House prices to keep rising for years

[Buckeroo]

Macca, I'm not sure that's fair. I can remember paying 22% on IP mortgage.
And yes, it was very tough going.

Yep, in the early 80's, I had a 21% rate - after 5 years I had almost paid the principal in interest alone - ouch!!

 

[MrBurns]

I suppose if it maxes out, the banks can always bring out new products such as generational loans - you get your kids to pay off the family home after your gone.

Cheers

Good point Buckaroo, generational loans are in Japan I think and if the boom doesnt go bust that would be the only way to go.

It will go bust though, history always repeats itself.

 

[naughtynickers]

I would just like to thank everyone for all their posts in here.
I have spent a month going through the whole thread to help me make a decision with an investment property I own with some family members.
One wants to sell one wants to hold. The deciding vote was mine.

I have decided to sell not just based on info here but on a lot of factors.
We bought the property for 280K in Northcote in Melbourne 5 years ago and looks like we can get around 420K for it now.

I would rather cash in now then wait 6-12 months when unemployment is rising still banks are much more dilligent in lending and their is no grant, I think sometimes logic has to rule and if someone wants to pay that much for a ****ty little apartment well I fell sorry for them, I can't see it moving another 50% in another 5 years.
But yeah be intresting to see what happens. Thanks again for all the posts.

 

[Buckeroo]

I would just like to thank everyone for all their posts in here.
I have spent a month going through the whole thread to help me make a decision with an investment property I own with some family members.
One wants to sell one wants to hold. The deciding vote was mine.

I have decided to sell not just based on info here but on a lot of factors.
We bought the property for 280K in Northcote in Melbourne 5 years ago and looks like we can get around 420K for it now.

I would rather cash in now then wait 6-12 months when unemployment is rising still banks are much more dilligent in lending and their is no grant, I think sometimes logic has to rule and if someone wants to pay that much for a ****ty little apartment well I fell sorry for them, I can't see it moving another 50% in another 5 years.
But yeah be intresting to see what happens. Thanks again for all the posts.

Good for you - got a tidy profit there. Only thing now is to decide where your going to invest the proceeds.

Cheers

 

[MACCA350]

Macca, I'm not sure that's fair. I can remember paying 22% on IP mortgage.
And yes, it was very tough going.

I'm sure it was, could you imagine paying 22% on the average $450k house now...........that's near $100k per annum just for the interest..........then again housing was much more affordable back then.

Does it not concern you that your grandchildren or great grandchildren may never be able to buy a house on their own two feet, partially(maybe wholly) because we let our housing become an investment portfolio?

cheers

 

[Beej]

I'm sure it was, could you imagine paying 22% on the average $450k house now...........that's near $100k per annum just for the interest..........then again housing was much more affordable back then.

Actually housing wasn't more affordable back then - it was CHEAPER if you want to use a basically useless measure like the median wage multiple, but because the availability of credit was much tighter and the cost of credit was so much higher (22% remember!!!) affordability in the late 80s was actually far worse than right now. It improved dramatically in the early 90s as inflation and interest rates fell heaps, then worsened as house prices rockets from the late 90s through to a couple of years ago. Just look at the housing component of the debt servicibility graph I posted to see how it has actually changes over the last 20 years or so.

Because inflation and interest rates have been low now for so long, and because debt has expanded as a result, we won't likely see 22% interest rates for a very long time (decades - and many other things would have to change/shift first), as rates getting towards 10% has the same impact in terms of the impact of monetary policy in the economy. If anyone buying now makes sure they could get by with rates at say 10% then they should OK barring a complete economic melt-down of some sort.

PS: On the whole "bull attitude" rant thing, I don't wish for huge house price increases across the board, far from it. As a PPOR owner and cash flow positive IP owner, I'm doing fine even if prices stay flat-ish and feel pretty good if they just go up with inflation. What erks me is the "house price crash brigade" who think that affordibility is addressed by a price crash - ie by punishing all the hard working people who over past years saved a deposit, took the risk of buying, maybe read the market correctly and invested in a bit of property here and there, paid down their mortgages etc and essentially "played the game" as I believe you have to if you want to get ahead in this world.

This "prices must crash so I can get what I want" attitude, often dressed up with some sort of moral high ground emotional BS about wanting their kids to able to buy a house etc is very selfish as well as unrealistic IMO. Housing affordibility is a real issue, but it can only be addressed in the long term through de-centralisation, the growth and development of new economically viable urban centres/cities rather than trying to continue to expand the existing (already full) major cities of Australia. Ie we become more like the US with more, smaller cities, spread out more - then you will get cheaper houses for all, but that is the only realistic way this will ever be solved long term. A crash due to some economic shock (if any ever occurred which) would only ever be temporary and followed by another boom unless the ultimate supply constraint issues are addressed.

Cheers,

Beej

 

[kincella]

Everyone's getting on bull express: optimism returns
not I....its just irrational exuberance imo
extract..........................

The RBA's Stevens would have nothing of the US gloom and economists were upgrading 2010 calendar-year growth forecasts after his speech yesterday.

