The future of Australian property prices

satanoperca said:

Firstly, the govnuts shouldn't be guaranteeing private institutions, it is fool hardy at best. Ireland comes to mind to some degree. Banks are responsible to their shareholders, govnuts should not get involved.
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The government guarantees depositors only, the banks shareholders, bond holders and other debtors will all have their capital wiped out before the government pays anything to depositors.

So when you are looking at the capital structure of a bank, the depositors sit at the very top, every one else loses 100% before they lose a cent, plus the government kicks in a guarantee.

So it's as close to risk free as possible, So if inflation didn't exist, how much should they be entitled to earn? given that you are going to have to pay bond holders and other debt holders more because they are taking a larger risk and locking up funds for fixed terms, you kind of have to start by paying the depositors very little.

Also, any over payment to savers, is just taking away from the equity holders, who are the first to lose because they have the riskiest position, equity holders have neither a guarantee on capital or income.

So to answer you question, a reasonable rate of return after tax and say 50% above inflation.

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whats the reasonable rate of return after tax? lets just say inflation doesn't exist, how much should they get.

But I ask you this, if the govnuts didn't offer the guarantee, what value would the banks place on deposits and what return would savers demand knowing that they money is not 90% safe? Currently it is not even 70% safe with the guarantee. Or even better, would people become more astute with their savings and look for opportunities that could grow their savings other than mostly non productive pursuits like property. Like innovation and creativity

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Deposits are very safe even without the guarantee, but yes without the guarantee the strongest institutions would get the most deposits, but the rate that is available to pay those deposits still have to be much less than the multitude of other securities that sit lower in line for payment.

I don't get how you can say they are 70% safe, the deposits are mostly secured by the banks borrowers ability to earn, then real assets eg houses, farms, factories etc which on average have quite low LVR, then the deposits have the banks capital, if that fails, they sit ahead of the banks bond holders and other debtors.

People should be looking for other opportunities to grow their money if that what their goal is, bank deposits are for safe storage of cash, with a bit of inflation hedging.

Value Collector said:

plus the government kicks in a guarantee.

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But not a 100% guarantee for savings under $250K.

Value Collector said:

plus the government kicks in a guarantee.

Deposits are very safe even without the guarantee.

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Not true and if it was, why the govnuts off it, maybe a bank run. Hence they are not 100% safe

Value Collector said:

I don't get how you can say they are 70% safe.

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The govnuts have allocated $20B to each institution if I am correct, this does not cover 100% of all deposits under $250k. The larger banks I believe you will be lucky to see 50 cents in the dollar.

I will maintain, that all banks would have to offer high IR's than just over inflation if there was not bank guarantee as the public just don't trust the bastards.

Anyway, my disgust is not with the IR rates for savers, but how Australia has downed themselves in debt on the belief that property is the sole source of prosperity.

We have become a dumb and boring country with low aspirations to the achieve. F---k we have holes and houses, don't need to think past that.

satanoperca said:

The govnuts have allocated $20B to each institution if I am correct, this does not cover 100% of all deposits under $250k. The larger banks I believe you will be lucky to see 50 cents in the dollar.
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That would be $20Billion on top of the physical assets backing the banks loans, on top of the banks own equity, and on top of the borrowers ability to repay loans, and on top of the capital that bondholders have injected.

That's an extremely safe position.

Value Collector said:

That would be $20Billion on top of the physical assets backing the banks loans, on top of the banks own equity, and on top of the borrowers ability to repay loans, and on top of the capital that bondholders have injected.

That's an extremely safe position.

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Again, if that is all true, why did the govnuts need to put the taxpayers on the line. Bank run, they don't have your cash that you deposited, so the depositor wants also a return higher than inflation.

James Packer's Macau casino company, Melco Crown, has been hit by yet another slump in gaming revenues at the world's largest gambling hub due to the impact of a corruption crackdown and slower growth in China's economy.

Macau's gross gaming revenue in May fell by 37.1 per cent to 20.35 billion patacas ($3.33 billion) from 32.3 billion patacas a year earlier, although the steep fall was slightly ahead of Bloomberg consensus, which forecast a 38.5 per cent drop.

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http://www.smh.com.au/business/melc...pressure-on-james-packer-20150602-ghesqc.html

If the corruption crackdown in China is enough to affect a casino's revenue, would it be enough to affect property prices here?

satanoperca said:

Again, if that is all true, why did the govnuts need to put the taxpayers on the line. Bank run, they don't have your cash that you deposited, so the depositor wants also a return higher than inflation.

