House prices to keep falling for years

[pepperoni]

Brty

You are still comparing apples with oranges until you factor the years of compounding savings. Year 1s savings alone are worth $60k in year 30 at 7%.

I couldnt bother going through the whole calcs as I know what the answer will be although we could manipulate it with dodgy assumptions.

But anyone basing their decision on you numbers would be making an analytical mistake.

Most renters tend to spend the money not save it.

We seem to get this one regularly - I dont see the point - whether "most" do or dont (Id say they do) isnt really relevant to which investment path is better.

And frankly its an argument against price growth ("most people that rent will have spent any deposit money") and makes it better for those that do save with the renting 30% of the population out of the picture.

Whether people want or need forced savings is a completely separate issue.

We should do an FAQ on these sorts of points so we can stick to the new ones (tax changes, price movements, trend movements etc)

 

[brty]

Pepper,

I think you are still making mistakes in assumptions. The savings/interest earned will be taxable. Paying off the mortgage is giving you an asset without having to pay tax on it.

At the end of 30 years if you rent you may have a good deposit on a house (probably tripled in nominal dollar value just due to inflation), if you invested the savings by renting.

Exactly the same argument about it being cheaper to rent than buy has been used for over 30 years. Yet when you look at the population as a whole, those who bought a house 30 years ago with a mortgage have an asset they no longer have to pay for. Those who rented and continued to all that time, tend to have some nice toys but few assets.

Don't let the nice theory get in the way of reality.

brty

 

[Temjin]

Well, the collapse of Lehman Brothers and potential collapse of AIG (even though it will be bailed out) has just pretty much erased the reduction of global credit cost that the market enjoyed over the past few months.

http://www.bloomberg.com/apps/news?pid=20601087&sid=atGzU9EAf240&refer=worldwide

I don't know how much of our local banks' funding sources have increased or affected, but I'm sure the cost has NOT BECOME CHEAPER. Probably got a lot more expensive over the last 2-3 days. They dropped the mortgage rate because the various "credit spread??" index has obviously trend back down over the last few weeks/months, enabling our banks to lower their mortgage rate.

But unfortunately, we are back to square one again with what just happened.

The key is how long will this sudden spike in lending spread will hold and how our banks would react.

So much for people trying to argue that "interest rate" is trending down = mortgage rate is going down = house prices going up. IT IS NOT THAT SIMPLE unfortunately.

 

[pepperoni]

I think you are still making mistakes in assumptions. The savings/interest earned will be taxable.

Actually Im pointing out the glaring omissions in you numbers!

If you are acknowledging that apples for apples includes a return on the savings then put it in your numbers! Not as clear cut as you thought now is it?

Then consider possible actual market conditions and not static assumptions.

The fact is renting for a time in the right conditions eg in falling property markets with high rates, can be a goldmine.

 

[pepperoni]

http://business.smh.com.au/business/household-debt-boom-may-be-over-rba-20080917-4ics.html

More bad news for property from the RBA ...

"He noted that one major trend of the past decade or more was a huge rise in household debt, both in Australia and many other industrialised economies.

"The question is whether this long period of gearing up by households might now be approaching an end,'' Mr Stevens said.

"There is a good chance that households will for some time seek to contain and consolidate their debt, grow their consumption spending at a pace closer to income, and perhaps look to save more of their current income than in the recent past.''"

And then then this Gem ...

"Mr Stevens said the latest turmoil in financial markets had re-opened the debate on whether policymarkers should try and dampen cycles in markets, perhaps by trying to prevent an asset bubble forming in the first place.

He offered no judgement on the debate, but welcomed the fact that it had resumed."


These are the policies that have world economy is on life support!!!! Its like saying " I just ran over a guy - I take no responsibility but would be would be happy to chat about it."

 

[robots]

hello,

more great debate here today, any chance of giving us the latest stats from ABS on property prices please,

i am sick to death of all the "noise" people keep posting, give us the facts on house prices in australia

thankyou
robots

 

[Temjin]

hello,

more great debate here today, any chance of giving us the latest stats from ABS on property prices please,

i am sick to death of all the "noise" people keep posting, give us the facts on house prices in australia

thankyou
robots

I'm still amazed that you haven't been banned from this forum yet with all the trolling and pointless posts you have been making.

 

[robots]

I'm still amazed that you haven't been banned from this forum yet with all the trolling and pointless posts you have been making.

hello,

thats because ASF respects the truth and people's opinions,

thankyou
robots

 

[robots]

hello,

wasnt sure where to post this so placed in here,

http://www.news.com.au/heraldsun/story/0,21985,24360663-661,00.html

look at that, plenty of affordable places around, one lazy $, instead of helping the guy out the front of coles you can go and get yourself a plot,

see things exist

thankyou
robots

 

[wayneL]

brty, et al,

The question is not whether to buy now or rent for the next 30 years. The question is when to rent and when to buy depending on your circumstances and how the numbers add up.

10 years ago was a no brainer buy.

for many people right now is a no-brainer rent.

Many renters will buy when the numbers add up.

I've been a property owner since I was 21 and have some IP. But I can tell you that for my PPOR in my situation, I am delighted to rent, because that's what the numbers say to me.

Here in the UK, there are buy opportunities where the numbers are starting to add up, but plenty of time for better deals to appear.

Cheers

 

[theasxgorilla]

The question is not whether to buy now or rent for the next 30 years. The question is when to rent and when to buy depending on your circumstances and how the numbers add up.

Annecdotally, in the markets I'm looking at (Sweden and Holland), there are LOT of properties for sale right now. A lot have come onto the market after the summer break, and I notice several which were there before the break are still there now.

