House prices to stagnate for 'years'

[numbercruncher]

Im not doubting Blue chip Areas are doing well, afterall plenty of Millionaires in Oz.

 

[theasxgorilla]

PS: Where are War Widows, Elderly etc on 12k pensions living nowadays ?

I know where several of them live and it's not a park bench. If they sell their houses and downsize they can cash in their gains. What's your point?

 

[barnes]

I wonder how much those things will matter if the US can't afford to impose itself on the rest of the world, and China and Russia can. Bring on nationalisation of the financial sector if it keeps them out of the hands of the Chinese, Russians and middle eastern countries.

Or maybe I'm just too paranoid about this sort of stuff!

Russians are still not that bad.

 

[numbercruncher]

Russians are still not that bad.

Chinese are nice too, its them ME guys that'll have you scrubbing the floor and Ironing their socks.

 

[Tysonboss1]

The time has come when people are forced to consider the full ongoing cost of home ownership. Capital gains are no longer guaranteed to cover the gap.


A 440k Median priced home in NSW, will cost you 15k in Duty and another 15k to sell it, you need it to rise nearly 10pc just to break even on the buy/sell spread.

We are barrelling down on an era of 9 to 10pc Interest rates.

How much room for capital Growth does the most bullish of the property bulls realistically see here?

For me the reason I believe it is a good Idea to Buy rather than rent is as the professor said it locks in the cost of housing,.... Even though it is more costly in the early years the benefits of home ownership are compounded over the years,

If I use my parents for an example Having bought there first home in the '70's they have finished paying it off so there house which in todays market would cost them about $400 a week to rent is pretty much rent free,

offcoarse in the early years it would have cost them a decent wack out of dads pay check which was $70 a week at the time over the years his repayments have gotten smaller and smaller compared to his income to the point where he has now repayed the loan,

But if he continued renting the out come would be much different, today he would have to pay $400 weekly rent and he would not own his home which he could sell today for about $450,000 with no Capital gains tax, to help fund a better retirement.

 

[numbercruncher]

But if he continued renting the out come would be much different, today he would have to pay $400 weekly rent and he would not own his home which he could sell today for about $450,000 with no Capital gains tax, to help fund a better retirement.

I fully appreciate the benefits of home ownership, I merely think we are in Bubble territory and so far from fair value .......


Your parents a point in case, they can rent that house for 400 a week , pay no rates/ins/maint etc put the 450k in an online savings account getting 700 a week in Interest. Including the costs and excluding tax about 400 a week better off. If rates rise by 1pc this year thats another 100 a week or close to.



My debate isnt with home ownership, its with fair value, so many better Investment opportunities around imho.

 

[numbercruncher]

I would certainly re-enter the RE market if Rents increased 100pc or wages (as reported by the Bureau of Stats) increased 100pc, this would represent a return to the mean and fair value.

Currently the only way from a purely financial viewpoint that home ownership is justified (imho) is to rent the House you live in and own an Investment property.

A Friend years ago did exactly this, he and his Brother both purchased a House and rented them off each other, thats how bizarre the system is.

 

[KIWIKARLOS]

There is nothing wrong with that but the tax man has this thing called "at arms reach" which means you can rent your house to a relo if you want but you have to charge MARKET rent and be able to prove that it is a fair market value. If not they will get you for fraud.

Fact is property has never been a good investment when compared to stocks its only been the spec bubble in the last 5 or so years that makes it seem like it could have been a good investment. Long term ie 50+ year trends show that property price barely beats inflation. That said though not all ones investments should be high growth high risk. Problem is property has become more risky because of dodgy lending.

I bought my first place a year ago my plan is to smash the repayments as hard as i can for first few years then as my wage increases the repayments will become cheaper and cheaper in real terms.

There are so many life style benefits to owning your own home compared to renting and if heard alot of people saying how can A person afford rent. Fact is back in my folks day and even when i first moved out of home groups of people lived together to make rents cheap.

Surely noone would advocate a 19 YO fresh from home should be able to afford a two bed townhouse for themselves! One bedroom studios etc are still very reasonable and if you want more comfort get a flatmate.

 

[professor_frink]

I would certainly re-enter the RE market if Rents increased 100pc or wages (as reported by the Bureau of Stats) increased 100pc, this would represent a return to the mean and fair value.

Currently the only way from a purely financial viewpoint that home ownership is justified (imho) is to rent the House you live in and own an Investment property.

A Friend years ago did exactly this, he and his Brother both purchased a House and rented them off each other, thats how bizarre the system is.

