over 25y of $785 per week

be compared to $400 per week for a rental.


2,AT WHAT POINT DOES RENTING BECOME MORE ATTRACTIVE THAN PURCHASING?

1, because as I said I am looking at the cost over your life, I know I will need somewhere to live until the day I die and that will cost money, I am interested in sourcing this accomadation as cheaply as possible, and by purchasing a home the cost of accomadation is closer to wholesale rates than retail.

Yes , I would rather start paying $785 perweek that decreases over time to a nominal amount that is roughly 20% of the weekly rent, than start paying $400 a week that will increase forever with inflation and population growth.

2, In my experiance it is around the 8year mark that the interest payments and other costs end up below the weekly rent.

 

[FxTrader]

AT WHAT POINT DOES RENTING BECOME MORE ATTRACTIVE THAN PURCHASING?

There are calculators for Rent vs Buy but default assumptions are usually overly optimistic about capital appreciation. As a rule of thumb though, you need to stay in your property for at least 5 years before owning becomes a better option than renting.

 

[medicowallet]

1, because as I said I am looking at the cost over your life, I know I will need somewhere to live until the day I die and that will cost money, I am interested in sourcing this accomadation as cheaply as possible, and by purchasing a home the cost of accomadation is closer to wholesale rates than retail.

Yes , I would rather start paying $785 perweek that decreases over time to a nominal amount that is roughly 20% of the weekly rent, than start paying $400 a week that will increase forever with inflation and population growth.

2, In my experiance it is around the 8year mark that the interest payments and other costs end up below the weekly rent.

1. Of course you, yet again, fail to appreciate that the extra money, invested elsewhere, also provides a return.

2. I would prefer to pay rent of $400 per week out of a dividend from a business I purchase.

You failed to answer my question, so I will rephrase it so you gain clarity:

AT WHAT POINT DOES IT BECOME MORE ATTRACTIVE TO RENT THAN TO PURCHASE A HOUSE

Or do you think this is impossible?

Edit : How did you come to the nominal 20% figure? Are you saying that paying $400 per week on a homeloan will be better than paying $400 on rent?

 

[Tysonboss1]

1, where the person can AFFORD to pay more than interest only OR has not the capacity to invest in other areas... do you think everyone is clueless?


2,How about $450k invested into a McDonalds franchise? or a pharmacy, or any other business that weathers storms quite easily..

1, Have I ever suggested that broke people should leverage into property, No.

2, Or Abc learning, babcock brown etc.etc. Not everyone has the skill of will to invest in some of the riskier asset classes. But most people can own their own home and it can add to their long term financel plans.

 

[Tysonboss1]

1, AT WHAT POINT DOES IT BECOME MORE ATTRACTIVE TO RENT THAN TO PURCHASE A HOUSE

Or do you think this is impossible?

2, How did you come to the nominal 20% figure? Are you saying that paying $400 per week on a homeloan will be better than paying $400 on rent?

1, when the answer to A is less than the answer to B

A : 40 years of inflation adjusted rental payments = (blank)

B :Cost of home + 25years interest + 25 years rates maintaince - sale price of home inflation adjusted = (blank)

2, the 20% figure comes from the cost of home ownership with out debt, is generally in most areas about 20% of the rent that a land lord would charge for that property.

So after you have paid off your home, your cost of accomadation is 80% less than a renter renting the same property.

 

[medicowallet]

1, Have I ever suggested that broke people should leverage into property, No.

2, Or Abc learning, babcock brown etc.etc. Not everyone has the skill of will to invest in some of the riskier asset classes. But most people can own their own home and it can add to their long term financel plans.

1. But you then forward a scenario whereby the person renting has not got $450k of assets.... interesting.

2. Sorry, I forgot, nobody has ever gone broke owning property.

I also agree that some higher return businesses are risky, hence why I said 2 businesses which are extremely stable, and have good ROI.

I would also like to point out that housing is a riskier proposition now, than it was in the late 90s..

