I have given up buying a house

[juddy]

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?

You may be right and I am not sure when you bought a house, but I assume that it was not when median house prices were 7-8 times the average annual wage (it was probably 3 -4 times) and you were able to afford it one one wage, you didn't have HECS and other education debts running up to $30,000, and fuel wasn't $1.20 a litre.

These are the problems facing the young these days. People in their early twenties are deciding to buy a house instead of having kids (anecdotal evidence). In my and your day this wasn't a choice we had to make, we could have both and one parent could stay home and look after them instead of farming them out.

Basically, as you have alluded to, things are entirely different now.

As a person who does a lot of work with youths in Perth I see these disaffected youngsters who know they will probably never be able to afford a house and it is very sad. Probably the most scary part of it is the inevitable brain drain away from the urban areas and the consequences of it. Why would you be a teacher, a nurse, a doctor or any other of these caring professions when the salary that you earn in your first ten years (and for teachers and nurses, for the rest of your life) added to your HECS debt will automatically disqualify you from purchasing a property or having kids. This is my greatest fear where these people leave expensive cities and move elsewhere because of the disaffection. My nephew falls into this category. He is a very angry young man, a person who has chosen education as a profession because he cares about the development of our young. He feels both the state and federal government have turned their back on him. If this feeling is widespread what will become of these professions? It scares me to think WA will become a state of miners, construction workers and engineers.

 

[Smurf1976]

You may be right and I am not sure when you bought a house, but I assume that it was not when median house prices were 7-8 times the average annual wage (it was probably 3 -4 times) and you were able to afford it one one wage, you didn't have HECS and other education debts running up to $30,000, and fuel wasn't $1.20 a litre.

These are the problems facing the young these days. People in their early twenties are deciding to buy a house instead of having kids (anecdotal evidence). In my and your day this wasn't a choice we had to make, we could have both and one parent could stay home and look after them instead of farming them out.

All evidence of a housing market that is way overvalued.

Markets tend to revert to mean valuation over time. They always have and probably always will. If you look at history then bubbles always burst eventually - the hard part is knowing when and with what consequences for the general economy etc.

Housing valuation, like share valuation, is measured relative to the earnings of the investment. Dividends in the case of shares, rental yield in the case of housing.

A cyclical relationship also exists between average house prices and average income levels. Whilst not strictly the proper measure of valuation, it does seem to be a reasonably valid measure over time. Prices eventually revert to a level where people can afford to buy. It makes sense when you think about it.

So at some point in the future, probably within 5 years if history is any guide, housing will no longer be overvalued or at least not to the extent that is now.

The questions are how the reversion to mean valuation comes about, when, with what consequences (recession?) and the extent of any overshoot below mean valuation (by definition of being a mean valuation, there must be periods below this level if there are periods above it). Do rents and wages boom or do house prices fall?

Given that there seems to be growing evidence of inflation, but not at a level high enough to restore normal housing valuations in less than a decade or so, I am inclined to think that there will be an element of both rent/wage rises and house price falls to restore normal valuation.

Looking at markets such as Sydney, Hobart and the US there is growing evidence of house prices falls, albeit modest. Likewise there is mounting evidence of upwards pressure on rents as vacancy rates fall. And wages have been slowly rising, on average, for years. All this points to house prices and rent/wages meeting somewhere in the middle rather than either a plateau in prices or a dramatic crash.

That said, a crash in the value of ANY asset is always a possiblity, especially one as overvalued as housing where there has been large scale public involvement during the boom (the public becoming involved in speculation being one of the tell tale signs of a bubble). That much of the investment in housing involves borrowed money, commonly at variable interest rates in the Australian context, increases the risk of an outright crash if general economic conditions were to move unfavourably.

Realistically, I think we will see house valuation (of an average house) in Australian cities except Sydney fall below 4x average earnings in those cities and possibly somewhat lower than that. Sydney does tend to be a higher valued market historically but even there I would expect valuation to fall substantially from the present level.

I have read many well informed comments to the effect that if there was to be a house price crash then it would not be isolated to individual countries (USA, UK and Australia all have a very similar situation at present) and would almost certainly start in the US and spread from there. The theory being that a faltering US housing market would cut consumer spending and in turn affect the entire world economy. Only time will tell if that's true but I'm keeping a watch on what's happening in the US and it looks to be turning down quite rapidly in recent months.

