House prices to keep rising for years

[pepperoni]

you miss a couple of points with this statment,...

Firstly you haven't factored in the rent the you would collect if it were an investment or the rent you would have had to pay if it were your home... so you wouldn't have to have CG of 10%,... you might only have to have 6% growth t make it worth while and if you think that prices will average atleast growth with inflation thats 4% staight away and the rent you are saving each year is also growing with inflation.


you also haven't counted on the compounding affect of your interest repayments getting smaller and smaller as you clear down the loan.

I think you are making the mistake of over simplifying your calculations and you are missing some giant factors....

I dont think simplifying is a mistake ... they KISS principle is a way of suggesting over complicating leads to judgment errors (debt and property bubble anyone).

I also think the idea of compounding interest working for borrowers is 100% wrong ... id just rather not burden the thread with it.

 

[pepperoni]

one of the calculations that I have seen used on this thread was by Number crucher who basically said.

sydney property 100 years ago was worth about $2000 for the median house and if $2000 increase at 10% for 100years then the median has price should be about $50,000,000,.... so he stated that it was clearly impossible for this to happen because sydney's median house price was only $450,000

If you look a bit deeper though and say that a 10% return was made up of 4% rental and 6% capital growth,... then it is entirely possible that this properies that were valued at $2000 100years ago have maintained a return of over 10%,.... because the buildings that are built in the areas where the median homes were 100years ago are valued up to $600,000,000 and have land values in the 10's of millions.

I think if we look any deeper we may find ourselves in beijing if not fairy land ... there is nowhere near the mythical 10% return in the past or future no matter how its split or whats added to it and there sure as hell wont be anytime soon with affordability at all time lows and recession looking likely.

In effect I agree to disagree on your points.

Dont mean to be abrupt just dont want do dissapear into tiny if not imagined recesses of an otherwise very big issue.

 

[Go Nuke]

hello,

just another "opinion", but I would soon fill a double decker bus in 10 mins with fellow men or women,

thats it throw your hands up in the air oh this is all too hard getting a place,

go nukes: are you in board plaster?

thankyou

robots

I'm sorry Robots whats a board plaster?
Not sure if that is something or if you have poor English?

In robot's world, there are only:

1/ People who earn (by whatever means) >$100,000

2/ Students or immigrants stacked 15 high per room

3/ Dope smoking, long haired bludgers who believe they should be able to buy a Toorak mansion with dole money.

However robot's world only exists in his limited imagination and does not reflect the real world at all.

ROFL
Glad to hear someone agrees with me

I have staff that are always asking me for more work, but the are capped at 38 hours because I am not going to pay over time.

Sucks to be you.
Not to get into politics but I'm going to guess you were a supporter of John Howards AWA's too?
Thank god I helped vote him and that stupid idea out

Though I will agree with you on the leaving loading. I'm not sure why an employer should have to pay that either.

 

[robots]

hello,

go nuke i thought you were in the building industry?

surprised Numbercruncher hasnt popped his head in today he is probably one of the best troll's going around, we all love him,

its all about breaking down barriers, open communication, realising people have different opinions,

we can all do what we want in this fine country (investment)

i have openly admitted my suburb is down 1.2% as indicated on Q1 results and will see what happens coming up

thankyou

robots

 

[Tysonboss1]

I dont think simplifying is a mistake ... they KISS principle is a way of suggesting over complicating leads to judgment errors (debt and property bubble anyone).

I also think the idea of compounding interest working for borrowers is 100% wrong ... id just rather not burden the thread with it.

it is when by over simplfying you miss giant pieces of infomation and cut out vital pieces of the return calculation.

also when i talk of (reverse) compounding interest working for borrowers i am talking about how when a loan is paid down the interest is portion of the loan is getting less and less and the priciple is getting more and more,.... so the last $10,000 of the loan is paid of 10times faster than the first $10,000 so it's like compound interest in reverse.... I was not suggesting that people let the interst on their loans compound.

for example in year 1 a $300 loan repayment might be $280 Interest and $20 priciple,.... year 5 $200 interest $100 priciple,.... year 30 $20 interest $280 priciple,...

