House prices to keep rising for years

[gfresh]

couple of points....gfresh, I thought the Qld market was still overheated...so what price ranges are your friends buying at...and they are spending two incomes, with no savings ???

Ok, to explain a bit more fully.. I know about 3 couples that purchased about 3 years ago, similar situations, and in that time they haven't really made much of a dent in the principal, as you generally don't in the first 5 years unless you make fair extra payments.

I know things were tight in 2007 when the average interest was around 8%, about 12 months after they bought and were still paying off weddings, honeymoons, etc. I would say they'd be getting more in front in the last 12 months as rates are coming down, but I know previously they have not been in the position to have an extra $200/wk+ to simply put into their mortgages... not everybody is in the legal profession out there

Loans would have been about $310k w/ 5% deposits which is fairly standard these days. Incomes would be around $100k combined.

Don't really live extravagant lives, but do holidays, spend a bit on clothes, have bought all new furniture, going out, and have newish cars... nothing I don't do, but I don't have a mortgage. Seems pretty standard to me.

But at the end of the day, if there were a job loss take out ~$800 of a combined ~$1600 wage (after tax).. mortgage repayments + rates + body corp (apartments) around $450/wk.. they're be left with $350/wk for 2 people to live on including everything else such as health insurance, house/contents insurance/phone bills/internet/petrol/car servicing/food .. I guess with rates at current levels they'd be ok for a while, but it would be pretty tight.. if rates rose, forget about it..

 

[kincella]

gfresh...newish cars etc hmmmm

...on ACA ch 7 last night..a woman...a thrift planner or something went down a whole street somewhere...sat down with the mums and dads and taught them how to reduce wastage in their budgets...most threw away the credit card to begin with...almost all were saving on average about 15,000 pa...or roughly 300 pw, cut out the takeaways etc, planning meals, planning expenses...some people had never budgeted before ?????

in the case of your friends...the biggest item is either the mortgage or the rent....so if they were renting ...how would they be any better off
and their interest bill should have dropped about 9000 pa over 700 pm
maybe they have car loans...and credit cards...and wow holidays too....
they can cut the fat from their budget if they wanted to ????

I know of a group of young ones in Melb....they all married, had first child etc and bought a house around the same time.....they all threw away the credit cards when they started saving for a deposit for their houses....they all practice being thrifty....its a group of about 40....
they go camping instead of the big cost hols, grow vegies , still party but at each others house...not at bars....oh and they are a pretty happy bunch

 

[gfresh]

Yeah, I know.. but it is the sort of life people want to live these days. It's not the only way of course, but it seems to be the way most people want to be.

People see a car older than 5 years old as "problems", and a bit of a fashion accessory at the same time. Women are especially bad when it comes to impulse buying on due to all the marketing pressure, and media bombarding them all the time to buy this and that or to be a certain sort of person. People just don't want old stuff.. I know I cop a bit of flack from them for being a tight ****, and not spending on some things.

It's all too easy to get into contractual agreements as well - say 24 month phone contracts because the iPhone or whatever is the latest cool thing, or they want a laptop, foxtel, or they want this.. it all adds up to some high fixed weekly spends.

Renting probably wouldn't be much difference I agree at the moment.. but either way, many are living this life out there, it's not like it's unusual. The unusual thing is actually people living a simpler life, not having all the gadgets and gasp, saving.

 

[kincella]

gfresh...so it comes back to choices..so if they lose the house...its their choice...or go bankrupt..
there was a 60 minutes segment about these young women...new cars, 5 credit cards...earning about 500pw...spending 1500 pw...with no intention of paying it off...had credit card bills of 60-70k's...they said they were happy to go bankrupt...they were looking for a wealthy man to marry them later...
unbelievable attitude to credit....obviously not thinking about needing a house mortgage one day
so your friends may lose everything anyway...including the lap tops, games etc if they lose their jobs....
the choices will be taken away from them...
geez talk about throwing the dice....

back to that group of 40...they used to rent in the inner subs, do the caffe latte etc and spent all their money each week.....
One couple asked my advice...they felt they were in a rat race, and could not see their way out...I suggested the plan, 'how to change your life forever'
...start a budget, and savings plan....buy the house outer suburbs....so much cheaper, forget about the dream home until they are older and have more income etc....they saved stacks on the rent to begin with...(they moved and rented in the outer suburbs)
that couple passed it onto the others....they all agreed if they were all together in the outer suburbs,,,they could do the same things...but it would be easier, cheaper and less stress....
some wanted to stay...but eventually most of them followed each other...
now they feel powerful...not powerless

 

[Uncle Festivus]

gfresh...newish cars etc hmmmm

...on ACA ch 7 last night..a woman...a thrift planner or something went down a whole street somewhere...sat down with the mums and dads and taught them how to reduce wastage in their budgets...most threw away the credit card to begin with...almost all were saving on average about 15,000 pa...or roughly 300 pw, cut out the takeaways etc, planning meals, planning expenses...some people had never budgeted before ?????

