House prices to keep falling for years

[hotbmw]

Really? So why buy now? If people are struggling to service debt now imagine what it will be like in five years? The veritable je*ish fire sale.

and now over the next 12 months, buy physical gold and silver when opportunities arise (a bit too pricey for me now) but i did buy both (mainly silver) some mths ago. as well as oil stocks on the cheap.

will be a nice down payment on ur mortgage in a year or 2

 

[Trevor_S]

back in the 80's when annual incomes were lets say $4000 a year & if u bought a house for $20,000 with an $18,000 loan,

What ... Where did you get those numbers ?

 

[Julia]

Beej, do you actually think this is a good thing though?

Maybe we are setting ourselves up for some problems in the future with the Government trying to prop up the property market at all costs?

If all these FHB are now buying due to the grants and low interest rates the thing that worries me is can these people really afford to buy? What happens when interest rates rise again, if they double can these FHB afford to keep up the payments? What happens if/when higher unemployment kicks in?

With our economy only really starting to feel the effects from what is happening on a global scale I think we are in real danger of creating a larger problem for ourselves. If we continue to see unemployment rise (and we will) and then see inflation return causing rates to rise again we could start to see alot of problems imo.

The rest of the world appears to be in the middle of a massive unwinding of credit and is paying the price in a big way. Yet here we are in Aust with very high household debt levels and high debt to income ratios but are still being encouraged to spend more money and take on more debt, doing everything possible to keep the bubble inflated. Are we totally stupid?

There will come a time when we do have to repay our debt and pay for our excesses like the rest of the world is now doing, if we think this will never happen in Aust we are delusional. We could very well find ourselves in freefall while the rest of the world has bottomed out due to our refusal to take our medicine now.
As I have stated before, I think we are in a unique position here in Aust due to the fact we have seen this play out overseas before really feeling the effects here due in part to our isolation and maybe the China factor but instead of preparing for the storm we appear to think we are going to be immune because we have been so far. Our Government seems intent on wasting all its reserves early on bullsh!t measures that will last for about 2min but will keep them popular with the general voting public. I wonder how popular they will be when the **** really hits the fan and the $950 handout is long ago spent and forgotten and the well is now dry.

Rant over

No rant, Nomore4S but rather a very lucid summary of the situation.
I'd like your comments to be put to K. Rudd for his answer.

What ... Where did you get those numbers ?

I'm wondering the same. They look very sus to me.

 

[xoa]

Another month, another encouraging drop in house prices.

Prices are dropping all over Australia but the situation is particularly encouraging in my newly adopted home town of Townsville.

Speculators' pain is ordinary people's gain.

 

[Glen48]

XOA
Some bad news for you Townsville House prices went up by 9.3% according to today's Courier Mail which is good because 100 Ponzi victims have placed their homes on the market with more to come....

 

[Beej]

Beej, do you actually think this is a good thing though?

Maybe we are setting ourselves up for some problems in the future with the Government trying to prop up the property market at all costs?

If all these FHB are now buying due to the grants and low interest rates the thing that worries me is can these people really afford to buy? What happens when interest rates rise again, if they double can these FHB afford to keep up the payments? What happens if/when higher unemployment kicks in?

Good question. I guess my counter question is; would things be worse for those folks if house prices did collapse, or better?

I know there are many here (especially the young folks) who are gleeful at the prospect of a large fall in house prices - but that's only because they see that as giving them the opportunity to buy in the future without what they consider to be a too large debt burden. The problem is, the economic conditions that are required to actually bring about such a price collapse would IMO mean that most of those same people would be screwed anyway (no job, income, savings wiped out, bankrupt government, economic opportunity down the toilet etc etc). I really do think that many are blind to the benefits that flow from a healthy growing economy, even if one of the consequences of that is higher house prices.

Bottom line - as long as current FHBs have a decent deposit saved, are borrowing well within their means, and have assessed their job security and thought about contingencies etc, then I say good on them and I am certain buying now is the right decision for them. So yes it is a "good thing" with those caveats. These folks are setting themselves up for the long term financially, and buying at an historically opportune time. At the same time the conditions and policy bringing about this are also helping to stabalise the housing market. In real terms prices will still come down - slowly - but we avoid the total crash scenario and all the other bad things that would come along with that.

Case in point - this article suggests that in Sydney buying is for the moment cheaper than renting: http://www.smh.com.au/news/national...g-property-risk/2009/02/07/1233423560064.html

With our economy only really starting to feel the effects from what is happening on a global scale I think we are in real danger of creating a larger problem for ourselves. If we continue to see unemployment rise (and we will) and then see inflation return causing rates to rise again we could start to see alot of problems imo.