 

[Tysonboss1]

I'm

Sucks to be you.

not really sure why you said that.

on the AWA topic, I think it was a good thing as it would have let myself and my workers put together an arrangement that worked better for us then the current blanket rules.

However i think there is to much room for people to be bullied into unfair AWAs so i don't really know if they were for the greater good... but i think we need somthing better than what we have.

 

[robots]

hello,

great news for owners with the cost of bricks going up, superb

i have friend who has four students living with him in Richmond, VIC

it is fantastic for him having previously been on his own, and has plan in for rear bungalow which he wants to proceed with over the coming years,

a great community service like most landlords

thankyou

robots

 

[pepperoni]

hello,

surprised Numbercruncher hasnt popped his head in today he is probably one of the best troll's going around, we all love him,

And the building industry

I dont get it ... Im told reliably that robots is in the building industry.

I have no interest in PM a mod, nor do I know who they are apart from one ... but this whole thing is a bit

 

[pepperoni]

it is when by over simplfying you miss giant pieces of infomation and cut out vital pieces of the return calculation.

also when i talk of (reverse) compounding interest working for borrowers i am talking about how when a loan is paid down the interest is portion of the loan is getting less and less and the priciple is getting more and more,.... so the last $10,000 of the loan is paid of 10times faster than the first $10,000 so it's like compound interest in reverse.... I was not suggesting that people let the interst on their loans compound.

for example in year 1 a $300 loan repayment might be $280 Interest and $20 priciple,.... year 5 $200 interest $100 priciple,.... year 30 $20 interest $280 priciple,...

Translated into simple terms - compound interest is working against you but the amount you get raped by is most excruciating in year 1.

Its not compounding and there is - simply - no such thing as

(reverse) compounding interest working for borrowers

And the only giant piece of information in the equation is the lack of CG and the size of property losses now and in coming years. Spin it into a novel but its still bad business.

Even robots is admitting falls. Not a good thing when you are paying 10% compounded on the mortgage.

Simple enough for someone as stupid as me.

 

[wayneL]

Deja Vu!!

This is exactly..... exactly like reading UK property threads 4 months ago.

* Bears smell blood and circling, looking for the kill.

* Bulls in denial

* Bulls invoking fancy mathematics and dodgy accounting principles to justify recent purchases

* Bulls protesting that THEIR market won't fall.



Even Dr House couldn't save this bull.

 

[Beej]

it is when by over simplfying you miss giant pieces of information and cut out vital pieces of the return calculation.

also when i talk of (reverse) compounding interest working for borrowers i am talking about how when a loan is paid down the interest is portion of the loan is getting less and less and the priciple is getting more and more,.... so the last $10,000 of the loan is paid of 10times faster than the first $10,000 so it's like compound interest in reverse.... I was not suggesting that people let the interst on their loans compound.

for example in year 1 a $300 loan repayment might be $280 Interest and $20 priciple,.... year 5 $200 interest $100 priciple,.... year 30 $20 interest $280 priciple,...

You are spot on and I think people are missing a key point. Imagine you own and live in a 100 year old house located on the lower north shore of Sydney. Let's say that house cost $2000 100 years ago (which may well be correct, although in fact it may even have been less than that!). This house is currently worth somewhere north of $1M (assuming it's value is not just about to half like some people on here would like to fantasize). 6.5% compounding increase in value of 100 years takes it from $2k -> about $1.1M - spot on! Plus a practical rental value (or return) in the order of say 4%, gives an annualized compound return of 10.5% pa on average EVERY year for the past 100 years.

So bottom line is it would have been worth paying an average 10% mortgage rate, as once you payed off the mortgage, you then get that 10.5% annual value for free (and 100% tax free), and then you can start to get way ahead.

