The future of Australian property prices

[wayneL]

Maybe RBA chief whispering to him about the real future of IR.....

Perhaps he realises he should own nothing and be happy?

 

[over9k]

Maybe RBA chief whispering to him about the real future of IR.....

Doubtful. There's too much debt and too many incoming expenses for them to raise rates.

They'll let inflation run hot, mark my words.

 

[wayneL]

Doubtful. There's too much debt and too many incoming expenses for them to raise rates.

They'll let inflation run hot, mark my words.

I agree. There is no other way to diminished the debt without sparking civil unrest.

Contrary to that are pretty convincing arguments about transitory inflation followed by a deflationary bust.

Probably a similar result for the average schmuck who doesn't know what the hell is going on, though the speed of which may differ.

I guess the defining factor is how much the central Banks can control proceedings?

 

[over9k]

Yeah, that's the thing - let inflation run hot, destroy the purchasing power of wages etc etc and while you might have a recession in real terms, you avoid it on paper.

You can also then just let bracket creep do its thing as your voterbase (retired boomers) no longer care about income tax rates.

Your only hot potato politically is cutting government spending but you can field that pretty easily by going "oh well I know that other thing is important but the healthcare system is the most important" and you're basically fine.


"Elegant" solution don't you think?

 

[sptrawler]

Yeah, that's the thing - let inflation run hot, destroy the purchasing power of wages etc etc and while you might have a recession in real terms, you avoid it on paper.

You can also then just let bracket creep do its thing as your voterbase (retired boomers) no longer care about income tax rates.

The retired boomers will be hurt the most with inflation, most will be relying on the pension and that doesn't move much. The last jump in pension rates, came with the increased retirement age, so from a Government point of view rampant inflation will be good.
The result will be more boomers will have to reverse mortgage to enjoy a reasonable retirement, as most boomers have minimal super, that in turn will reduce the amount of intergenerational wealth transfer which both major parties have been concerned about for quite some time.
It is hard enough to get people to work already, if they inherit properties worth millions, they will all retire early.
It will be either reverse mortgage, or a re introduced inheritance tax IMO.
Then who collects the garbage.

 

[wayneL]

Yeah, that's the thing - let inflation run hot, destroy the purchasing power of wages etc etc and while you might have a recession in real terms, you avoid it on paper.

You can also then just let bracket creep do its thing as your voterbase (retired boomers) no longer care about income tax rates.

Your only hot potato politically is cutting government spending but you can field that pretty easily by going "oh well I know that other thing is important but the healthcare system is the most important" and you're basically fine.


"Elegant" solution don't you think?

Elegent, but cynical.

 

[over9k]

The retired boomers will be hurt the most with inflation, most will be relying on the pension and that doesn't move much. The last jump in pension rates, came with the increased retirement age, so from a Government point of view rampant inflation will be good.
The result will be more boomers will have to reverse mortgage to enjoy a reasonable retirement, as most boomers have minimal super, that in turn will reduce the amount of intergenerational wealth transfer which both major parties have been concerned about for quite some time.
It is hard enough to get people to work already, if they inherit properties worth millions, they will all retire early.
It will be either reverse mortgage, or a re introduced inheritance tax IMO.
Then who collects the garbage.

Depends on which ones obviously, but I know more than one with an IP that's to fund their retirement.

 

[sptrawler]

Depends on which ones obviously, but I know more than one with an IP that's to fund their retirement.

Most people I know are from a blue collar background and none have an IP, most will have to use some of their super to pay off their PPR, some are hoping on an inheritance to get a PPR as their parents are very elderly.

 

[over9k]

Most people I know are from a blue collar background and none have an IP, most will have to use some of their super to pay off their PPR, some are hoping on an inheritance to get a PPR as their parents are very elderly.

Mmm my parents are from opposite ends of society (oddest couple I've ever known but different discussion).

The upper-middle boomers all have at least one, some have 2-3. And a holiday home/shack they can sell if they get really desperate.

That's what my grandparents did - sold the family shack for 5x what they bought it for and spent the money on caravan trips. My grandmother still had 100k of it left when she died a decade after my grandfather did.

 

[gartley]

Doubtful. There's too much debt and too many incoming expenses for them to raise rates.

