The future of Australian property prices

[Soft Dough]

Keen-o-nomics eh?? The problem with your theory is that the LVR for investment loans doesn't matter that much too investors as they usually get the difference from another loan/LOC against their PPOR or other property where they have plenty of equity.

Cheers,

Beej

Yes, and that their increase in "equity" is linked to morons continuously increasing gearing levels as recent history has shown.

Stagnation in house price increases stangates the ability of investors to expand.

So without that extra leverage coming into the market, it causes price pressure.

 

[Beej]

Yes, and that their increase in "equity" is linked to morons continuously increasing gearing levels as recent history has shown.

Stagnation in house price increases stangates the ability of investors to expand.

So without that extra leverage coming into the market, it causes price pressure.

Perhaps to a small extent yes, but nowhere near the extent suggested by the Keen-o-maths figures satanoperca quoted (where 90-80% LVR requirements reduces available funds by 50%).

Also, only a very small proportion of PIs own more than one PI, the majority are mum and dad investors with a single PI only, so again can't see a great impact there.

If this sort of LVR reduction was being forced across the board on all residential mortgages by all banks, then the Keen-o-maths might carry more weight.

Cheers,

Beej

 

[satanoperca]

Beej,

The figures I showed had nothing to do with Steven Keen, just simple maths, but I do find it interesting that you keep referencing Mr Keen.

No more no less.

I was with my bank manager yesterday, yes, CBA and asked about the change in LVR rates. He confirmed the reduction but also stated quite clearly that the other major change in investment loans is servicablity of the loan regardless of the assets backing it.

You can have $1M of assets and ask for a $200K loan for property but unless you have the income outside any rental income it will no longer be approved. This he stated is a recent change and would not have been the case six months ago.

He also confirmed the recent trend that the number of mortgagees being approved has reduced since last year.

As to your quote that the majority of PI's only have one PI then are you able to provide some statistical evidence of this.

Nearly all the PI's I know have multiple properties.

Cheers

Oh, Kincella you still have not addressed my simple question of why do you believe the RBA has increased rates to fast?

Cheers

 

[Soft Dough]

Perhaps to a small extent yes, but nowhere near the extent suggested by the Keen-o-maths figures satanoperca quoted (where 90-80% LVR requirements reduces available funds by 50%).

Also, only a very small proportion of PIs own more than one PI, the majority are mum and dad investors with a single PI only, so again can't see a great impact there.

If this sort of LVR reduction was being forced across the board on all residential mortgages by all banks, then the Keen-o-maths might carry more weight.

Cheers,

Beej

I agree,

it is just the combination at the moment that excites me.

A very exciting time ahead with elections, vote grabbing, interest rate rises, banks cutting back etc.

Anyone who makes predictions makes them with current knowledge ( eg Steve Keen ) he was just thwarted by Kevin Rudd's vte grabbing, otherwise house prices would have fell and nobody would have been walking.

 

[Bronte]

As to your quote that the majority of PI's only have one PI then are you able to provide some statistical evidence of this.
Nearly all the PI's I know have multiple properties.

This may help sorry the figures are pre boom:
Hopefully, somebody may post some more up to date data...
ABS 1997 Household Investors in Rental Dwellings
Nil. 93.50%
1 4.90%
2 to 4 1.49%
5 to 10 0.10%
11+ 0.01%
From an old 'Property Investment' thread here at ASF:
https://www.aussiestockforums.com/forums/showthread.php?t=5831

 

[kincella]

small business, retailers, the construction industry (not involved in the school building, insulation rorts) are doing it tough out there....it was the toughest since the 80's....they have not recovered....
the cash bonus kept china going with its exports to OZ....
retailers resorted to having 'post xmas type sales'...to keep them afloat in november and december leading up to xmas......some retailers rely soley on their xmas sales each year for the profits.....
some closed up shop, cause those huge mark downs did not save them....others struggled thru xmas and have closed down after xmas...

the hype by all and sundry about the recovery, is in my opinion nonsense.

you will not see some affect come out in the numbers until the March quarter figures are released, and the full affect until the June qtr....figures

the rba was wrong to raise rates so early....based on the hype of Obama calling the green shoots thing... to make matters worse, the rba raised the rates 4 times in 6 months....not once have they waited to see the affect of this.....they may as well have just bombed the small business and retailers...
pounded them into oblivion....
its the same crowd who did the same thing a year earlier.....then they panicked and dropped the rates....
its the foreign money spending up big on inner city housing....together with the upgraders who sold to the fhb's....
all the construction figures are loaded with the school building rorts...
its a W shaped recession.....and it has another year or more to run....
this is my opinion only......like history repeating itself......
the job numbers out this week....again represented those building the schools...the women in retail lost their jobs...
I just take notice around my area....watch the shops close down .....listen to people in business etc.....and its not rosy, nor even green shoots out there....
the kids are still hanging out in Chapel St.....but some of the shops have closed, suddenly in the last few weeks....or they are completely empty...