Thrift is the enemy of the RE bull. Without the unrestrained spending/credit people have gotten used to, the economy contracts and then....we have the situation we are in - having to artificially prop up the RE market in the misplaced view that it will kickstart the economy ie push economics.

All we have now is a government pushing a group of people into home ownership at the very time any one of the margins could be compromised to their detriment - a very tenuous situation for all?

 

[Beej]

Thrift is the enemy of the RE bull. Without the unrestrained spending/credit people have gotten used to, the economy contracts and then....we have the situation we are in - having to artificially prop up the RE market in the misplaced view that it will kickstart the economy ie push economics.

All we have now is a government pushing a group of people into home ownership at the very time any one of the margins could be compromised to their detriment - a very tenuous situation for all?

I don't agree with the underling assumptions that are required to accept your statement and conclusion. Everyone I know who owns real estate has always been very thrifty - far more so than their peers who are still renters. That's how come a large proportion of housing is actually owned outright with no mortgage (50% in the suburb I live in). These owners are the people who worked hard to save a deposit etc, pay off their mortgage and so forth - often foregoing unnecessary expenditure and luxuries to do so. Ie what percentage of long term renters have say a savings account or a share portfolio worth $500k+ outright? I'll bet it's nowhere near the percentage of home owners that own a house worth $500k or more free and clear!

It's actually quite funny that so many people here think of the people with mortgages/houses as the imprudent debt driven consumers when in my experience it has actually always been the opposite! I think it comes down to a missing gene amongst the property bears; the "house = security/stable lifestyle" gene or something? Ie Some people don't understand the intrinsic value that the majority of the population see in owning your own home. Therefore rather than see home owners as prudent long term planners with an eye on their future financial freedom, they are seen as reckless over-leveraged consumers who epitomise all that is currently wrong with the world! I think the opposite is in fact the case....

Perhaps you could apply these negative labels to a small minority of home owners and highly leveraged investors, but I think it is incorrect to tar the majority of mortgage holders and home owners with that brush.

PS: How exactly is the R/E market being artificially propped up in reality? The FHOG boost is a mere extra $7k over and above what was already there to compensate for GST driven inflation anyway, far less than the stamp duty that still applies in many states. It provides an incentive, but only a small one IMO in the grand scheme of things. The primary factors driving the market currently are interest rates plus pent up demand. Demand is very real, and interest rates are not "artificially" low. Ie interest rates are not low to try and save housing, they are low to provide stimulus to the economy during a period of contraction. The effects on the housing market of those monetary policy settings are just a bonus, but also very predictable in this part of the economic cycle, especially when you consider the unsatisfied demand.

So QED I do not think your contention that "thrift is the enemy of the R/E bull" is correct at all. Quite the opposite in fact.

Cheers,

Beej

 

[Junior]

Perhaps you could apply these negative labels to a small minority of home owners and highly leveraged investors, but I think it is incorrect to tar the majority of mortgage holders and home owners with that brush.

If highly leveraged investors are in the minority, how come household debt in Australia is at an all time high?

 

[GumbyLearner]

If highly leveraged investors are in the minority, how come household debt in Australia is at an all time high?

Say it's not so Junior.

 

[kincella]

clue...household debt is not just a mortgage on the house...it includes all debt in that household....ie...car loan, credit cards, personal loans, store cards etc, margin loans..........everything lumped in together

 

[Beej]

If highly leveraged investors are in the minority, how come household debt in Australia is at an all time high?

Say it's not so Junior.

What's the household debt to GDP ratio currently? It's about 95%-ish (and coming down - so by the way we are past the all time high). So on average each household carries about $120k debt (based on $1Trillion in GDP and about 8M AU households).

