I have given up buying a house

[Realist]

once your landlord kicks you out or increases your rent by an unrestrained amount you may start thinking differently....

Agreed, but... where I live is cheap, it is okay, quite nice, nothing special though. And I can't get Foxtel.

If i get kicked out so be it, I'll move somewhere nicer with Foxtel. :

I am starting to think we are getting close to the optimum time to buy a house in Sydney. I'll wait though at least 6 months. See what spring brings..

 

[WaySolid]

I have only read the first 2 pages of this thread but feel compelled to write something as I was thinking what would I do if the poster was a young nephew of mine?

Frankly I would be grabbing you by the shoulders and shaking you whilst asking 'What on earth are you thinking?'

I guess I also ran over some posts that triggered a reflex response... Listening to a Real Estate Agent for investment opinion? (Be very afraid), listen instead to Real Estate investors instead.

I'd rather return 50+% on my investments... What the?? Wouldn't we all? Base forecasts on historical means for investments as a good guide, which for super is ... well anything but super if you do your research. The current ASX flood is lifting a lot of quacking ducks with it, but if you can do 50% in an investment then of course thats fantastic.

Super is a very tax advantaged vehicle, but as a primary investment source? How many variables are there between a young person and retirement age?

Take a lesson from the boomers book, get into what you can afford in terms of a house (do what you can to get there) add some value where you can and use that increasing equity as a springboard for future investing. I guess the perception of the X'ers and Y's is that they want the house that is as good as what they are getting at home, but reality is that they will need to settle for something a little less spectacular to get started. It's a boring formula but it seems to have worked reasonably well in the flow of history. A little bit of delayed gratification + hard work = very nice things.

A few possible suggestions to discard as nescessary.

* Save a deposit for a house, getting your foot in the RE market is very important I believe and will knock the socks of anything connected with equities for a beginning investor in terms of the leverage the bank will give you for an IP or PPOR.
* Research! You can find great deals if you put in some sweat.
* Just get started, was it any easier for the boomers to buy their first house?

Anyway whatever is chosen good luck!

 

[mit]

I hate to say it but I think Realist is right here. If you buy a house (ignoring deposit) you are up for 7% interest plus around 1.5% costs. That's 8.5% of the value of a property. A lot of rental properties still have a yield of 3-4%. So you can save 4% of the value of the house by renting. Now, the argument is that you miss the capital growth but where you want to live is not neccessarily where the best growth is. So rent where ever you want and buy an investment property where the return is the better.

Go to http://www.somersoft.com/ and try to argue there with property experts that buying a PPOR is better than renting.

MIT

 

[Smurf1976]

* Just get started, was it any easier for the boomers to buy their first house?

Well the price of the house, relative to average wages, was about half what it is now...

 

[emma]

Smurf

Could you give the source for your assertion about the cost of a home/wages ratio.

 

[Realist]

rent where ever you want and buy an investment property where the return is the better.

Why even bother with an investment property at the moment though?

I do not believe investment properties give a better return or less stress than shares...

And property is not as safe as everyone makes out, "safe as houses"

Property can lose you money, vacant time, interest rate increases, damage to the property from bad tenants, fall in prices etc.

Leverage works both ways - your losses can be huge!!

Investment properties can cause more stress than a falling sharemarket. Bad tenants are a nightmare.

If you like property, buy Westfield...

 

[Smurf1976]

Smurf

Could you give the source for your assertion about the cost of a home/wages ratio.

A report this year by consultants Demographia found that Australian cities, even the likes of Hobart and Adelaide, are amongst the most expensive (relative to wages) in the world with prices aound 6.5 times average earnings. In Sydney the ratio is 8.5, higher than New York or London.

Actual ratios from the report: Sydney 8.5, Hobart 6.6, Adelaide 6.5, Melbourne 6.4, Perth 6.1, Brisbane 6.0, Canberra 4.8, Darwin 4.3.

The same report states that most cities in Australia had prices around 3 times average earnings at some point over the past 2 decades whilst ABS data, reported through various media outlets, suggests that the long term average is between 3.5 and 4 times earnings for Australian cities. A bit more in Sydney, less in Hobart etc. Hence my statement that house prices relative to income are, roughly, double historic levels. Also today's home buyers lack the benefit of inflation rapidly eroding the real value of the mortgage.

The good news is that markets generally revert to the mean. The question is whether that means a wages boom or house price falls.

 

[Ageo]

Why even bother with an investment property at the moment though?

I do not believe investment properties give a better return or less stress than shares...

And property is not as safe as everyone makes out, "safe as houses"

Property can lose you money, vacant time, interest rate increases, damage to the property from bad tenants, fall in prices etc.

Leverage works both ways - your losses can be huge!!

Investment properties can cause more stress than a falling sharemarket. Bad tenants are a nightmare.

If you like property, buy Westfield...

tell that to the property millionares.