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Central banks have levers to pull to halt bank runs.

The depositor may want a return above inflation, Hell I wish I could get 20% on my at call, government guaranteed, senior cash deposits, but I would not be entitled to it.

the fact is banks deposits are almost risk less when you factor in their senior position in the banks capital structure, the central bank support, and finally they government guarantee. Any return more than a token above the inflation rate is unearned income and comes at the expense of others in the system that are taking real risks of loss of principle and income.

My point is, don't feel sorry for "savers", they are not entitled to larger earnings unless they put some of their cash at risk lower down they capital structure.

Value Collector said:

Central banks have levers to pull to halt bank runs.

The depositor may want a return above inflation, Hell I wish I could get 20% on my at call, government guaranteed, senior cash deposits, but I would not be entitled to it.

the fact is banks deposits are almost risk less when you factor in their senior position in the banks capital structure, the central bank support, and finally they government guarantee. Any return more than a token above the inflation rate is unearned income and comes at the expense of others in the system that are taking real risks of loss of principle and income.

My point is, don't feel sorry for "savers", they are not entitled to larger earnings unless they put some of their cash at risk lower down they capital structure.

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Property infestors get the greatest unearned incomes of them all ! Not only that but they do it at the expensive of others: housing stress, rental stress, general homelessness and renters for life. They are the very definition of self entitlement.

http://www.forbes.com/fdc/welcome_mjx.shtml

You can easily buy a one bedroom apartment near central Berlin (by our ridiculous standards) for 100k euro, monthly rent would be about 500.

An entire different world.

Imagine if Australia had such cheap housing... we would be able to put money into investments and ingenuity. With our mining boom who knows where we would be now.

The difference is rich old men who only ever held blue collar jobs would not be super rich like they are now and the hard working kids with engineering degrees would be living it up rather than on struggle street working at a 7/11 because there are no jobs to speak of.

The difference is rich old men who only ever held blue collar jobs would not be super rich like they are now and the hard working kids with engineering degrees would be living it up rather than on struggle street working at a 7/11 because there are no jobs to speak of.

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------1974----Id have written a very similar lament.

There were many Italian/Greek/Polish Migrants who worked their butts off
and were those Blue Collar rich you speak of. Rich beyond our comprehension at the time.

The difference is/was---commitment and passion.
You have it or you don't.

Wonder where you'll be Magoo on 40 yrs time?

tech/a said:

------1974----Id have written a very similar lament.

There were many Italian/Greek/Polish Migrants who worked their butts off
and were those Blue Collar rich you speak of. Rich beyond our comprehension at the time.

The difference is/was---commitment and passion.
You have it or you don't.

Wonder where you'll be Magoo on 40 yrs time?

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In 1974 things changed differently.

The point is going off and getting a blue collar job is not supposed to make you rich. Especially not when someone else who worked smarter and harder is doing worse. That our political system continues to support those who did not work harder (the baby boomers and property infestors ) in retaining and growing undeserved wealth is a disgrace.

People who work hard can't afford a home, while government policy supports those who are already rich to buy more homes to make housing even more unaffordable to workers. It is nuts.

Essentially this is the story of rich old blokes:

1990 union job for 30k a year. Good money. Buys a house in an inner city working class suburb for 60k. Says wow I am struggling to pay this mortgage off gee I worked hard. Gets a redundancy for 25k. Uses it to pay off mortgage. Gets a new job in 1991, pay isn't so great. Wow the recession we had to have really hurt me ! Buys dirt cheap investment property 1993 - pays 30% of income on mortgage for 6 months - WOW STRUGGLE STREET HERE WE COME.

By 1997 property is paying itself off, buys another one which pays for itself. Then comes the early 2000s property booms.

By that stage it is probably still all okay, yeah no worries the guy had a fortunate life - no big deal. The issue starts to arise around 2005-2006 when many young whipper snappers are finding they can't get into the property market - in practical locations. Okay, move further out you say. No big deal.

By 2007 that wasn't practical either. Basic family homes in the burbs went very slyly from 180-250k which is affordable to a family, to 350k to 400k which is not. This happened around the time of the GFC right when everyone lost their high paying jobs.

The rich old guy has a 1.5 million dollar house, one worth 850k and another worth 500k. He can cash out for nearly 2 million despite never really doing much of anything. In his pea sized brain he has worked so hard surviving the recession we had to have and working 50 hours a week ! wow an entire 50 hours !