now to add to the depression out there....the news about the govnuts spending rorts, the mish mash and waste of money, that will have to be paid back.....the elections due this year....
then to top it off....china is curbing its credit and spending...
all the hype in OZ is that China will save us....resources etc.....
but who will save China.....and what if China hiccups.....then its all bets off for us...
so buckel up....hang on for a ride...maybe tighten your belts......
oh, and no more stimulous cash to save us.....the govt debt is hangin over all of us...
I stopped spending in June 07, tightened my belt.....have the rainy day plans in order...so far there is no sunshine on the horizen.....
I sound gloomy now.....but confident it will turn around....and I will be ready for it....

 

[James58209]

OK, so it's just investors pushing the prices up then? First home buyers and government bribes have nothing to do with it?

http://www.keenwalk.com.au/wp-content/uploads/2010/02/IMG0029_613062.PNG

I may have misunderstood that you guys were only talking about LVRs in the context of Investment Loans (as tightened by the CBA recently). I guess I was thinking about what seems like a logical next step - tightening LVRs for first home buyers as well.

The reason why I would come to the defense of people arguing that LVRs are significant is that I find that so often people talk about demand for housing in the context of Supply vs Demand and appear to forget that in economics, demand is a relationship between quantity and price. If you only talk about quantity-related influences of demand (e.g. ageing population, immigration), without considering the availability of credit, then you are missing a critical part of the equation.

A quick Google search reveals a definition of "demand", which does of course make reference to the availability of finance (below). But you don't need an economic definition of demand, to see why consideration of financing is essential. Common sense tells me that without that information, there is no way that arguments about "demand" can be used to justify a price based on Supply vs Demand reasoning.

Definition: Demand is the want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or services.

http://economics.about.com/cs/economicsglossary/g/demand.htm

 

[TOBAB]

small business, retailers, the construction industry (not involved in the school building, insulation rorts) are doing it tough out there....it was the toughest since the 80's....they have not recovered....
the cash bonus kept china going with its exports to OZ....
retailers resorted to having 'post xmas type sales'...to keep them afloat in november and december leading up to xmas......some retailers rely soley on their xmas sales each year for the profits.....
some closed up shop, cause those huge mark downs did not save them....others struggled thru xmas and have closed down after xmas...

the hype by all and sundry about the recovery, is in my opinion nonsense.

you will not see some affect come out in the numbers until the March quarter figures are released, and the full affect until the June qtr....figures

the rba was wrong to raise rates so early....based on the hype of Obama calling the green shoots thing... to make matters worse, the rba raised the rates 4 times in 6 months....not once have they waited to see the affect of this.....they may as well have just bombed the small business and retailers...
pounded them into oblivion....
its the same crowd who did the same thing a year earlier.....then they panicked and dropped the rates....
its the foreign money spending up big on inner city housing....together with the upgraders who sold to the fhb's....
all the construction figures are loaded with the school building rorts...
its a W shaped recession.....and it has another year or more to run....
this is my opinion only......like history repeating itself......
the job numbers out this week....again represented those building the schools...the women in retail lost their jobs...
I just take notice around my area....watch the shops close down .....listen to people in business etc.....and its not rosy, nor even green shoots out there....
the kids are still hanging out in Chapel St.....but some of the shops have closed, suddenly in the last few weeks....or they are completely empty...

now to add to the depression out there....the news about the govnuts spending rorts, the mish mash and waste of money, that will have to be paid back.....the elections due this year....
then to top it off....china is curbing its credit and spending...
all the hype in OZ is that China will save us....resources etc.....
but who will save China.....and what if China hiccups.....then its all bets off for us...
so buckel up....hang on for a ride...maybe tighten your belts......
oh, and no more stimulous cash to save us.....the govt debt is hangin over all of us...
I stopped spending in June 07, tightened my belt.....have the rainy day plans in order...so far there is no sunshine on the horizen.....
I sound gloomy now.....but confident it will turn around....and I will be ready for it....

Gee that's all a bit doom and gloom. I'm from Melb too and have not seen these indicators. Do agree with your China comment though. If China sneeze's will get the swine flu for sure.