My dad's builder (he's a bricky) just poured 20 slabs and they are all sold already.

My Real Estate Agent said they already sold 30 properties for this month.

Its quite simple if you have a lack of knowledge and finance (in some cases) then of course your gonna say Real Estate is a lowsy investment, it doesnt mean it isnt thow does it.

Vica versa when a real estate investor says shares a risky etc...

If there are millionaires in both areas then both areas must work. Its that simple

 

[Buster]

when I am 65 I will then be able to take out my super and buy a brand new house/unit/retirement village unit etc, that will suit my needs. That way I have saved hundreds of thousands of dollars in bank interest.

Why bother matey.. keep bludging off your parents and mates.. Make sure you pick good mates too.. the type that buy pizzas, beer etc that way you can save even more moolaa and put it into your investments..

Grow up..

Cheers,

Buster

 

[Young Gun]

OK their are a number of problems here , firstly I work in the finance industry more specificially superannuation. Why put your money into super , yes i know favourable taxation rules however it is untouchable untill you reach preservation age (retirment age). Whats more , wouldnt you rather invest the money yourself and learn abit then just over pay people to do it for you.

Secondly , giving up on owning your own home is really bad to hear. I just turned 19 I have a 1/3 stake in an apartment (and I live in Sydney metro) and $10,000 in shares, you can save up to buy propery you just need to spot the opportunity or get creative.

The main problem with renting is that rent is indexed meaning it increases with costs and inflation. Your rent is always going to increase. However your loan repayments will decline as you pay off the balance owing and even if you only paid interest only , it would still remain the same (based on the fact interest rates dont go up lots).

 

[emma]

Thanks Smurf for your reply It seems to me that some of to-day's "can't afford a house" people, can't live without spending on stuff that wasn't even on the radar when we bought a home. All we could afford to buy for our first home was a bed and a fridge - everything else (what there was of it) was borrowed. We spent a few years without any spare cash to spend on anything but essentials.

To be fair, credit was a different animal then. The amount required as deposit was considerable (compared to to-day) before you could be interviewed by your bank manager be even considered for a home loan. There in perhaps lies the answer - could the almost unlimited availability of credit be part of the driver of house prices?

 

[RodC]

There in perhaps lies the answer - could the almost unlimited availability of credit be part of the driver of house prices?

Almost unlimited cheap credit certainly is part of the driver of prices. The whole consumer credit market has certainly opened up a lot in the last 15 years.

Rod.

 

[Smurf1976]

The way I see it, credit availability is THE driver of house prices at the moment. Even a brief look at the marketing from banks etc reveals that the focus is very much on "borrow as much as the bank will lend and spend the lot buying a house". No surprise then that, with the exception of Sydney, Canberra and Darwin, Australian capital cities all have very similar valuation levels relative to income. Also no surprise that the actual prices are roughly equivalent to the "how much can I borrow" amount that bank calculators etc produce when typical income figures for those cities are entered plus a reasonable deposit (that is, very little deposit for first home buyers, more for those trading up to the larger properties). All driven by credit availability IMO.

My underlying concern is that I think we've seen the peak in easy credit. Inflation is starting to show up in everything from petrol to stocks and it's hard to believe that won't spread to food etc in due course. Indeed central banks are already tightening and "mopping up excess liquidity" as inflation hits the upper end of target ranges in many countries (or central banks foresee that happening).

Once the easy credit ends (it has before so why not again?) then either wages boom or house prices don't. In the case of the latter, those who bought at the peak will be stuck with huge mortgages without the benefit of high inflation eroding the real value of the debt whilst the capital value of their property stagnates at best - not a profitable situation. On the other hand, if wages do start to really increase then the "plateau" scenario for house prices whilst wages and rents catch up becomes far more likely IMO.

A significant complicating factor is that higher wage inflation should, in theory at least, also lead to higher interest rates such that whilst capital values may not fall, repayments on loans would rise. Not a problem as long as your wage is increasing in line with the average but a big problem if you find yourself missing out on those wage rises (unless you're making decent $ from investment etc which most home buyers with big debts are unlikely to be doing).

Also there is the economic cycle itself. Worst case sees an economic slowdown and rising unemployment. That's when the forced sales start (can't pay the loan with no job...) and at that point you wouldn't want to be holding highly leveraged investment property unless you're able to take a very long term view. Those who find themselves unemployed simply don't have the option of thinking long term when the mortgage payment is due next week and end up selling no matter what the state of the market. If there's enough of these sales then, since the prevailing conditions would also be deterring many buyers, the end result is supply substantially exceeding demand. That ought to lead to price falls and has done so in the past.

So house prices are basically a function of buyers' ability to borrow and repay loans IMO. If the combined set of interest rates, bank lending criteria, wages, unemployment etc leads to higher "how much can I borrow?" amounts then house prices rise. If they lead to a lower amount then house prices fall.