Cheers,

Beej

PS: 75% of the people who own houses on the lower north shore of Sydney don't even have a mortgage, so don't be looking for a fire sale around there

PPS: Many people on here seem to think this is the first time Australia has seen a boom period followed by a soft period in the housing market! Maybe it's the first time YOU have seen one, but believe me, we have all seen this before, just like the bear stock market is nothing new to people who experienced and invested through the last 3 or 4 Nothing has *fundamentally* changed.

 

[robots]

Deja Vu!!

This is exactly..... exactly like reading UK property threads 4 months ago.

* Bears smell blood and circling, looking for the kill.

* Bulls in denial

* Bulls invoking fancy mathematics and dodgy accounting principles to justify recent purchases

* Bulls protesting that THEIR market won't fall.



Even Dr House couldn't save this bull.

hello,

has been going on for almost 3yrs here at ASF, with the anniversary i think on the 12th September 2005 of the infamous thread,

man we miles ahead of the UK

thankyou

robots

 

[wayneL]

hello,

has been going on for almost 3yrs here at ASF, with the anniversary i think on the 12th September 2005 of the infamous thread,

man we miles ahead of the UK

thankyou

robots

Bears always admitted to there needing to be a trigger.

We now have the trigger.

Boom-Boom

 

[xoa]

You are spot on and I think people are missing a key point. Imagine you own and live in a 100 year old house located on the lower north shore of Sydney. Let's say that house cost $2000 100 years ago (which may well be correct, although in fact it may even have been less than that!). This house is currently worth somewhere north of $1M (assuming it's value is not just about to half like some people on here would like to fantasize). 6.5% compounding increase in value of 100 years takes it from $2k -> about $1.1M - spot on! Plus a practical rental value (or return) in the order of say 4%, gives an annualized compound return of 10.5% pa on average EVERY year for the past 100 years.

So bottom line is it would have been worth paying an average 10% mortgage rate, as once you payed off the mortgage, you then get that 10.5% annual value for free (and 100% tax free), and then you can start to get way ahead.

Cheers,

Beej

That's a nice idea in theory. Unfortunately it's a pipe dream.

In reality the hypothetical 100 year old house would be a pile of rotting wood, and the property would sell at land value, unless you invested hundreds of thousands of dollars in its upkeep.

There'd need to be ongoing repairs and maintenance, taxes, and council rates. If you were hoping to rent it in 2008, you'd need to spend extra on renovations to install modern conveniences such as indoor plumbing, electronics, and electrical wiring.

New "investors" tend not to think about that kind of thing. Maybe they want to flip their property after a year or two anyway.

 

[wayneL]

That's a nice idea in theory. Unfortunately it's a pipe dream.

In reality the house would be a pile of rotting wood, and the property would sell at land value, unless you invested hundreds of thousands of dollars in its upkeep.

There'd need to be ongoing repairs and maintenance, taxes, and council rates. If you were hoping to rent it in 2008, you'd need to spend extra on renovations to install modern conveniences such as indoor plumbing, electronics, and electrical wiring.

New "investors" tend not to think about that kind of thing. Maybe they want to flip their property after a year or two anyway.

Ah yes, harks me back to this quote:

...by over simplfying you miss giant pieces of infomation and cut out vital pieces of the return calculation.

Indeed.

 

[dhukka]

Some interesting data out today from the ABS on loan commitments for housing. The number of loans for owner occupied houses are now -27.1% from the peak in June 2007 and the value of loan commitments is now off -28.8% from the peak.

The chart below tell the story. There is some severe mean reversion taking place. We're just getting warmed up here folks, following the US and more recently the UK into the real estate abyss.

 

[Tysonboss1]

That's a nice idea in theory. Unfortunately it's a pipe dream.

In reality the hypothetical 100 year old house would be a pile of rotting wood, and the property would sell at land value, unless you invested hundreds of thousands of dollars in its upkeep.

