House prices to stagnate for 'years'

Thanks for the bargain...think I will need to sell all my body parts on the black market or ebay and I will check back with you soon. LOL

Adelaide Bank is now offering 6.55% fixed for 5 years!!!
this is down from 6.95% a few weeks back!!!

yup.... rates are going up!!!!

Perth real estate is certainly not stagnant.
86 people a day are presently migrating to WA
This equates to 50/60 extra homes required per day.
We have been busy buying prime real estate since 1998

More fuel to the fire from todays Melbourne paper...I think Kris may have written this article!!

Renting a home and investing the rest of your money in superannuation makes better financial sense than pursuing the great Australian dream, an industry analyst says.

IBISWorld chairman Phillip Ruthven said that over time, people had been "hoodwinked" into believing that buying a home was the best investment they could make, when this was not true.

"In buying a home, you can expect over a long, long period of time an average capital gain of about eight per cent," Mr Ruthven said.

"However you have to take off at least four per cent each year to allow for the costs involved in buying and selling the home."

Costs such as real estate agents' fees, stamp duties, legal fees and maintenance of the dwelling reduced the capital gain from owning a home to about four per cent a year, he said.

"If you invest in super you're going to earn about 11 per cent a year, in which case you are better to invest in super and then lease your home," Mr Ruthven said.

"Because by leasing a home, you can lease for about 3.5 to four per cent of its value.

"Trying to own a home just doesn't make sense."

Paying rent was not sending money down the drain; paying interest on a mortgage was sending money down the drain, Mr Ruthven said.

Home ownership appealed to people because of the emotional security it offered and because it was a form of forced saving, but it had never been a good investment, he said.

It was not a bad investment but there were far better things to put one's money in, such as super, he said.

Mr Ruthven said he was impressed by the number of young people who were choosing to rent a home rather than buy one, because they did not want to spend the next 10 years struggling to enjoy life.

All I can say is
- capital gains tax free
- security of tenure - what about having to move because the landlord.

I can imagine similar advice being given to people in September 87 "..Look how well your super's done people. Only one more month to retirement.lucky you didn't waste money on a house :goodnight .........(hmmmm)

Pretty impressive story, Fleeta.

No I didn't write it but it make sense to me. Since I do not have a morgage I am taking advantage of adding extra payments to my super. Also taking up the governments offer of super co. too. (free $1,500 each year)

When I am 65 I will be able to buy a house outright and save 25-30 years worth of bank interest. Now that seems pretty logical to me.

I expect to pay between 1 million to 1.5 million, that may be the going rate for houses in 35 years time I guess.

Knobby22 said:

All I can say is
- capital gains tax free
- security of tenure - what about having to move because the landlord.

Click to expand...

Agreed, Knobby.

I read the same article as quoted from the Melbourne paper in the Sydney Morning Herald.

The financial statistics may be correct though actually I'd take issue with some of the figures quoted if I wanted to be picky which I don't.

This just completely ignores the psychological and emotional satisfaction of having a home which is absolutely yours to do with what you want, and which no landlord can place restrictions on or evict you. That sense of security is worth a great deal. I've rented in the past briefly, and would never voluntarily to back to doing so again.

Julia

I would say that this is ANOTHER piece written by someone who hasnt taken advantage of Property.

TWO of the most basic and most IMPORTANT aspects of Wealth Creation have been simply overlooked.

LEVERAGE and COMPOUNDING

Neither of which can be utilised to anywhere near the same extent in Superannuation.

Owning or creating equity in your home will open the door to up to 10X leverage from a lender.(90% of home value).
This can be then Compounded infinately.

Our example case

"Tech/b" starts with $50,000 equity in home "A"
A lender allows him a 20% deposit on a home of $250,000.
"Tech/b's timing---being a lucky guy or savvy investor has him see a return of 15% on both his house and IP (Investment Property) over 2 yrs.
If his house was also worth $250,000 then thats $37,500/ year / property.
So "Tech/b" buys 2 more at $325,000 each.
Over the next 2 yrs Prices increase another 15% on all 4 houses.
Thats $37,500 each on 1 & 2 and $48750 on each of 3 & 4.
So "Tech/b" buys another 4 IP's at around $350,000 each.(Couple of Townhouses and a few commercial properties)
Over the next 4 yrs all 8 properties rise around 30% in total so thats
around $700,000.