 

[satanoperca]

This may help sorry the figures are pre boom:
Hopefully, somebody may post some more up to date data...
ABS 1997 Household Investors in Rental Dwellings
Nil. 93.50%
1 4.90%
2 to 4 1.49%
5 to 10 0.10%
11+ 0.01%
From an old 'Property Investment' thread here at ASF:
https://www.aussiestockforums.com/forums/showthread.php?t=5831

Cheers Bronte, tried to find some more update figures.

Maybe Beej can locate them as he seems to be able to find his way around the ABS well.

I would assume over the last 13 years this figures have changed upwardly somewhat.

Cheers

 

[kincella]

Tobab...Melb is a big place.....have you been looking around your own patch....
Tooraks most popular eatery is empty most days and has been for the year...
think they own the premises...so they will probably hang in there until it recovers...
if the most popular patch is empty...the rest must be having a really hard time

 

[joeyr46]

HI Joey 46,

Most assets are consumed in some shape or form. Very simply the use is accounted for by what is called "depreciation" This is an expense. By defintion a car, boat, furniture, watch are ALL assets. If you consume something within an accounting period (usually a month) it is an expense. A house if never a liability the debt on the house is and the house is collateral.

That really only applies for businesses not your personal home or car. Sure they depreciate but you have to save the difference or borrow the difference when you replace. And yes houses (homes) depreciate but we spend lots of money lavishing new kitchens, bathrooms etc on them but don't count that when we sell, Probably because due to land appreciation and maintenance done the home has kept up with everyone else's houses and the price we sell for bears no resemblance to what we paid so we just accept it without thinking about it.
Yes strict definition says a house (PPOR or otherwise) is an asset but sometimes it pays to think outside the box and not just accept mainstream ideas.
That way we neither feel richer than we are or poorer if the price fluctuates dramatically.It's the same house.

 

[kincella]

joey....I buy old period homes...built in the 1920 era....most have had a small upgrade in the kitchen and bathroom since originally built, but that is about it....
the rest of the house is gorgeous, in original condition...thats the way I like them...
to upgrade costs about $5000 max.....we are not talking huge amounts of money....
the house value will hold its own against all the new stuff....its not just the land value.....its the location ...right in the middle of town...all the newer houses have had to be built on the outskirts of town....

a new roof, some air, electicity overhaul.....no big deal.....
an extension....
stunning garden with mature trees...all add to the value

most modern houses will stand like that, for the test of time.......

 

[Beej]

Tobab...Melb is a big place.....have you been looking around your own patch....
Tooraks most popular eatery is empty most days and has been for the year...
think they own the premises...so they will probably hang in there until it recovers...
if the most popular patch is empty...the rest must be having a really hard time

Must be a Toorak thing! My wife and I recently went to one of most pretentiouos/expensive/popular restaurants in Sydney - Tetsuyas, $300/head (fortunately was given a gift voucher, as I would never pay that when I know dozens of restaurants offering equivalent or better food/service/ambience/experience for half to one third the money). Anyway, to get LUNCH on a weekend we had to book 3 months in advance.......

 

[joeyr46]

joey....I buy old period homes...built in the 1920 era....most have had a small upgrade in the kitchen and bathroom since originally built, but that is about it....
the rest of the house is gorgeous, in original condition...thats the way I like them...
to upgrade costs about $5000 max.....we are not talking huge amounts of money....
the house value will hold its own against all the new stuff....its not just the land value.....its the location ...right in the middle of town...all the newer houses have had to be built on the outskirts of town....

a new roof, some air, electicity overhaul.....no big deal.....
an extension....
stunning garden with mature trees...all add to the value

most modern houses will stand like that, for the test of time.......

A I said land value . Right in the middle of town Always has higher land value and yes original condition if it has been kept in good condition has a definite appeal but many of the features if they need replacing will cost a lot more than $5000 unless or sometimes even if you do the work yourself. However I was talking about how people get emotionally caught up in their house and the cost when they pay to get the work done

 

[Tysonboss1]

HI Joey 46,

By defintion a car, boat, furniture, watch are ALL assets. If you consume something within an accounting period (usually a month) it is an expense.

None of the above items are assets. Unless you are renting them out and getting income from them they are liabilities.

If you own a car, you probally had to fork out thousands of dollars for it, pay insurance, rego and maintance. Now unless you are renting it out, or using it as a taxi to provide you with income then it is a liability.

When people list personal items such as these as assets they are kidding them selves. they are false assets.

Same with the family home, it is not an investment it is a liability. It costs you money.

Now after a few years a family home that you own will be a much cheaper liabilty than a leased home so is still a good idea. But it should not be considered an asset till you sell it.

