House prices to keep rising for years

[kincella]

Morning Robots, Beej and friends,
yes saw that article, the barefoot investor, ordinary, pedestrian type advice IMO....
agree with Robots...the best saving plan is the 'forced saving plan', no ifs or buts, pay the mortage each month, similar to paying rent, but with the bigger long term benefits...
That Friday night show on 7...house and garden or whatever it is....the guy doing the gardens came 3 rd in the big garden competition.....
he did a kids retreat garden, more for the bigger kids than the toddlers, wonderful idea...and I thought, the renters cannot do things like that, or if they did with permission....its a lot of money to walk away from...
I may appear to be biased to home ownership, but the rainbow at the end has such a bounty, and the gold bullions along the way...are just too good to miss out on, like the treat above.

Reminds me, bought the house before my 21st, conveniently there were paddocks across the road, so I bought myself a horse, and then another, and another etc....then converted the 4 car garage into a saddle room, feed room etc, taught the 2 children to ride horses, reschooled horses for friends and others, taught other children to ride horses....
I would have been hard pressed to find a rental, that would have provided the synergy to resume my horse hobbies, in such a convenient location.

Of course as the years went by, the mortgage reduced, the interest became less and less, my career took off, and the mortgage was a mere blip, it was nothing compared to my friends who were still partying and renting their lives away.

 

[Trevor_S]

I may appear to be biased to home ownership, but the rainbow at the end has such a bounty, and the gold bullions along the way...are just too good to miss out on, like the treat above.

I don't think you are alone there, many see the advantages of owning their own home in Australia. I think the debate comes down to, is this a crazy time to buy with prices so historically high and to my mind they are VERY, VERY high.

Not being a seer I don't know if prices will come down, one assumes that eventually there will be a reversion to the mean and prices should come down (should being the operative word). I don't buy (no pun intended ) any of the arguments about oversupply, immigration etc they are all furphies. Aside from a few very desirable places, housing prices are based purely on ease of access to debt.

Years ago I used to think people would see the fundamental business value in a house and only spend what is economically sensible. I now realise this was a mistake and people will spend whatever the bank will give them and they will often try to sway the banks to give them more then they can afford (and then blame the bank, witness the Storm thread for evidence of that) if it goes pear shaped.

To me, the median house price is like the price of Gold (Au bugs can agitate all they want for a return to Brenton Woods), there is no fundamental reason behind it's pricing, it bears little resemblance to supply/demand and is mostly about emotion. If you get enough buyers convinced housing or gold will stay high, then it will.

 

[kincella]

Trevor.....
I agree there are expensive houses out there...but if you are active in looking for one...there are bargains to be had...you just have to seek them out..

the low interest rates are the biggest incentive...so one can afford to pay a bit more for the house, and the low rates may show it is comparable with....

a cheaper house with high interest rates......that has always been the case with housing....rates go up and prices come down.....rates go down and prices go up ....
I think prices have come down quite a bit....or did until last Oct....
so the buyers back in Oct got the best deals, cheaper prices and then the lower interest rates kicked in...the double whammy

 

[singlefished]

Yawn....
glass half full or half empty.....
7% unemployment or 93% employment
so you are banging on about 7% unemployment
we say its wonderful there is 93% employed
currently the ratio is 5% versus 95%
:sheep::sheep::sheep::sheep:

OK, will use small numbers in this example so I don't have to pull out the calculator.

It's already discussed in numerous places on this forum that in general it takes 2 incomes to service the average household mortgage. The good ole days of single income households that you remember kincella are now all but gone...

Lets take 100 households as an example. The 2 required incomes paying off on these mortgages represents 200 employed individuals to service repayments on these 100 properties.

Now, lets hypothetically assume that unemployment rises to 10%. That would equate to 20 people losing their jobs. It's probably also quite fair to assume that the majority of these 20 people reside in 20 different properties.

So, we now have 20 properties out of 100 that could have gone from dual income onto single income mortgage repayments. Some could have gone from dual income to no income.

It would also be fair to assume that a majority of these single income households would likely now struggle and have the realistic opportunity of defaulting.

So simplistically, we're actually looking at double the number of households being affected by unemployment which in this example would represent a whopping 20% of properties or statistically 1 in 5 households currently servicing a mortgage.