They'll let inflation run hot, mark my words.

They can only do so much. Ultimately what happens in the long term will be dictated by the global debt markets.

 

[over9k]

They can only do so much. Ultimately what happens in the long term will be dictated by the global debt markets.

This is worth a watch:

 

[sptrawler]

Mmm my parents are from opposite ends of society (oddest couple I've ever known but different discussion).

The upper-middle boomers all have at least one, some have 2-3. And a holiday home/shack they can sell if they get really desperate.

That's what my grandparents did - sold the family shack for 5x what they bought it for and spent the money on caravan trips. My grandmother still had 100k of it left when she died a decade after my grandfather did.

A lot depends on where the family is located, if say for example a family live in the Latrobe Valley and their parents lived and worked there, it is probable that they won't be in the same situation as a family who's origins are in Sydney or Melbourne.
The family house in the Latrobe valley may not have appreciated much, similar to what happens in most country towns which are built around cyclical economic fortunes or a dying industry.
That is where drawing a conclusion, built on the most fortunate circumstances, seldom is reflective of the population as a whole.
Some families who have lived for generations in the goldfields, have seen their wealth, rise and fall numerous times, as with most mining and farming communities.

 

[over9k]

I agree. There is no other way to diminished the debt without sparking civil unrest.

Contrary to that are pretty convincing arguments about transitory inflation followed by a deflationary bust.

Probably a similar result for the average schmuck who doesn't know what the hell is going on, though the speed of which may differ.

I guess the defining factor is how much the central Banks can control proceedings?

And here it is, your recession in real terms that is avoided on paper:



If the political opposition weren't so incompetent they'd be able to absolutely crucify them with this kind of stuff. But nope.

 

[gartley]

This is worth a watch:

Thanks. Seen it, don't follow macro guys much but Ray Dalio is simply the best

 

[Gunnerguy]

Mmm my parents are from opposite ends of society (oddest couple I've ever known but different discussion).

The upper-middle boomers all have at least one, some have 2-3. And a holiday home/shack they can sell if they get really desperate.

That's what my grandparents did - sold the family shack for 5x what they bought it for and spent the money on caravan trips. My grandmother still had 100k of it left when she died a decade after my grandfather did.

You lost me there in the second paragraph ..... interpreted as, if I read correctly, ALL middle class boomers have 2 additional properties in addition to their PPR. That’s simply not true, I’m a ‘ middle class boomer’ and I don’t have 2 additional properties to my PPR. For all your contributions and good/strong discussions, your argument goes down in my eyes with that statement when I know it’s incorrect. I don’t have 2 additional properties.
I enjoy reading your contributions and they are very thought provoking, however when ‘facts’ presented are known not to be fact, unfortunately your arguments diminish in their validity, which is a pity as generally they seem reasonable.
Gunnerguy
(please play nicely children, robust and none demeaning discussions are great)

 

[over9k]

You lost me there in the second paragraph ..... interpreted as, if I read correctly, ALL middle class boomers have 2 additional properties in addition to their PPR. That’s simply not true, I’m a ‘ middle class boomer’ and I don’t have 2 additional properties to my PPR. For all your contributions and good/strong discussions, your argument goes down in my eyes with that statement when I know it’s incorrect. I don’t have 2 additional properties.
I enjoy reading your contributions and they are very thought provoking, however when ‘facts’ presented are known not to be fact, unfortunately your arguments diminish in their validity, which is a pity as generally they seem reasonable.
Gunnerguy
(please play nicely children, robust and none demeaning discussions are great)

Please re-read. I said upper-middle. And I don't know a single upper-middle boomer that doesn't have at least one IP. Not one. My parents are currently looking at getting a fourth.


There's also data out there on this kind of stuff, particularly related to negative gearing.

 

[sptrawler]

My parents are currently looking at getting a fourth.

Well IMO if they live in Sydney, as you do, that would make them wealthy not upper middle class.
It would suggest they own their PPR and three investment properties, which would indicate that is at least in the $4m to $5m ballpark with the option to buy a fourth investment property, IMO that could hardly be classed as middle class.
Not many people in country towns, could ever hope to get any where near that asset base, yet they are included in the 'middle class'.
As I keep trying to explain, comparing Sydney/Melbourne property with the rest of Australia isn't comparing apples with apples.