This is possible, however, based on past experience the inflation genie re your housing debt is well covered by the "inflationary" (not real) wage increases that come along as well. Worse to be paying increasing rent and have cash invested in the bank losing real value in this environment than to own an inflationary asset like a house with a corresponding mortgage based on "yesterdays" prices.

The rest of the world appears to be in the middle of a massive unwinding of credit and is paying the price in a big way. Yet here we are in Aust with very high household debt levels and high debt to income ratios but are still being encouraged to spend more money and take on more debt, doing everything possible to keep the bubble inflated. Are we totally stupid?

I'm not sure we are being asked to take on more debt?? Regardless, a few FHBs borrowing money to buy a house is not a bad thing per se - that money ultimately finds it's way back into the economy somewhere else, and in the meantime instead of paying rent the new owner now pays down that debt over time? It's one of the mechanisms by which money is injected into the system.

I don't buy some of the thinking around here about why parts of the world are having the credit/debt unwinding problems they are. In my mind, there is nothing actually wrong with credit/debt - it's the lifeblood of capitalism. In the past, credit was harder to get for "ordinary" people, making the system more unfair as it favours those with access to the capital. Now, credit is much more freely available, and over-all I think this has been a good thing - it has resulted in much improved living standards for everyone. I'd hate to see us go back to the way it use to be in the 50s/60s - that would be a backward step IMO.

Problems arise for an ECONOMY when a large amount of credit has been provided that has little to no chance of ever being repaid! This is made worse if the impact of this is delayed due to complex CDO type packaging and honeymoon repayment rates etc etc as in the US sub-prime example. Credit created that was never going to be repaid is the disaster that has triggered the current global issues. The "unwinding" being talked about is only occurring due to the resulting lack of confidence that the whole initial crisis has brought about as far as knowing who it is that has actually lost all the money that is now never going to be repaid (and therefore never really existed in the first place, or rather no longer exists now, wherever it originally came from).

There will come a time when we do have to repay our debt and pay for our excesses like the rest of the world is now doing, if we think this will never happen in Aust we are delusional. We could very well find ourselves in freefall while the rest of the world has bottomed out due to our refusal to take our medicine now.
As I have stated before, I think we are in a unique position here in Aust due to the fact we have seen this play out overseas before really feeling the effects here due in part to our isolation and maybe the China factor but instead of preparing for the storm we appear to think we are going to be immune because we have been so far. Our Government seems intent on wasting all its reserves early on bullsh!t measures that will last for about 2min but will keep them popular with the general voting public. I wonder how popular they will be when the **** really hits the fan and the $950 handout is long ago spent and forgotten and the well is now dry.

Rant over

On this part all I will say is I think you are under-estimating the impact of the sort of money being talked about, and taking a bit of a partisan political stance. Remember $10B represents 1% of total annual GDP! If the sort of money being talked about ($40B + all the rest) finds it's way into the economy, it represents a SIGNIFICANT boost to GDP that can not do anything but provide a major cushioning effect to what would have otherwise occurred. This topic is for further discussion on another thread though!

Thanks for an interesting and thought provoking contribution to the thread!

Cheers,

Beej

 

[sinner]

On this part all I will say is I think you are under-estimating the impact of the sort of money being talked about, and taking a bit of a partisan political stance. Remember $10B represents 1% of total annual GDP! If the sort of money being talked about ($40B + all the rest) finds it's way into the economy, it represents a SIGNIFICANT boost to GDP that can not do anything but provide a major cushioning effect to what would have otherwise occurred. This topic is for further discussion on another thread though!

Thanks for an interesting and thought provoking contribution to the thread!

Cheers,

Beej

Unfortunately I disagree on this point.

Australia needs to generate 4% of GDP per annum to simply maintain its current household debt levels. I mentioned this as one of several points which required addressing by the housing bulls in the "rising for years" thread but none bothered to reply.

Inflating $40bn (4% of GDP, coincidence I think not) through debt creation and pumping it into the economy is a shell game. Especially when you consider it only moves money from household debt and adds to the percentile required to maintain our net foreign debt levels.

Our household debt:GDP ratio is going to come down one way or another. This I can guarantee, it is inevitable. We have one of the worlds highest debt:GDP ratios. Our house prices are inflated in majority through household debt but also net foreign debt, both of which I expect to contract rapidly. As loan serviceability decreases due to rising unemployment and a lack of foreign support for our debt, I expect house prices to fall significantly.

Beej and kincella both seem to love accusing anyone who is bearish on housing of being jealous they "missed the boat" or pissed off they "picked shares instead", and this is idiocy. I was bearish on the share market from 2005 and have no issues watching people stick their heads up their **** after I warn them. I am not jealous of anyone who longed the SP500 in 2005 and made money while I didn't, just as I am not jealous of robots St Kilda property which I am sure all 3 of you think will be going another +14% this year

 

[Beej]

Beej and kincella both seem to love accusing anyone who is bearish on housing of being jealous they "missed the boat" or pissed off they "picked shares instead", and this is idiocy.