The Government has already stated that it will be >7% unemployment when treasury next releases their figures in the coming budget. Just take their new figure and double it for a rough indication of households now going into extreme mortgage stress.

Yes, 10% unemployment is a hypothetical figure.
Yes, some of these households will get by on 1 income.
Yes, low interest rates play a significant factor in all this.
Yes, not all properties are currently being serviced by a mortgage

How will the Investment Property market fare if some of the above households were also holding IPs?
What about if 20% of renters struggled with their rent repayments....

The wonderful 93% employed statistic doesn't look so rosy if it represents 14% or 1 in 7 households currently servicing a mortgage does it?

IMO

:sheep:

 

[tech/a]

OK, will use small numbers in this example so I don't have to pull out the calculator.

It's already discussed in numerous places on this forum that in general it takes 2 incomes to service the average household mortgage. The good ole days of single income households that you remember kincella are now all but gone...

Lets take 100 households as an example. The 2 required incomes paying off on these mortgages represents 200 employed individuals to service repayments on these 100 properties.

Now, lets hypothetically assume that unemployment rises to 10%. That would equate to 20 people losing their jobs. It's probably also quite fair to assume that the majority of these 20 people reside in 20 different properties.

So, we now have 20 properties out of 100 that could have gone from dual income onto single income mortgage repayments. Some could have gone from dual income to no income.

It would also be fair to assume that a majority of these single income households would likely now struggle and have the realistic opportunity of defaulting.

So simplistically, we're actually looking at double the number of households being affected by unemployment which in this example would represent a whopping 20% of properties or statistically 1 in 5 households currently servicing a mortgage.

The Government has already stated that it will be >7% unemployment when treasury next releases their figures in the coming budget. Just take their new figure and double it for a rough indication of households now going into extreme mortgage stress.

Yes, 10% unemployment is a hypothetical figure.
Yes, some of these households will get by on 1 income.
Yes, low interest rates play a significant factor in all this.
Yes, not all properties are currently being serviced by a mortgage

How will the Investment Property market fare if some of the above households were also holding IPs?
What about if 20% of renters struggled with their rent repayments....

The wonderful 93% employed statistic doesn't look so rosy if it represents 14% or 1 in 7 households currently servicing a mortgage does it?

IMO

:sheep:

Your making the assumption that none of the "20%" will not be re employed before default and that they don't have enough savings to avoid default.

Your equating unemployment to defaulting mortgages.
Which would equate to bankruptcy in this country.

Flawed argument.

 

[gfresh]

$60k wage after tax is approx $900/wk .. so assume one partner loses a job, leaving this as sole income.

Assume the average loan remaining is $300k (I think stats show it's lower than this).. the majority have owned homes more than 5 years and hence have made significant payments into principal. Payments on $300k @ 5.30% is $384/wk = 42.67% after tax wage. Little painful, but livable as long as you are frugal.

Leaving $516 for everything else - that's plenty. Remember the banks will let you go back to IO if you are in genuine hardship meaning you might be able to reduce to ~$305/wk for a few months. Oh yeah, partner will get unemployment benefits which is somewhere above $200/wk too.

I see the real problem is the cost of providing for children (subsidised via government payments), and keeping other debts near zero. Anybody sensible that has adequately prepared for this recession by paying down these debts should be able to get through. The question is how many are the sensible ones?

Situation gets messy for the situation where the partner works part-time, and in recession hours are cut right back, or laid off completely. Then the main bread winner gets laid off too. Then you've got problems.

 

[Beej]

Your making the assumption that none of the "20%" will not be re employed before default and that they don't have enough savings to avoid default.

Your equating unemployment to defaulting mortgages.
Which would equate to bankruptcy in this country.

Flawed argument.

Yep - totally, for the reasons you state, PLUS the example also presumes that 100% of the 20 people that got laid off are home owners with a big mortgage - ie RECENT home purchasers. 33% of the population rent for a start, then another 33% own their homes outright with no mortgage. Of the remaining 33%, only a proportion of them have a "new"/large mortgage that absolutely requires both household incomes to service it - ie many people have had their mortgage for years and paid a lot of it down, plus probably paid less for their house because they bought a long time ago. So let's assume half of the 33% with mortgages need the second income - so far our potential defaulters are only 5 out of our original 100 households in the original example.

