House prices to keep falling for years

[numbercruncher]

http://www.theaustralian.news.com.au/story/0,25197,24742139-7583,00.html

According to this house prices haven't fallen too much at all despite all the negative comments. Seems like the policy makers here have a lot more tools to keep the bubble going. Shouldn't governments encourage prices to go down giving greater wealth to everyone? The definition of price is just that - the cost or suffering required to get something. Seems like they want to bring suffering.
I don't know who's right in this debate and frankly the idea of just going into debt at the top of the boom and living with that burden dragging me down for the rest of my life scares me.

All I can say is I wish I was born 20 years earlier. My grandparents were telling me when you didn't need to speak English and you could still pay off a big block house in a few years.

Forget even 20 years ago ! this bubble is of the last decade as the world was flooded with money from central banker idiots and then lent to consumers completely ignoring traditional lending criteria ....

I bought my first house in 01 for 175k and it was a nice house, there was loads of shacks under 100k at the time and loads of blocks for 50k.

So its only this centuary that things went into bubble lala land. 20 years ago they had it even cushier I understand ?

This generation is getting shafted if they are silly enough to pay current asking prices though ! (imho)

 

[Beej]

Forget even 20 years ago ! this bubble is of the last decade as the world was flooded with money from central banker idiots and then lent to consumers completely ignoring traditional lending criteria ....

I bought my first house in 01 for 175k and it was a nice house, there was loads of shacks under 100k at the time and loads of blocks for 50k.

So its only this centuary that things went into bubble lala land. 20 years ago they had it even cushier I understand ?

This generation is getting shafted if they are silly enough to pay current asking prices though ! (imho)

You obviously don't live in Sydney.....it's ALWAYS been really expensive here - even 20 years ago.

So here we go with all the Gen-Y whinging posts again "oh we are so hard done by! Wish I was born 20 years ago!" - NEW FLASH, it's NEVER been easy to get ahead, own your own house etc! Those who have done well have made prudent decisions and used debt wisely (there is nothing wrong with borrowing money to buy a house, contrary to conventional wisdom here!!).

Personally, I DON'T wish I was born say 200 years ago, even though I could have got land FOR FREE in Australia back then!

Beej

 

[Pommiegranite]

You obviously don't live in Sydney.....it's ALWAYS been really expensive here - even 20 years ago.

So here we go with all the Gen-Y whinging posts again "oh we are so hard done by! Wish I was born 20 years ago!" - NEW FLASH, it's NEVER been easy to get ahead, own your own house etc! Those who have done well have made prudent decisions and used debt wisely (there is nothing wrong with borrowing money to buy a house, contrary to conventional wisdom here!!).

Personally, I DON'T wish I was born say 200 years ago, even though I could have got land FOR FREE in Australia back then!

Beej

Beej, is it easier to get on the property ladder today than it was 20 years ago? 'Yes', 'No', or 'The same' answers only please.

 

[Beej]

Beej, is it easier to get on the property ladder today than it was 20 years ago? 'Yes', 'No', or 'The same' answers only please.

I say just as easy (or just as hard!).

But your question is loaded and not clear enough. Ie:

Is it as easy to buy the SAME physical property that someone else might have bought 20 years ago? No.

Is it as easy to buy the "equivalent" property as one bought 20 years ago at the same relative price point in the 20 years further evolved market? Yes.

You might need to think carefully about the difference between my 2 questions.

Beej

 

[wayneL]

I say just as easy (or just as hard!).

But your question is loaded and not clear enough. Ie:

Is it as easy to buy the SAME physical property that someone else might have bought 20 years ago? No.

Is it as easy to buy the "equivalent" property as one bought 20 years ago at the same relative price point in the 20 years further evolved market? Yes.

You might need to think carefully about the difference between my 2 questions.

Beej

ROTFLMAO

Good questions, but you might need to think more carefully about the answers.

 

[aleckara]

Forget even 20 years ago ! this bubble is of the last decade as the world was flooded with money from central banker idiots and then lent to consumers completely ignoring traditional lending criteria ....

I bought my first house in 01 for 175k and it was a nice house, there was loads of shacks under 100k at the time and loads of blocks for 50k.

So its only this centuary that things went into bubble lala land. 20 years ago they had it even cushier I understand ?

This generation is getting shafted if they are silly enough to pay current asking prices though ! (imho)

My example of my grandparents - they were non-English immigrants working in very poor jobs who did not receive more than 3 years in schooling (primary level). They only had to work 10 years before retiring to pay off a house close to the city (in Sydney). They sold it to move to a greater block of land further out.

These days to pay off a house in the same amount of time you need to be qualified, or you need to work a lot more hours than they did. Lets put it this way - I will work the same amount of time as them to pay off a house with my wage alone however I had to study for that wage so in effect I'm working harder. Other people may not have studied yes but they had to be more entrepreneurial or whatever to achieve the same thing. The point is you need to be smarter or work harder or both to get the same thing as they did (i.e the effects of inflation).

Sydney will always be higher than everywhere else now. Retirement savings will need to come from somewhere and the government certainly doesn't want to pay it. It will fall to people being able to cash in on house prices leaving young people to foot the bill imho.

I don't know if its whinging as such Beej. If it doesn't make sense I won't go into it; no need for complaining. If my initial impression of the situation is wrong and I see numbers stating it is then great; I'm in a better situation than I can see with the facts I've been presented. My issue is that we are in an environment of mixed signals particularly here in Sydney and the average young person sees the price of houses vs everything else and something doesnt add up.

