House prices to keep rising for years

Soft Dough · 15 October 2009

"RESERVE Bank governor Glenn Stevens has warned homeowners to brace for the prospect of a rapid rise in interest rates.

In a speech in Perth today, Mr Stevens has warned the RBA cannot continue to keep interest rates at record lows and suggested the rapid round of reductions announced last year may be followed with rapid increases. "

http://www.theaustralian.news.com.au/business/story/0,28124,26213424-5018001,00.html

Looks like the cashed up might be able to obtain a few bargains from the FHBG conned over the next 12 months or so.

Might put a bit of pressure on housing with FHBG dropping off too.

Could be interesting.

Uncle Festivus · 15 October 2009

Let's assume here - he would like it back to at least 5%? Each 0.25% increase adds $50 a month to the average, so that's another $400 a month extra from the low. At 0.25% per month, it will only take 7 more months. And that's assuming he stops at 5%. The great KRudd stimulis sucking machine that lured buyers in is about to have a convulsion perhaps?

I'm starting to like this push me-pull you economics

gfresh · 15 October 2009

From May 2002 to March 2008 it took 6 years to jump 2.75% from 4.5 to 7.25 .. you'd be hoping you for at least few few pay rises in 6 years, so I don't think it will trouble many unless they really can't spare $100/wk. If they can't they should have never really bought in the first place.

Raising interest rates now simply seem like a stupid bandaid measure to overcome the inaction/incompetent Government policy on housing. It's almost as if the RBA is simply fighting what the government is *not* doing.

Get rid of negative gearing on existing properties (or simply scale it right back) and shift the emphasis to new properties, and suddenly there is an investment led construction boom. Investors flood out of established properties.. which are usually poor condition, poorly maintained, a large majority probably should be knocked down and rebuilt anyhow.. and start building new ones. Gives the renters something to live in that isn't a tip. Creates jobs, shareholders can buy in these development companies if they want, we get new properties to house the hoares of migrants flooding in (which the government wants). Surely win win here?

Soft Dough · 15 October 2009

gfresh said:
From May 2002 to March 2008 it took 6 years to jump 2.75% from 4.5 to 7.25 .. you'd be hoping you for at least few few pay rises in 6 years, so I don't think it will trouble many unless they really can't spare $100/wk. If they can't they should have never really bought in the first place.

Raising interest rates now simply seem like a stupid bandaid measure to overcome the inaction/incompetent Government policy on housing. It's almost as if the RBA is simply fighting what the government is *not* doing.

Get rid of negative gearing on existing properties (or simply scale it right back) and shift the emphasis to new properties, and suddenly there is an investment led construction boom. Investors flood out of established properties.. which are usually poor condition, poorly maintained, a large majority probably should be knocked down and rebuilt anyhow.. and start building new ones. Gives the renters something to live in that isn't a tip. Creates jobs, shareholders can buy in these development companies if they want, we get new properties to house the hoares of migrants flooding in (which the government wants). Surely win win here?

Solutions such as the one above would be a vast improvement over the current strategy which tips bucketloads of equity into unproductive assets.

If only governments were intelligent enough to work off practical starting points as the one above. Then again our current PM is incompetent and useless, with no understanding of how an economy runs ( and even believes that we should sacrifice our economy further as he believes that global warming can be fixed by Australia )

Unfortunately most politicians have never run a business yet are expected to make decisions about running the country.

From what I read, the interest rate rise will be fast, very fast. Not as fast as the decrease, but they dont want to inflate an overinflated balloon too much more, as housing here is more geared as a % GDP than America.

imo there would be dozens of people who could make the prosperity of the nation greater if they made decisions which generated income over the long term. Unfortunately the personal greed of people ( and at the moment that is property bulls and "investors" ) is stifling the ability of decisions which could make everyone more wealthy, with the inherant improved living standards which could be achieved.

Soft Dough · 15 October 2009

Uncle Festivus said:
Let's assume here - he would like it back to at least 5%? Each 0.25% increase adds $50 a month to the average, so that's another $400 a month extra from the low. At 0.25% per month, it will only take 7 more months. And that's assuming he stops at 5%. The great KRudd stimulis sucking machine that lured buyers in is about to have a convulsion perhaps?

I'm starting to like this push me-pull you economics

There is a difference too.

A few years ago landlords could increase rents charged, and were relying on capital gains.

Wages have pretty much frozen and are likely to remain so for a while, so rent increases are mostly out of the question.

