House prices to stagnate for 'years'

[Kimosabi]

lol Robots ,

You really are setting yourself up with all that bad Kharma


Kimo might do just that, hes creaming it this month, 80pc on MAK I notice He might flick some goldies to that guy you refer to that hangs around outside your place looking for handouts

ha, I'll go one better and teach him how to sucker people into buying over priced property and turn him into a real bludger...

 

[wayneL]

Thanks for bringing us to the heart of the issue. Those on the bear side of this argument seemingly have a vested interest in being right, and prioritise that above being wealthy. What many don't realise is that the doomsdayers who write this doom and gloom scripture like the bozos over at The Daily Reckoning, are probably already wealthy thanks to doing the wrong thing and getting away with it during a previous boom somewhere, sometime. They can afford to sit back and preach about such things. Can you??

ASX.G

Whoa there G, you've made some mighty assumptions there.

Firstly, people who get wealthy overwhelmingly have a macroeconomic view. It may be bullish or it may be bearish, it may be wrong or a it may be right.

The investor/business person will live or die by being correct in this view. For instance, Bernard Baruch (or whatever hi name is) saved his fortune by (accidently or otherwise) changing his view at the right time, thanks to the shoe shine boy.

He might have been wrong, but he had a view and worked his investments around that.

By all practical economic laws, such as those espoused by the true capitalist schools, recession follows periods of mal and over-investment. Anyone who doesn't believe we've just been through such a period is in faeryland.

Some may become pathologically in the expression of their thinking, but the fact remains that "investing" at the top of a cycle is not the ideal point to do so. If some bears have been innaccurate in this timing, doesn't take away the logic. Bulls can likewise buy too early in a bear cycle. In fact that could be occurring right now.

The presumption that only bulls can become wealthy and that bears may be right but not wealthy is an extremely long bow. Bears usually are bullish on such things as gold, oil, silver, debt managers etc. Not bad performers over the last couple of years.

And remember, a bear is not some misanthropic malcontent hoping for nothing short of the Apocalypse (well... not many anyway ). A bear is a bear so he can become a bull.

A bear is looking for value. Watch most of the the bears screw on those horns when the time is right.

 

[professor_frink]

Obviously I havent worked it out exact, wheres the major error? The renter will have more because I only compounded annually?

Ok see below- I put your original post in so people could follow along

Its really pretty simple, Australian owner occupied realestate has got to potentially be one of the worst investments on the planet currently, especially if your paying it off.

Person renting 350k from bank @ 9pc + rates/ins pays 3k a month.

Person renting 350k house from property speculator pays 1200 a month, investing 1800 diff (22k p/a) @ a very min of 7 p/c return.

After 5 years, renter saving difference has a min of 135k.

Person renting the 350k has made a small dent in mortgage principle and has paid out 180k already. approx 160k is interest.

After this 5 years property "owner" has a property that has cost him 510k, he will need to sell it for 645k just to break even with the renter. Make that 660k, to include realestate sharks commission - I havnt included Duty, loan app fees, conveyancing etc!

Big mistake property gamblers make is using percentages to calculate expected return, its no longer applicable because the numbers have got too large.

Your probably going to get rate rise after rate rise going forward, its only a matter of time until youve got people fleeing the property market if it keeps up. Gen-Y arnt buying this silly RE game, it sounds like the musics stopped but not too many have noticed, yet.

here's where you started to lose me-

Person renting the 350k has made a small dent in mortgage principle and has paid out 180k already. approx 160k is interest.

After this 5 years property "owner" has a property that has cost him 510k, he will need to sell it for 645k just to break even with the renter. Make that 660k, to include realestate sharks commission - I havnt included Duty, loan app fees, conveyancing etc!

Not even close to being true. You forgot to deduct the rent from this for starters

Then on top of that you have conveniently missed one of the main benefits of buying an IP- tax deductions.