The real problem is that all of that debt used to make that old bloke rich is in the system, it is all getting put on the credit card, gen y couples are using their hard earned to pay that **** off. The old bloke will be dead before long. The young folk are literally working their asses off, studying hard, going to to uni, even getting trades to fund that rich old bastards life style and it is all on credit card.

You lot are just putting more and more debt onto the private + public credit system because you know future generations will have to pay it off - not you. No one has earned any of it. You earn what you worked for or what your business produces. Not what you can suck out of others through speculative investments.

This is not just a case of working all your life its obvious a fundamental change in how the system works. I know you know that you're just trolling me to get a reaction.

Mrmagoo said:

The difference is rich old men who only ever held blue collar jobs would not be super rich like they are now and the hard working kids with engineering degrees would be living it up rather than on struggle street working at a 7/11 because there are no jobs to speak of.

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Yeah, How dare those those blue collar workers build up some wealth over their life by working hard serving others and then spending less than they earn and investing the difference.

Tech A is right, and I don't think you have what it takes, you are far to pessimistic to build any real wealth, your destined to live in a fog of hopelessness in a world of your own design where everyone is against you.

The point is going off and getting a blue collar job is not supposed to make you rich

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And it doesn't, compounding does, and thats available to all, you should try it.

Value Collector said:

Yeah, How dare those those blue collar workers build up some wealth over their life by working hard serving others and then spending less than they earn and investing the difference.

Tech A is right, and I don't think you have what it takes, you are far to pessimistic to build any real wealth, your destined to live in a fog of hopelessness in a world of your own design where everyone is against you.



And it doesn't, compounding does, and thats available to all, you should try it.

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Because they haven't worked, the system unfairly benefits the old. At the direct expense of the young.

Value Collector said:

And it doesn't, compounding does, and thats available to all, you should try it.

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Not responding to fantasy facts. It if were simply a matter of compounding I would say "good on you".

You'd need to be severely numerically challenged to think recent house price growth is comparable to compound interest. So you're clearly just trolling me.

not sure how similar the NZ and AUS housing markets are, thought Aukland Snd Sydney seem to both be bubblicious, but the findings of teh RBNZ could indicate some serious issues in the medium term for Australia.

No hope of the RBA following:

• Restrict property investment residential mortgage loans in the Auckland region at LVRs of greater than 70 percent to 2 percent of total property investment residential mortgage commitments in Auckland.
• Retain the existing speed limit of 10 percent for other residential mortgage lending, as a proportion of total non-property investment residential mortgage commitments, in the Auckland region at LVRs above 80 percent.
• Increase the speed limit on residential mortgage lending at LVRs above 80 percent outside of Auckland to 15 percent of residential mortgage commitments outside Auckland.

http://www.rbnz.govt.nz/financial_s...olicy/Consultation-Paper-investor-housing.pdf

“Residential property investment loans appear to have relatively low default rates during normal economic circumstances. However, the Reserve Bank has looked at evidence from extreme housing downturns during the GFC, and this clearly indicates that default rates can be higher for investor loans than for owner occupiers in severe downturns. For example, as shown in table 1, forecast loss rates on Irish mortgages were nearly twice as high for investors as for owner-occupiers. Similarly, actual arrears rates were about twice as high for investor loans (29.4 percent) than for owner occupied loans (14.8 percent) as at December 2014. Furthermore, studies which have separately estimated default rates by LVR for investor loans and owner occupier loans suggest that investor loans are substantially riskier at any given LVR. The data shows an estimate of default rate based on current LVR. For example, if a loan was initially written at a 70 percent LVR and then prices fell 30 percent, the loan would appear in the chart below as LTV=100. This would have a mildly increased rate of default compared to a low-LVR loan for an owner occupier. But for an investor, the rate of default would be higher, and would have increased more sharply as a result of a given decline in house prices.”

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Mrmagoo said:

Because they haven't worked, the system unfairly benefits the old. At the direct expense of the young.

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The habits old rich people had when they were young is why they are now old and rich.

Mrmagoo said:

Not responding to fantasy facts. It if were simply a matter of compounding I would say "good on you".

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Wealth generation is all about compounding. Whether your talking about property or shares.

Even just paying off your mortgage you have the benefits of compounding, as the mortgage is paid of faster and faster as the principle gets smaller and smaller generating less interest and a larger priciple reduction each month, its compounding in reverse.

and obviously your second property gets paid of even quicker, because you have the income from the first helping pay it off, and then more so for the 3rd / 4th/ 5th etc.

