House prices to stagnate for 'years'

[Judd]

My Family home was purchased in 1999 at a cost of $150,000 (about 4.5 average male wages).

This same house now (2008) is worth $500,000 (about 10 average males wages).

Something doesn't compute here....

Well, STC, based on the following assumptions.

Purchase price ($150k) plus 5% is purchase cost = $157,500
Loan of 80% of purchase price is $120,000
Loan is at average of 7% over 25 years
Interest paid on that loan over relevant period is $69,400.
Sale price is $500,000
Sale cost are 3% of sale price which leaves net of $485,000
Balance of loan after 9 years is $97,800 which leaves a net of $387,200.

Results in a compound average increase on the money of 7.1%
Compound average inflation rate over the same period (121.9 in December 1998 and 160.1 in December 2007) is 3.1% which leaves a real return of

a grand total of an 4% annualized return.

So it does compute.

 

[krisbarry]

Just seems strange that it now take 5.5 extra men to afford that same house 9 years laters.

How can 2 people...a huband and wife do it, its beyond me!

I guess the Husband is working 2 jobs and doing drug deals on the side, while the wife works 2 jobs and prositutes on the side

A lucky country...I think not!

Why is this lucky country getting media attention pointing out that Australia has the highest price houses in the world?

Lucky, I think not....Happy Australia Day to all who slept in a Caravan Park, Park Bench, Shipping Container, Tent...you are the true blue Aussie...!

 

[robots]

hello,

and if you look at the example from a basis of only putting down 37K and getting a return on the 37k its very interesting,

i would guess maybe take off another 50k for simplistic terms (rates, insurance,maintenance) and all of a sudden the 37k has turned to 330k (CAPITAL GAINS FREE)

but then after around 7-8yrs, when rents start to equal mortgage payments the owner kills it

thankyou

robots

 

[Judd]

hello,

and if you look at the example from a basis of only putting down 37K and getting a return on the 37k its very interesting,

i would guess maybe take off another 80k for simplistic terms (rates, insurance and the difference between renting and paying mortgage) and all of a sudden the 37k has turned to 300k (CAPITAL GAINS FREE)

but then after around 7-8yrs, when rents start to equal mortgage payments the owner kills it

thankyou

robots

Yes there is a point there. Of course, rates, insurance and say renovating the kitchen are out goings (after tax) which could have an adverse effect on the real return. And then if you take the difference between renting and the mortgage payments there is another assumption, ie that the difference is actually invested. In what? Other properties, fixed interest, share market. And so what is the return on that?. Or is it merely spent? Really don't know the answer to that so perhaps you could enlighten us.

For some reason which is rather obscure to me, you seem to be presenting arguments without empirical evidence to justify your statements - apart from a rather bland view that the average has gone from X to Y and therefore Z will result. It does not compute so to speak. You may, or you may not, be correct, but personally, I would prefer just a little (any) more substance to your position.

Thank you

And you
And you

 

[Kimosabi]

For some reason which is rather obscure to me, you seem to be presenting arguments without empirical evidence to justify your statements - apart from a rather bland view that the average has gone from X to Y and therefore Z will result. It does not compute so to speak. You may, or you may not, be correct, but personally, I would prefer just a little (any) more substance to your position.

It's called ramping. The only thing is that Real Estate Ramping isn't a violation of the ASF Rules.

If he made these statements in a stock thread, he would have been banned years ago...

 

[robots]

hello,

i say 37k (inital outlay) is invested in the house, and it returns 330k over that period as indicated by STC, which gives a return of % (let you fill it in, might be surprised)

definitely not 4%,

similar to a margin loan, STC put down 37k to control a 150k asset, but the return is based on the 37k yes

ABS have proven that those who rent dont save/invest their money,

thankyou

robots

 

[robots]

hello,

checked out the perth scene, things going smoothly i see kimosabi

thankyou

robots

 

[robots]

hello,

for STC's example,

so invested 37k to make 330k, 10 year period

around 21% compound return after all costs, TAX FREE

and all just for living at home

thankyou

robots

 

[Judd]

You really must be smoking something very powerful (not Golden Columbian by any chance?) or your just off your face because you are not making any sense whatsoever. You are really a very incoherent poster.

STC was reasonably raising the matter of $150k in 1999 being $500k in 2008 So where on this earth did you get $37K turning into $330k over 10 years?

Go for YouTube bro. You know that your there.

 

[robots]

Well, STC, based on the following assumptions.

Purchase price ($150k) plus 5% is purchase cost = $157,500
Loan of 80% of purchase price is $120,000
Loan is at average of 7% over 25 years
Interest paid on that loan over relevant period is $69,400.
Sale price is $500,000
Sale cost are 3% of sale price which leaves net of $485,000
Balance of loan after 9 years is $97,800 which leaves a net of $387,200.

hello,

the figures in this post, purchase cost 157k, loan for 120k so STC came up with 37K upfront

as per your figures leaving net 387k after sale, i am even taking off 50k for other expenses such as rates, insurance building maintenance,

so left with 330k roughly, tax free, pretty easy to follow as its no different to margin loan, cfd etc

STC put down 37k to control an asset of 150k back in 1999, all for living at home

goodluck

thankyou

robots

 

[theasxgorilla]

Yes there is a point there.