From my quick and dirty calculations(remember I'm no accountant either) the property could have a negative cash flow of roughly $18K per year(31.5K in interest plus additional costs less 17.5K in rent). In some circumstances you can claim depreciation on the building and fixtures and fittings, which could potentially bring the total claimable loss up closer to 22K per year. Depending on what income the gambler is on, the taxman could potentially chip in 6.5K per year(based on being on an income of 70K), or up closer to 9K if they are on 100K.

Once you add that into the mix, then you are looking at the property costing $9K to 11.5K per year, depending on income(not 36 like you had originally stated), and it will be going down every year as their income rises, and the rental income increases. So it works out to be more like 45-55, not 180K.

To keep up with your intelligent renter, this gambler needs his dodgy property investment to be worth 540K after the 5 years to keep up with the renter, or about 9% per year, which is hardly a cracking rate of return. I know all of you property bears will be carrying on now that 9% isn't sustainable, etc, but the point I'll make before you do(saving me typing out another post!) is that the longer this comparison runs, the better it will look for the IP buyer- the one thing missing in this calculation for the renter is that the level of rent will be rising throughout the 5 year period, which will start to tilt the balance away from the renter and towards the gambler- the renter has his ability to save eroded by the rental increases, and these increases go straight into the pocket of the gambler. This can be offset by the renter by saving more as his income grows, but the IP buyer also gets the added bonus of earning more too. And the higher tax bill that goes with the additional income helps to pay for the IP with less and less of his income. Run the calculation out over 15 years, and the gambler is holding this property for less than 4% of his income. And that's assuming they haven't made any attempt to pay it off over that time.

 

[Kimosabi]

Well I'm a Bull in a Bears suit when it comes to Property. But now that I understand the Scam that is called our Monetary System, I'm waiting for things to come back to their Intrinsic Value, which I thinks is already starting.

All I want is a system that is fair for "EVERYONE", not a system that is manipulated by a small handful of "Control Freaks" that have done a fantastic job of duping 99% of the Worlds Population.

This includes many of you puppies that went and did your Finance and Economics Degree's.

Who do you think some of the biggest University Funders are?

Has anyone sat down and thought about why the system rewards those that take out huge amounts of debt, could it be that we currently have a debt based monetary system, and has anyone wondered why our Taxation System rewards those that take out large amounts of debt?

After doing some research on the US Federal Reserve, you find out it is a "PRIVATE INSTITUTION". Reagan commisioned an investigation into where all the money went that was collected by the IRS, the investigation found that the money that was collected by the IRS was used to pay the INTEREST on the money lent to the United States by the Privately Owned Federal Reserve.

Considering Australia and the United States have similar Monetary and Taxation Systems, could it be that Private Institutions lend money to Australia and our Taxes pay the Interest on the money lent to us by these Private Institutions.

Now before some of you guys get on your high horses, explain to me why the RBA is charged with keeping Inflation at 2-3%, when M3 is currently running at 16% and it's the Reserve Bank that is creating/lending the money that's creating the Inflation.

Hello, is it just me that see's a problem with this Picture...

 

[robots]

hello,

another thing to blame on property,

but hell dont blame yourself or take any responsibility

we all play by the same rules

its great things going to intrinsic value, many suburbs in vic up 40% last year,

thankyou

robots

 

[Kimosabi]

hello,

another thing to blame on property,

but hell dont blame yourself or take any responsibility

we all play by the same rules

its great things going to intrinsic value, many suburbs in vic up 40% last year,

thankyou

robots

What's your problem Bubblebots, not used to dealing with people who do their research, before jumping off a cliff. For the record I accept full responsibility for NOT getting sucked into Property during the Current Credit Cycle. I'll wait for the next one before jumping in.

Reality seems to be raising it's ugly head as I type this post. I hope you've got enough stashed away for a Airfare out of the country Bubblebots, you might need it.

There are going to be plenty of p1ssed off home owners when they see 2/3rds of the value of their house getting wiped out.

That House Price Index will come back to 100 one day , you know that, don't you Bubblebots...