Compounding.

Mrmagoo said:

You'd need to be severely numerically challenged to think recent house price growth is comparable to compound interest. So you're clearly just trolling me.

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Compounding in the form of population growth etc assists in price movements. But the real wealth generation comes from compounding of the savings you direct into and retain in your investment operation, whether that be property or any other income producing asset class.

Yes, yes nearly any number can be expressed as a series which is very likely to include multiplying one thing by another thing lots of times.

What you're trying to imply is different and is that the last 2 decades of house price growth is due to good ole fashioned slow and steady bank like interest rates compounding to generate wealth for the little old fella saving his pennies. Which is a load of rubbish. It was credit fueled boom from an extraordinarily low base.

If you look at stock price graphs that was probably true till about 1995.

You took a successful economy, with German like levels of affordability (it really was like that house prices even fell) then changed direction and made it credit fueled unaffordable due to corrupt interest groups.

In 1974 things changed differently.

The point is going off and getting a blue collar job is not supposed to make you rich. Especially not when someone else who worked smarter and harder is doing worse.

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Haha wealth is limited to or should be limited to those with a degree!!

Magoo
Who is smarter---those with a degree OR those who employ those with a degree?

Ill back business/street smarts in the big wide scary world over a degree any day.

Wealth generation is all about compounding

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Let me illustrate this with a very true story.
Back when I was 23 in 1977 I worked a mid shift at Chryslers.

There was a Polish guy there I remember his name ---Dem Dresmanis.
He worked on the production line and was well liked. He didn't speak much English.
EVERY Payday there was a guy who'd come around and look for $1 it was as he put it
a compulsory raffle for Dem's wages. It was a tradition and had been going for 6 yrs.

I wondered why he would raffle his wages.
Later I found out that 228 people bought tickets and many multiple tickets.
Even White Collar management.
Dem's wage was $179 and it was common for him to more than double that with his raffle proceeds.

So Dem would go home very happy and someone would basically double his wages as well.
Many lost a $ or 2.

Compounding at its best!

Get out of the Box Magoo there is a whole new EXCITING world out there!

Forget about other influences---look after your own area of influence.

But I think Magoo you'll argue yourself to poverty.

Mrmagoo said:

What you're trying to imply is different and is that the last 2 decades of house price growth is due to good ole fashioned slow and steady bank like interest rates compounding to generate wealth for the little old fella saving his pennies. Which is a load of rubbish. It was credit fueled boom from an extraordinarily low base.



.

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If you look at the people sitting on large property portfolios that are debt free or near to it, they have generally systematically used compounding to build and pay off their portfolio.

If you look at stock price graphs that was probably true till about 1995.

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Compounding has worked for the stock indexes all along and has never stopped, it didn't stop in 1995.

If you want to see compounding, be sure to look at the accumulation indexes though, so you can see the benefits of the retained income.

tech/a said:

Haha wealth is limited to or should be limited to those with a degree!!

Magoo
Who is smarter---those with a degree OR those who employ those with a degree?

Ill back business/street smarts in the big wide scary world over a degree any day.



Let me illustrate this with a very true story.
Back when I was 23 in 1977 I worked a mid shift at Chryslers.

There was a Polish guy there I remember his name ---Dem Dresmanis.
He worked on the production line and was well liked. He didn't speak much English.
EVERY Payday there was a guy who'd come around and look for $1 it was as he put it
a compulsory raffle for Dem's wages. It was a tradition and had been going for 6 yrs.

I wondered why he would raffle his wages.
Later I found out that 228 people bought tickets and many multiple tickets.
Even White Collar management.
Dem's wage was $179 and it was common for him to more than double that with his raffle proceeds.

So Dem would go home very happy and someone would basically double his wages as well.
Many lost a $ or 2.

Compounding at its best!

Get out of the Box Magoo there is a whole new EXCITING world out there!

Forget about other influences---look after your own area of influence.

But I think Magoo you'll argue yourself to poverty.

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You don't understand how the world works you are detached from reality. You won't get a plum union, blue collar job, full time with wages and conditions unless you know someone. Even then it still might not be enough to buy a house.

Many would love to get a factory job, do overtime and get 100k a year plus benefits. Dream job. It aint happening. Not unless you know someone.

You need a white collar job or a trade wage to afford a house. Maybe even two of those incomes. You are 100% living in the past I hate to say.