 

[Young Gun]

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?

Not everyone has lost money I hate to break it to you . Houses in the more expsensive regions have still done well. I bought a couple of months ago and made a fair bit of money on it already as I bought it almost half of wat it sold for a couple of years back ...

 

[krisbarry]

Well there seems to be a growing evidence of truth that young people aged 18-35 are making many sacrifices:

Do I go to uni? if I do, then I will not have two children, I will have only the 1 child, and that child will come later in life (30 to 40 years of age)

Do I go to uni, If I do, then I cannot afford that house deposit, so therefore I rent for 5 to 15 years, or I live with my parents.

Do I then clear my HECS debt with my savings, or do I buy a house?

Do I have another child or do i go to uni?

Should I rent as its cheaper, and save the rest for a house deposit, or do i just buy?

Do I buy at the end of a boom cycle, or do I wait and save more.

or do I just save for retirement and live a transient life till I am 65.

I see plenty of sacrifies here...none of which previous generations have had to tackle.

 

[kgee]

It scares me to think WA will become a state of miners, construction workers and engineers.

Don't forget fisherman theyr'e a motley lot as well!!!!

 

[Smurf1976]

I don't give financial advice (since by law I can't etc) but I would strongly suggest that young people, from a purely economic perspective, note the following:

1. Go to uni only to acquire qualifications that you are actually going to use to earn money. Whilst it might be interesting or expand your knowledge, study that doesn't lead directly to wealth creation represents a massive cost that, to be blunt, you just can't afford unless you are genuinely in an above average financial position. Not ideal but reality.

2. Live with your parents as long as possible. Certainly not ideal from a lifestyle perspective but if you can manage an extra few years then, unless you have a well above average income, that is the only way you are going to save enough to invest or for a deposit on a house etc.

3. There is nothing wrong with renting. A few hassles but you'll survive. In the absence of ongoing house price increases it is considerably cheaper than buying a house using borrowed money.

4. Cars are always expensive. Unless you buy a cheap, old car and can do all maintenance work yourself, it's going to cost a LOT more than just putting petrol in the tank. Tyres, insurance, registration, it WILL break down except perhaps if it's near new, you WILL crash it sometime and so on. Plus petrol of course. Cars are rarely an investment. Spend as little as possible on them unless you really do have money to burn.

5. Ten years ago mobile phones were still an item that attracted amusement and were just starting to become popular. 20 years ago they simply didn't exist in Australia. Whilst you may need a mobile, it's highly unlikely that you need to spend $2000 a year on it as many seem to. And you certainly don't need a new one every 6 months or a fancy ring tone.

6. Fast food is, in general, incredibly expensive and anything but healthy. Even more expensive when you factor in the expense of driving there to get it. We eat perfectly well for about $85 a week (2 people plus cats and mouse) including lunch. The mouse is admittedly pretty cheap to run.

7. You don't get credit card bills every month. Apart from the annual fee, credit cards don't give you bills. It's what you buy with them that you are paying for. If you have multiple cards, each with an annual fee, then that is money down the drain for literally nothing.

8. Bottled water is the most ridiculous product ever to become popular IMO. Tap water in Australian capital cities and most regional areas is perfectly safe to drink and in most cases has LESS nasties (according to tests reported in the media) than the bottled variety. Bottled water is responsible for an incredible amount of greenhouse gas pollution too, not to mention the waste of plastic and oil. Previous generations have all drunk tap water and you'll save well over $1000 a year doing the same. Likewise the expensive cups of brand name coffee etc.

9. There is no need to have any significant amount of money earning less than 5% interest. If you want to keep it as cash in the bank then there are plenty of accounts paying over 5%, generally with no fees and many with no minimum balance. Money sitting in a savings account that pays 0.1% is simply handing potential income straight back to the bank.

I don't doubt that it IS tougher now to buy a house than it used to be. A LOT tougher. But there's absolutely no reason why most people on a reasonable income shouldn't be able to save a deposit to enable them to buy when valuations are more reasonable. In any slump it is those with cash who win since the incredible willingness of banks to lend is itself something that happens only during booms. Odds are that you won't be buying without a real deposit once the slump hits because lenders will tighten their lending criteria. So now is the time to stop blowing money on ring tones etc and start saving for when houses are affordable.