Capital growth will likely be 0 or negative over the next 12 months, which will be interesting for people who negatively gear to go backwards for a change. I wonder if this will cause them to start to panic out of the market.

Uncle Festivus · 15 October 2009

gfresh said:
From May 2002 to March 2008 it took 6 years to jump 2.75% from 4.5 to 7.25 .. you'd be hoping you for at least few few pay rises in 6 years, so I don't think it will trouble many unless they really can't spare $100/wk. If they can't they should have never really bought in the first place.

Raising interest rates now simply seem like a stupid bandaid measure to overcome the inaction/incompetent Government policy on housing. It's almost as if the RBA is simply fighting what the government is *not* doing.

Get rid of negative gearing on existing properties (or simply scale it right back) and shift the emphasis to new properties, and suddenly there is an investment led construction boom. Investors flood out of established properties.. which are usually poor condition, poorly maintained, a large majority probably should be knocked down and rebuilt anyhow.. and start building new ones. Gives the renters something to live in that isn't a tip. Creates jobs, shareholders can buy in these development companies if they want, we get new properties to house the hoares of migrants flooding in (which the government wants). Surely win win here?

Well said G. $100 a week may not sound much but there's a heck of a lot of families who require both parents to work to achieve the lifestyle that comes with a large mortgage.

If you & me and I assume a sizable proportion of the population who think about solutions to this problem can see the bleeding obvious, then why doesn't the government? Yes it is obvious and several have already explained why they don't ie the misguide & short-termist belief of the 'feeling good' wealth creation factor mostly ie I may have a huge mortgage but my house value is increasing every day, so why worry?

Have a look at Germany to see how they do it (low prices) for a start?

Low house prices = more discretionary spending = better lifestyle for all? Oh, and cut immigration.

TOBAB · 15 October 2009

Uncle Festivus said:
Well said G. $100 a week may not sound much but there's a heck of a lot of families who require both parents to work to achieve the lifestyle that comes with a large mortgage.

If you & me and I assume a sizable proportion of the population who think about solutions to this problem can see the bleeding obvious, then why doesn't the government? Yes it is obvious and several have already explained why they don't ie the misguide & short-termist belief of the 'feeling good' wealth creation factor mostly ie I may have a huge mortgage but my house value is increasing every day, so why worry?

Have a look at Germany to see how they do it (low prices) for a start?

Low house prices = more discretionary spending = better lifestyle for all? Oh, and cut immigration.

Germany sounds interesting. Obviously must be more to it. Reason for increasing house prices is Supply and Demand - simple. People are prepared to take on a numerically high mortgage because they are getting paid significantly more than 10 years ago. Our staples have not increased in the same proportion (you may site petrol, however, petrol was at $0.80 a liter in the early 1990's - if it matched the average wage increases it ought to be over $2.00 now). Therfore the things we need are relatively cheaper, people look at the money left over and think "ok I can take on a larger mortgage". The FHBG has merely been a conduit to enable people to get a deposit together.

robots · 15 October 2009

hello,

Germany, please tell us about Germany or Europe

do you know someone who lived there, owns there, what in particular is different?

my partner lived in a few european countries for 20yrs, not much difference to Aus

why should people who contribute nothing to society benefit from the hard work of others Uncle, or perhaps you one of those who want the freeride, a step into anothers world

my living conditions perfect thanks to me

thankyou
professor robots

aleckara · 15 October 2009

Uncle Festivus said:
Well said G. $100 a week may not sound much but there's a heck of a lot of families who require both parents to work to achieve the lifestyle that comes with a large mortgage.

If you & me and I assume a sizable proportion of the population who think about solutions to this problem can see the bleeding obvious, then why doesn't the government? Yes it is obvious and several have already explained why they don't ie the misguide & short-termist belief of the 'feeling good' wealth creation factor mostly ie I may have a huge mortgage but my house value is increasing every day, so why worry?

Have a look at Germany to see how they do it (low prices) for a start?

Low house prices = more discretionary spending = better lifestyle for all? Oh, and cut immigration.

I like Germany. For starters they do have current account surpluses despite the higher Euro and they value their land like a lot of European countries and so do not allow mass immigration. I guess Europeans understand the value of land and freedom more so than Australians do as part of their history.

Having an appreciatiating house is not being a productive member of society unless of course you actually 'built' the house not just bought someone else's.