 

[REA]

Emma . . . I think what you say re sacrifices is correct however economic conditions are very different. After writing this I have decided that what has changed most is the ability to borrow huge amounts of money. I think that has changed the real estate in Australia and even the Australian way of life.

In the late 60’s it took about 3 years for two people working (one a young 24year old professional) to pay off land worth $5,000 in a Sydney suburb. You could not get a loan then for house and land. Bank managers were “God” and you had to wait and practically beg for a loan. Interest rates were around 13% or more. There were “credit squeezes” as they were known. Very importantly a loan was only allowed on one wage as the wife was expected to have children.

In the 1960’s and 70’s there were many other differences.

No financial assistance from Government for children if you earned a higher wage. No first home owners grant or relief on stamp duty. From memory higher marginal tax rates up to 69%.

No spare money for restaurants on Friday and Saturday night, no expensive liquor (cask wine or beer at the best)

Parents generally were poorer, no help with deposits. Cars were expensive even second hand ones. No money for overseas trips. Women didn’t work as much with far less opportunities, one income often. Often had children in the early 20’s. No one but financial institutions or rich people dealt in shares.

Admittedly no HEC”s but poorer kids just didn’t go to University (my husband had earned a cadetship). Teenagers today change courses midstream (eg my daughter) Are taxpayers expected to subsidise these extra years? In those days there were far fewer course choices available. If you failed a year you were generally out.

We are much better off than our parents. Financially we are very successful through hard work and dedication. I am a believer in real estate but even more having a mixed portfolio. I think you can have it all, but take care to pace it so you can enjoy life along the way.

 

[Realist]

The main problem with renting is that rent is indexed meaning it increases with costs and inflation. Your rent is always going to increase. However your loan repayments will decline as you pay off the balance owing and even if you only paid interest only , it would still remain the same (based on the fact interest rates dont go up lots).

That is simple logic but it does not always work out in reality. If you get no captial gains on your property in the short term, or worse still losses, you are obviously better off waiting and saving up more of a deposit.

No-one is arguing buying a house is a bad thing. What everyone is saying is for christ sakes wait until capital gains are almost assured, because when you are leveraged and you make a loss it is a big loss.

Anyone that bought a place in Sydney 3 years ago has lost money - whether they realise it or not.

When did you buy your place?

 

[krisbarry]

Just like the term Peak Oil, we also have Peak housing...the peak at which housing becomes too expensive for the ordinary folk.

I aksed my mum the other day if she had to buy her house over again, would the bank lend her the money in todays dollars, NO!

She has only been a home-owner for 7 years, thats how much things have changed just within 7 years.

I challenge the baby-boomers to think of how they would ask their bank managers for a loan on their current house in todays dollars and just see how many of them are approved, I think very little.

I am even speaking to people who are millionares through the property market, and they say this is about it for the market, even they are being priced out. They can no further borrow or grow their portfolios

Housing Afordability has peaked, and thats for sure!

 

[professor_frink]

Housing Afordability has peaked, and thats for sure!

Why do you assume this will be permanent?

 

[krisbarry]

Homebuyers relying on inheritances

21jul06

PEOPLE expect to tap into some form of family support to finance their first home purchase, despite indications an inheritance may not be enough to secure a mortgage, a survey has found

While financial independence still remains a goal for most people, the survey found 32 per cent of people had factored in inheriting some of the value of their parents property as part of their repayment strategy.

The survey - by the Mortgage Industry Association of Australia (MIAA) and BankWest - also found a quarter of the 842 respondents were relying on some form of family assistance to buy their first property.

"Mortgages are much larger in absolute terms than they've ever been before and housing prices are much more expensive," MIAA chief executive Phil Naylor said.

"Sixty-nine per cent say that saving a large enough deposit is holding them back from buying a home.

"This is a reassuring sign that they are responsible when it comes to entering the market and prefer to demonstrate their saving abilities before committing to a mortgage."

Fifty-two per cent of Australian would like to own a home without any strings attached and plan to finance their purchases without having to rely on family support.

But for many, financial independence is a very expensive dream.

Despite concerns about financial overcommitment, 64 per cent of first-homebuyers believed home ownership has more advantages than renting while 60 per cent expected to enter the market within the next three years.

MIAA said most lenders looking to approve a mortgage still examine a homebuyer's ability to meet repayments when working, not the ability to utilise inheritance or family assistance.

The survey also found 89 per cent of first-homebuyers were excited about the prospects of renovating to their taste, 75 per cent looked forward to feeling financially secure and 68 per cent wanted to have a stable family home.


Meanwhile, 17 per cent were considering buying an investment property before buying the family home.

 

[professor_frink]

was that article meant to be an answer to my question or are you just posting it for the forum to read?

 

[Smurf1976]

I am even speaking to people who are millionares through the property market, and they say this is about it for the market, even they are being priced out. They can no further borrow or grow their portfolios

If that's correct then the market really is headed for serious trouble, worse than I thought.