House prices to keep rising for years

[kincella]

satan...no I did not miss any part of the report....and finance for owner occupiers...is wait for it....63% for non first home buyers...27% for fhb's...
I think astute fhb's are really smart....lowest interest rates in almost 50 years...
so the fhb's who did not rush in from 04 to 08, when the prices and rates were higher, but waited until it all cooled down....

how many of you out there were fhb's once....did you think you were really silly, stupid at the time...
and if I rightly recall...some of you who pounce on any good news, are actually in the market to buy a second home yourselves....

 

[robots]

Kincella,

You seemed to have missed the first part of that Age report.

"FIRST home buyers are continuing to pile into the housing market in the race to take advantage of the Federal Government's first home owners grant boost, despite clouds of gloom hanging over the economy and rising prices in Melbourne's most affordable suburbs."

Sounds like even the reporter is shocked, keep building the bubble, bring forward that demand, we are different to US, we can build a bigger bubble.

and

"Figures from the Bureau of Statistics show that first home buyers made up 27.3 per cent of home loans for owner occupiers in March — a record proportion"

Nothing to be concerned about, rising unemployment, an inept government placing all Australians in debt and record low IR's.

and

"The figures, from Residex, show that 57 per cent of suburbs with average house values below $350,000 experienced a price increase of more than $7000."

Government sponsored assistance to an asset class that only ever goes up in price. Taxpayers dollars well spent when facing a increasing world wide economic contraction.

aleckara, precisely. High RE prices does not provide for a productive or happy society.

If Oz is so different to the rest of the developed nationa, why is our government going into so much debt, I believed all those who said it is different here but is seems that it is not.

hello,

yeap we sure are different Satan,

we dont sell 9mm, grenade launcher's, ak's, taser at bunnings

we dont have crack on the street man, its just up up and up for the greatest country on the planet

and with the changes coming up in superannuation the greatest tax free haven (and just for putting a roof over your head) is going to continue to roll on, wow, i cant believe it

thankyou
associate professor robots

 

[MACCA350]

The only difference between you Beej and some others is you secured a property earlier when money was worth more and your wage in terms of housing was worth more - and you are hedged against this erosion in value

Just comparing what my father baught 17 years ago to my auntie who baught in 2007:

Father: $115k for a new 4bdr house and land package on a decent sized block, his teaching wage at the time was $30k........just under 4x wage

Auntie: $470 for a new 4bdr house and land package on a decent sized block, her teaching wage was $60k........that's just under 8x wage

Extrapolate that out based on wage and affordability ratio and my kids(in 15 years or so) will be paying $1.9M with a wage of $120k..........just under 16x wage That just does not seem sustainable, something has to give.

cheers

 

[robots]

hello,

your auntie should of picked up one similar to the examples Kincella through up the other day, even less $ in 2007

and would of been most likely 3x income (not sure why this income ratio is such an issue)

oh well auntie has made a decision to load up so can wear it if something happens

thankyou
robots

 

[Knobby22]

Just comparing what my father baught 17 years ago to my auntie who baught in 2007:

Father: $115k for a new 4bdr house and land package on a decent sized block, his teaching wage at the time was $30k........just under 4x wage

Auntie: $470 for a new 4bdr house and land package on a decent sized block, her teaching wage was $60k........that's just under 8x wage

Extrapolate that out based on wage and affordability ratio and my kids(in 15 years or so) will be paying $1.9M with a wage of $120k..........just under 16x wage That just does not seem sustainable, something has to give.

cheers

It may be that they will have to live in an apartment, like what happens in many countries and houses will be reserved for the very wealthy.

 

[MACCA350]

hello,

your auntie should of picked up one similar to the examples Kincella through up the other day, even less $ in 2007

and would of been most likely 3x income (not sure why this income ratio is such an issue)

oh well auntie has made a decision to load up so can wear it if something happens

thankyou
robots

You make me laugh sometimes, how isn't income ratio an issue......I mean how do we pay for a house......with our income

Both houses were "average houses" for the times..........not sure if you've looked at those 200k packages but they are not what I'd call the "average house by today's standards.