 

[robots]

Reality seems to be raising it's ugly head as I type this post. I hope you've got enough stashed away for a Airfare out of the country Bubblebots, you might need it.

hello,

yeah wouldnt surprise with most running for the exits if things get tuff,

I will go down and see the church for a handout with all the ASF crew, i am sure the current crew will make me welcome

thankyou

robots

 

[numbercruncher]

Ok see below- I put your original post in so people could follow along



here's where you started to lose me-



Not even close to being true. You forgot to deduct the rent from this for starters

Then on top of that you have conveniently missed one of the main benefits of buying an IP- tax deductions.

From my quick and dirty calculations(remember I'm no accountant either) the property could have a negative cash flow of roughly $18K per year(31.5K in interest plus additional costs less 17.5K in rent). In some circumstances you can claim depreciation on the building and fixtures and fittings, which could potentially bring the total claimable loss up closer to 22K per year. Depending on what income the gambler is on, the taxman could potentially chip in 6.5K per year(based on being on an income of 70K), or up closer to 9K if they are on 100K.

Once you add that into the mix, then you are looking at the property costing $9K to 11.5K per year, depending on income(not 36 like you had originally stated), and it will be going down every year as their income rises, and the rental income increases. So it works out to be more like 45-55, not 180K.

To keep up with your intelligent renter, this gambler needs his dodgy property investment to be worth 540K after the 5 years to keep up with the renter, or about 9% per year, which is hardly a cracking rate of return. I know all of you property bears will be carrying on now that 9% isn't sustainable, etc, but the point I'll make before you do(saving me typing out another post!) is that the longer this comparison runs, the better it will look for the IP buyer- the one thing missing in this calculation for the renter is that the level of rent will be rising throughout the 5 year period, which will start to tilt the balance away from the renter and towards the gambler- the renter has his ability to save eroded by the rental increases, and these increases go straight into the pocket of the gambler. This can be offset by the renter by saving more as his income grows, but the IP buyer also gets the added bonus of earning more too. And the higher tax bill that goes with the additional income helps to pay for the IP with less and less of his income. Run the calculation out over 15 years, and the gambler is holding this property for less than 4% of his income. And that's assuming they haven't made any attempt to pay it off over that time.

Why would we deduct this hypothetical rent from the owner ? It doesnt play a role, we are working out the raw cost of ownership vrs what is saved via the difference in renting.

ie/ Owner pays 3k a month to mortgage - renter is divided 1200 to rent and the 1800 to the investment. The 1200 rent vaporises. They are both parting with 3k a month. Im working out roughly what the Property has cost after 5 years including Interest etc vrs what the renter has saved from his Investing, adding this to what the house has " cost " shows what property bulls needs to match. Owner only makes small dent to principle in 5 years, most is interest.


Im only using the renters 1800 p/m that he would otherwise pay on a mortgage.

Also we can throw in wildcards on both sides, either can get pay rises, rent rises, interest rates etc.

Ive been pretty lenient on the home owner, only giving the renter a 7pc return and compounded interest yearly, most these accounts pay interest on Interest calculated monthly. Sure deduct some tax each year. (even some Prop trusts paying franked 8pc etc)

What happens when mortgage rates are/could be 10pc at end of year and renters savings account earns more to boot? so many variables.

Things seem alot rosier for the owner when paying cash ( assuming you think prop will hold up)

One last thing, you say " Ive convieniently missed out the top point on IPs, that being tax deduction, well yes thats true because Im comparing Owner occupied vrs Renting as declared in the First line of my post.

But im used to the Prop Bull crowd swapping the debate from OO to IP, happens all day ( funnily enough I can appreciate the virtually risk free nature of IPs provided you pay enough income tax to negatively gear the massive loss year in year out!)

Cheers.

 

[explod]

hello,

yeah wouldnt surprise with most running for the exits if things get tuff,

I will go down and see the church for a handout with all the ASF crew, i am sure the current crew will make me welcome

thankyou

robots

Hello

You continue to rattle on but have still not addressed my question to you (and this is my second request) which I posted at 09:52pm on 11/2.

thank you..... explod

 

[theasxgorilla]

Ive been pretty lenient on the home owner, only giving the renter a 7pc return and compounded interest yearly, most these accounts pay interest on Interest calculated monthly. Sure deduct some tax each year.