Westpac last week increased its GDP estimate from 1 to 2 per cent growth and, importantly, Stevens cited the bank's bullish consumer confidence surveys.

By contrast, NAB's business confidence surveys are not nearly so bullish and, when you ask business about new investment, the response is zero.

But everyone is climbing the bullish express, jumping on slightly better than expected profits from consumer products company GUD yesterday as a sign that all is OK with the world.

Boral's stock has increased by 25.9 per cent since the end of June and Hardie by an extraordinary 21.6 per cent from albeit depressed levels, as both have significant US earnings.

The S&P200 index is up 2.9 per cent in the past week, by 5.4 per cent this month and now 12 per cent this year, which isn't a bad performance given prevailing wisdom says the economy is still contracting.

Now the crisis has passed, the market is seeing only blue sky ahead and that is a dangerous position demanding some caution.

http://www.theaustralian.news.com.au/business/story/0,28124,25849972-5013408,00.html

 

[gfresh]

Does it not concern you that your grandchildren or great grandchildren may never be able to buy a house on their own two feet, partially(maybe wholly) because we let our housing become an investment portfolio?

Looks like the trend will eventually be shifting from 70% home ownership to 60% or even less.. property owned by the hands of a few, like in a few other countries. This will be thanks to woefully inadequate planning, hands in too many pockets, and many other factors that are pretty hard to wind back without massive revolutionary change.

Already "high density" seems to be the buzz word thrown around in the latest city plans, so don't expect anything less than land being worth a fortune and those developing the land to be piling in the profits.

So what are you going to do about it?

 

[Mofra]

Does it not concern you that your grandchildren or great grandchildren may never be able to buy a house on their own two feet, partially(maybe wholly) because we let our housing become an investment portfolio?

I'd be far more concerned if they adopted such a defeatist attitude towards life.

 

[Buckeroo]

Looks like the trend will eventually be shifting from 70% home ownership to 60% or even less.. property owned by the hands of a few, like in a few other countries. This will be thanks to woefully inadequate planning, hands in too many pockets, and many other factors that are pretty hard to wind back without massive revolutionary change.

Already "high density" seems to be the buzz word thrown around in the latest city plans, so don't expect anything less than land being worth a fortune and those developing the land to be piling in the profits.

So what are you going to do about it?

Can this be multiple choice?

a. run for the hills
b. buy up land now until there is no tommorrow
c. become a developer
d. apathy

I'm inclined to reckon d would be the most popular choice

Anyway, in Queensland there may be a few politicians with their hands in the property stakes - may be an interesting 6 months. No doubt, Joe will be turning over in his grave!

Cheers

 

[MrBurns]

I'd be far more concerned if they adopted such a defeatist attitude towards life.

Thats easy for you to say, how much deposit did you have to raise for a house ? $5000 or $10,000 ?
Try $100,000 and see how chirpy you feel then.

 

[Largesse]

http://www.theage.com.au/national/rate-rise-looms-as-economy-recovers-20090728-e06u.html


Expert from above link

" ‘‘Households can afford it,’’ said Macquarie Bank strategist Rory Robertson. ‘‘None of them would have taken out a loan expecting these historically low rates to last.’’ "


Ok, i'm going to run a book on how long this guy keeps his job for.

I'm offering even money that he is out of work before this time next year.


any takers?

 

[MrBurns]

http://www.theage.com.au/national/rate-rise-looms-as-economy-recovers-20090728-e06u.html


Expert from above link

" ‘‘Households can afford it,’’ said Macquarie Bank strategist Rory Robertson. ‘‘None of them would have taken out a loan expecting these historically low rates to last.’’ "


Ok, i'm going to run a book on how long this guy keeps his job for.

I'm offering even money that he is out of work before this time next year.


any takers?

He's way out of touch.

see this from Crikey today -

Glenn Stevens' vision of a frugal Australia
Glenn Dyer writes:

"Rate rise looms", "Australian Headed for Housing Bubble", "Banks Warned on Guarantees" were just some of the headlines from Tuesday's Sydney speech delivered by Reserve Bank Governor Glenn Stevens, but there was a much more important message buried underneath.

Stevens told his audience that we can forget a repeat of the credit-fed, consumer booms we had from the mid-1990s to 2007.

Australians will have to recast their consumption, spend less and live much more frugally.

"If global regulators have their way, the world will be characterised by less leverage, and scarcer and more expensive credit, than in the earlier period. We here in Australia have to accept that fact and accommodate it in our thinking.

"One thing this presumably means is that the prominence of household demand in driving the expansion from the mid 1990s to the mid 2000s should not be expected to recur in the next upswing."

That's a clear warning that the days of credit for all, 100 per cent home loans, overseas trips on credit and endlessly-rising house prices are gone. We can't afford them, the economy has to be rebalanced, and if Australians try to afford them, they will have to pay a lot more for the privilege.

We will still have the capacity to spend, but it will cost us more in terms of higher interest rates, whether it's on credit cards, home loans or any other form of credit. In fact there's a deeper message here that the recovery will be characterised by much higher rates than we expect.