"Tech/b" then buys one of his IP comercial properties and places it completely in his Self Managed Super fund gaining a $300,000 tax deduction which he uses over 2 yrs 30/6 and 1/7 of year x.
He then sells properties with least equity and freeholds properties with Most equity--for passive income.

Thus releasing plenty that can then be used for other levergaged opportunities.

Remember our example started with $50K in equity,I'll leave it to you to work out the % / Year returns our example made on his pultry $50k.

The statement above is simply linear thinking.

There is NO creativity,simply blurb that the masses nod knowingly and sit back with a stubby and mutter "Damned right---told you its better to rent even the experts agree!!"

Well I'll bet you that the self same "EXPERT" is right there in the RAT RACE struggling to create enough for retirement

THINK PEOPLE its not that HARD---get out of the crowd and be a station owner not a sheep.

I guess it comes down to the individual, do they want many properties, to produce income or just the one house to call a home.

Fleeta said:

Renting a home and investing the rest of your money in superannuation makes better financial sense than pursuing the great Australian dream, an industry analyst says.

IBISWorld chairman Phillip Ruthven said that over time, people had been "hoodwinked" into believing that buying a home was the best investment they could make, when this was not true.

Click to expand...

Hahaha.
Actually being IBIS World Chairman Phillip probably isnt struggling all that much!! hahaha that cracks me up.

Clearly this piece is on wealth creation not singular home ownership.

Anyway I think his view is one from the stand point of the "average" home buyer/Blue collar worker.I'm suggesting that people should aim to be a Phillip rather than a face in the crowd that he is speaking to.

I wonder what his view would be talking with owners of multiple homes?

MR and MRS Average are held back and always will be by FEAR
This article would be very comforting and as such limiting and in my view detrimental.

Show me one achiever who hasnt seperated themselves from crowd mentality!

Rather than 'hoodwinked" home owners havent been educated in how to best use their homes to their longterm financial advantage.
Having $1000s locked up in equity doing absolutely nothing not even earning interest is just plain CRAZZZZY.
But hey it sure is comfortable.

This person may have written this due to todays current housing market and affordablility levels and future trends.

Also have to factor in up-coming generations with so much more wealth tied up in super than in any other area. All you have to do with super is add money to it and minus the taxation and admin fees, its pretty easy money.

I guess there are so many variables to weigh up. What was best for past generations may not be as good as newer options for future generations.

Who knows.

I have heard of people using their matured super funds to pay out the remainder of their home loans and using the rest to retire.

I think future generations may need to look elsewhere to create some financial freedom other than housing, and super is a great way of doing just that.

Here is some more facts and figures to mung over...

Housing prices down: first time since 2000

By LOUISE TRECCASI

08oct05

THE bubble has finally burst. Adelaide's housing market has recorded its first fall in house prices in five years.

A 1.09 per cent fall in the September quarter ends the run of 19 consecutive quarters in Adelaide in which prices had grown or remained constant.

The last time house prices fell was in the September 2000 quarter.

State Government figures released to The Advertiser show the Adelaide median house price fell from $275,000 to $272,000 in the September quarter. For the year, prices grew 3.82 per cent.

The Real Estate Institute of SA said the latest figures were "nothing to be alarmed about".

"I am not distressed by this at all," president Robin Turner said. "The market is getting some normality back and there is more buyers' resistance.

"We don't want to drive homeowners out of the market with never-ending increases in prices.

"We are coming off an incredible high which has been sustained for five years and this is a very small change in value and a very soft landing."

Metropolitan sales also declined, falling from 4783 in the June quarter to 4412 in the September quarter.

Across the state, house prices fell by 1.96 per cent in the quarter, but rose 5.04 per cent over 12 months.

