Inflation

[over9k]

 

[over9k]

 

[over9k]

The video above is worth the 35 minutes. She absolutely hits the nail on the head with every single thing she states.

I've bought the book as a result.

 

[Jeda]

The video above is worth the 35 minutes. She absolutely hits the nail on the head with every single thing she states.

I've bought the book as a result.

In my day, we could only afford a cardboard box

 

[divs4ever]

yeah , life was so easy in the '70's

i bought a block of land back then and the mortgage was only 22.5% per year

imagine the squeals of despair if they had to pay 10% on a HOUSE mortgage nowdays

 

[over9k]

In my day, we could only afford a cardboard box

Jeez, yours was cardboard, we could only afford paper

 

[divs4ever]

Jeez, yours was cardboard, we could only afford paper

actually it was only a two-man hiking tent for a while , ( for me ) but then i migrated to a garden shed ,

but progress is a wonderful incentive

( tough times make hard folks )

 

[Value Collector]

yeah , life was so easy in the '70's

i bought a block of land back then and the mortgage was only 22.5% per year

imagine the squeals of despair if they had to pay 10% on a HOUSE mortgage nowdays

22.5% interest on something that is 4 times your wage is probably a lot better than 10% on something that is 10 times your wage.

Especially if the interest rates are 22.5% because of inflation which is also increasing your wages rapidly, vs wages that are stagnant.

They younger generations are facing all sorts of problems, I am not saying older generations didn’t also have problems to over come, it’s wrong to think things were harder in olden days just because interest rates were higher.

 

[BossMan.]

yeah , life was so easy in the '70's

i bought a block of land back then and the mortgage was only 22.5% per year

imagine the squeals of despair if they had to pay 10% on a HOUSE mortgage nowdays

Its an extremely flawed comparison, its comparing oranges and apples.

 

[qldfrog]

Its an extremely flawed comparison, its comparing oranges and apples.

View attachment 185818

I am not a it was better harder in the past even if i rant so much.
And @BossMan. has a point
even if his above comparison is flawn as well sorry
I would say compare the median house price vs the median take home income.
Not wage, not average, after tax.
Our society changes, taxation rate has changed as have various benefits welfare.
The uber richs and mansions have distorted averages.
And yes, i think it is harder now
We had cheaper RE prices 20y ago but my wife wages were going nearly fully to childcare with no gov help then ...
Nearly all houses now have 2 bathtooms or more
And so on..price of cars were very expensive..then went down a lit until recent years and covid which is seeing these prices jump again.
So not black and white

 

[divs4ever]

22.5% interest on something that is 4 times your wage is probably a lot better than 10% on something that is 10 times your wage.

Especially if the interest rates are 22.5% because of inflation which is also increasing your wages rapidly, vs wages that are stagnant.

They younger generations are facing all sorts of problems, I am not saying older generations didn’t also have problems to over come, it’s wrong to think things were harder in olden days just because interest rates were higher.

well the wages were lagging , but i discovered 'side-hustles ' ( and had a knack at gambling back then ) way before they become popular

AND the block had some location ( 3 bitumen road frontage ) and was in an obvious growth corridor ( should i live long enough to see it )

even now i could possibly sweet-talk council into 5 one acre blocks ( without building any access roads )

but with ALP governments and population expansion there comes crime , am still looking at crystallizing the capital gains

but boy did i get some ribbing over buying it ( just like Uncle Frank did when he bought the big paddock .. now known as Hope Island )

but each generation has the same problem , governments needing to do stuff ( regulations ) just to get noticed and talked about

 

[Value Hunter]

even with a UBI and robots, people will find meaningful ways to add value and earn more, but might choose to work a lot less hours than we expect today.

That's not really how things work. John Maynard Keynes wrote about how in the future everyone would only work a few days a week because the productivity explosion from new technologies would make everyone so wealthy they would not need to work as much. But it never happened. Keynes was wrong about a lot of things in general.

"In a short essay published in 1930, the world’s most important economist, John Maynard Keynes, predicted that within 100 years, most people would be working no more than 15 hours a week.

He believed the standard of life for most people would be four to eight times better for us all by 2030, and that for the majority, working would be optional.

“At that point,” Keynes wrote, “everybody will need to do some work if he is to be contented … a 15-hour week may put off the problem for a great while. For three hours a day is quite enough to satisfy the old Adam in most of us.”

Long before Keynes economists like David Riccardo and Henry George and John Stuart Mill wrote about how "economic rent" absorbs a large portion of the productivity gains of society. i.e. land prices will benefit the most from the rising productivity of society and keep rising so that people will continue having to work long hours just to put a roof over their heads.