Immigation and Australia don't mix. Our governments dont have the money to provide the infrastructure for these immigrants. Our cities can't afford to house more people and I doubt Australia has the food or water assets to house the predicted population growth. Our kids will be living with less resources per capita than we did all in the name of immigration. Its sad that people cheer what makes house prices rise but do not realise that the same factors cause instability in other aspects of life. House prices rise because land is scarce, not because in quality of life terms we are getting any richer.

TOBAB · 15 October 2009

aleckara said:
I like Germany. For starters they do have current account surpluses despite the higher Euro and they value their land like a lot of European countries and so do not allow mass immigration. I guess Europeans understand the value of land and freedom more so than Australians do as part of their history.

Having an appreciatiating house is not being a productive member of society unless of course you actually 'built' the house not just bought someone else's.

Immigation and Australia don't mix. Our governments dont have the money to provide the infrastructure for these immigrants. Our cities can't afford to house more people and I doubt Australia has the food or water assets to house the predicted population growth. Our kids will be living with less resources per capita than we did all in the name of immigration. Its sad that people cheer what makes house prices rise but do not realise that the same factors cause instability in other aspects of life. House prices rise because land is scarce, not because in quality of life terms we are getting any richer.

Not so sure about Europeans and mass immigration? EG France and the UK.
Also not so sure about an appreciating house being unproductive. The more that land increases in value the more we will use it wisely (hopefully!!!). The more wisely we use it the more likely we can get rid of McMansions and have more densely populated cities and reduce the urban sprawl. The potential then becomes available, we just need some decent govt policy, and we are away. Stop listening to NIMBY's and we ought to be able to take in more people that want to work.

cutz · 15 October 2009

TOBAB said:
People are prepared to take on a numerically high mortgage because they are getting paid significantly more than 10 years ago.

That's not correct,

Over the past few years people have become comfortable with extremely high debt, in 97 roughly around when i purchased my home my mortgage wasn't nearly what the average is now compared to wages, it was actually between twice and three times my wage at the time.

What are people borrowing now as a ratio to family income ? It doesn't look pretty.

Average wages have only doubled in the meantime ( and that's being generous), house prices in the area similar to mine have quadrupled, families are taking on a greater amount of debt to fund the purchase of the family home.

Krudd and Co have been throwing money around, the banks are more than happy to issue sub prime debt, the bubble will burst, we will only listen to what we wanna hear.

TOBAB · 15 October 2009

cutz said:
That's not correct,

Over the past few years people have become comfortable with extremely high debt, in 97 roughly around when i purchased my home my mortgage wasn't nearly what the average is now, it was actually between twice and three times my wage at the time.

What are people borrowing now as a ratio to family income ? It doesn't look pretty.

Average wages have only doubled in the meantime ( and that's being generous), house prices in the area similar to mine have quadrupled, families are taking on a greater amount of debt to fund the purchase of the family home, that's the problem.

Krudd and Co have been throwing money away, the banks are more than happy to issue sub prime debt, the bubble will burst, we will only listen to what we wanna hear.

Hey i want to hear falling house prices. Anyone who wants to upgrade on their house is in a better position with falling prices. Thats Maths 101. I agree the ratio has increased - no doubt. Where I disagree with is that as a % of income we do not NEED as much to buy the necessities of life hence why people have taken on more debt as a % of income.

By the way our banks are not issuing subprime debt. Subprime was issued to NINJAS (No income, no job/asset). They are ars****** but not stupid.

grace · 15 October 2009

gfresh said:
From May 2002 to March 2008 it took 6 years to jump 2.75% from 4.5 to 7.25 .. you'd be hoping you for at least few few pay rises in 6 years, so I don't think it will trouble many unless they really can't spare $100/wk. If they can't they should have never really bought in the first place.

A few months ago, I was at a conference with the major banks represented, as well as APRA, etc etc

They stated that normally, 5% of FHB's loans have personal guarantees by parents. Only a couple of months back, they were saying that now 45% of FHB's loans are guaranteed by parents. (I will check my notes from this conference and get back to you all - this is from memory - I will check the stats for sure and confirm in a couple of days).

This is very scary indeed. They could not afford the loan, even at record low interest rates.

cutz · 15 October 2009

TOBAB said:
By the way our banks are not issuing subprime debt. Subprime was issued to NINJAS (No income, no job/asset). They are ars****** but not stupid.

I dunno about that,

Question, What do you call a young couple rocking up to the bank with only the first home buyers grant as a deposit taking on 1/2 a mil to purchase a McMansion ?