 

[Tim]

Very interesting. 8.5 would surely have to be pay TV (or pay-and-pay-and-pay-and-pay TV as some people call it).

In regards to buying a house these days, unfortunately there are always going to be more people that want to live in a desirable area than those who actually can. Hence prices are rarely going to go backwards too much. This is made worse by the fact that many people invest (buy and never sell), so this reduces the supply even more for people who want to own their own home.

And I might add one more no-no to the list. From personal experience, look after the health of you and your family. Aged care (even for people who are not aged) can cost a decent six-figures to get into (for a bond), and then an ongoing five-figures a year is also on the cards. Big bickies.

 

[Buster]

Well there seems to be a growing evidence of truth that young people aged 18-35 are making many sacrifices:

Do I go to uni? if I do, then I will not have two children, I will have only the 1 child, and that child will come later in life (30 to 40 years of age)

Do I go to uni, If I do, then I cannot afford that house deposit, so therefore I rent for 5 to 15 years, or I live with my parents.

Do I then clear my HECS debt with my savings, or do I buy a house?

Do I have another child or do i go to uni?

Should I rent as its cheaper, and save the rest for a house deposit, or do i just buy?

Do I buy at the end of a boom cycle, or do I wait and save more.

or do I just save for retirement and live a transient life till I am 65.

I see plenty of sacrifies here...none of which previous generations have had to tackle.

Obviously you've not had to make a real sacrifce, nor do I think you really understand what the word means.. I think the word you are struggling to find is 'Decision' or perhaps 'Choice'. Try slotting them in and see how they fit..

And just what exactly didn't I (at 40 I guess i qualify as the previous generation.. ) have to tackle??

Beleive it or not Uni did exist when I was a young bloke.. Surprisingly, it wasn't free, and many of the 'assistance schemes' you have available today like Austudy etc were not available in my day.. and to add insult to injury if I managed to overcome the dilemma and decided to have children, be it one, two or ten, I didn't receive the generous $4000.00 'baby bonus' that you'd put in your pocket today..

Renting has always been cheaper than buying a house..

Everyone seems to be harping on about home prices are a significantly higher now than ever before. I do not subscribe to this, as i can directly relate it to property I bought in my younger days..

My girlfriend (now Wife, two kids refer comments above) and I bought a crappy two bedroom Villa in Guildford (a crappy suburb of Parramatta in Sydney) for just shy of $100k in 86. At that time i was earning around the 23K mark.. It was what we could afford, and it was the limit that the bank was prepared to lend with a hard saved 10k deposit.. we barely made the cut.

Today, the average wage is somewhere around the 50k mark, and a snappy check on the net reveals that you could pick up today a 3 bedroom house (with a block, unlike a Villa) fro 310k or a brend new two bedroom apartment very nicely appointed (with two bathrooms) for 280-290k..

I would say that is almost bang on the money. OK, 23 into 100 is just over 4 and 50 into 290 is a little under 6, but considering the extra's it really isn't the huge difference that everyone is carrying on about.. And i'd tip if the crappy villa I owned all those years ago was on the market, given the prices I've just seen on the net, it probabaly would fit in quite nicely around the 210 - 230 mark.. which would be just over the 4 times wage.. Perfect..

I look forward to the recession so that we can all listen to you whine about the sacrifice you make paying interest rates of 10%.. You may remember your parents slogging to pay off the home loan interest rate when it was around 17%.. I dare say they, like many others, had many sleepless nights during that era..

But you kick back mate, and take what you can whilst your parents and mates are willing to let you get away with it.. And don't get preturbed if you hear 'soak' or bludge' creep into conversations, turn a blind eye and soldier on.. You'll get to 65 eventually and wonder what all the fuss was about..

As I said to you before, Grow up.. and just get on with it like everybody else has to.

If you are really lucky, the ol' bird flu will kick in, a few hundred thousand deaths should dampen the demand for housing. Pick up a bargain then..

Regards,

Buster

 

[It's Snake Pliskin]

Well there seems to be a growing evidence of truth that young people aged 18-35 are making many sacrifices:

Do I go to uni? if I do, then I will not have two children, I will have only the 1 child, and that child will come later in life (30 to 40 years of age)

Do I go to uni, If I do, then I cannot afford that house deposit, so therefore I rent for 5 to 15 years, or I live with my parents.