Average household income is in the order of $80k-$100k, so the actual average debt to income ratio is in the order 1.2-1.5 times (or less) the average household income. Remember that includes credit card debt as well, which is an extremely misleading figure due to the number of people who use credit cards aggressively but never pay any interest (like me). In addition to those figures, we also know that the average mortgage is about $250k, which gives us an idea of the "skew" in the over-all figures away from non mortgage holders to mortgaged home owners.

I don't think that paints the picture of the majority of people being multiple-property-holding-highly-leveraged-speculative-investors-mortgaged-to-the-hilt at all!

Most of the growth in debt is in IMO is more down to people (be they property owners or renters) buying new cars on finance, feeling free to spend up on holidays and electronics etc etc due to the "wealth" effect that the rising housing market, share market (super funds etc etc) created, in addition to rising incomes and the feeling of job security. Now that the many of those factors have gone, unsurprisingly, household savings have now started to dramatically increase ($15B in Dec alone). But surprisingly to the property bears, this is NOT translating into any significant falls in property prices, and has even produced currently an increase in demand for property at the lower end and mid-range. This does NOT surprise me at all, for the reasons I hope I have explained in this and my previous post.

Cheers,

Beej

 

[Uncle Festivus]

So QED I do not think your contention that "thrift is the enemy of the R/E bull" is correct at all. Quite the opposite in fact.

Um, I'm not sure I said anything about home owners being thrifty as such, the comments were on the consumption economy in general.

PS: How exactly is the R/E market being artificially propped up in reality?

All you RE permabulls need to get together and agree on a few things ie is the FHG helping to sell homes or not? If it is, then it's an artificial stimulis ie the market is not finding it's own level. If RE was such a good thing why have any of these government handouts and tax concessions at all - why not let it stand on it's merits like everything else does? A simple request that not many can answer, apart from the usual 'cronic shortage' mantra?

 

[kincella]

uncle...you did say...'thrift is the enemy of the RE bull'....afraid I dont see it that way at all...we can all look at the same thing...but see it differently

thrift is the RE bulls best companion...for eg; I and a heap of friends are bullish on property as a long term investment....say we had planned to sell a portion of the portfolio this year.... since the GFC , we have changed our minds and the props are taken off the market....they will return when the price is right....
in the meantime we are thrifty with our funds....we can afford to hold onto the props for longer, or for as long as necessary

those prop holders who are not thrifty...are forced into selling in the wrong market at the wrong price....
I also see the young ones who are buying props, pratice being thrifty....the forced savings scenario....they intend to hold the prop for a long time...

 

[sinner]

I decided to go back and look at what the media has reported about mortgage default rates for the last few years:

2007:
http://www.news.com.au/business/story/0,23636,22202830-462,00.html

...Home lenders lodged claims for $210 million worth of bad loans in the 12 months to December compared with only $49 million in 2005, according to the Australian Prudential Regulation Authority....

2008:
http://www.abc.net.au/lateline/content/2008/s2430809.htm

....MICHAEL TROY: The defaults are occurring despite the lowest interest rates in three years and analysts fear the problem will spread further and quicker if unemployment goes up....

2009:
http://www.brokernews.com.au/contents/news/34452/details.aspx

More people are losing their home as a result of defaulting on their mortgage, according to a new Datamonitor survey, which also found that people are taking advantage of recent interest rate cuts to pay off more of their mortgage than they are required to each month...

Hmm, seems like Aus mortgage default rates are in a trend. I will leave it as an exercise to the reader to determine the direction.

and here is a tidbit, not just Keen saying sub-prime lite:

“If prices drop, we’ve got a problem. If interest rates go up we have a problem. If unemployment goes up we have a problem”, Marcus North from Fujitsu Consulting told the 7.30 Report. “If all those three things come together that’s a perfect storm and we have a crisis.”

Should unemployment and interest rates both rise, as occurred in the 1974 economic crisis, North argued that Australia had “all the ingredients” for a subprime mortgage crisis similar to the US. “We are going to see defaults rising. We are going to see people having negative equity and they will struggle to pay the mortgage that they have”, he said.

 

[robots]

hello,

great opinions from those people just like yours and mine, fantastic

thankyou
associate professor robots

 

[MrBurns]

Having sucked so many into this bubble housing market Rudd would need extra body guards if interest rates were to rise, so Rudd's popularity being more important than the interests of Australia as a whole one would think there's no chance of interest rates rising, yes I know interest rates are out of his control, but not out of his influence.

