I have given up buying a house

[It's Snake Pliskin]

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....

Well no doubt people are staying at home longer avoiding responsibilities because they can.

As far as renting goes, there is nothing wrong with it and it can serve you better in some circumstances.

 

[Smurf1976]

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

Whilst I don't want to see ANYONE lose their house, I would gladly welcome an abrupt end to the incredible arrogance that seems to have developed around real estate over the past few years. I suspect a proper slump is the only cure for this unfortunately.

Some examples of what I mean:

1. "It's your fault you're priced out of the market, you should have bought when I did". In truth, the majority of those who bought before the boom have profited due to pure luck. If they were really that good at market timing then they wouldn't be living in ordinary suburban houses to start with.

If they had made some medical breakthrough, saved people from a burning building, made consistent profits over time through genuine ability to time markets, won gold at the Olympics or whatever then maybe they have reason to boast. But not when they simply got lucky buying a house.

2. Expecting the entire community to change so as to boost your real estate value. This seems to be becoming all too common, at least in Tas.

You build a house on very steep blocks in a valley. On the other side is the major highway which carries virtually all traffic heading south of Hobart. The highway opened in the late 1960's. Since there is no other means of transport in that area, all freight moves by road to and from one of the fastest growing (in % terms) regions in the country. Being a steep section of road, trucks crawl down using their (very noisy) engine brakes. All things that are common knowledge in Hobart and readily observable to anyone who has travelled on the Southern Outlet. So what do you do? Well, you build a house in this obviously noisy location and then you complain to the Transport Department wanting the trucks taken off the road or banned from using their brakes(!).

Or how about this one. You build a block of appartments literally opposite the entrance to the largest nightclub in Hobart which has operated as a club since 1995 and a live music venue 30 years prior to that. And then you complain about noise to the point of having the issue dominate local media for weeks until the owner finally gave in and closed the sole large club in Hobart (which once won a national award). Never mind all those jobs being lost. Never mind that you just scrapped literally 40% of an entire industry. Never mind the thousands who went there every week. I demand my right to build an unsoundproofed building in a commercial area directly opposite an obvious source of noise and then expect total silence. Incredible.

And again. You buy cheap land across the river from a heavy industrial area with a ferro alloy plant (4 furnaces), power station, major port, petrol storage tanks, 2 woodchip mills, a fibreboard plant, an aluminium smelter and an aluminium powder plant. The aluminium smelter has operated since 1955, the ferro alloy plant since 1962 and the power station since 1971. Hardly new. And just up the road on your side of the river is the Beaconsfield gold mine and a quarry used by the ferro alloy plant. By far the most industrialised part of the entire state. So what happens when someone proposes building another factory? You go running to the media, complaining about how this will reduce your real estate value and form a lobby group to protect your interests. Never mind that well over 1000 people would be employed in the factory, I'm worried that the value of my house, which has more than doubled in a short space of time, might fall a bit! Absolutely ridiculous.

If it takes a recession, house price crash or whatever to end this obsession with houses then bring it on. I have nothing against those who made a profit from the boom. Nothing whatsoever. But to expect an entire community to bend over backwards to maximise that profit is going way too far.

If you buy property near a highway, nightclub, smelter or whatever (or land zoned for such activities) then that's YOUR choice and you live with the consequences. Anyone who doesn't foresee that traffic might increase, hotel opening hours might change or factories might be built in an area zoned "major impact heavy industrial" has only themselves to blame if they don't like what happens. We don't bail out failed investments in shares, business etc and it's time for property investors to stop expecing the community to bail them out when they make poor investment decisions.

 

[clowboy]

While I would aggree that buying a house has become far more dificult in the last few years I really don't think that it was any easier for previous generations.

Comparing housing valuations and average incomes is a really futile way of trying to determine who has/had it easier. Simply becuase there are so many variables. Looking at an avaerage house price and an average wage (as if there is such a thing) it is clear that houses have become more expensive relative to earning capacity in recent years. So what? While this trend is changing, the money to buy these houses is the cheapest it has been in a very long time.