Do I then clear my HECS debt with my savings, or do I buy a house?

Do I have another child or do i go to uni?

Should I rent as its cheaper, and save the rest for a house deposit, or do i just buy?

Do I buy at the end of a boom cycle, or do I wait and save more.

or do I just save for retirement and live a transient life till I am 65.

I see plenty of sacrifies here...none of which previous generations have had to tackle.

A good hard think is what is required here.

Many years ago many didn`t have the luxury of going to UNI.

Most people don`t get any where because they channel their negative energy into everything.

Find a negative and turn it into a positive even if it has been done by many before - it works!

Have many children and enjoy the happiness it brings.

 

[tech/a]

Man are we the LUCKY country.
Here in the UK a house that sells for $300k in Adelaide 25 miles out of London sells for £800K yes thats right $2 million!

So want then to rent fine thats £3750 a month yep $9,500 a Month.

Petrol $2.65 a liter.
Wages on average £30,000 a year a very good wage is £50k-£80k which at the high end isnt much more than Aussi wages at a conversion rate of 2.5:1

Bangkok---live in a sewer for $50 a month---average wage $250 a month.

Stop whinging and start living,Aussi's dont know how lucky they are!!

Rather than doing anything about their life most will be still whinging in 20 years time waiting for prices to fall!!!


Anyway greetings from a Hot busy and exciting London.

 

[Big Jim]

Man are we the LUCKY country.
Here in the UK a house that sells for $300k in Adelaide 25 miles out of London sells for £800K yes thats right $2 million!

So want then to rent fine thats £3750 a month yep $9,500 a Month.

Petrol $2.65 a liter.
Wages on average £30,000 a year a very good wage is £50k-£80k which at the high end isnt much more than Aussi wages at a conversion rate of 2.5:1

Bangkok---live in a sewer for $50 a month---average wage $250 a month.

Stop whinging and start living,Aussi's dont know how lucky they are!!

Rather than doing anything about their life most will be still whinging in 20 years time waiting for prices to fall!!!


Anyway greetings from a Hot busy and exciting London.

No offense mate , but there's a bit of a difference between Adelaide and London. Like where do you go when you're in Adelaide.

I believe the Reality market is in for a rude awakening very soon. This country runs and relies on transport. The instant it become expensive is the instant we all suffer. Good luck to you in London and I daresay that is a very nice warm climate this time of year.

 

[It's Snake Pliskin]

No offense mate , but there's a bit of a difference between Adelaide and London. Like where do you go when you're in Adelaide.

I believe the Reality market is in for a rude awakening very soon. This country runs and relies on transport. The instant it become expensive is the instant we all suffer. Good luck to you in London and I daresay that is a very nice warm climate this time of year.

What transport it is terrible. Really it is terrible!

I have been taking the bullet train to work. Australia is backwater stuff.
Governments do nothing, but people have the leverage to do whatever they want.

 

[Big Jim]

What transport it is terrible. Really it is terrible!

I have been taking the bullet train to work. Australia is backwater stuff.
Governments do nothing, but people have the leverage to do whatever they want.

Agree.

 

[Smurf1976]

But you kick back mate, and take what you can whilst your parents and mates are willing to let you get away with it.. And don't get preturbed if you hear 'soak' or bludge' creep into conversations, turn a blind eye and soldier on.. You'll get to 65 eventually and wonder what all the fuss was about..

As I said to you before, Grow up.. and just get on with it like everybody else has to.

If you are really lucky, the ol' bird flu will kick in, a few hundred thousand deaths should dampen the demand for housing. Pick up a bargain then..

Regards,

Buster

I am using Buster's post as an example only for my point. My point applies to property bulls in general, not solely Buster, and applies to posts on ASF and elsewhere.

I see comments like this as evidence of the property bulls getting worried about the state of the market. The denial phase is turning to fear.

On a stock market forum it would seem reasonable to expect that the concept of market timing would be pretty well accepted. Don't buy at the top and don't sell at the bottom. Indeed doing just that is why many are on ASF in the first place. It's a well accepted idea to profit or avoid loss in this way.

