House prices to keep rising for years

[numbercruncher]

One must factor in that Brisbane did have a city council election on the weekend. Did the REIQ conveniently omit that fact ?

Oh I see what you mean, you think the clearance rates were low because people went to vote ? Why do you think the REIQ intentionally omitted that ? You think perhaps they are in on the property crash conspiracy or something ?

 

[numbercruncher]

I don't have all my money in brisbane real estate,... I hold alot of equity in shares and my businesses in sydney, And I can tell you that my property portfolio is holding up better than my share portfolio at the moment,...lol but again even the current stock crash isn't really bothering me I am increasing some holdings in some of my favourite companies at a discount.

Nice work Tyson, as long as your not overgeared you should do very nicely throughout the ongoing correction ?

If prices pull back enough in Sydney think youll go owner occupier or continue to rent ?

 

[irondragon]

Oh I see what you mean, you think the clearance rates were low because people went to vote ? Why do you think the REIQ intentionally omitted that ? You think perhaps they are in on the property crash conspiracy or something ?

Conspiracy theroy .. ? Nah, I'll leave that to the Area 51 devotees and 911 CIA plot theorists.

I am suggesting that the REIQ statement didn't consider the external factors that could have contributed to a lower auction clearance rate. One factor may have been the council election. The proof in the pudding will be the next auction clearance figure.

 

[Tysonboss1]

If prices pull back enough in Sydney think youll go owner occupier or continue to rent ?

If I was going to buy an owner occupier it wouldn't be a unit, and the houses in my area start from $2M, so I won't be buying here soon.

If I was to by an owner occupier I think I would buy up on the central coast on the train line about an hour from Sydney. That way I would have a larger and nicer home with a better weekend life than the sydney at race can provide.

But at the moment I am just watching things planning my next move.

 

[numbercruncher]

An Idea on how unsustainable the property bubble has got and how far it could potentially fall is demonstrated in this article just released.

Australian housing prices soared 400 per cent between 1986 and 2007 while income rose just 120 per cent, new research has shown.

The AMP-NATSEM (The National Centre for Social and Economic Modelling) report reveals the dream of home ownership is fading for many people.

The report 'Wherever I lay my debt, that's my home' compares the 1995-1996 housing situation to the latest available data from 2005-2006.

It showed households needed 7.5 times their annual disposable income to buy a typical house in 2006, up 53 per cent from 1996 when households needed five times their disposable salary.

The report shows that older generations are taking more debt into retirement with more than twice as many people aged over 60 still paying off a mortgage compared with the same age group in 1995-96.

This group also experienced the biggest jump in housing stress which almost doubled to 9.5 per cent in 2006 from 5.3 per cent in 1996.

Outright home ownership has also dropped during the past decade to 34.3 per cent from 42.9 per cent and most notably in the 45- to 59-year age bracket to 35.8 per cent from 54.4 per cent.

The report found that in 2006 only one in 20 Generation Y households (15-29 years) own a home.

They also have the highest levels of housing stress, at 35.3 per cent.

Among Generation X households (30-44 years) housing stress accounted for 31.8 per cent, compared with 18.8 per cent of baby boomers (45-59 years).

http://news.ninemsn.com.au/article.aspx?id=59380

1 in 20 Gen-Ys own a home, thats massive, thats huge, and it should tell you all something looking forward.

 

[xoa]

Listening to ABC radio this morning, and one of the interviewees dropped the "bubble" word. There was about a 3 second silence afterward. The elephant in the room that nobody wants to talk about.

 

[prawn_86]

Im Gen Y, and I know that at current prices I am not going to be able to afford a home by myself, unless I get a job on 100k plus. Even then it would have to be out suburbia.

So at this stage I'm just happily sitting back and will either wait for prices to come down, or simply not buy and be happy renting.

I dont follow property too closely, but imo the rental yield should at least cover interst payments on the loan. Anything over that (which is virtually everything now) suggests to me its overpriced.

 

[stock_man]

If I was to by an owner occupier I think I would buy up on the central coast on the train line about an hour from sydney. that way I would have a larger and nicer home with a better weekend life than the sydney at race can provide.

Keep dreaming. With the public transport system in Sydney you only get to Hornsby 1 hr from the city.

