The future of Australian property prices

[againsthegrain]

60k @ 18%
500k @ 5%

Think the 60k looks better from whatever way you look at it. All the same arguments as usual baby boomers trying to tell the young generation how hard they had, numbers and % can be span both ways, but in the end it is just not possible to pay off a house or save for a house like it was in the baby boomer generation.

The quality of housing has dramatically decreased too, you get a few more gadgets that fall apart after a few years, walls crack and rendering washes away with the rain. The warranty is as good as the oroginal build quality so dont expect much there.

But the pyramid scheme goes on, thats fair enough money is to be made but pyramids are not infinite, the younger generation is either becomming more switched on like mrmagoo or simply priced out. Now its all down to the chinese investors, socially this is heading toward trouble.

China has the worst ratio of rich vs very poor, most of the rich got there by corruption and exploitation. Their country is destroyed now they are looking for a clean fresh start.

For people who pump chemicals into drinking water exploit their fellow man into 24/7 labour they are those investors comming here along with that mentality.

Sure jobs and infrastructure will be created by their money but it looks like the new generation might be slowly sold off to our new overlords and as cheap local labour and renters for life.

The govt and the baby boomer genetation are quiet happy to close their eyes because they are set up, retirement around the corner and 20 years of cheap thai holidays left is all they need.

Im not ranting, I have close to 200k in the bank but continue to rent, paying 500k for a little shack to make somebody 200% is not my aussie dream.

Soon Australia will not be such a paradise to live in like all the investors claim, social divides just keep getting greater and will be interesting to see where it goes.

Altho it is very hard to see a crash it also is risky to be buying a house to live in at the current market

We all just might have to start learning mandarin and forget free Saturdays to keep the precious housing going

Ps This is what i saw today when going for a walk, like said the divides are starting to show

 

[Value Collector]

That is a personal attack and I would appreciate it if you kept those out of the discussion.

You make a lot of assumptions in your analysis which might not be true. You also do not include expenses if you don't like them. If it were as simple as interest rate vs rent and I could own a home outright by just paying interest on fixed sum, then great.

It's not a personal attack, i actually think that you may not be budgeting correctly, i mean $100k is a lot of income, and to say you cant afford a 1 bedroom flat 1.5hr away from your work seems very weird.

 

[Mrmagoo]

It's not a personal attack, i actually think that you may not be budgeting correctly, i mean $100k is a lot of income, and to say you cant afford a 1 bedroom flat 1.5hr away from your work seems very weird.

Because you're obsessed with property and like most Australians don't understand the concept of value for money, buying property, any old property for any old price is not always a good idea...

I'm not paying 400k for something used to be cheaper than a car.

 

[Mrmagoo]

I think $5000 / year is a gross over exaggeration, especially if your factoring in an amount for major renovation and body corp which covers a lot of the maintenance, but even so, there is still a lot in the owners budget left for that.

I worked at Bunning's for 7 years, people spend a fortune on their homes.

 

[sydboy007]

I just did some quick calculations,

If you Bought a $500,000 house, and paid it off over 25years, your total interest bill would be $394,600

If you rented that house and paid $550 / week ( and never had a rental increase ), your rent would be $715,000

You seem to be basing your interest assumptions on historically low interest rates. If they average say 6.5% (my experience was closer to 7%) then the interest paid jumps to 512K over 25 years.

Before I bought my property I was sharing in a large house. My rent was just $540 / w and I was living walking distance to work. After buying the house the mortgage repayments were ~950 / month and closer to $1100 when holding costs were factored in.

If you read my previous comments from last night you'll see that 500K is not affordable by most households. 70% of households make less at 1663 / week or 86.5K a year. a 500K mortgage at 6.5% would take at least 19% of gross household income at the start of the 7th income decile, and 61% of the median household annual income of 53K.

Mortgage interest may not compound, but most of the money you are repaying each month goes to cover interest for the first 10 years. Households move on average each 7-10 years. Moving house will likely steal $30-40K from you in selling / SD / moving costs.

Lets say you're a couple each bringing in the median income of $94K a year - beating over 70% of households. You're willing to go on struggle street and pay up to 4 times income for a 2 BR apartment. So you've got up to 400K price limit.

You can't afford to get a 2 BR apartment in parramatta so decide to look at the surrounding suburbs, even though that's likely to mean increased travel times to work - no express trains and less services per hour. Old style unrenovated apartments are selling from $330K with newer ones from $360k, so you decide you don't have the time to go through a reno so go for something liveable at $360K. You wack down a 50K deposit, and since you're first home buyers only need to handover $321 in SD to the Govt.