Just to defend myself here - I don't think "anyone" who is bearish on property is "jealous" or missed the boat etc, and it's incorrect to suggest I have taken this stance. There are certainly some here who do fit into this category though - you have to admit that at least! Just look for all the smart-ass, bitter, and attacking bear posts and you will easily identify the posters that I am thinking of.

PS: I am invested in both property and shares, and don't say by any means that "property is better" etc etc. My motivation here is purely to try and counter some of the prevailing, and wrong IMO, views about inevitable 40%+ plus falls etc that might discourage many people who would be better off owning their PPOR at least from doing so. I've heard all this stuff before over 25 years and seen the differences that have resulted in the personal financial position of many people I know - so just trying to let others learn from my own experience, and point out the opportunities that exist right now.

Gotta go to a BBQ now - I'll respond to your other points later (I'll dig up your old posts to).

Cheers,

Beej

 

[hotbmw]

What ... Where did you get those numbers ?

my dad was a factory worker and unless his figures are off a bit he was on around 4-5k a year in the late 70's and bought a normal 3 bedroom house in newcastle for under $20,000

we went through a period of high inflation in the 70's and 8-'s and i think starting by late 2010 we will have years of high inflation again and this will have a similar effect as in the 70's/80's. cost of living will rise, wages and assets also.

 

[Pommiegranite]

I've heard all this stuff before over 25 years and seen the differences that have resulted in the personal financial position of many people I know - so just trying to let others learn from my own experience, and point out the opportunities that exist right now.


Beej

Beej, I'm afraid 25 years of experience is not nearly enough for a once in a lifetime economic downturn. I honestly hope, for your sake, that you are not relying on just your experience.

 

[kincella]

Sinner said........Beej and kincella both seem to love accusing anyone who is bearish on housing of being jealous they "missed the boat" or pissed off they "picked shares instead", and this is idiocy.
...............................................................................

Where have I ever said anything remotely like what you have accused me of.????
I know I have never said anything like that...its just not in my vocabulary.....

I am positive on property nothing else......and I dont like being accused of something I have not done.....
SO I demand an apology from sinner......

 

[Trevor_S]

my dad was a factory worker and unless his figures are off a bit he was on around 4-5k a year in the late 70's and bought a normal 3 bedroom house in newcastle for under $20,000

I can't speak for you Dad but I had a job as a labourer in the early '80's (the time period you quote) so not exactly at the top of the wage pile, and I was on significantly more then that, so I guess, I call bull**** with those figures...

I can't speak to the median price of housing at that time though.

 

[lioness]

Sinner said........Beej and kincella both seem to love accusing anyone who is bearish on housing of being jealous they "missed the boat" or pissed off they "picked shares instead", and this is idiocy.
...............................................................................

Where have I ever said anything remotely like what you have accused me of.????
I know I have never said anything like that...its just not in my vocabulary.....

I am positive on property nothing else......and I dont like being accused of something I have not done.....
SO I demand an apology from sinner......

Demand an apology - get a life, sinner is writing good stuff here and is entitled to another view. Poo in the pot or get off.:flush:

 

[singlefished]

Bottom line - as long as current FHBs have a decent deposit saved, are borrowing well within their means, and have assessed their job security and thought about contingencies etc, then I say good on them and I am certain buying now is the right decision for them. So yes it is a "good thing" with those caveats.

One addition to your list should also be the consideration of how other people in the same situation are likely to fare in the same recessionary environment. Not everybody will be able to service their debts (FHB's & existing OO/IP owners) if unemployment starts to rise and the impact across the board on real estate values would likely be detrimental.

These folks are setting themselves up for the long term financially, and buying at an historically opportune time. At the same time the conditions and policy bringing about this are also helping to stabalise the housing market. In real terms prices will still come down - slowly - but we avoid the total crash scenario and all the other bad things that would come along with that.

Again, unemployment is still rising and property prices are still (for the majority) slowly declining.... and we're still 6~24 months off the bottom of this downturn. Folks could be setting themselves up with a long term overpriced mortgage if the global economy fails to restart as governments around the world are hoping and asset values across the board will continue on their 1 year plus downtrend...

Bottom line - property values will not be trending up for some time so certainly no rush to get into the market at this stage. Better off saving and adding to your current deposit which will ultimately go a long way to reducing any mortgage that you may take out in the future. And in the meantime, the downtrend has shown no real signs reversing so the double whammy of further anticipated price falls combined with the larger saved deposit can only be good.