Also worth noting is the property that I talked about on another thread sold within about 4-6 weeks. That was 200 metres to beach, 20 minutes to center of town and ferry to Denmark, 1367 sqm block, 70 sqm livable guest house out the back, $425k AUD, house over the road selling for $1 mill AUD. That fact that I even saw this property appear amongst regular real estate listings suggests to me that things have slowed here.

I've been a property owner since I was 21 and have some IP. But I can tell you that for my PPOR in my situation, I am delighted to rent, because that's what the numbers say to me.

Here in the UK, there are buy opportunities where the numbers are starting to add up, but plenty of time for better deals to appear.

Exactly as you say. Soon I'll move to Holland and it's the reverse to me. Private rental situation is pretty tight, so you don't get much for the money. I reckon I can triple my standard of living for about 2-3rds of the monthly mortgage repayment through buying in Holland instead of renting.

A 52% top tax bracket and full tax deductability of the interest portion of mortgage repayments is a factor. So is the government housing program which provides rentals at big discount to market, making private rentals very costly by comparison.

Even in this market buying will still make sense, for me.

 

[xoa]

hello,

wasnt sure where to post this so placed in here,

http://www.news.com.au/heraldsun/story/0,21985,24360663-661,00.html

look at that, plenty of affordable places around, one lazy $, instead of helping the guy out the front of coles you can go and get yourself a plot,

Yeah, if you agree to sign a binding contract to build and develop the land, and live on it. Remember this is in a dying town of 700, in the middle of the outback. You'd better be a multi-talented tradeperson, because the town doesn't have many. Bring some scissors too, because the town doesn't have a hairdresser.

There might be an "affordable" outpost in the middle of nowhere, but it doesn't change the fact that we have the English speaking world's worst housing bubble.

 

[pepperoni]

Annecdotally, in the markets I'm looking at (Sweden and Holland), there are LOT of properties for sale right now. A lot have come onto the market after the summer break, and I notice several which were there before the break are still there now.

This was how it was in inner north syd in winter ... most properties are still for sale or withdrawn.

But round here now we have gone past that and right when you would expect a few new listings a week there are NONE!

 

[wayneL]

G

Is there VAT on property in Holland?

I know there is 21% in Belgium. Mon Dieu!!

 

[wayneL]

This property:



Just sold for £350,000

That's a gross yield of > 11% after transaction costs. Pe ratio of about 11. (Mixed commercial residential mind you)

Deals are getting better all the time.

 

[theasxgorilla]

On a different note and from a different angle I just had lunch with a friend who is getting back together with a girlfriend. He's selling his apartment, girlfriend will sell hers, then they'll buy again and move-in together. Both bought their apartments on the way up. His apartment is in a good area (he's my neighbour!), newly reno'd, so I believe he will get a good price. Her's is in a less good part of town (put diplomatically) and will sell for almost 20% of it's equity peak.

They're currently living at her apartment. When they sell his apartment and live in hers they can save a lot of money, but, ultimately it's too small for the two of them, so it's not a long term solution.

He was very gloomy about the timing of their activities, so I tried to introduce him to another idea, like selling his apartment which has held a lot of it's equity, living in her apartment and saving like hell, and when they have enough saved buying a house up the coast or in the countryside (which means 20 to 30 minutes driving time where we live...you can afford to go there everyday/weekend...year round if it's isolated). Unfortunately he didn't seem enthused at all by the idea...maybe I planted a seed...hopefully.

The thing he couldn't seem to grasp was how bad value apartment living is in Sweden. When you have a mortgage here you can receive a monthly tax deduction for up to 30% of the interest payments. Given where the market already is right now and the direction interest rates are going, I can't see why you wouldn't borrow a bit more and go interest only...as it gives you the opportunity to make a tax deduction on the full amount, allowing you to buy slightly better for the same montly outlay. I know what you're all thinking about the last part of that statement but remember, this is Sweden...The Welfare State, where moral hazard is rife.

Then you have the famous monthly body-corp fees which can typically be $700 to $800 a month, and are not tax deductable at all. You buy a house, you avoid having these monthly fees.

The other plus to this strategy is that you can buy into a upmarket holiday house area, which are for all intents and purposes at the margin right now, and where prices are softest. During growth and prosperity expansion phases these areas get converted to year round living as people knock down the old summer holiday cottages and build dream houses.

But he's my friend. You gotta be careful giving advice to friends. Particularly if it's not asked for.

 

[theasxgorilla]

Is there VAT on property in Holland?

Ummm, dunno what the costs are for exactly but rule of thumb is 10% fees. Buyer pays ALL fees. So on the negative, when you enter a deal you're already 10% in the red...on the positive, you keep the lot when you sell...no capital gains tax in Holland either.

To be breakeven, assuming 3% inflation, you need to get 3.5% cap gains a year for 3 years.

 

[pepperoni]

New bad property news from the US

http://ap.google.com/article/ALeqM5jsanM66tszKz1zFq0LOG4XvWS7zAD938FKKO1

 

[wayneL]

Then you have the famous monthly body-corp fees which can typically be $700 to $800 a month, and are not tax deductable at all. You buy a house, you avoid having these monthly fees.

Knulla helvete!

 

[Warren Buffet II]

This was how it was in inner north syd in winter ... most properties are still for sale or withdrawn.

But round here now we have gone past that and right when you would expect a few new listings a week there are NONE!

And remember, every time they do that, they pay RE agent listings fees (for 60 days listings) and all that stuff, that is from $1000 up to whatever you want to do.