But suggest applying this concept to housing and the bulls start hurling the insults about growing up etc. That is not the response of a rational evaluation of the market. It is the madness of crowds. That urge to target anyone who chooses to be different. Also known as "peer pressure" it is what makes it seem necessary to do all manner of irrational things. And it's common near market tops when the masses are heavily invested.

I never take such comments as in any way insulting but they do provide another useful insight into the market. Posts such as these are becoming common on various property forums and even in mainstream media overseas - it looks like the bulls are getting worried.

Perhaps they have noticed the increasing number of "affordable" houses with their "price reduced" that "must sell" and are finding the photos on sites such as realestate.com.au more useful now that many sellers so thoughtfully remove all the furniture before the photos are taken...

 

[Big Jim]

I am using Buster's post as an example only for my point. My point applies to property bulls in general, not solely Buster, and applies to posts on ASF and elsewhere.

I see comments like this as evidence of the property bulls getting worried about the state of the market. The denial phase is turning to fear.

On a stock market forum it would seem reasonable to expect that the concept of market timing would be pretty well accepted. Don't buy at the top and don't sell at the bottom. Indeed doing just that is why many are on ASF in the first place. It's a well accepted idea to profit or avoid loss in this way.

But suggest applying this concept to housing and the bulls start hurling the insults about growing up etc. That is not the response of a rational evaluation of the market. It is the madness of crowds. That urge to target anyone who chooses to be different. Also known as "peer pressure" it is what makes it seem necessary to do all manner of irrational things. And it's common near market tops when the masses are heavily invested.

I never take such comments as in any way insulting but they do provide another useful insight into the market. Posts such as these are becoming common on various property forums and even in mainstream media overseas - it looks like the bulls are getting worried.

Perhaps they have noticed the increasing number of "affordable" houses with their "price reduced" that "must sell" and are finding the photos on sites such as realestate.com.au more useful now that many sellers so thoughtfully remove all the furniture before the photos are taken...

Rule No.1 Never go with the flow.

 

[krisbarry]

What we are looking at now is a different view of sacrifices, bought on by each generation. What was a sacrifice back in the 60's is now a luxury, and what is a sacrficie now was a luxury then.

Each generation has it own sacrifies and luxuries.

For example:

Free education was a luxury that the older generation has enjoyed, but is now a sacrifie for the younger genarations.

Older generations sacrificed money to populate, house themselves and educate, but now we have the luxury of the baby bonus, the first home buyers grant and Austudy.

But eveything comes at a price:

The sacrifies young people are making today are indead changing the world significantly:

What I can see now is that housing has gone from a sacrifie to a luxury, even for the hard workers. You can work 40 hours a week, and still not even afford a house.

 

[krisbarry]

The vast majority of my friends and people I know around my age (31) rent. Why is that so?

But when my parents were (31 years of age) they owned a house and almost all of their friends owned houses too.

So what is the problem here?

It is amazing the contrast of views we have here, all within a hop-skip and a jump of 1 to 2 generations.

We have gone from a majority of home owners to a minority.

Now can someone join the dots here....

 

[Smurf1976]

Now can someone join the dots here....

Proudly brought to you by inflation.

If you keep pumping up the money supply then it has to go somewhere. First it was tech stocks, then housing and more recently hard commodities. Now it looks to be heading into soft commodities (that is, food).

 

[Knobby22]

The next recession is coming with high interest rates.
Plenty of houses will be available then for those who are ready.
The tide has already turned, it will get better.
Also the baby boomers are getting older, they will start selling their investment properties soon.

Last recession I had my parents family friends who owned about 12 houses, lost them all including the family home as interest rates rose. Be patient.
My personal plan is to slowly sell off my shares and reduce my debts until I am in the position to upgrade the house in 4 years.

With regard renting, your best way of getting somewhere in your career is to seek great job experience.

Hopefully if you have chosen a career like Engineering or nursing, you can work in Dubai, Singapore or GBR earning great money. So why buy at this stage? Of course if you did a BA then bad luck.

 

[krisbarry]

The next recession is coming with high interest rates.
.

The sooner that day comes the better...

I call it re-distribution of wealth...taking from the rich (multiple homes) and giving to the poor (1 home)

there now we all have homes, and we can all be happy little vegimites