So that would bring housing prices to around 3 times average earnings wouldn't it? Considering that very few people actually buy a house with only 1 person working, that would mean that house prices will be closer to 1.5-2 times the average household income. I find it hard to believe that wages could double with no effect on housing prices. That leaves rent doubling as a more likely scenario. The question I'd be asking myself here is what kind of state would the world be in for that to happen? A massive, worldwide credit squeeze that sends world markets into absolute turmoil could force enough foreclosures to double rents. But then the question becomes would I even be able to get a loan to buy a house? Probably not.

Thoughts?

 

[numbercruncher]

Id like to see it return to 4x, thats pretty much the historical norm, and commonly seen throughout the West. My first House was less than 4x, was even a few (shacks) and plenty of land around available at 2x.


Have a read through "The 3rd Annual Demographia International Housing Affordability Survey". Its pretty Interesting.

The most pervasive housing affordability crisis is in Australia, with an overall Median Multiple
of 6.6. Affordability is only marginally better in New Zealand (6.0) Ireland (5.7), and the
United Kingdom (5.5). On the other hand, the national Median Multiple in Canada is 3.2,
indicating that housing is one-half as expensive relative to incomes as in Australia. The national
Median Multiple in the United States is 3.7.

http://www.demographia.com/dhi-ix2005q3.pdf

Interesting to Note that both the US and UK are experiencing a crash, considering a much lower multiple than us, not to mention other obvious things such as Population, available land etc.

 

[robots]

I fully appreciate the benefits of home .......


Your parents a point in case, they can rent that house for 400 a week , pay no rates/ins/maint etc put the 450k in an online savings account getting 700 a week in Interest. Including the costs and excluding tax about 400 a week better off. If rates rise by 1pc this year thats another 100 a week or close to.

hello,

hang on, this guy is mortgage free, interest rates mean nothing

so he sells, gets 700/wk and pays 400/wk to rent and invests the 300/wk,

gets 15k per annum plus a bit of interest (what % do you think?), mean while if stayed in his house is probably doing 12%, on 450k, so 54k, less rates of $900/yr, water $500/yr, insurance $600/yr

so if held, 52k, tax free

now if went sell route, lets give him a 20% return, his 15k is now 18k and the tax man says I will have tax on the 18k + 21k, which is roughly 7k, so he gets 32k for the year, great result

even the last two years have shown things can be even better

thankyou

robots

 

[KIWIKARLOS]

House prices 4 x yearly wage and interest rates at 15% sounds good :

Those days of cheap labour and especially materials are gone. Back then houses were built with cheap hardwood etc. Prob is we have been pilaging the worlds / Oz's resources for many years and now the cost of materials can only rise. If i could i would buy a house to live in that was built to last 100+ years because if things keep going the way they are it'll be the materials that will cost much more than the land.

Imagine how much a plastic chinese container will be worth by 2050 when oil is prob $500 a barrel

 

[numbercruncher]

hello,

hang on, this guy is mortgage free, interest rates mean nothing

so he sells, gets 700/wk and pays 400/wk to rent and invests the 300/wk,

gets 15k per annum plus a bit of interest (what % do you think?), mean while if stayed in his house is probably doing 12%, on 450k, so 54k, less rates of $900/yr, water $500/yr, insurance $600/yr

so if held, 52k, tax free

now if went sell route, lets give him a 20% return, his 15k is now 18k and the tax man says I will have tax on the 18k + 21k, which is roughly 7k, so he gets 32k for the year, great result

even the last two years have shown things can be even better

thankyou

robots

Thats a rather bold assumption thinking average house prices will go up 12pc p/a , Thats hit the level where average House increases in value more than an entire average wage each year, you dont seriously think this can continue into perpetuity do you ?

Using this 12pc p/a cap gain in 5 years your assuming it'll be worth 800k , maybe this particular house will be but that concept simply cant be applied broadly to the market. There is no way without a serious wage breakout that house prices are going to gain like that, and a wage breakout will be an Interest rate breakout.

Theres plenty of people in the latter stages of their working lifes Dumping home ownership in favor of renting and taking advantage of the Generous superanuation laws.

Rent for half the cost, salary sacrifice wages at 15pc, dump the sale of home proceed in the fund and pay only 10pc cap gains. I bet that strategy would woop owner occupied RE over a period of 10 years.

But as I said i appreciate people like to own their own homes....

 

[professor_frink]

Id like to see it return to 4x, thats pretty much the historical norm, and commonly seen throughout the West. My first House was less than 4x, was even a few (shacks) and plenty of land around available at 2x.


Have a read through "The 3rd Annual Demographia International Housing Affordability Survey". Its pretty Interesting.



http://www.demographia.com/dhi-ix2005q3.pdf

Interesting to Note that both the US and UK are experiencing a crash, considering a much lower multiple than us, not to mention other obvious things such as Population, available land etc.