What Is Economic Rent? - Fat Tail Daily

In today's Land Cycle Investor, I respond to a reader's question about economic rent.

daily.fattail.com.au

 

[Smurf1976]

imagine the squeals of despair if they had to pay 10% on a HOUSE mortgage nowdays

The difference back then is the house or land was far cheaper, relative to income, than it is today meanwhile incomes were rapidly rising thus eroding the real value of the debt.

 

[Value Collector]

That's not really how things work. John Maynard Keynes wrote about how in the future everyone would only work a few days a week because the productivity explosion from new technologies would make everyone so wealthy they would not need to work as much. But it never happened. Keynes was wrong about a lot of things in general.

"In a short essay published in 1930, the world’s most important economist, John Maynard Keynes, predicted that within 100 years, most people would be working no more than 15 hours a week.

He believed the standard of life for most people would be four to eight times better for us all by 2030, and that for the majority, working would be optional.

“At that point,” Keynes wrote, “everybody will need to do some work if he is to be contented … a 15-hour week may put off the problem for a great while. For three hours a day is quite enough to satisfy the old Adam in most of us.”

Long before Keynes economists like David Riccardo and Henry George and John Stuart Mill wrote about how "economic rent" absorbs a large portion of the productivity gains of society. i.e. land prices will benefit the most from the rising productivity of society and keep rising so that people will continue having to work long hours just to put a roof over their heads.

What Is Economic Rent? - Fat Tail Daily

In today's Land Cycle Investor, I respond to a reader's question about economic rent.

daily.fattail.com.au

I think robots could make Keynes prediction come true.

Up until this point he had been right, in the fact that productivity has exploded, where he was wrong is that society has just decided to keep working 40 hours and redeploy the labour in areas of productivity that didn’t really exist before just consume the extra productivity,

But at a certain point robots (and automation) will take so much of the labour and new industries and our ability to consume might top out, and Keynes prediction will come true.

 

[over9k]

It's a simple question of price over earnings guys. Ever heard the phrase "time is money"? Well, the inverse is true too. Money is time. When you bid on a house, you're not bidding money, you're bidding 25 years of your time (so to speak). So if you halve interest rates, people can borrow twice as much money, and therefore bid twice as much. The amount of money you're bidding is increased but the amount of time of your life it's costing you is exactly the same. If we doubled interest rates, the house you can buy would not change, it would just cost half the amount of money.

You can see this in stocks where low rates pump markets because if a stock yielded 10% at $100 with a $10 dividend and you dumped interest rates down to 5% then markets will borrow at 5%, buy the stock, and skim the extra 5 for free. Now nobody's going to ignore free money so what happens is the stock price is bid up to $200 to bring rates and yields back into equilibrium with a $10 dividend getting you to that 5% on a $200 stock price.

Housing is expensive because of the amount of time you're having to pay for one, not the actual price per se. And that is a function of supply/demand, not interest rates.

The one big difference a doubling rates would do in bringing down prices is enable people to save a deposit far sooner as the deposit would only need to be half as much and your savings would be yielding twice as much interest as well. I'd have to go and run the sums but you'd probably be able to get a deposit together in about a third of the time, and would therefore only spend 1/3rd of the time being bled dry renting or whatever.

 

[over9k]

Oh and in case anyone's wondering, that whole "a deposit takes longer to save so you're stuck renting longer" bit is not a bug, it's a feature

 

[over9k]

Its an extremely flawed comparison, its comparing oranges and apples.

View attachment 185818

You'll notice that the trend was broken in 1999, right when howard & co halved the capital gains tax rate. This is not a coincidence.

 

[Smurf1976]

You'll notice that the trend was broken in 1999, right when howard & co halved the capital gains tax rate.

As someone who was paying close attention at the time, I recall it somewhat differently.

Two things happened followed by two more:

1. The First Home Owners Grant

2. A sentiment shift in bank advertising which had previously focused almost entirely on strategies to pay of your mortgage faster. Now, all of a sudden they were actively pushing loans without even requiring a 20% deposit. The entire sentiment shifted from finding a house then seeking approval from the bank to simply "how much can I borrow?".

Then came the next two:

A. Real estate became a prime focus of the mainstream media. Practical "how to DIY this project" TV programs had previously existed but typically aired at midday on a weekend or some other obscure time hosted by an actual tradie showing how to do this or that and giving details of what timber, what size bolts and so on to use. The idea that home renovation would be considered prime time entertainment was a new concept and took off in a big way.