Love how you bury your nuggets of truth in amongst your bearish ranting.

Thats would be as compared with ZERO (thats right, the big Orbison) tax on the capital gain for the primary place of residence. OMG, sounds like a tax haven in our own back yard. No wonder so many people have been doing it.

ASX.G

 

[numbercruncher]

Plenty of tax paid investments paying 8pc.

Oh dont let the tax free PPoR secret out


Thanks for your constructive input.

 

[theasxgorilla]

Plenty of tax paid investments paying 8pc.

Okay, and they are?

And they let you leverage at LVRs of up to 95% too I presume. Please do list them. Without leverage, and tax benefits, even the best laid investment plans executed during the greatest market booms can look comparitively ordinary.

Oh dont let the tax free PPoR secret out

Your sarcasm betrays the truth, again. This fact is 1/3 of this entire equation. Add 1/3 income tax deductions on investment properties, 1/3 record high commodity prices and you've got all the ingredients you need for a prolonged real estate boom.

Thanks for your constructive input

Just keeping it real for the rest of us among all you chicken littles.

ASX.G

 

[robots]

hello,

explod, look at the previous posts

we have two guys 22 and 23 who have been in the system for 3 yrs doing basic building work on 50k/yr

frinkster, NC and others are deniers of capital growth because they have missed out, simple as that

most likely a lot of them have sold and done the seachange thing and then wished they could turn back the tide only to be shocked at what has happened

most of them tell "us" how they are getting 70% or 80% returns but they forget to mention its on 1k, 2k or 10k

whereas frinkster the property owners are getting it on 350k, 500k or 600k so I guess they need to justify there dismal performance and as usual property cops it,

40% returns for many in melb, I get that just for walking to the front door and sticking the key in the lock for the same cost as the renter next door

always remember the great one from Kimosabi " I looked at property", translate into I couldnt afford it so I want it to crash

thankyou

robots

 

[Sean K]

hello,

explod, look at the previous posts

we have two guys 22 and 23 who have been in the system for 3 yrs doing basic building work on 50k/yr

frinkster, NC and others are deniers of capital growth because they have missed out, simple as that

most likely a lot of them have sold and done the seachange thing and then wished they could turn back the tide only to be shocked at what has happened

most of them tell "us" how they are getting 70% or 80% returns but they forget to mention its on 1k, 2k or 10k

whereas frinkster the property owners are getting it on 350k, 500k or 600k so I guess they need to justify there dismal performance and as usual property cops it,

40% returns for many in melb, I get that just for walking to the front door and sticking the key in the lock for the same cost as the renter next door

always remember the great one from Kimosabi " I looked at property", translate into I couldnt afford it so I want it to crash

thankyou

robots

robots, I count 5 assumptions in there, 4 points announced as 'facts' which are unsupported, 1 'most likely', 1 'I guess', and at least 15 grammatical errors. Amusing, thank you. kennas

Apologies that my only contribution is a piss take.

:couch

 

[professor_frink]

But im used to the Prop Bull crowd swapping the debate from OO to IP, happens all day ( funnily enough I can appreciate the virtually risk free nature of IPs provided you pay enough income tax to negatively gear the massive loss year in year out!)

Cheers.

Its really pretty simple, Australian owner occupied realestate has got to potentially be one of the worst investments on the planet currently, especially if your paying it off.

Sorry, I saw you talking about making an investment in real estate and assumed you were talking about an IP, as it's the only way to invest in real estate.

Instead of your theoretical, I'll throw up the figures for the home I just bought for a bit of balance- it isn't always as bad as you make it out to be.