 

[Uncle Festivus]

hello,

great opinions from those people just like yours and mine, fantastic

thankyou
associate professor robots

Huh?

uncle...you did say...'thrift is the enemy of the RE bull'....afraid I dont see it that way at all...we can all look at the same thing...but see it differently

Seems I am not explaining it too well. In a vibrant spending economy, like the one we just had, the wealth effect was just that - the rising common wealth lifted all asset prices?, but now we have the opposite. Generally, and I am not targeting responsible RE owners at all, people being thrifty & not spending depletes the velocity of money in society, and does have an effect on property. I just wonder how RE would fare without all the hand holding from the government?

Let's have a show of hands from the Perma Bulls - are you buying or selling? Selling/offloading to the FHB's while you can perhaps?

 

[kincella]

sinner thanks for the links...
the one for 2008 was good...dated the 26.11.08...talked about interest rates...well after rising to an average 10% interest rates had only been dropped for 2 months...and not all of it had been passed onto the consumers...nor had it been passed on until Nov in some cases...but Troy states....lowest rates in 3 years.....hmmm... truth.....in fact they were the highest rates in over 20 years
extract.......................
MICHAEL TROY: The defaults are occurring despite the lowest interest rates in three years and analysts fear the problem will spread further and quicker if unemployment goes up.

next..the 2009
st george repossessed 132 homes for the month up from 80 odd in the boom years...so if all our banks were similar...then say 30 lenders, thats about 30,000 homes pa...
but in the good times there were 20,000 pa being repossesed....???what the
................................................................................
Repossessions (and repayments) on the rise
By Larry Schlesinger | Monday, 23 March 2009
More people are losing their home as a result of defaulting on their mortgage, according to a new Datamonitor survey, which also found that people are taking advantage of recent interest rate cuts to pay off more of their mortgage than they are required to each month.

According to the survey, St.George repossessed 132 homes in March, compared to an average of around 80 during the boom times - other large banks have experienced similar increases.

Lenders are reluctant to repossess homes in Australia. Some banks offer temporary relief such as interest-only payments and payment holidays.

........................................................................................
and this one out now....where in heaven do they come up with these massive figures....the headline is 30,000 homes repossessed by dec 09
...ok so even I can figure that one out....but look at these figures of over 150,000 homes....what are they smoking ??
and if you google...fujitsu reports...same thing over the years....massive dire figures...but the reality is nothing like it.....30,000 is 1/5th of 150,000
...........................extract
Despite the dire prediction, the Fujitsu Mortgage Stress report shows a massive 41 per cent decline in the number of home owners facing potential sale or foreclosures from 164,590 homes in February to 96,532 in March due to Federal Government handouts and lower interest rates. Maybe they are talking about the US default rates.....they turnover 5 million homes sales per month
I give up......
hehehehehe

http://www.news.com.au/business/money/story/0,28323,25235255-5013951,00.html

 

[kincella]

festivus....
handholding by the govt ???


the govt gets the money back in stamp duty and other taxes almost immediately....
so while some of you complain...look through the deal to see how it works
well maybe its just the state govts....but it still goes back into those govt coffers....in fact the money barely changes hands....the grant is not handed over until settlement date....and on the same day the govt takes it all back with the other hand.....
pretty nifty if you ask me.....
and the state govts were supposed to abolish same taxes since they received the gst....well they still get the gst...extra...and did not stop the taxes...

21,000 for a new house, or 14,000 for an old one..against a median price aust wide of about 450,000....its not open to everyone...just fhb's

 

[Uncle Festivus]

festivus....
handholding by the govt ???

Yes, and the rest ie negative gearing etc = reduce your taxable income, or, not sharing the burden of societal living? Why should the act of buying an investment property, as opposed to constructing a new, economy enhancing dwelling, receive such preferencial tax treatment?

If they (the gov) wanted to build a sustainable economy then they should only make it attractive for those who create new things ie build houses/accomodation or manufacture things. All else would flow from that, instead of wasting potential tax revenues on subsidising property flippers/investors?

Make it a requirement that all migrants can only live in new dwellings - creating jobs and easing the competition on the native population? There is plenty of land, all it would take is for the state governments to get out of the back pocket of developers who like the status quo of restricting new releases to prop up their prices.

Either that, or governments are just plain incompetent, which is a distinct possibly

 

[gfresh]

Many ministers have a property portfolio and have a vested interest. There was a while ago a list of some ministers (NSW I think?) and their listed properties. Many held multiple properties.