I haven't checked what the median price was back in 1992 but in 2007 it peaked at just over $470k, which put's my aunties house smack bang on the median.

cheers

 

[satanoperca]

Green shoots everywhere Robots, pity we are running out of water to nourish them - credit without government intervention anywhere in the world is becoming scarce.

Don't worry, the government is not, debt is to the solution to all problems. Paying for the debt is someone elses problem - Liberals will have a plan to get us out of a huge deficit Labor hopes.

Robots, where do I buy one of those Associate Professor titles. Seems once you have one, you to can waffle on about any subject without evidence to support arguments. Everyone in the Labor party must have bought one, growth will return to above historic levels by 2011. Of course it will if we fuel growth with every growing debt.

Cheers

 

[aleckara]

Green shoots everywhere Robots, pity we are running out of water to nourish them - credit without government intervention anywhere in the world is becoming scarce.

Don't worry, the government is not, debt is to the solution to all problems. Paying for the debt is someone elses problem - Liberals will have a plan to get us out of a huge deficit Labor hopes.

Robots, where do I buy one of those Associate Professor titles. Seems once you have one, you to can waffle on about any subject without evidence to support arguments. Everyone in the Labor party must have bought one, growth will return to above historic levels by 2011. Of course it will if we fuel growth with every growing debt.

Cheers

That's the thing - debt can rise forever theoritically (has no upper bound) because debt does have a way of diluting itself until it is called in because well debt is money and so is inflationary. Inflation diminishes the real value of nominal debt. Debt is only non-inflationary when the extra money is used to improve productivity or for business investment so that the increased credit is matched by increased supply. Debt is assumed to be paid back as well so the inflation is temporary. Kind of like a company that issues a lot of bonds - the value of each bond diminishes as it becomes riskier.

When debt is used appropriately it should increase the standard of living as the cost is less than the benefit received and a net gain. Machine investment, farming, all are examples. When used inappropriately (speculation) you just have more money, same assets = inflation.

My concern is really intergenerational equality - I'm seeing you need to earn so much more than the average wage to be able to afford a house. Low interest rates only temporarily fix the problem because P (price of house) is a function of the interest rate as well kind of like bonds (with a lag). Interest rates should be taken solely out of the affordability calculations of everyone IMO as price adjusts for I% (assuming housing shortage where price is determined by how much people can max borrow which with FHOB's is normally the case).

The ironic thing lately is everyone is saying it is the best time to buy based on interest rates. Well hate to say it but just on what I think above it is the worst time to buy. It is better to buy at 20%, where everyone is suffering and can't pay off their house, when price falls to the point where neww entrants can borrow at 20% and still afford it. That way you will make money as interest rates fall and the amount that people can pay rises.

So really given price is a function of interest rates, get rid of it because one variable will compensate for the other where affordability ends up the same. Instead look at what people earn to what the Price is - what people earn I assume is less impacting of price as people are forced to save and so the bidding process will find a lower price.

The real solution of course is not to throw more money at the problem - it is to build more houses. In some ways this is the saving grace of keeping the boom alive - if targeted correctly can cause more construction than otherwise.

At least at high interest rates savers can bettter save for a house and do it with disclipine. Right now the average person finds it hard to save at a rate that keeps up with inflation and so is falling further and further behind.

 

[kincella]

macca...there is something fundamentally wrong with the argument...your dad could afford the house, your aunt could not, and I cannot see how a bank would allow a loan on such a low income....must be another partner or someone there...your aunt could only afford a 240k house on her income....
where did all the other money come from to get into such an expensive house ????
anyone looking at a nearly half million dollar house on a wage of only 60,000 is trying to live way beyond their means.....
it takes at least 2 wages of 60k each x 4 times = 480k house...
its not changing to 4 times, then 8 times then 16 etc....