House price was 280K
agents estimation on rental return 290 per week(I had actually discussed the possibility of buying it as an IP with the agent when we bought it and then go and rent, but Mrs frink didn't like that idea considering we have pets).
loan amount 230K @8.27%(not sure what deal we got here- the Mrs works for the bank, so she was the one dealing with this)

We pay $1585 per month in interest compared with $1256 per month if we were to be renting it. Our interest bill will be lower than we would be spending in rent within a couple of years. Probably quicker if we decide to pay it off faster and rents take off with inflation.

 

[numbercruncher]

Just keeping it real for the rest of us among all you chicken littles.

Ok those of us that cant see value in owner occupied RE are, in your opinion , chicken littles.

So whats your excuse, you by your own admission have no exposure to RE , surely with such strong opinions about how wrong the likes of myself are youd be digging into this RE mega boom you describe ?


My GC property ive mentioned that I sold in 03 , I got 338k. After 5 years its " worth " 400k , this Guy should he sell today loses money, just add it all up , 338 + Duty + Interest + Rates/Ins + RE fee to sell , even now if hes managed to pay loan down to 250k @ 9pc interest rates hes getting further in the hole especially vrs renter/investor. Would be a different kettle of fish should he have had it as a IP.

Im not trying to change anyones mind, If you think property is the hottest bet, go for gold, Just debating my opinion.


Cheers.

 

[numbercruncher]

NZ property crash looks to be getting Juicy

Whats the Reason for NZ Robot ? Guns , Drugs ? Maybe the higher Interest rates ?

Figures confirm property slump bedded in
5:00AM Wednesday February 13, 2008
By Anne Gibson

The Real Estate Institute will today release data from last month that is expected to show the slump has settled in.

Quotable Value and Barfoot & Thompson have released gloomy housing figures in the past few days.

Shamubeel Eaqub, investment research director for Goldman Sachs JBWere (NZ), said house-price slumps were almost impossible to reverse once they bedded down.


"This looks very gloomy. I would note that the United States experience shows that once house prices start falling and there is feedback loop through the slowing economy, it's difficult to pull out of the nosedive," he said.

One property commentator believes New Zealand is heading for its biggest property slump in almost two decades and warns prices could plummet by a quarter.

http://www.nzherald.co.nz/category/story.cfm?c_id=76&objectid=10492151

Residential property became a "buyers' market" last month with low sales and a sharp increase in days to sell figures, the Real Estate Institute (REINZ) says.

The national median price dropped to $340,000 in January, from $345,000 in December and compared to a peak price of $352,000 in November.

The national median was 3.97 per cent up on the $327,000 figure in January 2007.

http://www.nzherald.co.nz/category/story.cfm?c_id=76&objectid=10492226

NZ retail variable rate is 10.69, seems around this mark is the straw that breaks the camels back, If the Gen-Ys keep buying ipods and going to rock concerts the Inflation they cause will get us their too ?

 

[robots]

hello,

hands up those who save/invest same as rent or more per month?

I know ABS has the results of that question but what about ASF members,

just concentrate on your income,

thankyou

robots

 

[KIWIKARLOS]

Agreed robots

Im 25 now in the elctrical industry making 130K after further education and heaps of my mates are electrical tradies the base they make is around 55-60K and thats without OT and includes a free phone and a car. Alot of young people are making good coin out there thesedays and savin a heap cause they stay at home for longer.

A few of the guys headed to WA and they get 120k+ with all accomo and food pretty much paid and thats just for having a trade an apprentice or labourer can make 50k+ easily.

New Zealand is a whole different economy workers over there get paid much less and the economy isn't that strong. Their labour laws are also dodgy for eg. OT is paid at normal hourly rate across the board not like the 2 times rate we get here.

The biggest prob is oz isn't the wages its the people makin the dollars end up pi44in it against the wall for good times and consumer products. Heaps of young people live day byday with no thought of the future.

They've been watchin their parents spending their inheritance the saved as kids and are getting jealous: want the perks without the hardwork.

 

[robots]

hello,

well done bro,

and i hope those making the coin continue to save, invest, save etc

thenakyou

robots