Answer, Subprime.

EDIT>>Sorry not trying to be smart, i just feel a terrible disservice has been done to our young by the propping up of the housing market, apart from the normal stresses involved raising a family massive debt does not help, it can lead to all sorts of trouble, it has created a new underclass, a working poor childcare generation, mum is forced to work dad needs to take on two jobs, a terrible situation.

BTW, don't listen to the bull regarding housing shortages/immigration/population explosions, it's all just a smokescreen.

MrBurns · 15 October 2009

TOBAB said:
Hey i want to hear falling house prices. Anyone who wants to upgrade on their house is in a better position with falling prices. Thats Maths 101. I agree the ratio has increased - no doubt. Where I disagree with is that as a % of income we do not NEED as much to buy the necessities of life hence why people have taken on more debt as a % of income.

By the way our banks are not issuing subprime debt. Subprime was issued to NINJAS (No income, no job/asset). They are ars****** but not stupid.

No they arent stupid, they're lending as fast as they can and factoring in a default rate as they go, they've already measured your place up for the managers son in law to buy when they move in.

MrBurns · 15 October 2009

grace said:
A few months ago, I was at a conference with the major banks represented, as well as APRA, etc etc

They stated that normally, 5% of FHB's loans have personal guarantees by parents. Only a couple of months back, they were saying that now 45% of FHB's loans are guaranteed by parents. (I will check my notes from this conference and get back to you all - this is from memory - I will check the stats for sure and confirm in a couple of days).

This is very scary indeed. They could not afford the loan, even at record low interest rates.

If thats true thats an amazing stat and shows that Rudd will be responsible for many older people losing their homes as well as their kids.

TOBAB · 15 October 2009

cutz said:
I dunno about that,

Question, What do you call a young couple rocking up to the bank with only the first home buyers grant as a deposit taking on 1/2 a mil to purchase a McMansion ?

Answer, Subprime.

EDIT>>Sorry not trying to be smart, i just feel a terrible disservice has been done to our young by the propping up the housing market, apart from the normal stresses raising a family massive debt does not help, it can lead to all sorts of trouble it has created a new underclass a working poor childcare generation, mum is forced to work dad needs to take on two jobs.

with no job - yeah! Doubt it though.

michael_selway · 15 October 2009

cutz said:
I dunno about that,

Question, What do you call a young couple rocking up to the bank with only the first home buyers grant as a deposit taking on 1/2 a mil to purchase a McMansion ?

Answer, Subprime.

EDIT>>Sorry not trying to be smart, i just feel a terrible disservice has been done to our young by the propping up the housing market, apart from the normal stresses raising a family massive debt does not help, it can lead to all sorts of trouble it has created a new underclass a working poor childcare generation, mum is forced to work dad needs to take on two jobs.

Young couple both on about $100K packaged income?

Half a mil is really cheap one would think

This is excluding any monies saved (and assistance from parents who are likely to have a lots of money from super etc)

Thanks
MS

wayneL · 15 October 2009

michael_selway said:
Young couple both on about $100K packaged income?

Half a mil is really cheap one would think

This is excluding any monies saved (and assistance from parents who are likely to have a lots of money from super etc)

Thanks
MS

Said couple would not be looking at a half mil pile.

TOBAB · 15 October 2009

MrBurns said:
No they arent stupid, they're lending as fast as they can and factoring in a default rate as they go, they've already measured your place up for the managers son in law to buy when they move in.

Good one!

Seriously though I agree with default rates but let's not compare AUST to the US. I hate saying this but we are in a unique position. Now I really hate syaing this but within the next 30 years there is going to be a major shift in economic power (paradigm shift perhaps - hate that word though) towards Asia. No news there. Australia feeds the Chinese jugernaut. We are extremely important to them. The US will lose importance as the Chinese and Indians domestic economies increase in size.

In summary our economy is strong. Compared to other developed countires KRudd has spent very little.

Some property mkt segments may fall or remain the same, seriously doubt it will be across the board though. Aust is too lucky.

House prices to keep rising for years

Soft Dough

Uncle Festivus

gfresh

Soft Dough

Soft Dough

Uncle Festivus

TOBAB

robots

hello

aleckara

TOBAB

cutz

TOBAB

grace

cutz

MrBurns

MrBurns

TOBAB

michael_selway

Coal & Phosphate, thats it!

wayneL

VIVA LA LIBERTAD, CARAJO!

TOBAB

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House prices to keep rising for years

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