Meanwhile print media, and a majority of people still read newspapers at the time, jumped on the bandwagon with editorial content extolling the virtues of real estate. Plus in Tasmania at least (not sure about other states) the printed "Real Estate Guide" became a very dominant feature of the Friday paper - the whole thing was printed in full colour on gloss paper at no doubt very considerable expense. That hugely fuelled "property pr0n" - even people not in the market tended to look at it at least casually.

B. Universities stopped being about educating people who wanted to enter a particular profession and shifted focus to aggressively chasing students, both foreign and domestic, with the idea that everyone ought have a degree. That added to immigration (actual foreign students).

Meanwhile in the background everything surrounding the trades was slowly but surely being destroyed. The whole thing - TAFE, the public utilities, the various in-house workshops and depots within government, the entire manufacturing industry, etc, all actively being run into the ground and much was already stuffed at that point. What that did was ensure a future shortage of tradespeople, since the bulk of training was always done by government utilities etc plus the manufacturing sector, and combined with the efforts of the universities discouraged many from even trying to enter a trade.

I'll acknowledge the CGT change may also have had an effect but it wasn't the only issue that drove a sentiment shift at that point. FHOG in particular set the market on fire and the rest followed.

My personal view is the only thing that'll fix it is a broad paradigm shift. It's not one individual thing, it's a broad shift that's needed back towards production and back towards competency being seen as critical in all fields with politics there to be the gatekeeper not the originator.

 

[over9k]

Didn't hot property, the block etc only appear after housing went bonkers and everyone thought they'd gotten rich?

B is absolutely a problem but I'd have to go and look at the data to determine when foreign student numbers really took off. I know regular immigration took off right around the same time:

 

[qldfrog]

As someone who was paying close attention at the time, I recall it somewhat differently.

Two things happened followed by two more:

1. The First Home Owners Grant

2. A sentiment shift in bank advertising which had previously focused almost entirely on strategies to pay of your mortgage faster. Now, all of a sudden they were actively pushing loans without even requiring a 20% deposit. The entire sentiment shifted from finding a house then seeking approval from the bank to simply "how much can I borrow?".

Then came the next two:

A. Real estate became a prime focus of the mainstream media. Practical "how to DIY this project" TV programs had previously existed but typically aired at midday on a weekend or some other obscure time hosted by an actual tradie showing how to do this or that and giving details of what timber, what size bolts and so on to use. The idea that home renovation would be considered prime time entertainment was a new concept and took off in a big way.

Meanwhile print media, and a majority of people still read newspapers at the time, jumped on the bandwagon with editorial content extolling the virtues of real estate. Plus in Tasmania at least (not sure about other states) the printed "Real Estate Guide" became a very dominant feature of the Friday paper - the whole thing was printed in full colour on gloss paper at no doubt very considerable expense. That hugely fuelled "property pr0n" - even people not in the market tended to look at it at least casually.

B. Universities stopped being about educating people who wanted to enter a particular profession and shifted focus to aggressively chasing students, both foreign and domestic, with the idea that everyone ought have a degree. That added to immigration (actual foreign students).

Meanwhile in the background everything surrounding the trades was slowly but surely being destroyed. The whole thing - TAFE, the public utilities, the various in-house workshops and depots within government, the entire manufacturing industry, etc, all actively being run into the ground and much was already stuffed at that point. What that did was ensure a future shortage of tradespeople, since the bulk of training was always done by government utilities etc plus the manufacturing sector, and combined with the efforts of the universities discouraged many from even trying to enter a trade.

I'll acknowledge the CGT change may also have had an effect but it wasn't the only issue that drove a sentiment shift at that point. FHOG in particular set the market on fire and the rest followed.

My personal view is the only thing that'll fix it is a broad paradigm shift. It's not one individual thing, it's a broad shift that's needed back towards production and back towards competency being seen as critical in all fields with politics there to be the gatekeeper not the originator.

And let's not forget the internet Making mainstream Real estate web presentation.
Was in its infancy but as buyers, we suddenly were able to see more than a couple of houses per weekend, going thru pages after pages of nice pictures..and priming envy and desire for ensuite, more tuscan looks and columns ,getting more than we even though possible
And the fact that now, maybe we can afford this nicely pictured house with pool etc.
At the same time, aussie home loans introduced competition in hl rates and cutting their rates even while rba was constant..
And rates were getting slashed, now 8 , 8.5% after the crazy recession rates.
We could buy on 8% loan, houses which were sold 6 y before at same or higher prices..with 20% hl rates
I know as i was a new kid on the block then .
Cgt taxation was not even considered.
Units in miltton along the Brisbane river were offered at 100k..tell them they are dreaming..units, who would live in own unit in 2000...