Interesting report. I'd be surprised if State governments in this country all of a sudden released a heap of land on the outskirts of the cities to remedy the problem though- I don't think they would have the money to pay for the infrastructure required for an endless suburbia- which was something that wasn't really mentioned in the report.

 

[theasxgorilla]

If i could i would buy a house to live in that was built to last 100+ years because if things keep going the way they are it'll be the materials that will cost much more than the land.

I hear what you are saying...in super-homogenised suburbia houses with quality architecture and quality materials are few and far between. In southern Sweden there is stacks of land so its really not expensive... definately not by Aust capital city standards...but if you have one of these built-to-last-and-look-good puppies on it then you can expect to pay.

 

[numbercruncher]

House prices 4 x yearly wage and interest rates at 15% sounds good :

Those days of cheap labour and especially materials are gone. Back then houses were built with cheap hardwood etc. Prob is we have been pilaging the worlds / Oz's resources for many years and now the cost of materials can only rise. If i could i would buy a house to live in that was built to last 100+ years because if things keep going the way they are it'll be the materials that will cost much more than the land.

Imagine how much a plastic chinese container will be worth by 2050 when oil is prob $500 a barrel

Sounds good, what would you take, 220k house @ 15pc Interest or 440k house at 9pc interest? That reflects prices at 4x and 8x average wage respectively.

A house to build adjusted for Inflation has hardly risen at all over the last 10 years, you can build a nice new home here in Queensland like 25sq for 150k or less.

As I touched on before my First home was 4x my wage and interest rates where much lower, that same home is now 7 to 8 times the average wage and Interest rates are rising and already much higher than when i purchased.

And when we speak of the average wage of 55k, that means 50pc of people earn less than 55k , before we even start on Pensioners, Invalids/Sickness bens etc, where are these folks that dont own a house going to fit into this ongoing 12pc p/a RE boom?

Anyway Im sticking to my game plan, rent where I live at half the cost of ownership and if I re-enter RE at some stage rent that out for the tax Benefits. Maybe the Gov should make owner-occupied tax deductable as well hey? Save all the hassles

 

[tronic72]

There's two sides too this argument.

Side A: people paying too much for their property, in a market that's totally over priced. Those people would have been better renting

Side B: people like myself who purchased the "worst house in the street" and sat back while the neighbours continued to pay over a third more for their properties. Our property is now worth more than double what we paid for it. The most recent valuation was $380 - $420K and we paid $180 K and borrowed $150 K. In 4 years!

 

[tronic72]

House prices 4 x yearly wage and interest rates at 15% sounds good :

Those days of cheap labour and especially materials are gone. Back then houses were built with cheap hardwood etc. Prob is we have been pilaging the worlds / Oz's resources for many years and now the cost of materials can only rise. If i could i would buy a house to live in that was built to last 100+ years because if things keep going the way they are it'll be the materials that will cost much more than the land.

Imagine how much a plastic chinese container will be worth by 2050 when oil is prob $500 a barrel

Kiwi,

Not sure if you are in the building industry or not but your information is simply wrong.

Material costs have plummeted since the introduction of the GST. We now use pine for everything! it's easier to work with an TONNES cheaper than hardwood. The MAJOR cost in building a house is the labour. Fittings and fixtures also push the price skyward but the actual dwelling it's self is quite cheap. It's possible to build an average sized (not a Mc Mansion) for about $50 K in materials. Even less if you shop around.

 

[Flying Fish]

$400 dollar homes in the US !! http://www.homes.com/Content/ListingSearchResults.cfm?City=DETROIT&State=MI&Bedrooms=&FullBaths=&MinPrice=&MaxPrice=&PriceRange=&AmenitiesList=&PropType=+&TotalRecs=1243&MinSqFt=&MaxSqFt=&LotSize=&MinYear=&MaxYear=&Canada=0&OrderBy=PRICE%3AA

 

[numbercruncher]

$400 dollar homes in the US !! http://www.homes.com/Content/ListingSearchResults.cfm?City=DETROIT&State=MI&Bedrooms=&FullBaths=&MinPrice=&MaxPrice=&PriceRange=&AmenitiesList=&PropType=+&TotalRecs=1243&MinSqFt=&MaxSqFt=&LotSize=&MinYear=&MaxYear=&Canada=0&OrderBy=PRICE%3AA

wow thats just phenomenal, Guess thats what happens when you destroy your manufactoring base and ship it overseas ....

Sort of an airy warning to some of those dodgy mining towns should the demand vanish or the quarry run dry hey.

Its kinda bizarre too, the US has loads of homeless people skulking around the citys streets, could house them all in Detroit by the looks of it, hook them up with a dodgy $400 ARM lol