If I was to buy my unit now and interest rates where to go to just 10% I would have to pay 2.5 times my current payments. If they went to 17% (i think that was the high) I would be paying over 4 times my current payments.


Even if my unit was to lose 70% of it's value (ie be worth about 20% less than what i paid for it 5.5 years ago) and someone was to purchase it with a mortage at 17% they would still be paying 1.5 times my current payments.


Now that would really suck.

 

[Smurf1976]

While I would aggree that buying a house has become far more dificult in the last few years I really don't think that it was any easier for previous generations.

Comparing housing valuations and average incomes is a really futile way of trying to determine who has/had it easier. Simply becuase there are so many variables. Looking at an avaerage house price and an average wage (as if there is such a thing) it is clear that houses have become more expensive relative to earning capacity in recent years. So what? While this trend is changing, the money to buy these houses is the cheapest it has been in a very long time.

If I was to buy my unit now and interest rates where to go to just 10% I would have to pay 2.5 times my current payments. If they went to 17% (i think that was the high) I would be paying over 4 times my current payments.


Even if my unit was to lose 70% of it's value (ie be worth about 20% less than what i paid for it 5.5 years ago) and someone was to purchase it with a mortage at 17% they would still be paying 1.5 times my current payments.


Now that would really suck.

The point being that if you pay 6 or 8 times your income for the house, using borrowed money, then you are completely stuffed if the availability of cheap money ceases. It is much safer to owe $150K at 15% than to owe 300K at 7.5% for this reason despite the actual interest cost being the same.

Obviously, you could fix the interest rate and IMO anyone borrowing a high multiple of their income ought to do so. But various reports suggest that around 75% of mortgages are not fixed but variable.

Given the high turnover associated with the boom and the 100%+ mortgages, it seems reasonable to conclude that a substantial number of borrowers have very large loans (relative to income) at variable rates. If interest rates rise faster than their income then that's when the mortgagee sales start. A rise in unemployment would also have this effect.

The way I see it, the argument for or against buying a house right now comes down to speculation on the future direction of interest rates and unemployment. It's a matter of timing your entry. Houses will almost certainly be more expensive in nominal terms in 2020 than they are now. Likewise the ASX ought to be higher too. But if you had reason to believe that the ASX would fall to 4000 before it went to 10,000 then it wouldn't make sense to buy into an index fund right now. You would wait for the fall and then buy. Same with housing - question is whether or not prices actually fall from present levels before resuming the long term upwards trend.

 

[nizar]

Obviously, you could fix the interest rate and IMO anyone borrowing a high multiple of their income ought to do so. But various reports suggest that around 75% of mortgages are not fixed but variable.

Imagine all those people buying houses in the US in June 2004 when interest rates were at 1% with a variable rate; they would be suffering now as prices fall and rates are much higher... OUCH

 

[tech/a]

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

A furphy,those who took advantage of the last R/E Boom will have or will be in the process of maximising equity in holdings.
Simply selling to bring excessive gearing down.

This distribution of wealth theory doesnt cut it.

The wealth is distributed un eavenly because some take the calculated risk.
Others---wellmost are either not in the position to take advantage of the boom OR sit and watch it go by.

Money makes money and the rich get richer are certainly trueisms.
Any property speculator/investor who hasnt decreased his exposure deserves to get caught.

As rents increase and demand for housing inevitably increases prices will march on.

 

[krisbarry]

Well I am looking forward to August not only does it mark the last month of winter, but it will also see the reserve bank raise intrest rates.

 

[Julia]

Well I am looking forward to August not only does it mark the last month of winter, but it will also see the reserve bank raise intrest rates.

I agree entirely regarding the last month of winter, but can you explain why you want an increase in interest rates? How does it affect you one way or the other if you live rent free in someone else's house?

Julia

 

[krisbarry]

THE central bank is likely to lift interest rates again in August with stronger-than-expected wholesale inflation pointing to a significant pick up in consumer prices, economists said today.

Kewl this will knock a few more property investors off their purches

They will only raise rents so far, then realise that their investments are going backwards, then they will sell out of the property market and move onto greener pastures.