 

[Adam A]

I think its easier today

I mean 20years ago it was tough to get a loan

You needed a job! and at least a 15 to 20% deposit and a savings record to prove how you got that deposit (no hand outs from mum and dad,inheritance,or lottery wins allowed)

You also had to have face to face meetings with the bank manager

 

[wayneL]

I think its easier today

I mean 20years ago it was tough to get a loan

You needed a job! and at least a 15 to 20% deposit and a savings record to prove how you got that deposit (no hand outs from mum and dad,inheritance,or lottery wins allowed)

You also had to have face to face meetings with the bank manager

Good point.

Here in the UK, those days have returned. It is impossible to get a loan under the same terms as a year ago. Lending is down 150% or something (hyperbole because I can't remember the exact figure).

I would be very surprised if those days don't also return to Oz.

 

[Mofra]

I have a series of power point slides for anyone interested in seeing how classical economic curves get wacked out of shape. Economics 202.

lakemac,

Are you able to post some here, or are they on another thread? Sounds like they would add something to the debate.

Cheers

 

[Beej]

ROTFLMAO

Good questions, but you might need to think more carefully about the answers.

It's OK, I wouldn't expect everyone to get it. (Especially someone who isn't even around to see what's actually happening in the market over here!).

How are things back in the "mother country" anyway? Maybe things will regress enough that they will pack you up onto a slow boat and send you back to Australia, where after 7 or 14 years you will given a free plot of land??

Beej

 

[hotbmw]

it was easier a decade or 2 ago to pay off the loan. this is irrefutable.

houses cost about 9.5 times your annual wage now

it was about 3 times your annual wage back then.

 

[wayneL]

It's OK, I wouldn't expect everyone to get it.

How are things back in the "mother country" anyway? Maybe things will regress enough that they will pack you up onto a slow boat and send you back to Australia where after 7 or 14 years you will given a free plot of land??

Beej

If Britain votes the Liebour Party back in in 2010, that is a distinct possibility. Thankfully, that possibility seems remote.

I got it, I just disagree, but defer to the point made by Adam and ease of getting ludicrous levels of finance. I believe that is in the process of changing however.

 

[Adam A]

These days are here allready wayne

Ive got a few people i know in the home loan industry,they report that tightning up of the lending criteria is allready happening,seams their worried about first home buyers using all gov hand outs for deposits and not having any of their own equity(skin) in the game

Their also worried about two incomes being used to service loans,especially if one of them is only part time!

 

[ROE]

it was easier a decade or 2 ago to pay off the loan. this is irrefutable.

houses cost about 9.5 times your annual wage now

it was about 3 times your annual wage back then.

I dont think this is true...around 6-7 times but still higher than the norm

 

[ROE]

Pro Property will like this

http://www.news.com.au/business/story/0,27753,24747848-31037,00.html

but still too expensive for me so I dont touch it

 

[Beej]

it was easier a decade or 2 ago to pay off the loan. this is irrefutable.

houses cost about 9.5 times your annual wage now

it was about 3 times your annual wage back then.

You are so wrong on all 3 counts:

1) National median price is currently more like 7x average full time annual earnings. Obviously this varies from region to region.

2) 20 years ago it was around 5x (varies a lot depending on the actual year because there was a MASSIVE boom in 88/89 that eclipses this current one). NO WAY were houses 3 times average wages back then! That stat is one of the great urban myths of the housing affordability debate.

3) 20 years ago (and up until about 10 years ago) interest rates were on average DOUBLE what they are now (and averaged over the past 10 years) - so in fact you could easily argue it is cheaper now to service the typical loan.


Beej

 

[hotbmw]

property is just too expensive now.

whats the average wage in sydney for 20 to 40 year olds lets say?

in newcastle it couldnt be more than 50k.

to live in a nice area in a decent home at its peak a year or so ago u were paying over 400k.

so maybe 8 times is the norm here.

anyway whatever the number is, the number in the 2 decades ago was 3

 

[hotbmw]

sorry beej, u r more accurate, in 1988 the ratio was 4.8 times.

in 2006 at its peak it was over double this

 

[Beej]

sorry beej, u r more accurate, in 1988 the ratio was 4.8 times.

in 2006 at its peak it was over double this

That's OK. And thanks for researching it and informing the forum of the facts, as there are a lot of myths around about this issue!

And yes 2006 was the peak, but it has softened since then, without any sort of major crash. That is typical of how the housing market adjusts over time (just like early 90s after the 88/89 boom).

Cheers,

Beej

 

[aleckara]

You are so wrong on all 3 counts:

3) 20 years ago (and up until about 10 years ago) interest rates were on average DOUBLE what they are now (and averaged over the past 10 years) - so in fact you could easily argue it is cheaper now to service the typical loan.


Beej

Why do people think this? It isn't interest that matters nearly as much as the principal. If interest rates were higher then there is a saving grace for buyers - it is easier to save for a house since interest income is higher and when you do the principal is less. It encourages saving in the economy rather than debt. IMHO it is much better to have higher interest rates and lower prices than the other way around for the buyer. If interest rates completely subdue house price growth this is a good thing. We aren't getting wealthier by letting house prices rise, we are just inflating the value of all assets.

Now with the higher principal we are probably paying the same per week after interest rate reductions. However that interest is still high overall (because higher principal equals higher absolute interest payments). The difference is that we still have more principal to pay off so things are worse for the new buyer.

Just because I can buy a laptop on credit doesn't make it more affordable, just makes it more accessible in the short term only. In the long term the price is higher and the debt still needs to be serviced so net decline in wealth to the new buyer over the old one. We should really measure affordability excluding interest rates. We don't measure affordability this way for anything else out there.

Sorry if the post is too long. Needed to get that out - that argument of 22% interest has been used on me too long now.