There'd need to be ongoing repairs and maintenance, taxes, and council rates. If you were hoping to rent it in 2008, you'd need to spend extra on renovations to install modern conveniences such as indoor plumbing, electronics, and electrical wiring.


.

the expenses you mentioned would be a small part of the collected rent, and any big property improvements pay for them selves through increased rental return,

not to mention that some of those blocks would near the cbd would be worth >$30M so it's a bit more than a pipe dream.

 

[xoa]

not to mention that some of those blocks would near the cbd would be worth >$30M so it's a bit more than a pipe dream.

Yeah. If that house was on an acre's block next to the Sydney Opera House.

 

[Beej]

That's a nice idea in theory. Unfortunately it's a pipe dream.

In reality the hypothetical 100 year old house would be a pile of rotting wood, and the property would sell at land value, unless you invested hundreds of thousands of dollars in its upkeep.

There'd need to be ongoing repairs and maintenance, taxes, and council rates. If you were hoping to rent it in 2008, you'd need to spend extra on renovations to install modern conveniences such as indoor plumbing, electronics, and electrical wiring.

Crap - the reason I know is I own and live in a 100 year old house so it's not so hypothetical to me . Back then they built houses out of double brick. 1000s of them all still standing around here today. Yes, some $ have to go into the housing stock over the years to keep it up-to-date, but nowhere as much as you are suggesting above. Take maybe 1% p.a of that 4% rental return/value and you should cover all those ongoing maintenance and renewal costs easily (including the big ones like electrics/modern plumbing etc - those things get done once every 50 years). - plus the added value of much of that work get's to keep compounding on into the future as a part of the asset value growth long term anyway. Let's also say that the savings during the periods of low interest rates (ie < 10%, like the entire past 10 years) probably covers those costs nicely anyway, pretty much evening everything out.

Seriously what do you guys think? Do you think you are going to be picking up a 5 bedroom/3 bathroom federation on the Balmoral slopes for $500k anytime soon?? Even for $1.5M?? Honestly?

The property market is a whole lot of different markets that all relate to each other at some level, but each is also driven by it's own financial factors. Just because someone over-stretched for a fibro shack in the boring outer suburbs of Brisbane that resulted in a mortagee sale at a low price, doesn't automatically mean that mansions are going at fire sale prices in Mosman!

Sure, prices in good area's may still pull back a bit (because they go up soooo much when times are good!), but believe me, you will ALWAYS need serious cash to buy into those area's, far more so than you did 100 years ago or at any other time in the past for that matter as well, as the desirability of good areas only goes up while the relative number of people that get to live in them can only go down. Ergo, on average each year you have to be wealthier than the last to afford to live there (if you are not already "in").

Real-estate in good area's of Sydney has been flat pretty much since 2004/05 anyway, so really all this talk of bubbles bursting etc doesn't apply here, it's already happened! The rest of the country might well have got a bit ahead of itself, and the current interest rates are putting that under some pressure, but I would still only be counting on a slight pull-back followed by a period of plateauing for a few years if you are thinking of entering the market - forget the idea of across the board fire-sales and big falls in the "good" areas, that's a fantasy!

Cheers,

Beej

 

[Tysonboss1]

Its not compounding and there is - simply - no such thing as

The term compounded interest refers to interest on an amount of money accumulating there by earning more interest so you are getting intrest on interest,.... So home owners do are having compounded interest work against them because they pay the interest off each month so they are never charged interest on interest,... So you are wrong about that.

Secondly the term reverse compound interest is a term I use (and also Noel Whittaker uses in his book "Golden rules of wealth") to describe how as you make extra payments off a priciple and interest loan each payment you make saves you interest for the rest of the loan term, and as it saves you interest this month it also saves you further interest the next month,.... so the amount of interest it saves is getting bigger and bigger each month,.... so the rate that you are clearing the loan gets faster and faster as the years go by