When Mr Stevens made it clear the RBA is worried about another housing bubble in the not too distant future (that has already received a lot of publicity), his warning should seen as only one of what could be many, if the bank sees consumption as getting out of hand.

And if it seems to the RBA that a repeat of the surge in household consumption is happening, then the implied warning is that the RBA will stop by putting up interest rates: it's the only weapon it has to limit unwanted developments in the economy.

The Federal Government will have to take tough notice because it has tough decisions of its own, as Prime Minister Rudd warned at the weekend in his 6000-word opus in the Fairfax media.

Government spending will have to be controlled and cut wherever possible (and in some uncomfortable areas) to reduce budget deficits and the national debt, while paying for the reform of the health system and climate change.

On top of thatthere will be the tax changes that could flow from the Henry Review. We may as well get used to the idea that many businesses could pay less tax as exports are encouraged and other ways are found to drive national income.

Even though the GST is not included, what's the betting that the logic of cutting consumption, raising money for reform and other changes and paying off debt, will come via tax hikes for things like the GST?

Mr Stevens also had a warning about resting on our laurels and ignoring the problem, having dodged the bullet this time.

"The risks associated with those trends going too far are apparent from events in other countries.

"These risks have been reasonably contained so far in Australia -- but it would be prudent not to push our luck here," Stevens said.

And depending on China recovering and maintaining that recovery won't be enough: the governor also reminded us yesterday of the downside that sits there from hitching ourselves to China. If China fluffs it, or if they have to crimp a credit boom (which is looking likely), then we will be hurt.

And, having dodged the bust that other economies are suffering (in housing and the economy generally), does anyone seriously think the RBA and Mr Stevens will not do what they think is necessary to stop the coming bubble from getting in the way of a steady recovery, and a rebalancing of the economy?

 

[MACCA350]

Beej, you may not be concerned about future generations but having 3 young children, I am, call it emotional BS if you like.

My father(teacher) bought his first home($115k) and serviced it with a single income($30k) while supporting a family of 6, try doing that now with a median house on a single teachers income.........excuse me if I disagree with you on the affordability point.

We'll just have to agree to disagree, IMHO property should have never been allowed to become the investment goldmine that it has.

cheers

 

[Buckeroo]

Thats easy for you to say, how much deposit did you have to raise for a house ? $5000 or $10,000 ?
Try $100,000 and see how chirpy you feel then.

Talking proportions, in the 80's we had to save 30% of the cost to secure a loan from the banks.

So my first house (in NZ) was $73,000 and had $25,000 saved. Did this through a home ownership account with the bank (actually my wife had the account). We saved for around 5 years, we'll, she saved most of it.

Anyway and get this, when we did ask for a loan, we had to go in for an interview - there were 3 people at a desk grilling us about how we would pay it back.

Welcome to your future people

Cheers

 

[kincella]

well Macca....you can buy a house for 200-250 k's today around Melb, and probably get about $40,000 govt grants to help, and surely you are earning min 60 k in wages.....
so you are in a better position than your father with the grants....or in the same position otherwise....
what is wrong... is the young ones who want to buy a 600k plus house as their first home

 

[Beej]

well Macca....you can buy a house for 200-250 k's today around Melb, and probably get about $40,000 govt grants to help, and surely you are earning min 60 k in wages.....
so you are in a better position than your father with the grants....or in the same position otherwise....
what is wrong... is the young ones who want to buy a 600k plus house as their first home

+1!

Macca, I noticed you ignored most of the other points in my post, other than saying you disagree with them. Do you disagree that the actual way to address housing affordability is to de-centralise, build more houses and create more economically viable urban centres? Read Buckaroos post for a reality check on what it was like buying a house in the 80s!

I have young kids too - but they are being raised to understand how the world works and how to get ahead in it so they don't just sit back and whinge about the things they don't have/can't afford. I have no doubt that my kids will be able to afford a house in Sydney (or anywhere else in Australia) when their time comes!

Cheers,

Beej

 

[Buckeroo]

..
what is wrong... is the young ones who want to buy a 600k plus house as their first home

Yep, a lot of young people do seem to have bigger & more lavish houses than their parents.

Cheers

 

[MACCA350]

well Macca....you can buy a house for 200-250 k's today around Melb, and probably get about $40,000 govt grants to help, and surely you are earning min 60 k in wages.....
so you are in a better position than your father with the grants....or in the same position otherwise....
what is wrong... is the young ones who want to buy a 600k plus house as their first home

I'm talking median prices, you'll find 115k pretty close to the median for 20 years ago.

cheers

 

[knocker]

well Macca....you can buy a house for 200-250 k's today around Melb, and probably get about $40,000 govt grants to help, and surely you are earning min 60 k in wages.....
so you are in a better position than your father with the grants....or in the same position otherwise....
what is wrong... is the young ones who want to buy a 600k plus house as their first home

Don't know what you are puffing on bro. Minimium wages at least 60k lol tell that to the majority that are on 40-50k max. Take out cost of living and other expenses and they probably have maybe 200$ to spare a week.