 

[kincella]

this is such a small community on this forum, discussing the property market

....the rest of the world is out there enjoying themselves, I just wasted 3/4 trying to get parking in St Kilda, then Chapel st.....I cannot see any difference with the shoppers or the eateries....just all the same as the pre GFC...its choc a block, stuck in traffic going nowhere....
we went to the Million Paws Walk, literally thousands of people with the dogs, kids and families....all out happy and enjoying themselves with their pets, and donating for a good cause...
oh and lots of demolitions and building going on....
Melbourne must be different from the rest of the world.....or
is it Australia is such a popular place, and everyone likes it here....
Met a greek lady, they have a big group that has been meeting at Albert Park for the last 55 years...alll happy Australians...
Thousands of them running around the TAN, whatever, its busy everywhere you go....I used to go shopping on sunday as it was quiter, parking easier...not any more...
I see absolutley no evidence of any doom and gloom that some of you on here are predicting...or hoping for...

 

[satanoperca]

Yes, the bank will lend that sort of money on that income, which is not low but the average. The banks were offering loans that were x6-7 our joint incomes which is ridiculous.

So you are saying that a mortgage should be no more than x4 household income and that you require two incomes to support the median house price on the average salaries.

Yes, Kincella times have changed, 30 years ago the ratio was approx x4 salary based on a single income, today it is based on the requirement of two incomes. In the future if things continue as they have in the past you will need three incomes and then four and so on, so Macca arguement is somewhat correct.

This multiplying effect is interesting as it works both ways.

30 years ago, 100 households, 100 employed, unemployment rises to %10, 10 unemployed, potential 10 household unable to meet mortgages.
today, 100 households, 200 employed, unemployment rises to %10, 20 unemployed, potential 20 households unable to meet mortgages.

I do not know to many young families were they can support a mortgage, rearing children and a mortgage. The fact that you require two incomes to pay a mortgage does no good for the well being of the children, they do benefit from having a parent home in the early years of their development.

 

[kincella]

its called nesting...when they are ready to have children they usually want a place to call their own.....the do not have to buy 500k house and place themselves in a high debt environment...
I told the story in the past here somewhere...young lady at a clients, with 30-40 friends, all renting and living in inner Melb...she was ready to start a family...she had a good job and likely to continue, spouse was in and out of work...asked for my advice....wanted to stay close to her friends....I suggested they all move out together, all in similar situations, I said it was false sense of living, living beyond their means in affluent suburbs, spending all their money on rent and lattes
I said buy what you can afford out in the suburbs...do not count on spouse contributing...
so they did, about 200k near Ringwood, and over the past 4 years most of her friends have joined them...had her first baby, and her husband is the house husband, taking care of the little one, she is about to have her 2nd child.....gee he has it easy, fluttering around with all the mothers at playgroup , shopping etc, playing with the children...
I believe he can get a job, and help with the financials, she works all day, so he could work nights or weekends....
anyway, they are otherwise a sensible lot, and her house has almost doubled in value since they bought it...that does not mean too much to her, since that is their home and nest, but she is quite happy and confident she did the right thing at the time...
now they party at each others houses, instead of eating out and time at the bars etc...she pays more off the loan...I said there is no point,...it will look after itself, by the time she is ready to move to the next home and upgrade, she will be fine....
there are plenty of people out there, who are sensible people ,who do the right thing and not stupid about their financials.... she will always find a way of being employed and keeping it together...not so the spouse

 

[kincella]

I may seem to be out on a limb here with some on this forum....I love debt, and at these oh so low rates, I cannot wait to get my hands on some more, buy a house = good debt, a car = bad debt (and claim back 30% the first year as a tax deduction...used for business) in fact I will buy a couple of props, if only I can find those low priced ones again...grrrrrr for not taking the opportunity.....

Debt is a terrific tool if leveraged correctly for business or investment ...increases ones equity and income over time....and yes , negative gearing is still available, whether its for property or shares or a business......
a hiccup here for non commercial losses if earning over 250k...talking about hobby farms and the like....more information required on this topic...plus legislation

Dont think what I am saying , and get it mixed up with all the rubbish thats been going on with the listed prop trusts, and corporate shennanigans.....look at GPT, with prized shopping centres everywhere, then the scoundrels came in and hocked it to the hilt.
I have gearing at below 40%, it was not always that way.....