 

[hotbmw]

my dad was a factory worker and unless his figures are off a bit he was on around 4-5k a year in the late 70's and bought a normal 3 bedroom house in newcastle for under $20,000

we went through a period of high inflation in the 70's and 8-'s and i think starting by late 2010 we will have years of high inflation again and this will have a similar effect as in the 70's/80's. cost of living will rise, wages and assets also.

ill ask him when i see him this arvo.
im sure im pretty close to the figures but i could be off a bit.
remember, sydney prices were/are more than newcastle.

 

[nomore4s]

Good question. I guess my counter question is; would things be worse for those folks if house prices did collapse, or better?

Beej, I do agree if we see major falls across the board like in the US, alot of people will be in a worse position, that's generally what happens in major recessions.

If FHB have done the sums and can afford the repayments at a higher rate and can afford the houses and are just taking advantage of conditions - good on 'em. It's the ones who have jumped in purely because now they can afford it that worry me.

You have raised some very valid counter arguements and to be honest I don't have the time or ability to get into an in depth debate on some of the points raised.
I will admit that I'm factoring in the worst outcome but based on what we have seen overseas the flow on effect to Aust could be very bad, if it doesn't turn out that bad better for all of us. But we should be prepared.

My personal view is that the vast majority of the population have way too much debt and too little savings and the day is coming where that debt is to be repaid, there will be alot of people who struggle to continue to service this debt in the coming months imo. When banks are starting to admit there may be dividend cuts in the near future due to rising bad debt provisions and general economic conditions there are some serious problems on the way.

I agree with you about the easier access of debt being good for the economy but I feel we have gone too far the other way and have now abused it. Think of companies like CNP, CER, BNB, MFS, AFG, ABS etc, etc and our personal debts levels are no better. The problem now is there is no desire to work hard and save for anything, if you want something just go out and get it on credit - I personally know of plenty of people in this situation. It really is a false economy and we have now seen what happens when this false economy catches up with itself, it can't continue to grow without more debt and when credit dissappears the effect is devestating.

 

[sinner]

I have a couple of quotes, here is one by Beej:

However, you have to admit that a significant portion (not all of course) of the whole "great house price crash brigade" are in fact people who have chosen not to take the plunge into home ownership in the past and are somewhat bitter about the outcome of that choice. They are now hoping and praying for a crash in fact in order to get the chance to rectify their past mistake!

Of course Beej will say he mentioned "not all of course", meanwhile lambasting anyone who disagrees with him as one of these people.

We must be bitter.

There is also a post by kincella (damned if I can find it now) where I made some bearish comments on property and he claimed I sounded like I must have made some mistakes in the past and bitter now.

It's irrelevant now, I only brought it up to highlight that "most" (not all of course ) property bears are not just bitter people who went long their life savings on the XAO in October.

Here are 3 charts by Steve Keen (admittedly from Oct 2008), can you say bubble?

The last chart is one I whipped up myself, it's a bit dodgy not adjusted or anything (the 100 for US and AUS data is 1987 but the 100 for UK data is 1993). For Australia we are using the ABS 8-capital weighted index, for the US we are using the SPCSUS National and for UK we are using the NationWide data. One datum is missing for Q4 08 SPCSUS but you can safely assume a drop.

 

[Joe Blow]

I'm just going to jump in here and remind people not to let this thread get too personal. Lets stick to discussing the topic at hand and not start running down others. Noticed a few posts a little further up the page had the potential to turn ugly.

I would like to point out that it's usually more constructive to ask someone to clarify their position on an issue rather than put words in their mouth. Nobody likes to have their views misrepresented so if you are unsure of what someone thinks, ask them to clarify rather than making an accusation.

This is one of the longest threads on ASF and it's good to read so many well articulated views but when things get personal the thread as a whole suffers. It's okay to disagree with people and not attack them in the process and sometimes, when you realise you are never going to agree with someone, sometimes the best thing you can do is to head off to another thread and have a discussion that is not going to be as frustrating.

 

[kincella]

quote from sinner....
Beej and kincella both seem to love accusing anyone who is bearish on housing of being jealous they "missed the boat" or pissed off they "picked shares instead", and this is idiocy.
.................................................. .............................
and now you admit you think I said....your qoute.....
There is also a post by kincella (damned if I can find it now) where I made some bearish comments on property and he claimed I sounded like I must have made some mistakes in the past and bitter now
.............................................................................................

there is no comparison.......between what you think was said....and your accusation today............
I know..because as previously stated....I do not use language like that....it is not part of my vocabulary.......

 

[hotbmw]

ok boys, here are the 100% figures, verified by my dad, and its even better than what i said initially.

in 1977 my dad bought a house in Waratah (5 mins drive from Newcastle beach) for $12,000.
he was earning $7000 a year with overtime in a factory.
In 1980 he bought a house in Elermore Vale for $26,000. Prices had doubled in 3 yrs.... wages almost also

so Trevor, how do these 100% accurate figures stack up for you???