Monthly repayments are $2K a month at 6%. Strata & Water add another $220 / month to your costs. 28% of gross income is required. Borderline for mortgage stress.

A comparable rental property will cost you $1500 a month. You have $720 / month to invest.

Possibly the property owner wins out due to gearing, but factoring in risk and the high level of income devoted to the mortgage, I'm not sure I'd be willing to go through that kind of risk and stress. Certainly will put a lot of strain on the relationship in the early years.

As a renter you have easier flexibility to move should your work require it, though you're also at the whim of landlords raising the rent or selling and asking you to move out, but then as a home owner you face the same when the RBA does interest rate rises.

If you've got the ability to save for a number of years for a house deposit, then you've got the ability to invest over the long term. The equity mate adds from a decade ago show that people are just as easily tempted to use their house as an ATM as they are their other investments.

 

[Julia]

...... the average punter doesn't make the best share market investor, and the average punter probably would have freaked and sold during the gfc,

If you sold near the start of the GFC, took advantage of reasonably good deposit rates until a market uptrend recurred, then bought back in, you'd have done much better than holding throughout. The market is still some distance from regaining the pre-GFC high.

Because you're obsessed with property and like most Australians don't understand the concept of value for money, buying property, any old property for any old price is not always a good idea...

I'm not paying 400k for something used to be cheaper than a car.

Is that logical? Prices are driven by sentiment, supply and demand, rather than actual value.
Your rejecting the 'value' the market is putting on prices won't alter what is.

I worked at Bunning's for 7 years, people spend a fortune on their homes.

Again with the generalisations. Some people do constantly make changes. That's discretionary. Normal maintenance, unless you buy some very rundown shack, won't be $5000 p.a.

FWIW my total outgoings including rates, electricity, water, home & contents insurance, private health insurance, car insurance, rego, phone and internet, maintenance of house, pool and garden run out at around $15,000. Food, clothing, social stuff, vet bills in addition. Renting a similar property would be about $25,000, and you'd still have the electricity, insurance, rego on top.

Goes to sptrawler's point about the situation when the mortgage is no longer a factor versus ever increasing rents.

 

[Value Collector]

Because you're obsessed with property and like most Australians don't understand the concept of value for money, buying property, any old property for any old price is not always a good idea...

I understand value quite well, it's my life's work.

And i am not obsessed with property, i have more invested in the stock market than i do property.

I'm not paying 400k for something used to be cheaper than a car.

Don't really get how that is relevant.

 

[Value Collector]

Sydboy

There is a correlation between interest rates and inflation, if you want to factor in higher interest rates, then you should probably factor in a larger capital gain which would offset it.

As I said i think the fact your basing your calculations on what happens in the earlier years vs the over all long term picture your getting a false picture of property ownership being expensive.

 

[Value Collector]

Julia, i dont think the average punter can be expected to time the market that well, they would probably sell to late after the fall, and not buy back in, then buy gold at the top and sit in it as it fell, double whammy.

Its a mathematical impossibility for the majority to sell out at a high and buy in at a low.

 

[sydboy007]

Just had a pensioner putting some Alexandria Residents Action Group flyers in mailboxes have a yack to me on the way home from the super market. He was warning me about how the Government is looking to redevelop the land and air corridor from the Golburn St car park just past central station out to near MacDonaldtown station.

Most of the unused land is for the old eveleigh rail yards and encompasses the technology park. Potential floor space double the Branangaroo redevelopment. He was telling me they want 40,000 people living there, with buildings up to 18 stories high. He was concerned how this was going to impact the area. The he jump[ed in about the Ashmore precinct development that's going to bring in another 8000 people into the area. I hadn't heard of it before so did a quick google and it seems they're planning for just 6000 people in 17 hectares of land. 352 / hectare is terribly high density in my way of thinking.

I asked him what he was concerned about, and he mentioned lack of parking. I asked him is he concerned about affordable housing and he said he was. So i asked him with the affordability issues in Sydney isn't this the kind of development we need where it's close to transport and making a lot better use of land that is pretty much sitting vacant at present. He said they shouldn't be forcing so many people into the area, it's not fair on those living here already. I asked him where should they build new houses then. By this time he could see I wasn't automatically going to be part of Team Alexandria and walked away.

It's this attitude of restricting building any further out of the city combined with no more people in my area that really ****$ me off.