The rich, the comfortable middle and the rest: Australia’s wealth and income ladder revealed

New research compares the upper, middle and lower rungs of wealth and income.

www.smh.com.au

From the article:
The richest tenth of households owns almost half Australia’s private wealth followed by a “comfortable middle" of 30 per cent with 38 per cent, leaving the lowest 60 per cent - who tend to be younger – with 16 per cent of household wealth.

The average net worth of the richest ten per cent reached $4.75 million in 2017-18, underpinned by substantial property assets and a disproportionate share of stocks and business investments. That group owns 46 per cent of household wealth.

The next wealth rung – the comfortable middle – had average household net worth of just under $1.3 million. About half of that group’s wealth is tied up in their own home although investment properties (with a net value of $104,000 on average) and superannuation also make substantial contributions.

The bottom 60 per cent of Australian households had average wealth of $277,000, with owner-occupied housing and superannuation the biggest assets.

The average wealth in households with a reference person aged 65 years and over was $1.38 million - 1.5 times that of younger age groups (with an average of $904,000).

Income is more equally distributed than wealth. The best-paid 20 per cent of households had an average pre-tax income of just under $300,000 a year, the middle 20 per cent $116,000, and the bottom 20 per cent $41,000.

 

[Smurf1976]

You can also then just let bracket creep do its thing as your voterbase (retired boomers) no longer care about income tax rates.

They may not care about income tax rates but they most certainly will care about living costs.

Not so much house prices but definitely things like food, energy, insurances, rates, car rego and so on if those go up then it has a very real impact on anyone not having a high income since they're basically unavoidable expenses without crippling someone's lifestyle.

 

[over9k]

They may not care about income tax rates but they most certainly will care about living costs.

Not so much house prices but definitely things like food, energy, insurances, rates, car rego and so on if those go up then it has a very real impact on anyone not having a high income since they're basically unavoidable expenses without crippling someone's lifestyle.

Interest rates dictate p/e which dictates asset prices and retirees by definition live off of assets.

They'll be fine.

 

[over9k]

Well IMO if they live in Sydney, as you do, that would make them wealthy not upper middle class.
It would suggest they own their PPR and three investment properties, which would indicate that is at least in the $4m to $5m ballpark with the option to buy a fourth investment property, IMO that could hardly be classed as middle class.
Not many people in country towns, could ever hope to get any where near that asset base, yet they are included in the 'middle class'.
As I keep trying to explain, comparing Sydney/Melbourne property with the rest of Australia isn't comparing apples with apples.

The rich, the comfortable middle and the rest: Australia’s wealth and income ladder revealed

New research compares the upper, middle and lower rungs of wealth and income.

www.smh.com.au

From the article:
The richest tenth of households owns almost half Australia’s private wealth followed by a “comfortable middle" of 30 per cent with 38 per cent, leaving the lowest 60 per cent - who tend to be younger – with 16 per cent of household wealth.

The average net worth of the richest ten per cent reached $4.75 million in 2017-18, underpinned by substantial property assets and a disproportionate share of stocks and business investments. That group owns 46 per cent of household wealth.

The next wealth rung – the comfortable middle – had average household net worth of just under $1.3 million. About half of that group’s wealth is tied up in their own home although investment properties (with a net value of $104,000 on average) and superannuation also make substantial contributions.

The bottom 60 per cent of Australian households had average wealth of $277,000, with owner-occupied housing and superannuation the biggest assets.

The average wealth in households with a reference person aged 65 years and over was $1.38 million - 1.5 times that of younger age groups (with an average of $904,000).

Income is more equally distributed than wealth. The best-paid 20 per cent of households had an average pre-tax income of just under $300,000 a year, the middle 20 per cent $116,000, and the bottom 20 per cent $41,000.

Fair point, but I did say upper-middle.

In my mind, upper-middle is anyone in the higher earning professions - engineers, doctors, lawyers, tax accountants, uni prof's, senior public servants etc that are doing well for themselves.

All the ones I know in that group from gen X onwards have at least one IP.