 

[Smurf1976]

Calls for the government to do something to improve housing affordability. Another sign that it has gone about as far as it's going to.

http://www.abc.net.au/news/newsitems/200607/s1694899.htm

 

[professor_frink]

THE central bank is likely to lift interest rates again in August with stronger-than-expected wholesale inflation pointing to a significant pick up in consumer prices, economists said today.

Kewl this will knock a few more property investors off their purches

They will only raise rents so far, then realise that their investments are going backwards, then they will sell out of the property market and move onto greener pastures.

So you do acknowledge that current high property prices aren't going to be here forever. Property will be more affordable at some stage, so why have you given up buying a house then?

 

[RodC]

Kewl this will knock a few more property investors off their purches

Sounds like you've got a touch of property envy.

It is possible to make the most of your own investment decisions without wishing the worst on others.

 

[Julia]

THE central bank is likely to lift interest rates again in August with stronger-than-expected wholesale inflation pointing to a significant pick up in consumer prices, economists said today.

Kewl this will knock a few more property investors off their purches

They will only raise rents so far, then realise that their investments are going backwards, then they will sell out of the property market and move onto greener pastures.

Not only are you being selfish and possibly making the comments you do out of envy for the situations of people who have worked hard and achieved the capacity to be invested in property, but you are taking a very narrow view of the results of any further interest rate rises.

Quite apart from the effect on young people trying to get into their first home or families with already stretched budgets because of petrol, food prices etc., interest rate rises are of benefit to very few businesses and will put further downward pressure on the share market. Are you happy about that too?

Julia

 

[krisbarry]

There seems to be this heard mentality in Australia at the monent, in which many boast about their investment properties while forgetting the ones who cannot even get in.

Just like the Murray river, too many taking too much water out while the young trees suffer, give up and die.

Interest rates will put a stop to this, just like water restrictions, dams, and water levies.

Too many porkers at the top, telling everyone that bricks and mortar are the be all and end all.

Thankyou RBA, you will be my savour!

 

[krisbarry]

The RBA is only doing their job, and that is to re-distribute wealth.

I again want to just take this opportunity to thank the RBA :

 

[visual]

but the reason you gave up buying your own house is because you refuse to buy where you can afford,even if house prices go down you still will not be able to afford your house in the very wealthy suburb of Adelaide,so making very little sense there.

 

[visual]

The RBA is only doing their job, and that is to re-distribute wealth.

I again want to just take this opportunity to thank the RBA :

so in effect when you live rent free in other people properties you are doing what the RBA is doing redistributing wealth,from them to you,one difference though they worked for the wealth that you are now distributing to yourself.

 

[krisbarry]

The RBA is about to help many millions waiting on the sidelines for more affordable housing.

House Prices are ready to plunge

and this will be the first of at least 1 or 2 more predicted rate rises over the coming 18 months.

 

[professor_frink]

Re: I have decided to have a cry

There seems to be this heard mentality in Australia at the monent, in which many boast about their investment properties while forgetting the ones who cannot even get in.

Just like the Murray river, too many taking too much water out while the young trees suffer, give up and die.

Interest rates will put a stop to this, just like water restrictions, dams, and water levies.

Too many porkers at the top, telling everyone that bricks and mortar are the be all and end all.

Thankyou RBA, you will be my savour!

good to see that tall poppy syndrome is alive and well!

 

[Realist]

The RBA is about to help many millions waiting on the sidelines for more affordable housing.

House Prices are ready to plunge

and this will be the first of at least 1 or 2 more predicted rate rises over the coming 18 months.

Mate, house prices in Sydney have died in the arss already. Seriously.

Down over 15% since 2003 highs.

Index that with inflation and that is a 25% loss. Add in stamp duties, improement costs etc. and it is a serious downturn.

More to come to, interest rates are only gonna go up in the short term, so is the cost of fuel, and while rents are increasing the yield is phenomenally low.

Anyone who bought investment properties instead of shares 3 years ago in Sydney has been sh*at on already. Negative gearing doesn't work so well after tax cuts as well.


But saying all this, it is only a matter of time before house prices go back to their inevitable march upwards. In Sydney it could be next year.