 

[medicowallet]

1, when the answer to A is less than the answer to B

A : 40 years of inflation adjusted rental payments = (blank)

B :Cost of home + 25years interest + 25 years rates maintaince - sale price of home inflation adjusted = (blank)

2, the 20% figure comes from the cost of home ownership with out debt, is generally in most areas about 20% of the rent that a land lord would charge for that property.

So after you have paid off your home, your cost of accomadation is 80% less than a renter renting the same property.

ONCE AGAIN, I will fix your biased equation

1, when the answer to A is less than the answer to B

A : 40 years of inflation adjusted rental payments = (blank) - return generated by investing savings in alternate investments.

B :Cost of home (including legals and stamp duty) + 25years interest + 25 years rates maintaince - sale price of home +fees = (blank)

And my argument is that, at the moment, A is less than B, as housing is in a bubble, with poor ROI on the capital investment.. The capital growth is FAR from guaranteed, and, as evidenced across the country, is under extreme pressure at the moment

Sure, I guess from your posts that you assume that housing will, for 25 years more, continue to defy trends, and the world... I guess you truly believe we are different, the "Cassimatis" of the realestate asset class...

 

[Tysonboss1]

Sure, I guess from your posts that you assume that housing will, for 25 years more, continue to defy trends, and the world......

Nope, just that inflation and incremental population growth exist.

Notice none of my posts have made reference to large cap gains, or all the normal property bull(shet) sayings like housing doubles every 10 years etc.etc.

My calcs just rely on inflation of say 3% and to an extent nominal population growth.

I am a value investor, and I aggree property is not as cheap as it was in the late 90's. but it's not bubble time, there is some froth, and that with settle, but your not looking at longterm 40% falls.

 

[wayneL]

Nope, just that inflation and incremental population growth exist.

Notice none of my posts have made reference to large cap gains, or all the normal property bull(shet) sayings like housing doubles every 10 years etc.etc.

My calcs just rely on inflation of say 3% and to an extent nominal population growth.

I am a value investor, and I aggree property is not as cheap as it was in the late 90's. but it's not bubble time, there is some froth, and that with settle, but your not looking at longterm 40% falls.

Define bubble

 

[Tysonboss1]

ONCE AGAIN, I will fix your biased equation

1, when the answer to A is less than the answer to B

A : 40 years of inflation adjusted rental payments = (blank) - return generated by investing savings in alternate investments.B :Cost of home (including legals and stamp duty) + 25years interest + 25 years rates maintaince - sale price of home +fees = (blank)

Yep, thats the catch though isn't it.

You only have about 8 years of actual savings by renting, and the biggest savings are in the first few years.

Now, I am not silly enough to believe that the average joe lower middle class is such a "cold blooded weigher of the odds" and has the disapline to allocate the savings from those first 8 years into a successful investment operation over the next 40 years where by he ends up better off.

In the great majority of cases if I recommended people took that approach it would end with them not saving the "savings", and therefore end up acustomed to a higher lifestyle than they can afford, little savings and never owning their own home.

However if I recommend that they start a plan to own a modest family home, the forced saving of it all will likly end up better for them.

Now, offcourse this is not true for everybody, there are countless individuals who will save the savings and put them to good use, and if the person is such a good cold blooded weigher of the odds, then eventually they will be so successful that buying a house may work out to be a great lifestyle decision for them.

 

[Tysonboss1]

Define bubble

An economic development in which the price of a class of physical or financial assets (such as houses or securities) rises to a level that appears to be unsustainable and well above the assets' value as determined by economic fundamentals.

 

[notting]

Define bubble

Empty house

 

[wayneL]

An economic development in which the price of a class of physical or financial assets (such as houses or securities) rises to a level that appears to be unsustainable and well above the assets' value as determined by economic fundamentals.

Right... interesting.

So is debt (as an asset class) in a bubble?

Also, define unsustainable in this context.