 

[treefrog]

radio aunty a couple of weeks back on a sat morn I think had a expert on Oz housing on (a prof or research specialist affiliated with a WA uni from memory)
interview probably on elsewhere as aunty tends to repeat these things several times
any way crux was that Oz culture is the main problem with far too many wanting a house and many people who did not need a house hanging on to them and tieing up land that units could be built on to make housing more affordable - yeah well don't disagree, but the solutions - virtually only one -
large land taxes to owner/occupiers and investors.........:iagree:

 

[Uncle Festivus]

large land taxes to owner/occupiers and investors.........:iagree:

Investors maybe, but for people who own/buy their own home it's not equitable. Try telling the couple who have lived in their house for 30 years that because of 'speculation'? in the property around them that they now have to pay exorbitant land tax, even though they have not contributed to the bubble in house prices, and probably have lived within their means all this time. Let the investors/speculators start paying for what the rest of the community subsidises (through tax breaks).

 

[Tysonboss1]

I dont follow property too closely, but imo the rental yield should at least cover interst payments on the loan. Anything over that (which is virtually everything now) suggests to me its overpriced.

Do you use the same theory when investing in the stockmarket?

 

[prawn_86]

Do you use the same theory when investing in the stockmarket,

I dont invest on margin, so no.

Also, one could argue that stock gains are made more from capital gains than yield. And the % move of stocks is quicker than that of property, due to liquidity

 

[Tysonboss1]

Keep dreaming. With the public transport system in Sydney you only get to Hornsby 1 hr from the city.

personally I don't catch the train, I drive and it takes me about 50mins -1.10mins depending on traffic to get from central coast to chatswood where I work and Because I own the company I also have the luxary off turning up late so I can miss the traffic.

The only reason I commented on buying on a train ine is because the suburbs on the central coast close to the trainline will out perform the rest of the coast.

Any way at the moment I am living about 2 mins walk from work, but it comes at the cost of being stuck in syney most week ends,... which I am over.

 

[stock_man]

does my simple economic model make sense or I am just rambling and to keep thing simple I take out all the stamp duties and other tax associated with the property and even then it doesn't seem to compute too well

I pose a different look at IPs (to stir the pot!). One from a perspective of not knowing or caring what yeild really is. A look at IPs as a forced savings account.


Example:
Purchase Price: $300k
Mortgage: $285k (5% down....)
Repayments: $510/week (8.60%)
Rent: $320/week
Costs of renting: $40 (rates, insurance etc)

Balance / week: $230
Balance / year: $12k
Balance / 30 years: $360K

Inflation rate @ 2% / year on average over 30 years
Final rent = $580
Final house value = $540k (adjusted for inflation only)
Crossing Point = 15 years (rent crosses minimum repayments)


The owner could theoretically restart the mortgage at the crossing point (15 years) to a 30 year loan, meaning that the IP from then costs them no weekly commitment. By adding in the extra rent from CPI increases, would bring the end result of ownership back to the approximate total of 40 years or so, costing only 15 years of balance repayments - $180K.
Therefor, the owner could actually handle a price drop in the end?

Conclusion:
To break even, the house must move 20% in 30 years.
(Thats also under the assumption that rent does not increase anymore from day 1, and mortgage interest rates remain at 8.60%)
or
Taking into account inflation, have a tidy profit of at least $180k...

 

[treefrog]

Investors maybe, but for people who own/buy their own home it's not equitable. Try telling the couple who have lived in their house for 30 years that because of 'speculation'? in the property around them that they now have to pay exorbitant land tax, even though they have not contributed to the bubble in house prices, and probably have lived within their means all this time. Let the investors/speculators start paying for what the rest of the community subsidises (through tax breaks).

the gist of the interview/expert research was the land tax solution was the only really workable way of getting access to more city land
and of course that couple have contributed to the problem - they are occupying but seldom using the land - kids have grown and don't play there anymore - chooks are a nuisance to feed and water all the time so just buy at the s'market, and we don't need the woodpile and chopping block any more as we have a RCAC and the outdoor nightpan loo - well we got this inside one that uses water now.........

 

[Tysonboss1]

any way crux was that Oz culture is the main problem with far too many wanting a house and many people who did not need a house hanging on to them and tieing up land that units could be built on to make housing more affordable - yeah well don't disagree, but the solutions - virtually only one -
large land taxes to owner/occupiers and investors.........:iagree:

That pointis correct,... except for the land tax part.