 

[Value Collector]

On that we can agree Sydboy,

I am all for increased density, especially along the rail lines, you should have seen the nimby's protesting when the state government pressured north shore councils to allow apartment s along the pacific highway between chatswood and Hornsby, but it was very much needed.

This sort of infill development should not be stopped by some squeaky wheels.

 

[Mrmagoo]

I understand value quite well, it's my life's work.

And i am not obsessed with property, i have more invested in the stock market than i do property.



Don't really get how that is relevant.

No your attitude is just to buy any old place because you can afford it, which to live in is probably okay if you don't care about money. The problem is that you also think that if you wait 2 yeas to buy for life reasons that having to pay another 300k for the identical thing is perfectly okay. The get in now or be in a huge amount of debt later on mentality is really ****.

 

[Value Collector]

No your attitude is just to buy any old place because you can afford it, which to live in is probably okay if you don't care about money.

I don't get what you mean by that sentence, one of the reasons I prefer to own my own home is because i do care about money.

The problem is that you also think that if you wait 2 yeas to buy for life reasons that having to pay another 300k for the identical thing is perfectly okay. The get in now or be in a huge amount of debt later on mentality is really ****.

Prices on everything changes, the market doesn't wait for mr magoo,

You don't have to buy, i don't really care if you do or not, just don't say that renting is cheaper long term because its not, and don't say there is no way you could by, because i rekon with a proper budget you could.

 

[Mrmagoo]

I don't get what you mean by that sentence, one of the reasons I prefer to own my own home is because i do care about money.



Prices on everything changes, the market doesn't wait for mr magoo,

You don't have to buy, i don't really care if you do or not, just don't say that renting is cheaper long term because its not, and don't say there is no way you could by, because i rekon with a proper budget you could.

Gawd I don't care about you at all. I'm simply making the statement that housing is unaffordable and to buy one now to make money is just stupid.

You don't know if renting will or won't be cheaper in 25 years.

 

[Smurf1976]

I think $5000 / year is a gross over exaggeration, especially if your factoring in an amount for major renovation and body corp which covers a lot of the maintenance, but even so, there is still a lot in the owners budget left for that.

Maintenance isn't expensive if done sensibly. I bought this house nearly 7 years ago, required maintenance thus far:

About $2000 to fix known problems before moving in, main one being new oven etc needed and also a few electrical issues.

Since moving in:

Painted exterior timber. Back door etc and also varnished the timber step. Spend $100 or so on paint and varnish, and have plenty left for next time.

Hot water system sprang a leak late 2009. $2650 for new heat pump system including plumbing work. DIY electrical (yes I'm licensed to do so).

Outdoor tap at rear needed new washer. Replaced washer. A couple of $.

Two sensor lights outside have failed. $80 for parts.

Tap came loose in bathroom. A few minutes tinkering with a spanner fixed it. No cost.

Rats moved into the roof space. Whilst I'm not keen on poisons in principle, I couldn't find any other way to get rid of them unfortunately. A few $ for a box of rat poison.

Clothes dryer seems to be developing a fault, suspect it's the motor start capacitor. Will investigate and just buy a new capacitor it needed. A few $, nothing major.

A few light bulbs have broken. But landlords don't normally pay for those anyway, so they're a cost whether renting or owning.

All up it seems pretty cheap to me, the key being that I don't go breaking things or replacing them for the sake of it etc as seems to be a reasonably common practice these days. But a real benefit of owning is that if the tap breaks then I fix the tap, no waiting 6 months and having to make threats in order to get some cheap skate landlord to pay up and get it fixed.

Overall, I've spent money on improvements but very little has needed doing in terms of repairs or maintenance. As long as you're not replacing the entire kitchen every 2 years for the sake of it or knocking holes in the walls, owning is pretty cheap in that regard.

 

[Value Collector]

Gawd I don't care about you at all. I'm simply making the statement that housing is unaffordable and to buy one now to make money is just stupid.

You don't know if renting will or won't be cheaper in 25 years.

I am pretty confident inflation will continue, and i am also confident the population will grow, so it would seem silly to bet against that, but its your choice, time will tell.

 

[Value Collector]

Maintenance isn't expensive if done sensibly. I bought this house nearly 7 years ago, required maintenance thus far:

About $2000 to fix known problems before moving in, main one being new oven etc needed and also a few electrical issues.

Since moving in:

Painted exterior timber. Back door etc and also varnished the timber step. Spend $100 or so on paint and varnish, and have plenty left for next time.