Then you also have to consider that unemployment tends to effect certain segments of the population more than others - with young people (who tend to be renters not home owners) and older workers (who tend to be the no mortgage home owners) often representing a high proportion. So that would probably bring our 5/100 down to 2/100 or so. And then you get to Tech/a's point that even for those 2 to eventuate in a defaults and mortagee sale those people would have to have not found a new job, had no savings, or buffer in their mortgage etc etc.

These are all the reasons why the potential impact of rising unemployment on house prices (through an envisaged rise in defaults), is hugely over-estimated by the property bears here. It's also why the mortgage default rate in Australia is so tiny compared to countries like the US.

Cheers,

Beej

 

[nunthewiser]

These are all the reasons why the potential impact of rising unemployment on house prices (through an envisaged rise in defaults), is hugely over-estimated by the property bears here. It's also why the mortgage default rate in Australia is so tiny compared to countries like the US.

Cheers,

Beej

Homebuyer stress fuels soaring repossession rate

3rd April 2009, 6:00 WST
Property repossessions in WA have soared after recent job losses, with home seizure court cases up more than 140 per cent in the past year

yes m8 its all a dream

 

[Beej]

yes m8 its all a dream

You want to post the actual numbers? 140% of a poofteenth is still a bee's dick away from nothing!

 

[nunthewiser]

You want to post the actual numbers? 140% of a poofteenth is still a bee's dick away from nothing!

scroll back m8 already posted the media article which was conveniantly ignored before

Homebuyer stress fuels soaring repossession rate

3rd April 2009, 6:00 WST
Property repossessions in WA have soared after recent job losses, with home seizure court cases up more than 140 per cent in the past year.

Alarming Supreme Court figures released yesterday show low interest rates were not enough to save many West Australians from losing their homes in the past three months, with almost 400 repossession applications processed in the March quarter.

This is a rise of 143 per cent on the 164 repossession cases recorded at the same time last year and there are fears the rate will continue to increase with further unemployment predicted.

The rate of repossession applications is at its highest level since at least 2000 and has increased for the fourth consecutive quarter.

WA Council of Social Service chief executive Sue Ash said the March quarter repossession figure was worse than expected and she warned that more people would lose their homes in coming months amid further job losses or cuts, mortgage stress, health reasons and relationship breakdowns.

She said Perth and Bunbury’s fringe areas continued to have a noticeable increase in property repossessions.

Ms Ash said WA’s steep rise in repossessions and bankruptcies should spur the State Government to boost funding for community services to help people handle financial turmoil.

“This is a very worrying trend and the State Government should do all it can to ensure that WA doesn’t follow the lead of western Sydney, the capital of mortgage repossessions in Australia,” she said.

Some people had turned to paying mortgages with credit cards or gambling to pay bills.

In a similar bleak by-product of the global financial crisis, figures from Queensland-based insolvency firm SV Partners released this week show a 15 per cent rise in personal bankruptcies in WA over the past year.

Hegney Property Group chairman Gavin Hegney said most recent repossession victims would be non-conforming loan holders, high-risk borrowers with bad credit, because their interest rates were still high, or those with fixed-interest loans.

“A lot would have just got into the market at the peak of the boom and I’d probably say they have since lost their jobs or fallen on hard times,” he said.

Real Estate Institute of WA president Rob Druitt said repossessions were not endemic in WA. He expected the rate to plateau because he did not believe unemployment would blow out in WA as much as in other States.

A Supreme Court spokeswoman said not all applications resulted in repossessions. “The matter could be settled by consent between parties or settlement of the debt through alternative arrangements,” she said.

KATE CAMPBELL

 

[gfresh]

Rather than guessing, the current 90 day arrears rate is 0.5%, or 1 in 200.

 

[Beej]

scroll back m8 already posted the media article which was conveniantly ignored before

Yes I know but I wanted you to analyse the numbers to prove your argument - which you can't, and here's why:

Population of WA = ~2M. So let's say there are 750k households (based on AU average of 2.6 persons per household). Someone has to own each house (even the rented ones) and the article doesn't pertain just to owner occupiers: So, 250k of those homes would be owned outright, 250k rented out and 250k owned by OO with mortgages.