 

[UBIQUITOUS]

None of the above items are assets. Unless you are renting them out and getting income from them they are liabilities.

If you own a car, you probally had to fork out thousands of dollars for it, pay insurance, rego and maintance. Now unless you are renting it out, or using it as a taxi to provide you with income then it is a liability.

When people list personal items such as these as assets they are kidding them selves. they are false assets.

Same with the family home, it is not an investment it is a liability. It costs you money.

Now after a few years a family home that you own will be a much cheaper liabilty than a leased home so is still a good idea. But it should not be considered an asset till you sell it.

Mate, they are all assets. It's a simple as that. Too many people tend to formulate their own definitions of what an asset is.

The running of them may be an expense but that has no bearing on whether the item is an asset or liability.

Loans on those assets are liabilities.

 

[Soft Dough]

Mate, they are all assets. It's a simple as that. Too many people tend to formulate their own definitions of what an asset is.

The running of them may be an expense but that has no bearing on whether the item is an asset or liability.

Loans on those assets are liabilities.

I agree totally,

Too many people get caught up in accounting conventions, which are good for working out taxation, but are not reflective of the real world. I have seen some good businessmen get some lousy advice from incompetent accountants who cared too much about the books and not the real world.

Sure "liabilities" depreciate, but unless prices grow, everything is depreciating due to inflation.

I consider everything that has a value ( that I can sell ) as an asset, IDC what my stupid accountant thinks. I can still sell my liabilities to pay my expenses or purchase more assets.

For me the most important things are "assets" ROI and cashflow. If my personal vehicle takes me to work to earn a living, it has a purpose, is it a liability? I can sell it, so for me it is clearly an asset. The only thing is that a $15000 car does the same for me as a $150000 car, so I guess that a $15000 car is an asset, and a $150000 car is still worth $150000 cut has an opportunity cost of the ROI on $135000 for me.

 

[UBIQUITOUS]

I agree totally,

Too many people get caught up in accounting conventions, which are good for working out taxation, but are not reflective of the real world. I have seen some good businessmen get some lousy advice from incompetent accountants who cared too much about the books and not the real world.

Sure "liabilities" depreciate, but unless prices grow, everything is depreciating due to inflation.

I consider everything that has a value ( that I can sell ) as an asset, IDC what my stupid accountant thinks. I can still sell my liabilities to pay my expenses or purchase more assets.

For me the most important things are "assets" ROI and cashflow. If my personal vehicle takes me to work to earn a living, it has a purpose, is it a liability? I can sell it, so for me it is clearly an asset. The only thing is that a $15000 car does the same for me as a $150000 car, so I guess that a $15000 car is an asset, and a $150000 car is still worth $150000 cut has an opportunity cost of the ROI on $135000 for me.

You have written that you agree with me and then go onto disagree with that I wrote!!! My definition is the accounting view.

Assets can be ascribed a value. These can be tangible (eg land) or intangible (eg goodwill).

Assets can be depreciated but can also be revalued upwards. The depreciation goes on a separate line on the balance sheet called 'Accumulated depreciation'. The other side is expensed in the Profit and Loss.

Liabilities are NOT depreciated. They are amortized (eg mortgage) and also expensed to the P&L

Just because an item is expensed or has related expenses, doesn't define whether the item is an asset or liability.

It is what it is, and is not subjective.

ps inflation has nothing to do with whether an item is an asset or a liability.

 

[Tysonboss1]

Mate, they are all assets. It's a simple as that. Too many people tend to formulate their own definitions of what an asset is.

The running of them may be an expense but that has no bearing on whether the item is an asset or liability.

Loans on those assets are liabilities.

Assets put money in my pocket and liabilities take money out of my pocket it's as simple as that. If every month somthing is generating a negative cashflow it is a liability. If some day that liability is sold, only then is it an asset.

If I own a house and rent it out it becomes an asset because it is producing income and putting money into my pocket. But if I kick the tenant out and move in myself that same house now becomes a liability because it is not producing any income but it takes money each year out of my pocket.

Money in - asset
money out - liability

 

[Quincy]

Assets put money in my pocket and liabilities take money out of my pocket it's as simple as that. If every month somthing is generating a negative cashflow it is a liability. If some day that liability is sold, only then is it an asset.

If I own a house and rent it out it becomes an asset because it is producing income and putting money into my pocket. But if I kick the tenant out and move in myself that same house now becomes a liability because it is not producing any income but it takes money each year out of my pocket.

Money in - asset
money out - liability

Simplistically stated, assets are things of value that can be readily converted into cash

http://en.wikipedia.org/wiki/Asset