The point is that house price growth and ROI are not the same thing Judd.

On the topic of ramping property, it's very difficult, if not impossible to provide so called empirical evidence. Stats, medians, averages etc. are all BS IMHO. Well, to the extent that they probably tell you as much about a given house in an area as the AAA rating from Moody's does these days.

But what about down-ramping? For over two years this thread has been going and there have been countless references to the 'affordability crisis' this and the 'average/median/schmedian income' that. Have you guys considered for a moment that you might be doing the devils work? That those who condone these articles and stats being published have a vested interest in keeping interest rates as low as possible for as long as possible? How can a central bank raise rates without looking like the bad guys when housing affordability is already at crisis levels?

 

[Julia]

I've just done a quick calculation on what was paid for my house 14 years ago versus what it's worth now, and it averages 9% p.a.
There have been no mortgage payments but it would be necessary to deduct ongoing maintenance and improvements which would probably bring it down to about 8.5% p.a.

And then there's the immeasurable benefit of never having to worry some landlord is going to throw you out and the further benefit of being able to whatever you want.

 

[numbercruncher]

I think the real question is , are these rates of gains possible going forward ?

If the average House 440k was to continue rising at 10pc p/a it will be worth 1.1m in 10 years.

Thats serious inflation guys and it needs to be viewed from dollar terms rather than percentage terms, the RBA is going to smash on the breaks before it got out of control like that.

The average 55k wage just to keep pace at 1/8th the property price would raise 10pc p/a and be 140kp/a in 10 years

Remember property prices hardly budged through the 90s and if your stuck holding a 400k mortgage for a 10 year dormant property market you are way way behind the eight ball at the end of that period.

No one revoked the economic cycle , if our Inflation continues as it is, 9 . 10 .. 12 ... 15 pc Interest rates ? who knows!

 

[Judd]

hello,

the figures in this post, purchase cost 157k, loan for 120k so STC came up with 37K upfront

as per your figures leaving net 387k after sale, i am even taking off 50k for other expenses such as rates, insurance building maintenance,

so left with 330k roughly, tax free, pretty easy to follow as its no different to margin loan, cfd etc

STC put down 37k to control an asset of 150k back in 1999, all for living at home

goodluck

thankyou

robots

I wish you good luck my friend. Through completely ignoring the time value of money any of your "clients" will be living in a fools paradise. Best of luck old chap.

 

[wayneL]

http://globaleconomicanalysis.blogspot.com/2008/01/real-estate-auctions-booming.html

 

[theasxgorilla]

http://globaleconomicanalysis.blogspot.com/2008/01/real-estate-auctions-booming.html

Them house prices ain't stagnating!

 

[robots]

I wish you good luck my friend. Through completely ignoring the time value of money any of your "clients" will be living in a fools paradise. Best of luck old chap.

hello,

you like those figures judd,

not many are paying the 157k, pretty good return for STC on his 37k down isnt it,

21% compound over 10yrs and all TAX FREE, great stuff man, you might want to get on some gear to see the truth in the numbers

thankyou

robots

 

[Mofra]

Well, STC, based on the following assumptions.

Purchase price ($150k) plus 5% is purchase cost = $157,500
Loan of 80% of purchase price is $120,000
Loan is at average of 7% over 25 years
Interest paid on that loan over relevant period is $69,400.
Sale price is $500,000
Sale cost are 3% of sale price which leaves net of $485,000
Balance of loan after 9 years is $97,800 which leaves a net of $387,200.

Results in a compound average increase on the money of 7.1%
Compound average inflation rate over the same period (121.9 in December 1998 and 160.1 in December 2007) is 3.1% which leaves a real return of

a grand total of an 4% annualized return.

So it does compute.

Judd,

Technically your calculations are corrrect; now please tell me where I could have borrowed to purchase cash/equities on the same terms as a residential property loan contract?

NC has nailed the argument - ease of credit. Not just in the macro sence, but also on an individual level; real estate is a tool to avail oneself of cheap credit, and provided that credit is used wisely it can be a brilliant tool for wealth creation.

 

[Kimosabi]

http://globaleconomicanalysis.blogspot.com/2008/01/real-estate-auctions-booming.html

But, but, but, housing prices never go down, do they?

I've seen similar price drops in West Virginia as well.

My entry into Real Estate will be when there's Real Estate spruiker's blood on the streets...

 

[xoa]

http://globaleconomicanalysis.blogspot.com/2008/01/real-estate-auctions-booming.html

Looks nice.

There's some real bargains in the USA (relative to Australia), and they might get even cheaper. I feel sorry for those people who borrowed to buy, just before prices went down the toilet.

Australia is probably where the USA was in 2005 - the calm before the storm.