Defaults up from 164/quarter to 400/quarter - so let's say an annualised rate of 1600/year. That's 0.32% of mortgaged properties defaulting - tiny tiny tiny!!! And "up 140%" from an even tinier 0.13%. The long term average default rate for AU is about 0.5%, So really if you are going to use data like that to try and predict a house price crash you will need to show a MUCH higher default rate to demonstrate some factor that hasn't been seen by the housing market many many times before without any great crash.

Remember that as unemployment rose during 1991/92/93 to 11% house prices in most cities actually went up! When unemployment was 7% back in 1999/2000 a huge property price boom was underway. Go figure....

Cheers,

Beej

 

[nunthewiser]

Rather than guessing, the current 90 day arrears rate is 0.5%, or 1 in 200.

and thats in a period of historically low intrest rates and free money gifts....... wonder what happens when they rise ?

 

[singlefished]

Wow, I find it hard to believe that even the more optomistic on this threat cannot even concede that there are valid points raised by my post which are of no real concern... given the 42,000 recent FHB purchases (possibly up to 84,000 individuals clearly stated by yourselves as the most likely sector to be affected by unemployment) and realistically a fair percentage of individuals who have entered the market over the last couple of years who have been servicing high interest rate mortgages with no chance to get ahead on their payments.

I can acknowledge it's a simplistic scenario based on hypothetical figures that is bound to contain flaws, posted to provoke amicable discussion due to it's relevance, but to be completely written off, well....

Well done!!!!

 

[nunthewiser]

You want to post the actual numbers? 140% of a poofteenth is still a bee's dick away from nothing!

No that is the question you asked me beej

i do hope u have some factual evidence to back up YOUR numbers just quoted instead of the same ole same ole glossy opinions that get bandied around instead

 

[singlefished]

Remember that as unemployment rose during 1991/92/93 to 11% house prices in most cities actually went up! When unemployment was 7% back in 1999/2000 a huge property price boom was underway. Go figure....

We didn't have a such a large credit bubble or GFC back in the good ole days is what I figure...

 

[MrBurns]

Went to an Auction today, a bit like the casino, if the Chinese weren't there the place would be empty.

I know the agents they said it's like that all over so the Chinese are buying, is that a hint ?

Did it sell ? the agents said it wouldn't.

They say volumes are ok but prices are are way down, so there you go, and they expect it to get worse.

 

[nunthewiser]

Wow, I find it hard to believe that even the more optomistic on this threat cannot even concede that there are valid points raised by my post which are of no real concern... given the 42,000 recent FHB purchases (possibly up to 84,000 individuals clearly stated by yourselves as the most likely sector to be affected by unemployment) and realistically a fair percentage of individuals who have entered the market over the last couple of years who have been servicing high interest rate mortgages with no chance to get ahead on their payments.

I can acknowledge it's a simplistic scenario based on hypothetical figures that is bound to contain flaws, posted to provoke amicable discussion due to it's relevance, but to be completely written off, well....

Well done!!!!

wasnt written off by me , in fact was a well thought out post ..... in my view hardly flawed at all seeing as the "supreme court" figures and the honcho from REIWA seem to agree

but hey there not glossy opinions so i guess they could be viewed as flawed in here

 

[kincella]

hmmm...have I got this wrong....250,000 houses in the mortgage belt...of which 1600 pa under stress....that is around half of 1%... or 0.05% not even 1% or actually .0064....
or is my calculator playing tricks again 1600/250,000

and nunthewiser...guess we ignored it as we thought it sounded miniscule
well I did anyway..

 

[kincella]

I just have to keep posting optimistic posts, cause I am an optimistic person, but others may be pessimists....and they may take the opposite view.....

you know the proverb about the blind men and the elephant...each saw/thought something different.....
I copied this post below....................

I have just come back from shopping...
there on glenferrie rd, just past malvern rd, 9 big developments out of 11 old mansions....figure they have 200' frontages each at least....all together in a row.... may go back tomorrow with less traffic and have a closer look.... 4 have been bulldozed down..the rest have all the mesh around them....
so when the going gets tough...the tough get going...

they must have had the finance to get started, they must think its a good time to get going on building....they might be property bulls....or just ordinary folk who know what they are doing



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Ever met a wealthy person who complains and moans about everything ?

*** The best way to become a millionaire is to borrow a million dollars and have your renters pay it off.
Jack Miller

**** My posts are for experienced property investors only. They are not for the inexperienced or first home buyer. I make no recommendations to buy or sell to the inexperienced.