Regional SA outperformed the city, with house prices rising 1.11 per cent in the quarter and climbing 5.33 per cent during the year.

Other highlights show:

ADELAIDE metropolitan unit prices grew 2.07 per cent in the quarter, with the median at $209,250. For the year, prices rose 10.13 per cent.

PRICES for city apartments fell 9.09 per cent in the quarter and by 1.96 per cent in the past 12 months.

STANDOUT suburbs with strong annual growth were Willunga (37.76 per cent), McLaren Vale (32.61 per cent), Norwood (29.52 per cent) and Highbury (28.14 per cent).

MAJOR regional performers in the quarter were Whyalla (up 18.97 per cent), Port Pirie (9.62 per cent) and Murray Bridge (6.40 per cent).

Housing Industry Association chief economist Simon Tennent said Adelaide was still bubbling along nicely.

"Despite a slight fall, it is still relatively good news for Adelaide," he said.

"While Sydney has experienced much larger falls, Adelaide is yet to suffer a major crash. It is the first fall in five years, but it is still a very modest easing in prices.'

Source:

http://www.theadvertiser.news.com.au/common/story_page/0,5936,16849826%5E2682,00.html

tech/a said:

Show me one achiever who hasnt seperated themselves from crowd mentality!

Click to expand...

Totally agreed there tech. Following the crowd generally isn't a good idea.

But focusing on real estate as an investment has been going WITH the crowd in recent years, not against it.

The idea that house prices will at worst plateau is also very much what the crowd is thinking.

Time will tell.

Smurf1976 said:

The idea that house prices will at worst plateau is also very much what the crowd is thinking.

Time will tell.

Click to expand...

True, but you cannot argue with facts and figures that are constantly being released, showing plateauing and downward trends in many areas across Australia.

krisbarry said:

True, but you cannot argue with facts and figures that are constantly being released, showing plateauing and downward trends in many areas across Australia.

Click to expand...

Which suggests that, yet again, the crowd has it wrong.

Crowd or no crowd, the facts speak for themselves.

Guess its up to the individual to find that house in a location that is going up in price. Harder now than in previous years, but not impossible.

Glad to see i've rekindled this debate. I must say I found the article surprising and i'm sure that the man quoted in it has many properties. I agree with your leverage comments tech, but remember you can also get 70% gearing on the share market too!

I was interested in your comments r.e. equity being trapped in your home and not being utilised. The 'crowd mentality' is pay off your house as soon as possible. People are often horrified when I tell people that I am making minimum repayments on my house (about 75% geared at this stage) and have about $50k tied up the market as well. They say things like 'you should put that money on the house' or 'how can you risk losing that money when you are paying 6.5% interest on the loan?'

My question is - how much equity should you have in a home before you 'go and gear up some more' by making other investments. I am thinking about buying another property once I got this loan down to a position where it could be 'positively geared'. My estimate of that is around 50% equity. What do you think of that kind of mentality? Not asking for advice, just thoughts - after all I probably wouldn't take advice through fear of being a sheep!

Fleeta.

You've picked it.

The key to further investment is positive gearing --at very worst neutral.
Find a good accountant who is right up on Investment property tax issues and have him workout where that figure is.
I remember running this past mine and where I was sure I was negatively geared I was infact positive!

So in answer to your question its more about wether you can run the IP at no further cost to your situation.
I'd also allow a buffer of 2% on interest rates both on your own home and the IP.
While your returning more than $3500 on your $50K then why would you put it in your Mortgage?
The only thing perhaps worth considering is putting it in your mortgage---have a line of credit and return profits to the line of credit,drawing on only what you have in the market at anyone time.

Re 70% leverage in the market.
Yes I know.The only disadvantage is that I have to supply cash for the leverage.
Banks accept equity so the cash can remain where it is.

Now that I have equity and capacity to have considerable credit lines---increasing my trading capital is a priority---as I sell some off.That was just my way of doing what you are now doing.

Same but different.

Positive gearing is far better for your wealth than negative gearing.