 

[robots]

hello,

great posts Kincella

went down to sth melbourne Kincella and the joint is busy as like everywhere man

i done a quick thesis when I was there on high property prices and the results indicate the community spirit is alive and well, oh well

satan, you get the associate professorship from 7-eleven, next to the 2-pak No-Doz at the counter, $4.99 now

thankyou
robots

 

[MACCA350]

macca...there is something fundamentally wrong with the argument...your dad could afford the house, your aunt could not, and I cannot see how a bank would allow a loan on such a low income....must be another partner or someone there...your aunt could only afford a 240k house on her income....
where did all the other money come from to get into such an expensive house ????
anyone looking at a nearly half million dollar house on a wage of only 60,000 is trying to live way beyond their means.....
it takes at least 2 wages of 60k each x 4 times = 480k house...
its not changing to 4 times, then 8 times then 16 etc....

Honestly I've never asked her how she baught the house, but at the time she was divorced so she may have had some cash behind her.

My point is that my father had an average income and baught an average house at the time..........15 years later my auntie had an average income and baught an average house........yet the proportion of average income to average house has exploded..........what will happen in another 15 years, how can things be sustained if they continue at that rate

Your last paragraph has made my point. 15 years ago my parents could afford the average house on a single average income, yet you mention that is not possible with today's prices. If things continue, there will be no First Home Buyers in future generations and the only way to own property would be to inherit(or win the lottery)

Personally it makes me sick that the government could encourage house prices to continue to such unaffordable levels.
The whole point of housing is to house people, what does it say about our society when the average person cannot own their own home(you remember "The Australian Dream").

Housing is turning into nothing more than an investment portfolio for the rich and bugger the average Aussie!

cheers

 

[kincella]

Macca...see the lists attached median FHP 1992 was 117200, but the established house price was 170k,
the graph only goes to 2006 where the FHP is 350k and established is 425k
your aunt had a choice, and was into her 2nd home, and bought at the top of the market....it was her choice
at the same time there were far cheaper homes available to her, there always is....not all houses are the same or equal value....anyone can pick and choose....
sorry, but I keep hearing posters saying how overpriced property is..... its horses for courses....absolutely plenty of cheaper houses out there....just because there is a median value ...does not mean you have to spend that amount...and you know how the median figure is triggered....all those multi million dollar props were popular at the time......

I picked 3 examples last Sat about 30 mins drive to Melb city, 2 were around 200k the other 300k.....if your father were buying today...he would be happy with 200k house
http://www.aph.gov.au/library/pubs/RN/2006-07/07rn07.pdf
heres another chart showing our market peaked in 03/04 went flat 05/06 and hit the highs again 07/08....
http://www.globalpropertyguide.com/real-estate-house-prices/A

 

[Go Nuke]

Firstly - if you take this argument to it's extreme, who is to set what the "lowest cost" for "basic shelter" should be? Remember there is a point at which the shelter will become more and basic the lower the cost. Conversely the higher the cost the better the shelter could be. If you take this to the extreme, we could be like an old eastern block communist state where all property is state owned and we get "allocated" our concrete box to live in for free, then all our spare money can go into "more productive" things! However, we all now where this path leads us, so therefore we also know it's far better to let the market work this stuff out for itself through land values, house prices and rents. This is the most efficient way available to find the right balance, based on what people actually want, between price and quality of "shelter".

Regardless, I don't see housing per se as a "basic function" or just "shelter". It's an argument that I see bandied about a lot. I think in a very narrow sense, housing/shelter is a basic function yes - but only in that as a society it is in our interests that we ensure everyone has shelter/housing of some sort (ie doesn't have to sleep on the streets) - even if that needs to be provided via the government through welfare/public housing etc.

However, land/home ownership is a whole different matter. The right to shelter, or rather our obligation as a society to ensure everyone has it, does not translate into a right to land/property ownership, nor does it translate into the right to have the best located, highest quality home for some arbitrary minimal cost - whether buying or privately renting!

Property is an asset class that is at the very heart of our personal living standards, lifestyle etc. The location where you live, and the quality, size, amenity etc of the home you live in are major inputs to your quality of life and chosen lifestyle. Thus by it's very nature there is going to be an element of speculation in the value of such an asset - especially as there is also the potential for cash returns through a purely market set rental income.

Part of that speculation is how much you might choose to spend on acquiring, maintaining, improving a property that you own, or invest in. The more money that moves towards property as an asset class, the better it will get, thus improving the standard of living available to us.