In chatswood there is heaps of homes on large blocks worth millions that only house 1 elderly person or an elderly couple as these people slowly die off the houses disapper and 4 storey apartments are built back.

same goes for the crowd saying that they can't afford a house,... it's true in a city as populated as sydney the average person won't beable to afford a large home on a large block especially in the inner suburbs and shouldn't expect to live in a 4 bed house.

it only stand to reason that the "Average" person can only afford and "Average" home which in the inner city suburbs is a small apartment.

 

[Tysonboss1]

the gist of the interview/expert research was the land tax solution was the only really workable way of getting access to more city land
and of course that couple have contributed to the problem - they are occupying but seldom using the land - kids have grown and don't play there anymore - chooks are a nuisance to feed and water all the time so just buy at the s'market, and we don't need the woodpile and chopping block any more as we have a RCAC and the outdoor nightpan loo - well we got this inside one that uses water now.........

I think land tax is a bad idea,

cut red tape for developers, rezone more areas for higher density and give tax breaks to developers creating low cost housing and you will get more apartments built,

People keep talking about releasing more land,... I think we should talk about releasing more airspace above existing suburbs, after all releasing 1/4 of land might give you 1 maybe 2 houses, releasing 10 stories above that land gives you 20 dwellings,..

 

[ROE]

I pose a different look at IPs (to stir the pot!). One from a perspective of not knowing or caring what yeild really is. A look at IPs as a forced savings account.


Example:
Purchase Price: $300k
Mortgage: $285k (5% down....)
Repayments: $510/week (8.60%)
Rent: $320/week
Costs of renting: $40 (rates, insurance etc)

Balance / week: $230
Balance / year: $12k
Balance / 30 years: $360K

Inflation rate @ 2% / year on average over 30 years
Final rent = $580
Final house value = $540k (adjusted for inflation only)
Crossing Point = 15 years (rent crosses minimum repayments)


The owner could theoretically restart the mortgage at the crossing point (15 years) to a 30 year loan, meaning that the IP from then costs them no weekly commitment. By adding in the extra rent from CPI increases, would bring the end result of ownership back to the approximate total of 40 years or so, costing only 15 years of balance repayments - $180K.
Therefor, the owner could actually handle a price drop in the end?

Conclusion:
To break even, the house must move 20% in 30 years.
(Thats also under the assumption that rent does not increase anymore from day 1, and mortgage interest rates remain at 8.60%)
or
Taking into account inflation, have a tidy profit of at least $180k...

You are assuming the money you put away for all those years not earning a single cents on interest or capital growth.

outlay 15K
extra saving every year 12K
average save rate 5% compound a year
time: 30 years
money in hand in 30 years with little risk: $901,958.61

 

[Tysonboss1]

I dont invest on margin, so no.

Also, one could argue that stock gains are made more from capital gains than yield. And the % move of stocks is quicker than that of property, due to liquidity

weather you invest on margin or not has little to do with an investments merit,...

as for investing on margin it is simply that when an investments yeild + capital growth is higher than your interest rate then it does make sense to invest on margin, especially because your earnings will be compounded year by year.

As for shares increasing faster than property, it's true they do, but they also decrease alot faster than property,....

you need both shares and property to accellerate your growth,... there is alot of people who would be on the brink of collaplse at the moment who have leveraged stock portfoilios with no property to back it up.

and on the other hand if you are leveaged completely into property then you have the risk of slower growth than with shares,....

but when you put both asset classes together you you get a high growth portfolio with alot of stability to get you though tough times,...

If you go down the road you say you are taking with no leverage at all,... you really limit your growth,

 

[prawn_86]

you need both shares and property to accellerate your growth,...

Im not denying that, and im certainly not saying I know much about property.

By your posts you obviously work in property, or have a deep interest in it, much more so than me.

Looking at rent vs. prices in my suburb (which is an upmarket one admittedly, so im not sure what it would be for outer suburbs), rental yield doesnt go anywhere near covering interest payments.

IE - 600k home @ 8.5%pa = $51k interest per year.
Rental yeild = between $24k and $30k depending.

So just to break even you need approx 8.5% capital gains per year, and thats not even paying off any principal.

I should note this is ignoring tax implications, as I dont know enough about them.


But an example like that suggest to me prices are too high, as 5 years ago the rental yield covered the interest payments. Although IR were lower...