Hot water system sprang a leak late 2009. $2650 for new heat pump system including plumbing work. DIY electrical (yes I'm licensed to do so).

Outdoor tap at rear needed new washer. Replaced washer. A couple of $.

Two sensor lights outside have failed. $80 for parts.

Tap came loose in bathroom. A few minutes tinkering with a spanner fixed it. No cost.

Rats moved into the roof space. Whilst I'm not keen on poisons in principle, I couldn't find any other way to get rid of them unfortunately. A few $ for a box of rat poison.

Clothes dryer seems to be developing a fault, suspect it's the motor start capacitor. Will investigate and just buy a new capacitor it needed. A few $, nothing major.

A few light bulbs have broken. But landlords don't normally pay for those anyway, so they're a cost whether renting or owning.

All up it seems pretty cheap to me, the key being that I don't go breaking things or replacing them for the sake of it etc as seems to be a reasonably common practice these days. But a real benefit of owning is that if the tap breaks then I fix the tap, no waiting 6 months and having to make threats in order to get some cheap skate landlord to pay up and get it fixed.

Overall, I've spent money on improvements but very little has needed doing in terms of repairs or maintenance. As long as you're not replacing the entire kitchen every 2 years for the sake of it or knocking holes in the walls, owning is pretty cheap in that regard.

+1 thats been my experience also, if I had to spend $5000 across all three of my rental properties in a year, that would be an unusual year.

 

[Julia]

Julia, i dont think the average punter can be expected to time the market that well, they would probably sell to late after the fall,

Well, that just goes to the lack of financial and market literacy across the general population.
Any half savvy investor/trader with minimal understanding of trends could have done it.
I'm not saying it's possible to exactly pick tops and bottoms, but it was absolutely possible, especially with an understanding of the global situation pre actual GFC, to exit with minimal giving back of profits, and ditto on the way back up. Given that the market lost around 50%, even with very inexact timing it was possible to liquidate shares and use those funds to buy many more of the same when the uptrend returned, obviously also in the process increasing grossed up yield from the greater number of shares.

Its a mathematical impossibility for the majority to sell out at a high and buy in at a low.

But this whole thread is essentially about not being part of 'the majority'. You have set yourself outside the average in your peer group by identifying opportunities and taking them up and I absolutely congratulate you for that as well as for your sensibly positive attitude.
Surely doing the same thing within the share market is no different?

 

[Mrmagoo]

In 25 years time Australia will resemble Poland 15 years ago.

 

[Value Collector]

Well, that just goes to the lack of financial and market literacy across the general population.
Any half savvy investor/trader with minimal understanding of trends could have done it.
I'm not saying it's possible to exactly pick tops and bottoms, but it was absolutely possible, especially with an understanding of the global situation pre actual GFC, to exit with minimal giving back of profits, and ditto on the way back up. Given that the market lost around 50%, even with very inexact timing it was possible to liquidate shares and use those funds to buy many more of the same when the uptrend returned, obviously also in the process increasing grossed up yield from the greater number of shares.


But this whole thread is essentially about not being part of 'the majority'. You have set yourself outside the average in your peer group by identifying opportunities and taking them up and I absolutely congratulate you for that as well as for your sensibly positive attitude.
Surely doing the same thing within the share market is no different?

Yes, it sure is possible to outperform the market, but when I say the average guy can't, I am not talking about any individual person, I mean the mathematical average person, can not out perform the market. Because who would be there to buy at the high if the consensus average were all selling, and who would be there to sell at the low when the consensus average were buying.

Financial literacy would probably cause the highs to be lower and the lows to be higher, but it's also takes emotional stability, lots of people make the wrong choices out of fear or greed.

Only a small percentage of people have the emotional stability, focus, knowledge and skill it takes to out perform, everyone else that tries will probably fail, and give up their return to the ones that have those things. The average guy doesn't have those attributes, so is at a high risk of failing and under performing if he tries to outperform.

If the average guy focused on spending less than he earns, buying his own home and investing his savings in an asx and global index fund, and ignoring the media he will get a good average return, the rest of us can try and out perform, some of us will succeed at the expense of those that tried but failed.

You have set yourself outside the average in your peer group by identifying opportunities and taking them up and I absolutely congratulate you for that as well as for your sensibly positive attitude

Thanks, I do think you have to have a sanguine attitude when it comes to being an investor, i don't mean walk around with rose coloured glasses, but you have to be able to see the opportunities that are always there, and if your as negative as mr magoo, you won't find anything.