I don't know how well I am getting this argument across - but essentially what I am trying to say is the "market" has primarily determined the level of capital that is flowing through the property market right now (both prices and rental costs), based on what people want in terms of lifestyle and living standards and what they are prepared to pay for what is available. Anyone who thinks the amount of capital allocated is too high, or that it is unproductive, is primarily making a value judgment really, rather than an economic one IMO.

Say houses were cheaper, and I used my spare money to buy say a second hand Ferrari, or a holiday home, or maybe a chalet in Chamonoix, or even just take a world trip, is that a more or less efficient use of my capital than if I had spent it on a house? Or a house renovation? Sure I might also chose to invest in a business etc, which would be seen as being highly productive, but I could also chose right now just to live in a cheaper area, free up capital and do the same thing. Ultimately I will decide what I spend my money on (as will everyone else re their money!) - and it will be about my lifestyle and investment choices, trade offs, chosen balance etc. Government policy and regulation etc can try and put incentives and penalties in place to encourage me to spent my money one way or another, but ultimately it will (or should be!) still my personal choice! Land/house prices are no different than anything else in this respect.

Cheers,

Beej

Your right Beej,
I choose NOT to buy a cheap house in a bad area of Brisbane where it has high crime and drug problems. Therefore I choose to keep chasing the dream by saving so that hopefully I can afford to buy in an area that is more to my liking for raising a family in.

I will also choose not to live more than 25kms from the CBD and sit in traffic hour after hour, day after day before and after work as public transport is too inadaquate to get me to my workplace by 6am.

IMO housing is overinflated or at least getting out of hand relative to the average income.
Wouldn't it be great if we could all speak with one voice and just say NO...I wont pay ???K for that property

I think prices are "high" relative to each persons personal income. For example 500K would be very expensive....relative to my income. so in theory as the ratio of income/housing debt becomes higher...wouldn't that mean affordablity would generally become lower?

:aus:

 

[Go Nuke]

Honestly I've never asked her how she baught the house, but at the time she was divorced so she may have had some cash behind her.

My point is that my father had an average income and baught an average house at the time..........15 years later my auntie had an average income and baught an average house........yet the proportion of average income to average house has exploded..........what will happen in another 15 years, how can things be sustained if they continue at that rate

Your last paragraph has made my point. 15 years ago my parents could afford the average house on a single average income, yet you mention that is not possible with today's prices. If things continue, there will be no First Home Buyers in future generations and the only way to own property would be to inherit(or win the lottery)

Personally it makes me sick that the government could encourage house prices to continue to such unaffordable levels.
The whole point of housing is to house people, what does it say about our society when the average person cannot own their own home(you remember "The Australian Dream").

Housing is turning into nothing more than an investment portfolio for the rich and bugger the average Aussie!

cheers

+1 to that MACCA350
You get my vote!

 

[Go Nuke]

macca...there is something fundamentally wrong with the argument...your dad could afford the house, your aunt could not, and I cannot see how a bank would allow a loan on such a low income....must be another partner or someone there...your aunt could only afford a 240k house on her income....
where did all the other money come from to get into such an expensive house ????
anyone looking at a nearly half million dollar house on a wage of only 60,000 is trying to live way beyond their means.....
it takes at least 2 wages of 60k each x 4 times = 480k house...
its not changing to 4 times, then 8 times then 16 etc....

FAIL!

60K is about the so called national average income.
Its also WAY above the medium income which I think is a more realistic figure.

Hmm whats happens if you want kids? Paid materity is at least the minimum income.

 

[kincella]

entry level public service jobs pay from 38,000 for those under 21 to 49500 for over 21's...then level 3 go to starting at 59500....
believe the private sector pays more....the above are just basic admin jobs
lady I know is an office manager, small office mainly admin...earns 75000
labourers earn 45-50k min...and spouse working low paid jobs about 40k....
surely

Go nuke...you obviously did not check the link I gave yesterday...
full time adult earnings in 2006 were 56700 per person...and disposable income per household was 73200.....
dont know where you get your figures from...but these are the govt numbers...dont you believe them ????